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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
Commission File Number 001-39801
XOMA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
2200 Powell Street, Suite 310, Emeryville, California
(Address of principal executive offices)
52-2154066
(I.R.S. Employer Identification No.)
94608
(Zip Code)
Registrant’s telephone number, including area code: (510) 204-7200
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.0075 par value
8.625% Series A Cumulative, Perpetual Preferred Stock,
par value $0.05
Depositary Shares (each representing 1/1000th interest
in a share of 8.375% Series B Cumulative Perpetual
Preferred Stock, par value $0.05)
Trading Symbol(s)
XOMA
XOMAP
XOMAO
Name of each exchange on which registered
The Nasdaq Global Market
The Nasdaq Global Market
The Nasdaq Global Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES ☐ NO ☒
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). YES ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☒
Accelerated filer
Smaller reporting company
☐
☒
☐
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of the shares of common stock on the
Nasdaq Global Market on June 30, 2021, was $240,018,070.
Number of shares of Registrant’s Common Stock outstanding as of March 3, 2022 was 11,319,124.
Portions of the Registrant’s Definitive Proxy Statement relating to the Company’s 2022 Annual Meeting of Stockholders are incorporated by reference into Part III of this
Report.
Table of Contents
XOMA Corporation
2021 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Glossary of Terms and Abbreviations
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Reserved
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Directors, Executive Officers, and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Item 15.
Item 16.
SIGNATURES
Exhibits and Financial Statement Schedules
Form 10‑K Summary
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This Annual Report on Form 10-K includes trademarks, service marks and trade names owned by us or others. “XOMA,” the
XOMA logo and all other XOMA product and service names are registered or unregistered trademarks of XOMA Corporation or a
subsidiary of XOMA Corporation in the United States and in other selected countries. All trademarks, service marks and trade names
included or incorporated by reference in this annual report are the property of their respective owners.
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GLOSSARY OF TERMS AND ABBREVIATIONS
Abbreviations
Definition
the Company's 2010 Long Term Incentive and Stock Award Plan, as amended
2010 Plan
2018 Common Stock ATM Agreement At The Market Issuance Sales Agreement with HCW dated December 18, 2018
2021 Series B Preferred Stock ATM
Agreement
‘40 Act
ACA
At The Market Issuance Sales Agreement with B. Riley dated August 5, 2021
Affimed
Affitech
Affitech CPPA
Agenus
Agenus RPA
Anti-TGFβ Antibody License
Agreement
Aronora
Aronora RPA
AstraZeneca
ASC
ASC 310
ASC 606
Bayer
Bioasis
Bioasis RPA
BLA
B. Riley
BVF
CCPA
CARES
cGMP
Chiesi
Chiron
Chiron Collaboration Agreement
Compugen
CPPA
CPRA
EMA
ESPP
EU
FCPA
FDA
G&A
GDPR
Gevokizumab License Agreement
HCRP
Investment Company Act of 1940
The Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and
Education Reconciliation Act of 2010
Affimed N.V.
Affitech Research AS
the Company's Commercial Payment Purchase Agreement with Affitech dated October 6, 2021
Agenus, Inc. and certain affiliates
the Company's Royalty Purchase Agreement with Agenus dated September 20, 2018
the Company's License Agreement with Novartis dated September 30, 2015
Aronora, Inc.
the Company's Royalty Purchase Agreement with Aronora dated April 7, 2019
AstraZeneca plc
Accounting Standards Codification
ASC Topic 310, Receivables
ASC Topic 606, Revenue from Contracts with Customers
Bayer Pharma AG
Bioasis Technologies, Inc. and certain affiliates
the Company's Royalty Purchase Agreement with Bioasis dated February 25, 2019
Biologic License Application
B. Riley Securities, Inc.
Biotechnology Value Fund, L.P.
California Consumer Privacy Act of 2018, collectively the Act and its regulations
Coronavirus Aid, Relief, and Economic Security
current Good Manufacturing Processes
Chiesi Farmaceutici S.p.A.
Chiron Corporation
the Company's Collaboration Agreement with Chiron dated February 27, 2004, as amended in
May 2005, July 2008 and September 2015
Compugen Ltd.
Commercial Payment Purchase Agreement
California Privacy Rights Act
European Medicines Agency
2015 Employee Stock Purchase Plan, as amended
European Union
U.S. Foreign Corrupt Practices Act of 1977, as amended
U.S. Food and Drug Administration
General and administrative
General Data Protection Regulation
the Company's License Agreement with Novartis dated August 24, 2017
Healthcare Royalty Partners II, L.P.
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HCW
HIPAA
ICE®
Janssen
Kuros
Kuros RPA
Merck
NDA
NIAID
NIH
NOL
Novartis
Novartis Note Agreement
Novartis Note
Ology Bioservices
Palo
Palo RPA
Pfizer
R&D
Rezolute
Rezolute License Agreement
RPA
Roche
SEC
Second Bioasis RPA
Series A Preferred Stock
Series B Preferred Stock
Series B Depositary Shares
SOX
SVB
SVB Loan Agreement
SVB Loan
Takeda
Takeda Collaboration Agreement
Viracta
Viracta RPA
XOMA
H.C. Wainwright & Co., LLC
Federal Health Insurance Portability and Accountability Act of 1996
Innate cell engager
Janssen Biotech, Inc.
Kuros Biosciences AG, Kuros US LLC and Kuros Royalty Fund (US) LLC, collectively
the Company's Royalty Purchase Agreement with Kuros dated July 14, 2021
Merck Sharp & Dohme Corp
New Drug Application
National Institute of Allergy and Infectious Diseases
National Institutes of Health
net operating loss
Novartis Pharma AG, Novartis International Pharmaceutical Ltd., Novartis Institutes for
Biomedical Research, Inc. and/or Novartis Vaccines and Diagnotics, Inc.
the secured note agreement with Novartis (previously Chiron) dated May 26, 2005, as amended
the note with Novartis pursuant to the Novartis Note Agreement
Ology Bioservices Inc. (formerly Nanotherapeutics Inc., now a wholly owned subsidiary of
National Resilience, Inc.)
Palobiofarma, S.L.
the Company's Royalty Purchase Agreement with Palo dated September 26, 2019
Pfizer, Inc.
Research and development
Rezolute, Inc., formerly Antria Bio
the Company's License Agreement with Rezolute dated December 6, 2017, as amended in March
2018, January 2019 and March 2020
Royalty Purchase Agreement
F. Hoffmann-La Roche AG
Securities and Exchange Commission
the Company's Royalty Purchase Agreement with Bioasis dated November 2, 2020
the 8.625% Series A cumulative, perpetual preferred stock issued in December 2020
the 8.375% Series B cumulative, perpetual preferred stock issued in April 2021
the depositary shares, each representing 1/1000th interest in a share of Series B Preferred Stock
Sarbanes-Oxley Act of 2002
Silicon Valley Bank
the loan and security agreement with SVB dated May 7, 2018, as amended
the loan with SVB pursuant to the SVB Loan Agreement
Takeda Pharmaceutical Company Limited
the Company's Collaboration Agreement with Takeda dated November 1, 2006, as amended in
February 2007 and February 2009
Viracta Therapeutics, Inc.
the Company's Royalty Purchase Agreement with Viracta dated March 22, 2021
XOMA Corporation, including subsidiaries
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PART I
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, or the Securities Act, Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the
Private Securities Litigation Reform Act of 1995, which are subject to the “safe harbor” created by those sections. Forward-looking
statements are based on our management’s beliefs and assumptions and on information currently available to them. In some cases, you can
identify forward-looking statements by words such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,”
“believes,” “estimates,” “projects,” “predicts,” “potential,” “intend” and similar expressions intended to identify forward-looking
statements. Examples of these statements include, but are not limited to, statements regarding: our future operating expenses, our future
losses, the potential success of our strategy as a royalty aggregator, the extent to which our issued and pending patents may protect our
products and technology, the potential of our existing product candidates to lead to the development of commercial products, our ability to
receive potential milestone or royalty payments under license and collaboration agreements and the probability, amount and timing of
receipt of those payments, and our continuing obligation to pay quarterly cash dividends on our Series A Preferred Stock and Series B
Preferred Stock. These statements are based on assumptions that may not prove accurate. Actual results could differ materially from those
anticipated due to certain risks inherent in the biotechnology industry and for our licensees engaged in the development of new products in
a regulated market. Among other things: our product candidates subject to our out-license agreements are still being developed, and our
licensees’ may require substantial funds to continue development which may not be available; if our therapeutic product candidates do not
receive regulatory approval, our third-party licensees will not be able to market them; products or technologies of other companies may
render some or all of our product candidates noncompetitive or obsolete; we do not know whether there will be, or will continue to be, a
viable market for the products in which we have an ownership or royalty interest; even once approved, a product may be subject to
additional testing or significant marketing restrictions, its approval may be withdrawn or it may be voluntarily taken off the market; and we
and our licensees are subject to various state and federal healthcare related laws and regulations that may impact the commercialization of
our product candidates and could subject us to significant fines and penalties; and certain of our technologies are in-licensed from third
parties, so our capabilities using them may be restricted and subject to additional risks. These and other risks, including those related to
current economic and financial market conditions, are contained principally in Item 1, Business; Item 1A, Risk Factors; Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of Operations; and other sections of this Annual Report on
Form 10-K. Factors that could cause or contribute to these differences include those discussed in Item 1A, Risk Factors, as well as those
discussed elsewhere in this Annual Report on Form 10-K.
Forward-looking statements are inherently uncertain and you should not place undue reliance on these statements, which speak
only as of the date that they were made. These cautionary statements should be considered in connection with any written or oral forward-
looking statements that we may issue in the future. We do not undertake any obligation to release publicly any revisions to these forward-
looking statements after completion of the filing of this Annual Report on Form 10-K to reflect later events or circumstances or to reflect
the occurrence of unanticipated events.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These
statements are based on information available to us as of the date of this Annual Report on Form 10-K. While we believe that information
provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to
indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently
uncertain, and investors are cautioned not to unduly rely on these statements.
All references to “portfolio” in this Annual Report on Form 10-K are to milestone and/or royalty rights associated with a basket
of drug products in development.
Risk Factors Summary
Below is a summary of material factors that make an investment in our securities speculative or risky. Importantly, this summary
does not address all of the risks and uncertainties that we face. Additional discussion of the risks and uncertainties summarized in this risk
factor summary, as well as other risks and uncertainties that we face, can be found under “Risk Factors” in Part I, Item 1A of this Annual
Report on Form 10-K. The below summary is qualified in its entirety
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by that more complete discussion of such risks and uncertainties. You should consider carefully the risks and uncertainties described under
“Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K as part of your evaluation of the risks associated with an investment
in our securities.
● The COVID-19 pandemic has adversely impacted and could materially and adversely impact in the future our licensees or
royalty-agreement counterparties or their licensees, which could cause delays or elimination of our receipts of potential
milestones and royalties under our licensing or royalty and milestone acquisition arrangements.
● Our acquisitions of potential future royalty and/or milestone payments may not produce anticipated revenues and/or may be
negatively affected by a default or bankruptcy of the licensor(s) or licensee(s), and if such transactions are secured by
collateral, we may be, or may become, under-secured by the collateral or such collateral may lose value and we will not be
able to recuperate our capital expenditures associated with the acquisition.
● Many of our potential royalty acquisitions may be associated with drug products that are in clinical development and have not
yet been commercialized. To the extent that such products are not successfully developed and commercialized, our financial
condition and results of operations may be negatively impacted. Acquisitions of potential royalties associated with
development stage biopharmaceutical product candidates are subject to a number of uncertainties.
● We depend on our licensees and royalty-agreement counterparties for the determination of royalty and milestone payments.
While we typically have primary or back-up rights to audit our licensees and royalty-agreement counterparties, the
independent auditors may have difficulty determining the correct royalty calculation, errors, may be undetectable and
payment calculations may call for retroactive adjustments. We may have to exercise legal remedies to resolve any disputes
resulting from any such audit.
● The lack of liquidity of our acquisitions of future potential milestones and royalties may adversely affect our business and, if
we need to sell any of our acquired assets, we may not be able to do so at a favorable price, if at all. As a result, we may
suffer losses. We have sustained losses in the past, and we expect to sustain losses in the foreseeable future.
● Our royalty aggregator strategy may require that we register with the SEC as an “investment company” in accordance with
the Investment Company Act of 1940. If we were to become an “investment company” and be subject to the restrictions of
the 1940 Act, those restrictions would likely require significant changes in the way we do business and add significant
administrative burdens to our operations.
● Our royalty aggregator strategy may require us to raise additional funds to acquire milestone and royalty interests; we cannot
be certain that funds will be available or available at an acceptable cost of capital, and if they are not available, we may be
unsuccessful in acquiring milestone and royalty interests to sustain the business in the future.
● Information available to us about the biopharmaceutical products underlying the potential royalties we buy may be limited
and therefore our ability to analyze each product and its potential future cash flow may be similarly limited.
● Our future income is dependent upon numerous potential milestone and royalty-specific assumptions and, if these
assumptions prove not to be accurate, we may not achieve our anticipated rates of returns. Reductions in potential milestone
or royalty payments compared to expectations, or impairments in the value of potential milestones and royalties acquired
could have a material adverse effect our financial condition and results of operations.
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● A large percentage of the calculated net present value of our portfolio is represented by a limited number of products. The
failure of any one of these products to move forward in clinical development or commercialization may have a material
adverse effect on our financial condition and results of operation.
● We rely heavily on license and collaboration relationships, and any disputes or litigation with our licensees, collaborators and
their partners or termination or breach of any of the related agreements could reduce the financial resources available to us. In
the event of any disagreement that cannot be resolved satisfactorily to us, we may end up being paid less than anticipated on
such product or involved in costly and time-consuming arbitration or litigation, which could materially adversely affect our
financial condition, results of operation and future prospects.
● Our potential milestone and royalty providers may rely on third parties to provide services in connection with their product
candidate development and manufacturing programs. The inadequate performance by or loss of any of these service providers
could adversely affect our potential milestone and royalty providers’ product candidate development.
● We may not be able to successfully identify and acquire potential milestone and royalty streams on other products, product
candidates, or programs, or other companies to grow and diversify our business, and, even if we are able to do so, we may not
be able to successfully manage the risks associated with integrating any such products, product candidates, programs or
companies into our business or we may otherwise fail to realize the anticipated benefits of these acquisitions.
● Our potential milestone and royalty providers face uncertain results of clinical trials of product candidates. If our potential
royalty providers’ therapeutic product candidates do not receive regulatory approval, our potential royalty providers will be
unable to market them.
● We do not know whether there will be, or will continue to be, a viable market for the product candidates in which we have an
ownership, milestone or royalty interest.
● If we and our potential royalty providers are unable to protect our intellectual property, in particular patent protection for
principal products, product candidates and processes in which we have an ownership or royalty interest, and prevent the use
of the covered subject matter by third parties, our potential royalty providers’ ability to compete in the market will be
harmed, and we may not realize our profit potential.
● We have a continuing obligation to pay quarterly dividends to holders of our Series A Preferred Stock and Series B Preferred
Stock, which will be an on-going expenditure for us and may limit our ability to borrow additional funds.
Item 1. Business
Overview and Strategy
XOMA, a Delaware corporation, is a biotech royalty aggregator. We have a sizable portfolio of economic rights to future potential
milestone and royalty payments associated with partnered pre-commercial therapeutic candidates. Our portfolio was built through licensing
our proprietary products and platforms from our legacy discovery and development business, combined with acquisitions of rights to future
milestones and royalties that we have made since our royalty aggregator business model was implemented in 2017. We expect that most of
our future revenue will be based on payments we may receive for milestones and royalties related to these programs.
Our strategy is to expand our pipeline by acquiring additional potential milestone and royalty revenue streams on drug product
candidates from third parties. Expanding our pipeline through these acquisitions can allow for further diversification across therapeutic
areas and development stages. Our ideal target acquisitions are in pre-commercial stages
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of development, have an expected long duration of market exclusivity, high revenue potential, and are partnered with a large
pharmaceutical or biopharmaceutical enterprise.
COVID-19
The COVID-19 pandemic continues to pose risks to our business as clinical trials industry-wide have slowed. Our business is
dependent on the continued development and commercialization efforts of our licensees and our royalty agreement counterparties and their
licensees. We have been monitoring and continue to monitor our portfolio programs for potential delays in underlying research programs
and elections of our partners to continue or cease development. Delays in clinical trials and underlying research programs may lead to
delayed revenue from milestones from our licensees and royalty agreement counterparties or, if certain research programs are discontinued,
we may recognize impairment charges for our royalty receivables. COVID-19, the related variants, and the timing of vaccine distribution
may impact our underlying programs in a variety of ways which are unknown in length and scope at this time.
Portfolio Highlights
The following table highlights key assets included in our portfolio of potential future milestone and royalty streams. This table
does not include all assets because certain assets are subject to confidentiality agreements.
COMPANY
ASSET NAME
Affimed
Affimed
Aronora
Aronora
Aronora
AstraZeneca
AVEO Oncology
AFM13
AFM24
TARGET
CD30/CD16A
EGRF/CD16A
AB002 (proCase/E-WE thrombin) Protein kinase C
AB023 (xisomab, 3G3)
AB054
AZD2936
Factor XI
Factor XII
TIGIT/PD-1
AV-299 (ficlatuzumab)
HGF
ROYALTY RATE
Confidential
Confidential
Low single-digit
Low single-digit
Low single-digit
Low single-digit
Low single-digit
Low single-digit
Bayer (Aronora RPA)
BAY1213790 (osocimab)
Factor XIa
Checkmate Pharmaceuticals CMP-001 (vidutolimod)
TLR9
High single-digit to double-digit
Lysosomal Storage Disorders
Enzymes
Enzyme replacement therapy Low single-digit
Chiesi (Bioasis RPA)
Compugen
Day One
Denovo Biopharma
Incyte (Agenus RPA)
Incyte (Agenus RPA)
COM902
DAY101
vosaroxin
INCAGN1876
INCAGN1949
Incyte (Agenus RPA)
INCAGN02390
Incyte (Agenus RPA)
INCAGN2385
Janssen Biotech
Janssen Biotech
Janssen Biotech
JNJ-63723283 (cetrelimab)
JNJ-63709178
JNJ-63898081
Merck (Agenus RPA)
MK-4830
TIGIT
Pan-RAF
Topoisomerase II
GITR
OX-40
TIM-3
LAG-3
PD-1
CD123xCD3
PSMAxCD3
ILT-4
6
Low single-digit
Mid single-digit
High single-digit
Mid single-digit
Mid single-digit
Low to mid single-digit
Low to mid single-digit
0.75%
0.75%
0.75%
Low single-digit
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Molecular Templates
MT-0169
Novartis
Novartis
Novartis
CFZ533 (iscalimab)
VPM087 (gevokizumab)
NIS793
CD-38
CD-40
IL-1ß
TGFß
4%
Mid single-digit to low-teens
High single-digit to mid-teens
Mid single-digit to low teens
Novartis (Palobiofarma RPA) NIR178
Adenosine A2a receptor
Low single-digit
Ology Bioservices
Palo
Palo
Palo
Palo
Palo
Rezolute
Rezolute
Roche
Sesen Bio
Takeda
Zydus Cadila
Acquisitions
G03-52-01
PBF-680
PBF-677
PBF-999
PBF-1129
PBF-1650
RZ358
RZ402
Botulinum neurotoxins
15%
Adenosine A1 receptor
Low single-digit
Adenosine A3 receptor
Low single-digit
Adenosine A2a /
Phosphodiesterase 10 (PDE-
10)
Low single-digit
Adenosine A2b receptor
Low single-digit
Adenosine A3 receptor
Low single-digit
INSR
High single-digit to mid-teens
Plasma kallikrein
Low single-digit
faricimab (faricimab-svoa)
Angiopoietin-2 and VEGF-A 0.5%
oportuzumab monatox-qqrs
EpCAM
TAK-079 (mezagitamab)
IL-2/anti-IL-2 combination
CD-38
IL-2
0.875%
4%
Single to double-digit
Commercial Payment Purchase Agreement with Affitech
In October 2021, we entered into the Affitech CPPA, pursuant to which we purchased a future stream of commercial payment
rights to Roche’s faricimab from Affitech for an upfront payment of $6.0 million. We are eligible to receive commercial payments from
Roche consisting of 0.50% of future net sales of faricimab for a ten-year period following the first commercial sales in each applicable
jurisdiction.
In January 2022, Genentech, a member of the Roche group, received approval from the FDA to commercialize faricimab (faricimab-
svoa) for the treatment of wet, or neovascular, age-related macular degeneration and diabetic macular edema. Pursuant to the Affitech
CPPA, we paid Affitech a $5.0 million regulatory approval milestone tied to these U.S. marketing approvals. We may pay up to an
additional $15.0 million to Affitech based upon the achievement of certain regulatory approval milestones and sales milestones
representing a portion of the commercial payment receipts.
Kuros Royalty Purchase Agreement
In July 2021, we entered into the Kuros RPA, pursuant to which we acquired the rights to 100% of the potential future royalties
from commercial sales, which are tiered from high single-digit to low double-digits, and up to $25.5 million in pre-commercial milestone
payments associated with an existing license agreement related to Checkmate Pharmaceuticals’ vidutolimod (CMP-001), a Toll-like
receptor 9 agonist, packaged in a virus-like particle, for an upfront payment of $7.0 million. We may pay additional sales-based milestones
to Kuros of up to $142.5 million representing a portion of the future royalties on commercial sales.
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Viracta Royalty Purchase Agreement
In March 2021, we entered into the Viracta RPA, pursuant to which we acquired the right to receive future royalties, milestones,
and other payments related to two clinical-stage drug candidates for $13.5 million. The first candidate, DAY101 (pan-RAF kinase
inhibitor), is being developed by Day One Biopharmaceuticals, and the second candidate, vosaroxin (topoisomerase II inhibitor), is being
developed by Denovo Biopharma. We acquired the right to receive (i) up to $54.0 million in potential milestones, potential royalties on
sales, if approved, and other payments related to DAY101, excluding up to $20.0 million consideration retained by Viracta, and (ii) up to
$57.0 million in potential regulatory and commercial milestones and high single-digit royalties on sales related to vosaroxin, if approved.
Royalty Purchase Agreement with Agenus
In September 2018, we entered into the Agenus RPA, pursuant to which we acquired the right to receive 33% of the future
royalties due to Agenus from Incyte (net of certain royalties payable by Agenus to a third party) and 10% of all future developmental,
regulatory and sales milestones on sales of six Incyte immuno-oncology assets. In addition, we acquired the right to receive 33% of the
future royalties due to Agenus from Merck and 10% of all future developmental, regulatory and sales milestones on sales of MK-4830, an
immuno-oncology product currently in clinical development. Pursuant to the Agenus Royalty Purchase Agreement, our share in future
potential development, regulatory and commercial milestones is up to $59.5 million and the royalties have no limit. Under the terms of the
Agenus Royalty Purchase Agreement, we paid Agenus $15.0 million.
In November 2020, MK-4830 advanced to Phase 2 development stage. As a result of the advancement, Agenus earned a $10.0
million clinical development milestone pursuant to its license agreement with Merck, of which we received $1.0 million.
Royalty Purchase Agreement with Bioasis
In February 2019, we entered into the Bioasis RPA, pursuant to which we acquired future milestone, royalty and option fee
payment rights from Bioasis for product candidates that are being developed pursuant to a License Agreement between Bioasis and
Prothena Biosciences Limited. Under the terms of the Bioasis RPA, we paid Bioasis an upfront cash payment of $0.3 million and will be
required to make contingent future cash payments of up to $0.2 million to Bioasis if and when the licensed product candidates reach certain
development milestones. As of December 31, 2021, none of the development milestones had been achieved. In addition, we were granted
an option to purchase a 1% royalty right on the next two license agreements entered into between Bioasis and third-party licensees subject
to certain payments and conditions as well as a right of first negotiation on the purchase of royalty rights on subsequent Bioasis license
agreements with third parties.
In November 2020, we entered into the Second Bioasis RPA, pursuant to which we acquired potential future milestone and other
payments, and royalty rights from Bioasis for product candidates that are being developed pursuant to a research collaboration and license
agreement between Bioasis and Chiesi. We paid Bioasis $1.2 million upon closing of the Second Bioasis RPA for the purchased rights.
Royalty Purchase Agreement with Aronora
In April 2019, we entered into the Aronora RPA, pursuant to which we acquired the rights to potential royalties and a portion of
upfront, milestone, and option payments associated with five anti-thrombotic hematology drug products in development: three candidates
subject to Aronora’s collaboration Bayer (the “Bayer Products”) and two additional early stage candidates (the “non-Bayer Products”).
Under the terms of the Aronora RPA, we made a $6.0 million upfront payment to Aronora when the transaction closed on June 26,
2019, and in September 2019 we made an additional $3.0 million payment for the three Bayer Products that were active as of September 1,
2019. Pursuant to the Aronora RPA, if we receive $250.0 million in cumulative royalties on net sales per product, we will be required to
pay associated tiered milestones payments to Aronora in an aggregate amount of up to $85.0 million per product. The tiered milestones will
be paid based on various royalty tiers prior to
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reaching $250.0 million in cumulative royalties on net sales per product. We will retain royalties per product in excess of $250.0 million.
We will receive, on average, low single-digit royalties on future sales of the Bayer Products and 10% of all future developmental,
regulatory and sales milestones related to the Bayer Products. In addition, we purchased from Aronora the right to receive low single-digit
percentage of net sales of the non-Bayer Products and 10% of all future payments, including upfront payments, option payments and
developmental, regulatory and sales milestone payments on potential future sales of the non-Bayer Products. In July 2020, Bayer elected to
not exercise its option on the third Bayer Product and that product is now subject to the same economics as the non-Bayer Products.
Royalty Purchase Agreement with Palobiofarma
In September 2019, we entered into the Palo RPA, pursuant to which we acquired the rights to potential royalty payments in low
single-digit percentages of aggregate net sales associated with six drug candidates in various clinical development stages, targeting the
adenosine pathway with potential applications in solid tumors, non-Hodgkin’s lymphoma, asthma/chronic obstructive pulmonary disease,
ulcerative colitis, idiopathic pulmonary fibrosis, lung cancer, psoriasis, nonalcoholic steatohepatitis and other indications (the “Palo
Licensed Products”) that are being developed by Palo. Novartis is a development partner on NIR178, one of the Palo Licensed Products,
and NIR178 is being developed pursuant to a license agreement between Palo and Novartis. Under the terms of the Palo RPA, we paid Palo
$10.0 million for the rights to potential royalty payments on future sales of the Palo Licensed Products.
Selected Programs Underlying Our Core Pipeline
Historically, we have licensed product candidates or provided research and development collaboration services to world-class
organizations, such as Novartis and Takeda, in pursuit of new antibody products under which we are eligible to receive potential future
milestone payments and royalties. The following is a summary of material license and collaboration agreements that represent a significant
component of our core pipeline.
Novartis – Anti-TGFβ Antibody (NIS793)
In September 2015, we and Novartis entered into the Anti-TGFβ Antibody License Agreement under which we granted Novartis
an exclusive, worldwide, royalty-bearing license to our anti-TGFβ antibody program (“NIS793”). Novartis is solely responsible for the
development and commercialization of the antibodies and products containing the antibodies arising from this program.
Under the Anti-TGFβ Antibody License Agreement, we received a $37.0 million upfront fee, and were eligible to receive up to a
total of $480.0 million in development, regulatory and commercial milestones. We also are eligible to receive royalties on sales of licensed
products, which are tiered based on sales levels and have percentage rates ranging from mid single-digits to low double-digits. Novartis’
obligation to pay royalties with respect to a particular product and country will continue for the longer of the date of expiration of the last
valid patent claim covering the product in that country, or ten years from the date of the first commercial sale of the product in that country.
This program is currently in clinical testing.
In October 2020, we earned a $25.0 million milestone upon the dosing of the first patient in Novartis’ first NIS793 Phase 2
clinical trial. As specified under the terms the Anti-TGFβ Antibody License Agreement, we received $17.7 million in cash and the
remaining balance of $7.3 million was recognized as a reduction to our debt obligation to Novartis.
In July 2021, Novartis announced the FDA had granted Orphan Drug Designation to NIS793 in combination with standard of care
chemotherapy for the treatment of pancreatic cancer.
In October 2021, we earned a $35.0 million milestone payment upon dosing of the first patient in Novartis’ first NIS793 Phase 3
clinical trial. We are eligible to receive remaining milestones up to a total of $410.0 million under the Anti-TGFβ Antibody License
Agreement. Upon receipt of regulatory approval to commercialize NIS793, we will receive tiered royalties on net product sales that range
from the mid single-digit to the low double-digits percentage rate.
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Novartis – Anti-IL-1β Antibody (VPM087) and IL-1 Beta
In August 2017, we and Novartis entered into the Gevokizumab License Agreement, under which we granted Novartis an
exclusive, worldwide, royalty-bearing license to gevokizumab (“VPM087”) (a clinical-stage anti-IL-1b product candidate) and related
know-how and patents. Under the terms of the Gevokizumab License Agreement, Novartis is solely responsible for the development and
commercialization of VPM087 and products containing such antibody.
Under the Gevokizumab License Agreement, we received total consideration of $30.0 million in 2017 for the license and rights
granted to Novartis. Of the total consideration, $15.7 million was paid in cash and $14.3 million (equal to €12.0 million) was paid by
Novartis, on our behalf, to settle our loan with Les Laboratories Servier. In addition, Novartis extended the maturity date on our debt to
Novartis to September 30, 2022. In June 2021, we repaid its entire outstanding debt balance to Novartis. We also received $5.0 million
related to the sale of 539,131 shares of our common stock, at a price per share of $9.2742. Based on the achievement of pre-specified
criteria, we are eligible to receive up to $438.0 million in development, regulatory and commercial milestones. We also are eligible to
receive royalties on sales of licensed products, which are tiered based on sales levels and have percentage rates ranging from mid-single
digit to mid-teens. This program is in Phase 2 clinical testing.
Unless terminated earlier, the Gevokizumab License Agreement will remain in effect, on a country-by-country and product-by-
product basis, until Novartis’ royalty obligations end. The Gevokizumab License Agreement contains customary termination rights relating
to material breach by either party. Novartis also has a unilateral right to terminate the Gevokizumab License Agreement on a product-by-
product and country-by-country basis or in its entirety with six months’ prior written notice.
Novartis – Anti-CD40 Antibody
In February 2004, we entered into an exclusive, worldwide, multi-product collaboration agreement with Chiron to research,
develop and commercialize multiple antibody products for the treatment of cancer, and such agreement was replaced with the Chiron
Collaboration Agreement entered in May of 2005. The Chiron Collaboration Agreement was a risk-sharing arrangement whereby Chiron
and XOMA shared expenses and revenues on a 70-30 basis, with XOMA’s share being 30%. Financial terms included a loan facility from
Chiron to XOMA, secured by XOMA’s 30% ownership interest in the collaboration, of up to $50.0 million to fund up to 75% of our share
of expenses beginning in 2005.
In October 2005, Chiron announced it had entered into a definitive merger agreement with Novartis under which Novartis
acquired all of the shares of Chiron that it did not already own. This transaction closed in 2006 at which time Novartis acquired Chiron’s
interest in the Chiron Collaboration Agreement. In July of 2008, Novartis and XOMA restructured the Chiron Collaboration Agreement,
which involved six development programs including iscalimab, a fully human anti-CD40 antagonist antibody intended as a treatment for B-
cell mediated diseases, including malignancies and autoimmune diseases. As part of the restructuring, Novartis, the successor to Chiron,
was granted, among other things, control over the ongoing product development collaborations remaining thereunder, including iscalimab.
In September 2015, the parties agreed to reduce the royalty-style payments that XOMA is eligible to receive on sales of Novartis’s clinical-
stage anti-CD40 antibodies (such as iscalimab). These royalty-style payments are tiered based on sales levels and now have percentage
rates ranging from mid single-digit to low teens.
In September 2021, Novartis announced its decision to discontinue its study of CFZ533 (iscalimab) in the prevention of organ
rejection in patients receiving a kidney transplant after an interim analysis of data. Novartis is continuing its iscalimab studies in indications
other than kidney transplant, for example, liver transplant, Sjögren’s Syndrome and Lupus Nephritis.
Our right to royalty-style payments expires on the later of the expiration of any licensed patent covering each product or 10 years
from the first commercial sale of each product in each country.
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Takeda
In November 2006, we entered into the Takeda Collaboration Agreement with Takeda under which we agreed to discover and
optimize therapeutic antibodies against multiple targets selected by Takeda.
Under the Takeda Collaboration Agreement, we may receive additional milestone payments aggregating up to $19.0 million
relating to TAK-079 (mezagitamab) and a 4% royalty on future sales of all products subject to this license, including TAK-169, which
entered a phase 1 study in February 2020. Our right to milestone payments expires on the later of the receipt of payment from Takeda of the
last amount to be paid under the agreement or the cessation by Takeda of all research and development activities with respect to all
program antibodies, collaboration targets or collaboration products. Our right to royalties expires on the later of 13.5 years from the first
commercial sale of each royalty-bearing discovery product or the expiration of the last-to-expire licensed patent (or 12 years from first
commercial sale if there is significant generic competition post patent-expiration).
In February 2009, we expanded our existing collaboration to provide Takeda with access to multiple antibody technologies,
including a suite of research and development technologies and integrated information and data management systems. We may receive
milestones of up to $3.3 million per discovery product candidate and low single-digit royalties on future sales of all antibody products
subject to this license. Our right to milestone payments expires on the later of the receipt of payment from Takeda of the last amount to be
paid under the agreement or the cessation by Takeda of all research and development activities with respect to all program antibodies,
collaboration targets or collaboration products. Our right to royalties expires on the later of 10 years from the first commercial sale of such
royalty-bearing discovery product or the expiration of the last-to-expire licensed patent.
In November 2020, the first patient was dosed in Takeda’s Phase 2 study of mezagitamab and we earned a $2.0 million milestone
payment from Takeda. We are eligible to receive remaining milestones up to a total of $16.0 million under the Takeda Collaboration
Agreement.
In August 2021, Molecular Templates, Inc., assumed full rights to TAK-169 from Takeda, including full control of TAK-169
clinical development, per the terms of its terminated collaboration agreement with Takeda.
Rezolute
In December 2017, we entered into a license agreement with Rezolute pursuant to which we granted an exclusive global license to
Rezolute to develop and commercialize X358 (now “RZ358”) products for all indications. We and Rezolute also entered into a common
stock purchase agreement pursuant to which Rezolute agreed to issue to us, as consideration for receiving the license for RZ358, a certain
number of its common stock related to its future financing activities.
Under the terms of the license agreement, Rezolute is responsible for all development, regulatory, manufacturing and
commercialization activities associated with RZ358 and is required to make certain development, regulatory and commercial milestone
payments to us of up to $232.0 million in the aggregate based on the achievement of pre-specified criteria. Under the license agreement, we
are also eligible to receive royalties ranging from the high single-digits to the mid-teens based upon annual net sales of any commercial
product incorporating RZ358. Rezolute is obligated to take customary steps to advance RZ358, including using diligent efforts to
commence the next clinical study for RZ358 by a certain deadline and to meet certain spending requirements on an annual basis for the
program until a marketing approval application for RZ358 is accepted by the FDA. Rezolute’s obligation to pay royalties with respect to a
particular RZ358 product and country will continue for the longer of the date of expiration of the last valid patent claim covering the
product in that country, or twelve years from the date of the first commercial sale of the product in that country. Rezolute’s future royalty
obligations in the United States will be reduced by 20% if the manufacture, use or sale of a licensed product is not covered by a valid
XOMA patent claim, until such a claim is issued.
Pursuant to the license agreement, we are eligible to receive a low single-digit royalty on sales of Rezolute’s other non-RZ358
products from its current programs, including RZ402 which is in Phase 1 clinical testing. Rezolute’s obligation to pay royalties with respect
to a particular Rezolute product and country will continue for the longer of twelve years from
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the date of the first commercial sale of the product in that country or for so long as Rezolute or its licensee is selling such product in such
country, provided that any such licensee royalty will terminate upon the termination of the licensee’s obligation to make payments to
Rezolute based on sales of such product in such country.
The license agreement contains customary termination rights relating to material breach by either party. Rezolute also has a
unilateral right to terminate the license agreement in its entirety on ninety days’ notice at any time. To the extent permitted by applicable
laws, we have the right to terminate the license agreement if Rezolute challenges the licensed patents.
No consideration was exchanged upon execution of the arrangement. In consideration for receiving the license for RZ358,
Rezolute agreed to issue shares of its common stock and pay cash to us upon the occurrence of Rezolute’s financing activities.
The license agreement was subsequently amended in 2018, 2019 and 2020. Pursuant to the terms of the license agreement as
amended, we received a total of $6.0 million upon Rezolute’s achievement of financing activities and $8.5 million in installment payments
through October 2020. We also received 161,861 shares of common stock of Rezolute (on as adjusted post reverse-split basis).
In January 2022, Rezolute dosed the last patient in its Phase 2b clinical trial for RZ358, which triggered a $2.0 million milestone
payment due to XOMA pursuant to our Rezolute License Agreement.
Janssen
We and Janssen were parties to a license agreement which was terminated in 2017. In August 2019, we and Janssen entered into a
new agreement pursuant to which we granted a non-exclusive license to Janssen to develop and commercialize certain drug candidates
under our patents and know-how. Under the new agreement, Janssen made a one-time payment of $2.5 million to us. Additionally, for each
drug candidate, we are entitled to receive milestone payments of up to $3.0 million upon Janssen’s achievement of certain clinical
development and regulatory approval events. Additional milestones may be due for drug candidates, which are the subject of multiple
clinical trials. Upon commercialization, we are eligible to receive 0.75% royalty on net sales of each product. Janssen’s obligation to pay
royalties with respect to a particular product and country will continue until the eighth-year-and-sixth-month anniversary of the first
commercial sale of the product in such country. The new agreement will remain in effect unless terminated by mutual written agreement of
the parties.
In May 2021, we announced we earned a $0.5 million milestone from Janssen, upon dosing of the first patient in a Phase 3 clinical
trial evaluating one of Janssen’s biologic assets. In December 2021, we earned a $0.2 million milestone pursuant to our agreement with
Janssen.
Affimed
In April 2021, we entered into a new agreement with Affimed, under which we are eligible to receive payments from Affimed on
potential future commercial sales related to three ICE molecules and pre-loaded natural killer cells containing the ICE molecules.
Additionally, we are eligible to receive a milestone upon the first product candidate in each program achieving marketing approval.
Compugen
In September 2021, we earned a $0.5 million milestone payment under our license agreement with Compugen triggered by the
dosing of the first patient in a Phase 1/2 study of AZD2936, a TIGIT/PD-1 bispecific antibody, in patients with advanced or metastatic non-
small cell lung cancer. AZD2936 is derived from COM902 and is being developed by AstraZeneca.
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Competition
The biotechnology and pharmaceutical industries are subject to continuous and substantial technological change. Some of the
drugs our licensees or royalty partners are developing may compete with existing therapies or other drugs in development by other
companies. Furthermore, academic institutions, government agencies and other public and private organizations conducting research may
seek patent protection with respect to potentially competing products or technologies and may establish collaborative arrangements with
our licensees’ or royalty partners’ competitors. There can be no assurance that developments by others, including, without limitation, the
development of generics or biosimilars, will not render our, or our licensees’, products or technologies obsolete or uncompetitive.
Additionally, our royalty aggregator model faces competition on at least two fronts. First, there are other companies, funds and
other investment vehicles seeking to aggregate royalties or provide alternative financing to development-stage biotechnology and
pharmaceutical companies. The competitive companies, funds and other investment vehicles may have a lower target rate of return, a lower
cost of capital or access to greater amounts of capital and thereby may be able to acquire assets that we are also targeting for acquisitions.
Second, existing or potential competitors to our partners and licensees’ products, particularly large pharmaceutical companies, may have
greater financial, technical and human resources than our licensees. Accordingly, these competitors may be better equipped to develop,
manufacture and market products. Many of these companies also have extensive experience in preclinical testing and human clinical trials,
obtaining FDA and other regulatory approvals and manufacturing and marketing pharmaceutical products.
For a discussion of the risks associated with competition, see below under “Item 1A. Risk Factors.”
Government Regulation and Environmental Matters
The research and development, manufacturing and marketing of pharmaceutical products are subject to regulation by numerous
governmental authorities in the United States and other countries. We and our partners and licensees, depending on specific activities
performed, are subject to these regulations. In the United States, pharmaceuticals are subject to regulation by both federal and various state
authorities, including the FDA. The Federal Food, Drug and Cosmetic Act and the Public Health Service Act govern the testing,
manufacture, safety, efficacy, labeling, storage, record keeping, approval, advertising and promotion of pharmaceutical products and there
are often comparable regulations that apply at the state level. There are similar regulations in other countries as well. For both currently
marketed and products in development, failure to comply with applicable regulatory requirements can, among other things, result in delays,
the suspension of regulatory approvals, as well as possible civil and criminal sanctions. Development stage products in our portfolio require
approval by the FDA before we will recognize any royalties from sales. In addition, changes in existing regulations could have a material
adverse effect on us or our partners.
We believe there are no compliance issues with laws and regulations that have been enacted or adopted regulating the discharge of
materials into the environment, or otherwise relating to the protection of the environment, that have adversely affected, or are reasonably
expected to adversely affect, our business, financial condition and results of operations, and we currently do not anticipate material capital
expenditures arising from environmental regulation. We believe climate change could present risks to our business. Some of the potential
impacts of climate change to our business include increased operating costs due to additional regulatory requirements and the risk of
disruptions to our business. We do not believe these risks are material to our business at this time.
For a discussion of the risks associated with government regulations, see below under “Item 1A. Risk Factors.”
Intellectual Property
Intellectual property is important to our business and our future income streams will depend in part on our, and our partners and
licensees’, ability to obtain issued patents and to operate without infringing on the proprietary rights of others. We hold and have filed
applications for a number of patents in the United States and internationally to protect our products and technology. We also have obtained
or have the right to obtain licenses to, or income streams based on, certain patents and applications filed by others. However, the patent
position of biotechnology companies generally is highly uncertain and consistent policy regarding the breadth of allowed claims has not
emerged from the actions of the U.S. Patent
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and Trademark Office with respect to biotechnology patents. Accordingly, no assurance can be given that our, or our partners or licensees’
patents will afford protection against competitors with similar products or others will not obtain patents claiming aspects similar to those
covered by our, or our partners’ or licensees’ patent applications. Some of our agreements, or those of or our partners or licensees, contain
“step-down” provisions where the royalty rate is reduced following patent expiry or revocation. Below is a list of representative patents and
patent applications related to our licensed programs:
Representative
Patents/Applications
Subject matter
Expected last
expiry in family
Licensee
Novartis
Program
Anti-IL-1b
Novartis
Anti-TGFb
Rezolute
Anti-INSR
US 7,531,166
US 7,582,742
EP 1 899 378
US 7,695,718
US 8,101,166
US 8,586,036
US 9,163,082
US 8,637,029
JP 5763625
US 10,611,832
US 8,569,462
US 9,145,458
US 9,714,285
US 10,358,486
EP 2714735
EP 21186327
JP 6363948
US 10,167,334
EP 3 277 716
JP 6901400
US 9,944,698
EP 2 480 254
JP 5849050
US 10,711,067
EP 3 265 491A1
Gevokizumab (VPM087) and other
antibodies and antibody fragments with
similar binding properties for IL-1β
Methods of treating Type 2 diabetes or
Type 2 diabetes-induced diseases or
conditions with high affinity antibodies
and antibody fragments that bind to IL-1β
Methods of treating gout with certain
doses of IL-1β binding antibodies or
binding fragments
Pharmaceutical compositions comprising
anti-IL-1β binding antibodies or fragments
for reducing acute coronary syndrome in a
subject with a history of myocardial
infarction.
2027
2027
2028
2030
TGFβ antibodies and methods of use
thereof
2032
Combination therapy using an inhibitor of
TGFb and an inhibitor of PD-1 for treating
or preventing recurrence of cancer
Insulin receptor-modulating antibodies
having the functional properties of RZ358
Methods of treating or preventing post-
prandial hypoglycemia after gastric bypass
surgery using a negative modulator
antibody to the insulin receptor
2036
2030
2036
2030
Ology Bioservices
Anti-BoNT
US 8,821,879
EP 2 473 191
Coformulations of anti- botulinum
neurotoxin antibodies
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Licensee
Various
Program
Phage display
libraries
Representative
Patents/Applications
US 8,546,307
EP 2 344 686
Subject matter
XOMA phage display library components
Zydus Cadila in India,
Brazil, Mexico and
other emerging markets
Seeking out license
Anti-IL2
Anti-PTH1R
Seeking out license
Anti-PRLR
US 7,094,579
EP 2 060 628
US 10,858,428*
EP 3 518 969A2*
US 10,519,250
EP 3 490 600A1
US 7,867,493 **
EP 2 059 535 **
Interleukin-2 Antibodies and Uses Thereof
2037
Parathyroid Hormone Receptor 1
Antibodies and Uses Thereof
Prolactin receptor antibodies
2037
2027
Expected last
expiry in family
2032
2022
* Jointly owned with Medical University of South Carolina Foundation for Research Development
** Jointly owned with Novartis Vaccines and Diagnostics, Inc.
If certain patents issued to others are upheld or if certain patent applications filed by others are issued and upheld, our partners and
licensees may require certain licenses from others to develop and commercialize certain potential products incorporating our technology.
There can be no assurance that such licenses, if required, will be available on acceptable terms. If such licenses are obtained, our partners
and licensees may be able to deduct some or all of the costs from the royalties they owe to us.
We protect our proprietary information, in part, by confidentiality agreements with our employees, consultants and partners. These
parties may breach these agreements, and we may not have adequate remedies for any breach. To the extent that we or our consultants or
partners use intellectual property owned by others, we may have disputes with our consultants or partners or other third parties, as to the
rights in related or resulting know-how and inventions.
Concentration of Risk
Our business model is dependent on third parties achieving specified development milestones and product sales. Our pipeline
currently includes over 70 fully funded programs from which we could potentially receive royalties or other payments if the programs
achieve marketability. Novartis is developing several of the programs in our pipeline. While we do not expect the discontinuation of any
one program would have a material impact on our business, the discontinuation of all programs by Novartis could have a material effect on
our business and financial condition.
Organization
We were incorporated in Delaware in 1981 and became a Bermuda-exempted company in December 1998. Effective
December 31, 2011, we changed our jurisdiction of incorporation from Bermuda to Delaware and changed our name from XOMA Ltd. to
XOMA Corporation. When referring to a time or period before December 31, 1998, or after December 31, 2011, the terms “Company” and
“XOMA” refer to XOMA Corporation, a Delaware corporation; when referring to a time or period between December 31, 1998, and
December 31, 2011, such terms refer to XOMA Ltd., a Bermuda company.
Our principal executive offices are located at 2200 Powell Street, Suite 310, Emeryville, California 94608. Our telephone number
at our principal executive offices is (510) 204-7200. Our website address is www.xoma.com. The information found on our website is not
part of this or any other report filed with or furnished to the SEC.
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Human Capital Resources
We rely on a small number of skilled, experienced, and innovative employees to conduct the operations of our company. As of
March 3, 2022, we employed 12 full-time employees primarily engaged in executive, business development, legal, finance and
administrative positions. We also utilize independent contractors and consultants to supplement our workforce.
The success of our business is fundamentally connected to the well-being of our employees. We provide robust compensation and
benefits programs to help meet the needs of our employees. In addition to salaries, these programs include potential annual discretionary
bonuses, broad-based equity awards, a 401(k) plan, healthcare and insurance benefits, paid time off, family leave, and flexible work
schedules, among others. These benefits provide our employees choices where possible so they can customize their benefits to meet their
needs and the needs of their families, as well as access to tools and resources to help them improve or maintain their health status and
encourage engagement in healthy behaviors to improve their physical and mental health.
In response to the COVID-19 pandemic, we have temporarily restricted access to our office in California, as well as suspended
any non-essential business travel. Our employees are conducting their work remotely, and they otherwise have minimal presence in our
offices for essential activities. The safety, health and well-being of our employees is paramount. As such, we will consider ongoing
government regulations and local health conditions before allowing non-essential travel or allowing any gatherings at our offices.
Item 1A. Risk Factors
The following risk factors and other information included in this Annual Report should be carefully considered. The risks and
uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us also may impair
our business operations. If any of the following risks occur, our business, financial condition, operating results and cash flows could be
materially adversely affected.
Risks Related to our Royalty Aggregator Strategy
The COVID-19 pandemic has adversely impacted and could materially and adversely impact in the future our licensees or royalty-
agreement counterparties or their licensees, which could cause delays or elimination of our receipts of potential milestones and
royalties under our licensing or royalty and milestone acquisition arrangements.
The COVID-19 pandemic has severely affected global economic activity and resulted in the implementation of significant
governmental measures, including lockdowns, closures, quarantines and travel bans, intended to control the spread of the virus.
The COVID-19 pandemic has adversely impacted and could materially and adversely impact in the future our licensees or royalty-
agreement counterparties or their licensees, which has and could further cause delays, suspensions or cancellations of their drug
development efforts including, without limitation, their clinical trials, which would correspondingly delay, suspend or negate the timing of
our potential receipts of milestones and royalties under our out-licensing or royalty acquisition agreements. The disruptions to our licensees
or RPA counterparties or their licensees could include, without limitation:
● delays or difficulties in recruiting and enrolling new patients in their clinical trials;
● delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site
staff;
● diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as their
clinical trial sites and hospital staff supporting the conduct of their clinical trials;
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● interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or
recommended by federal, state or local governments, employers and others;
● limitations in employee resources that would otherwise be focused on the conduct of their clinical trials, including because of
sickness of employees or their families or the desire of employees to avoid contact with large groups of people;
● interruption in global shipping that may affect the transport of clinical trial supplies and materials, such as the investigational
drug product used in their clinical trials;
● delays in receiving approval from the FDA, the EMA and other U.S. and foreign federal, state and local regulatory authorities
to initiate their planned clinical trials or to market their products;
● changes in FDA, state and local regulation (and those of their foreign counterparts if applicable) as part of a response to the
COVID-19 pandemic which may change the ways in which clinical trials are conducted or discontinue clinical trials
altogether;
● delays in necessary interactions with regulators, ethics committees and other important agencies and contractors due to
limitations in employee resources or forced furlough of government employees;
● delay in the timing of other interactions with the FDA due to absenteeism by federal employees or by the diversion of their
efforts and attention to approval of other therapeutics or other activities related to COVID-19; and
● refusal of the FDA to accept data from clinical trials in affected geographies outside the United States or of foreign regulatory
authorities to accept data from clinical trials in affected areas outside their applicable countries.
The extent to which the COVID-19 pandemic continues to impact our business and prospects and the overall economies of the
United States and other countries will depend on numerous evolving factors, which are highly uncertain and cannot be predicted with
confidence, such as the duration and scope of the pandemic, mutations in the COVID-19 virus, travel restrictions and social distancing in
the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States
and other countries to contain and treat the disease.
The COVID-19 pandemic continues to pose risks to our business, including at our headquarters in Emeryville, California, which has in
the past been subject to local and statewide “stay-at-home” orders issued by Alameda County and the Governor of the State of
California, as well as the business or operations of our partners and other third parties with whom we conduct business.
The COVID-19 pandemic has resulted in extended travel and other continued restrictions in order to reduce the spread of the
disease, including California executive orders, San Francisco Bay Area orders and several other state and local orders across the United
States, which, among other things, direct individuals to continue to shelter at their places of residence, direct businesses and governmental
agencies to cease non-essential operations at physical locations, prohibit certain non-essential gatherings, and order cessation of non-
essential travel. The evolving effects of the COVID-19 pandemic and restrictive government measures taken in response have had a
significant impact, both direct and indirect, on businesses and commerce, as significant reductions in business related activities have
occurred, supply chains have been disrupted, and manufacturing and clinical development activities have been curtailed or suspended.
In response to these public health directives and orders, we previously implemented a work-from-home policy for all employees.
We have been able to maintain our operations and productivity thus far; however, prolonged working remotely may negatively impact
productivity, disrupt our business and delay our timelines, the magnitude of which will depend, in part, on the length and severity of the
restrictions and other limitations on our ability to conduct our business in the ordinary course.
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In addition, quarantines, stay-at-home, executive and similar government orders, shutdowns or other restrictions on the conduct of
business operations continue to impact personnel at third-party clinical testing sites, manufacturing facilities, and the availability or cost of
materials, which could disrupt our licensees’ and RPA counterparties and their licensees’ supply chains.
The spread of COVID-19, which has caused a broad impact globally, may materially affect us economically. While the evolving
economic impacts brought by, and the duration of, COVID-19 may be difficult to assess or predict, it has already significantly disrupted
global financial markets, and may limit our ability to access capital, which could in the future negatively affect our liquidity. A recession or
market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock.
The evolving effects of the COVID-19 pandemic have already resulted in significant disruption of global financial markets. While
several of our partners have experienced delays due to the COVID-19 pandemic, we do not yet know the full extent of potential delays or
impacts on our business, clinical trials, healthcare systems or the global economy as a whole. However, the effects could continue to have
an impact on our operations and could have a material adverse effect on our business, financial condition, results of operations and
prospects in future periods.
Our acquisitions of potential future royalty and/or milestone payments may not produce anticipated revenues and/or may be negatively
affected by a default or bankruptcy of the licensor(s) or licensee(s) under the applicable license agreement(s) covering such potential
royalties and/or milestones, and if such transactions are secured by collateral, we may be, or may become, under-secured by the
collateral or such collateral may lose value and we will not be able to recuperate our capital expenditures associated with the
acquisition.
We are engaged in a continual review of opportunities to acquire future royalties, milestones and other payments related to drug
development and sales as part of our royalty aggregator strategy or to acquire companies that hold royalty assets. Generally, at any time, we
seek to have acquisition opportunities in various stages of active review, including, for example, our engagement of consultants and
advisors to analyze particular opportunities, technical, financial and other confidential information, submission of indications of interest
and involvement as a bidder in competitive auctions. Many potential acquisition targets do not meet our criteria, and for those that do, we
may face significant competition for these acquisitions from other royalty buyers and enterprises. Competition for future asset acquisition
opportunities in our markets could increase the price we pay for such assets and could reduce the number of potential acquisition targets.
The success of our acquisitions is based on our ability to make accurate assumptions regarding the valuation, probability, timing and
amount of potential future royalty and milestone payments as well as the viability of the underlying technology and intellectual property.
The failure of any of these acquisitions to produce anticipated revenues may materially and adversely affect our financial condition and
results of operations.
Some of these acquisitions may expose us to credit risk in the event of a default by or bankruptcy of the licensor(s) or
licensee(s) that are parties to the applicable license agreement(s) covering the potential milestone and royalty streams being acquired. In
addition, recent volatility in on the capital markets may limit our licensees or royalty-agreement counterparties’ ability to access additional
funding. While we generally try to structure our receipt of potential milestone and royalty payments to minimize the risk associated with
such a default or bankruptcy, there can be no assurance that any such default or bankruptcy will not adversely affect our ability to receive
future potential royalty and/or milestone payments. To mitigate this risk, on occasion, we may obtain a security interest as collateral in such
royalty, milestone and other payments. Our credit risk in respect of such counterparty may be exacerbated when the collateral held by us
cannot be realized upon or is liquidated at prices not sufficient to recover the full amount we are due pursuant to the terms of the
agreements covering the particular assets. This could occur in circumstances where the original collateral was not sufficient to cover a
complete loss (e.g., our interests were only partially secured) or may result from the deterioration in value of the collateral, so that, in either
such case, we are unable to recuperate our full capital outlay. Any such losses resulting therefrom could materially and adversely affect our
financial condition and results of operations.
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Many of our potential royalty acquisitions may be associated with drug products that are in clinical development and have not yet been
commercialized. To the extent that such products are not successfully developed and commercialized, our financial condition and
results of operations may be negatively impacted. Acquisitions of potential royalties associated with development stage
biopharmaceutical product candidates are subject to a number of uncertainties.
As part of our royalty aggregator strategy, we may continue to purchase future potential milestone and royalty streams associated
with drug products which are in clinical development and have not yet received marketing approval by any regulatory authority or been
commercialized. There can be no assurance that the FDA, the EMA or other regulatory authorities will approve such products or that such
products will be brought to market timely or at all, or that the market will be receptive to such products. To the extent that any such drug
products are not successfully developed and subsequently commercialized, the value of our acquired potential milestone and royalty
streams will be negatively affected. The ultimate success of our royalty aggregator strategy will depend on our ability to properly identify
and acquire high quality products and the ability of the applicable counterparty to innovate, develop and commercialize their products, in
increasingly competitive and highly regulated markets. Their inability to do so would negatively affect our ability to receive royalty and/or
milestone payments. In addition, we are dependent, to a large extent, on third parties to enforce certain rights for our benefit, such as
protection of a patent estate, adequate reporting and other protections, and their failure to do so would presumably negatively impact our
financial condition and results of operations.
If the FDA, the EMA or other regulatory authority approves a development-stage product candidate that generates our royalty, the
labeling, packaging, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive
and ongoing regulatory requirements. The subsequent discovery of previously unknown problems with the product, including adverse
events of unanticipated severity or frequency, may result in restrictions on the marketing of the product, and could include withdrawal of
the product from the market.
In addition, the developers of these development-stage product candidates may not be able to raise additional capital to continue
their discovery, development and commercialization activities, which may cause them to delay, reduce the scope of, or eliminate one or
more of their clinical trials or research and development programs. If other product developers introduce and market products that are more
effective, safer, less invasive or less expensive than the relevant products that generate our royalties, or if such developers introduce their
products prior to the competing products underlying our royalties, such products may not achieve commercial success and thereby result in
a loss for us.
Further, the developers of such products may not have sales, marketing or distribution capabilities. If no sales, marketing or
distribution arrangements can be made on acceptable terms or at all, the affected product may not be able to be successfully
commercialized, which will result in a loss for us. Losses from such assets could have a material adverse effect on our business, financial
condition and results of operations.
We intend to continue, and may increase, this strategy of acquiring development-stage product candidates. While we believe that
we can readily evaluate and gain conviction about the likelihood of a development-stage product candidate’s approval and achieving
significant sales, there can be no assurance that our assumptions will prove correct, that regulatory authorities will approve such
development-stage product candidates, that such development-stage product candidates will be brought to market timely or at all, or that
such products will achieve commercial success.
Risks Related to our Industry
Biopharmaceutical products are subject to sales risks.
Biopharmaceutical product sales may be lower than expected due to a number of reasons, including pricing pressures, insufficient
demand, product competition, failure of clinical trials, lack of market acceptance, obsolescence, loss of patent protection, government
regulations, the impact of COVID-19 or other factors, and development-stage product candidates may fail to reach the market. Unexpected
side effects, safety or efficacy concerns can arise with respect to a product, leading to product recalls, withdrawals, declining sales or
litigation. As a result, payments of our future potential milestones and/or royalties may be reduced or cease. In addition, these potential
payments may be delayed, causing our near-term financial performance to be weaker than expected.
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Biopharmaceutical products are subject to substantial competition.
The biopharmaceutical industry is a highly competitive and rapidly evolving industry. The length of any product’s commercial life
cannot be predicted with certainty. There can be no assurance that one or more products on which we are entitled to a potential milestone or
royalty will not be rendered obsolete or non-competitive by new products or improvements on which we are not entitled to a potential
milestone or royalty, either by the current marketer of such products or by another marketer. Current marketers of products may undertake
these development efforts in order to improve their products or to avoid paying our royalty. Adverse competition, obsolescence or
governmental and regulatory action or healthcare policy changes could significantly affect the revenues, including royalty-related revenues,
of the products which generate our potential milestones and royalties.
Competitive factors affecting the market position and success of each product include:
● effectiveness;
● safety and side effect profile;
● price, including third-party insurance reimbursement policies;
● timing and introduction of the product;
● effectiveness of marketing strategy and execution;
● governmental regulation;
● availability of lower-cost generics and/or biosimilars;
● treatment innovations that eliminate or minimize the need for a product; and
● product liability claims.
Biopharmaceutical products that have the potential to generate future milestones and royalties for us may be rendered obsolete or
non-competitive by new products, including generics and/or biosimilars, improvements on existing products or governmental or regulatory
action. In addition, as biopharmaceutical companies increasingly devote significant resources to innovate next-generation products and
therapies using gene editing and new curative modalities, such as cell and gene therapy, products on which we have a milestone or royalty
rights may become obsolete. These developments could have a material adverse effect on the sales of the biopharmaceutical products that
have potential to generate our milestones and royalties, and consequently could materially adversely affect our business, financial condition
and results of operations.
We depend on our licensees and royalty-agreement counterparties for the determination of royalty and milestone payments. While we
typically have primary or back-up rights to audit our licensees and royalty-agreement counterparties, the independent auditors may
have difficulty determining the correct royalty calculation, we may not be able to detect errors and payment calculations may call for
retroactive adjustments. We may have to exercise legal remedies, if available, to resolve any disputes resulting from any such audit.
The royalty, milestone and other payments we may receive are dependent on our licensees and royalty agreement counterparties
and their licensees’ achievement of regulatory and developmental milestones and product sales. Each licensee’s calculation of the royalty
payments is subject to and dependent upon the adequacy and accuracy of its sales and accounting functions, and errors may occur from
time to time in the calculations made by a licensee and/or a licensee may fail to report the achievement of royalties or milestones in whole
or in part. Our license and royalty agreements typically provide us the primary or back-up right to audit the calculations and sales data for
the associated royalty payments; however, such audits may occur many months following our recognition of the royalty revenue, may
require us to adjust
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our royalty revenues in later periods and may require expense on our part. Further, our licensees and royalty-agreement counterparties may
be uncooperative or have insufficient records, which may complicate and delay the audit process.
Although we intend to regularly exercise our royalty audit rights as necessary and to the extent available, we rely in the first
instance on our licensees and royalty-agreement counterparties to accurately report the achievement of milestones and royalty sales and
calculate and pay applicable milestones and royalties and, upon exercise of such royalty and other audit rights, we rely on licensees’ and
royalty-agreement counterparties’ cooperation in performing such audits. In the absence of such cooperation, we may be forced to incur
expenses to exercise legal remedies, if available, to enforce our agreements.
The lack of liquidity of our acquisitions of future potential milestones and royalties may adversely affect our business and, if we need to
sell any of our acquired assets, we may not be able to do so at a favorable price, if at all. As a result, we may suffer losses.
We generally acquire milestone and royalty rights that have limited secondary resale markets and may be subject to transfer
restrictions. The illiquidity of most of our milestone and royalty receivable assets may make it difficult for us to dispose of them at a
favorable price if at all and, as a result, we may suffer losses if we are required to dispose of any or all such assets in a forced liquidation or
otherwise. In addition, if we liquidate all or a portion of our potential future milestone and/or purchased royalty stream interests quickly or
relating to a forced liquidation, we may realize significantly less than the value at which we had previously recorded these interests.
Our royalty aggregator strategy may require that we register with the SEC as an “investment company” in accordance with the
Investment Company Act of 1940.
The rules and interpretations of the SEC and the courts, relating to the definition of "investment company" are very complex.
While we currently intend to conduct our operations so that we will not be an investment company under applicable SEC interpretations,
we can provide no assurance that the SEC would not take the position that the Company would be required to register under the ‘40 Act
and comply with the ‘40 Act’s registration and reporting requirements, capital structure requirements, affiliate transaction restrictions,
conflict of interest rules, requirements for disinterested directors, and other substantive provisions. We monitor our assets and income for
compliance under the ‘40 Act and seek to conduct our business activities to ensure that we do not fall within its definitions of “investment
company” or that we qualify under one of the exemptions or exclusions provided by the ‘40 Act and corresponding SEC regulations. If we
were to become an “investment company” and be subject to the restrictions of the ‘40 Act, those restrictions likely would require
significant changes in the way we do business and add significant administrative costs and burdens to our operations. To ensure we do not
fall within the ‘40 Act, we may need to take various actions which we might otherwise not pursue. These actions may include restructuring
the Company and/or modifying our mixture of assets and income or a liquidation of certain of our assets.
Our licensees or royalty-agreement counterparties or their licensees could be subject to natural disasters, public health crises, political
crises and other catastrophic events that could hinder or disrupt development efforts.
We depend on our licensees and royalty-agreement counterparties and their licensees to successfully develop and commercialize
product candidates for which we may receive milestone, royalty and other payments in the future. Our licensees and royalty-agreement
counterparties and their licensees operate research and development efforts in various locations in the United States and internationally. If
any of their facilities is affected by natural disasters, such as earthquakes, tsunamis, power shortages or outages, floods or monsoons, public
health crises, such as pandemics and epidemics, political crises, such as terrorism, war, political instability, labor disputes or strikes, other
conflict, or other events outside of their control, their research and development efforts could be disrupted, which could result in the delay
or discontinuation of development of one or more of the product candidates in which we have rights to future milestone and/or royalty
payments which could have a material adverse effect on our business, results of operations and prospects.
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Because many of the companies with which we do business also are in the biotechnology sector, the volatility of that sector can affect us
indirectly as well as directly.
The same factors that affect us directly also can adversely affect us indirectly by affecting the ability of our partners and others
with whom we do business to meet their obligations to us and reduce our ability to realize the value of the consideration provided to us by
these other companies in connection with their licensing of our products.
Risks Related to our Financial Results and Capital Requirements
We have sustained losses in the past, and we expect to sustain losses in the foreseeable future.
We have incurred significant operating losses and negative cash flows from operations since our inception. Although we generated
net income of $15.8 million and $13.3 million and positive cash flows from operations of $22.7 million and $10.1 million for the years
ended December 31, 2021 and 2020, respectively, we had an accumulated deficit of $1.2 billion as of December 31, 2021. We do not know
whether we will ever achieve sustained profitability or whether cash flow from future operations will be sufficient to meet our needs.
To date, we have financed our operations primarily through the sale of equity securities and debt and royalty interests, and
payments received under our collaboration and licensing arrangements. The size of our future net losses will depend, in part, on the rate of
our future expenditures and our and our partners’ ability to generate revenues. If our partners’ product candidates are not successfully
developed or commercialized, or if revenues are insufficient following regulatory approval, we will not achieve profitability and our
business may fail. Our ability to achieve profitability is dependent in large part on the success of our and our partners’ ability to license
product candidates, and the success of our partners’ development programs, both of which are uncertain. Our success is also dependent on
our partners obtaining regulatory approval to market product candidates which may not materialize or prove to be successful.
Our royalty aggregator strategy may require us to raise additional funds to acquire milestone and royalty interests; we cannot be certain
that funds will be available or available at an acceptable cost of capital, and if they are not available, we may be unsuccessful in
acquiring milestone and royalty interests to sustain the business in the future.
We may need to commit substantial funds to continue our business, and we may not be able to obtain sufficient funds on
acceptable terms, if at all. Any additional debt financing or additional equity that we raise may contain terms that are not favorable to us
and/or result in dilution to our stockholders, including pursuant to our 2018 Common Stock At The Market Issuance Sales Agreement, as
amended (the “2018 Common Stock ATM Agreement”) and to our 2021 Series B Preferred Stock At The Market Issuance Sales
Agreement (the “2021 Series B Preferred Stock ATM Agreement”). Our Series A Preferred Stock and Series B Preferred Stock, while not
dilutive, includes dividends and required that we establish a segregated cash account adequate to fund the dividends. If we raise additional
funds through licensing arrangements with third parties, we may be required to relinquish some rights to our technologies or our product
candidates, grant licenses on terms that are not favorable to us or enter into a license arrangement for a product candidate at an earlier stage
of development or for a lesser amount than we might otherwise choose.
If adequate funds are not available on a timely basis, we may:
● reduce or eliminate royalty aggregation efforts;
● further reduce our capital or operating expenditures;
● curtail our spending on protecting our intellectual property; or
● take other actions which may adversely affect our financial condition or results of operations.
Changes in the potential royalty acquisition market, including its structure and participants, or a reduction in the growth of the
biopharmaceutical industry, could lead to diminished opportunities for us to acquire potential milestones
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and royalties, fewer potential milestones and royalties (or potential milestones or royalties of significant scale) being available, or increased
competition for potential royalties. Even if we continue to acquire potential royalties and they become actual royalties, they may not
generate a meaningful return for a period of several years, if at all, due to the price we pay for such royalties or other factors relating to the
underlying products. As a result, we may not be able to continue to acquire potential milestones and royalties as we have in the past, or at
all.
We have a continuing obligation to pay quarterly dividends to holders of our Series A Preferred Stock and Series B Preferred Stock,
which will be an on-going expenditure for us and may limit our ability to borrow additional funds.
Holders of our Series A Preferred Stock are entitled to receive, when and as declared by our Board of Directors, out of funds
legally available for the payment of dividends, cumulative cash dividends at the rate of 8.625% of the $25.00 liquidation preference per
year (equivalent to $2.15625 per year). Dividends on the Series A Preferred Stock will accumulate and be cumulative from, and including,
the date of original issue by us of the Series A Preferred Stock. Dividends will be payable in arrears on or about the 15th day of January,
April, July and October beginning April 15, 2021. In the event of any voluntary or involuntary liquidation, dissolution or winding up of our
affairs, the holders of shares of Series A Preferred Stock are entitled to be paid out of our assets legally available for distribution to our
stockholders a liquidation preference of $25.00 per share, plus an amount equal to any accumulated and unpaid dividends up to the date of
payment (whether or not declared), before any distribution or payment may be made to holders of shares of common stock or any other
class or series of our equity stock ranking, as to liquidation rights, junior to the Series A Preferred Stock. The shares of Series A Preferred
Stock are redeemable at our option, in whole or in part, at redemption prices ranging from $26.00 per share to $25.00 per share, plus any
accrued and unpaid dividends, depending on the date of redemption.
Holders of depositary shares representing interests in our Series B Preferred Stock are entitled to receive, when and as declared by
our Board of Directors, out of funds legally available for the payment of dividends, cumulative cash dividends at the rate of 8.375% of the
$25,000 liquidation preference per share of Series B Preferred Stock ($25.00 per depositary share) per year (equivalent to $2,093.75 per
year per share or $2.09375 per year per depositary share). Dividends on the Series B Preferred Stock will accumulate and be cumulative
from, and including, the date of original issue by us of the Series B Preferred Stock. Dividends are payable in arrears on or about the 15th
day of January, April, July and October beginning July 15, 2021. As of December 31, 2021, we held restricted cash of $2.0 million in a
segregated account that may only be used to pay dividends on our Series A and Series B Preferred Stock.
The payment of cash dividends and share repurchases is subject to limitations under applicable laws and the discretion of our
Board of Directors and is determined after considering current conditions, including earnings, other operating results and capital
requirements. Decreases in asset values or increases in liabilities can reduce net earnings and stockholders’ equity. A deficit in
stockholders’ equity could limit our ability to pay dividends and make share repurchases under Delaware law. On the other hand, our
continued obligation to pay dividends to the holders of our Series A Preferred Stock and depositary shares representing interests in Series B
Preferred Stock could restrict us from additional borrowings or make them more costly.
The holders of preferred stock have rights that are senior to those of our common stockholders.
At December 31, 2021, we had issued and outstanding 984,000 shares of Series A Preferred Stock with a liquidation preference of
$25.00 per share, plus an amount equal to any accumulated and unpaid dividends up to the date of payment (whether or not declared).
Additionally, as of December 31, 2021, we had issued and outstanding 1,600,000 depositary shares, each representing a 1/1000th fractional
interest in a share of our Series B Preferred Stock with a liquidation preference of $25,000 per share of Series B Preferred Stock ($25.00
per depositary share), plus an amount equal to any accumulated and unpaid dividends up to the date of payment (whether or not declared).
Our preferred stock is senior to our shares of common stock in right of payment of dividends and other distributions. In the event of our
bankruptcy, dissolution or liquidation, the holders of our preferred stock must be satisfied before any distributions can be made to our
common stockholders.
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Information available to us about the biopharmaceutical products underlying the potential royalties we buy may be limited and
therefore our ability to analyze each product and its potential future cash flow may be similarly limited.
We may have limited information concerning the products generating the future potential milestones and royalties we are
evaluating for acquisition. Often following our acquisition, the information we have regarding products underlying a potential milestone or
royalty may be limited to the information that is available in the public domain. Therefore, there may be material information that relates to
such products that we would like to know but do not have and may not be able to obtain. For example, we do not always know the results
of studies conducted by sponsors of the products of others or the nature or number of any complaints from doctors or users of such
products. In addition, the market data that we obtain independently may also prove to be incomplete or incorrect. Due to these and other
factors, the actual potential cash flow from a potential royalty may be significantly lower than our estimates.
Our future income is dependent upon numerous potential milestone and royalty-specific assumptions and, if these assumptions prove
not to be accurate, we may not achieve our expected rates of returns.
Our business model is based on multiple-year internal and external forecasts regarding potential product sales and numerous
product-specific assumptions in connection with each potential milestone and royalty acquisition, including where we have limited
information regarding the product. There can be no assurance that the assumptions underlying our financial models, including those
regarding potential product sales or competition, patent expirations or license terminations for the products underlying our portfolio, are
accurate. These assumptions involve a significant element of subjective judgment and may be and in the past have been adversely affected
by post-acquisition changes in market conditions and other factors affecting the underlying product. Our assumptions regarding the
financial stability or operational or marketing capabilities of the partner obligated to pay us potential royalties may also prove to be
incorrect. Due to these and other factors, the assets in our current portfolio or future assets may not generate our projected returns or in the
time periods we expect. This could negatively impact our results of operation for a given period.
Reductions or declines in income from potential milestones and royalties, or significant reductions in potential milestone or royalty
payments compared to expectations, or impairments in the value of potential milestones and royalties acquired could have a material
adverse effect on our financial condition and results of operations.
The amount and duration of a royalty usually varies on a country-by-country basis and can be based on a number of factors, such
as payments to third party licensors, whether the product is sold singly or in combination, patent expiration dates, regulatory exclusivity,
years from first commercial sale of the applicable drug product, the entry of competing generic or biosimilar products, or other terms set
out in the contracts governing the royalty. It is common for royalty durations to expire earlier or later than anticipated due to unforeseen
positive or negative developments over time, including with respect to the granting of patents and patent term extensions, the invalidation
of patents, claims of patent misuse, litigation between the party controlling the patents and third party challengers of the patents, the ability
of third parties to design around or circumvent valid patents, the granting of regulatory exclusivity periods or extensions, timing for the
arrival of generic or biosimilar competitor products, changes to legal or regulatory regimes affecting intellectual property rights or the
regulation of pharmaceutical products, product life cycles, and industry consolidations. If an unexpected reduction in a royalty amount or
shortening of a potential royalty term were to occur, it could result in a reduction in potential income from milestones and royalties, a
significant reduction in potential milestones and royalty payments compared to expectations, or a permanent impairment of such potential
milestones and royalty payments.
A large percentage of the calculated net present value of our portfolio is represented by a limited number of products. The failure of
any one of these products to move forward in clinical development or commercialization may have a material adverse effect on our
financial condition and results of operation.
Our asset portfolio may not be fully diversified by product, therapeutic area, geographic region or other criteria. Any significant
deterioration in the amount or likelihood of receipt of potential cash flows from the top products in our asset portfolio could have a material
adverse effect on our business, financial condition and results of operations. For example, in September 2021, Novartis announced its
decision to discontinue its study of CFZ533 (iscalimab) in the prevention of organ rejection in patients receiving a kidney transplant after
an interim analysis of data. In addition, should
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the payor of any future potential milestones or royalties decline to pay such potential milestones and royalties for any reason, such failure
may result in a material adverse effect on our financial condition and results of operation.
Risks Related to Our Reliance on Third Parties
We and our partners rely heavily on license and collaboration relationships, and any disputes or litigation with our partners or
termination or breach of any of the related agreements could reduce the financial resources available to us, including our ability to
receive milestone payments and future potential royalty and other revenues. License or collaboration agreements relating to products
may, in some instances, be unilaterally terminated or disputes may arise which may affect our potential milestones, royalties and other
payments.
License or collaboration agreements relating to the products generating our future potential milestones and royalties and other
payment rights may be terminated, which may adversely affect sales of such products and therefore the potential payments we may receive.
For example, under certain license or collaboration agreements, marketers may retain the right to unilaterally terminate the agreements.
When the last patent covering a product expires or is otherwise invalidated in a country, a marketer may be economically motivated to
terminate the applicable license or collaboration agreement, either in whole or with respect to such country, in order to terminate its
payment and other obligations. In the event of such a termination, a licensor (which may be us in the case of our out-licensed products) or
collaborator may no longer receive all of the payments it expected to receive from the applicable licensee or collaborator and may also be
unable to find another company to continue developing and commercializing the product on the same or similar terms as those under the
license or collaboration agreement that has been terminated.
In addition, license or collaboration agreements may fail to provide significant protection for the applicable licensor (which may
be us in the case of our out-licensed products) or collaborator in case of the applicable licensee’s or collaborator’s failure to perform or in
the event of disputes. License and collaboration agreements which relate to the products underlying our potential future milestones,
royalties and other payment rights, are complex and certain provisions in such agreements may be susceptible to multiple interpretations.
Disputes may arise regarding intellectual property, royalty terms, payment rights or other contractual terms subject to a license or
collaboration agreement, including:
● the scope or duration of rights granted under the license or collaboration agreement and other interpretative issues;
● the amounts or timing of royalties, milestones or other payments due under the license or collaboration agreement;
● the sublicensing of patent or other rights under our license or collaboration relationships;
● the diligence obligations under the license or collaboration agreement and what activities satisfy such diligence obligations:
● the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property
by us or our partners; and
● the priority of invention of patented technology.
The resolution of any contract interpretation disagreement that may arise could narrow what the licensor (which may be us in the
case of our out-licensed products) or collaborator believes to be the scope of its rights to the relevant intellectual property or technology, or
decrease the licensee’s or collaborator’s financial or other obligations under the relevant agreement, any of which could in turn impact the
value of our potential royalties, milestones and other payments and have a material adverse effect on our business, financial condition,
results of operations and prospects. If a marketer were to default on its obligations under a license or collaboration agreement, the
licensor’s or collaborator’s remedy may be limited either to terminating certain licenses or collaborations related to certain countries or to
generally terminate the license or collaboration agreement with respect to such country. In such cases, we may not have the right to seek to
enforce
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the rights of the licensor or collaborator (if not us) and we may be required to rely on the resources and willingness of the licensor or
collaborator (if not us) to enforce its rights against the applicable licensee or collaborator. In any of these situations, if the expected upfront,
milestone, royalty or other payments under the license or collaboration agreements do not materialize, this could result in a significant loss
to us and materially adversely affect our business, financial condition and results of operations. At any given time, the Company may be
engaged in discussions with its licensees or collaborators regarding the interpretation of the payment and other provisions relating to
products as to which we have milestones and potential royalty or other payment rights. Should any such discussions result in a
disagreement regarding a particular product that cannot be resolved satisfactorily to us, we may end up being paid less than anticipated on
such product should it successfully progress through clinical development and be approved for commercialization. Should our milestone
and future potential royalty or other payment interests be reduced or eliminated as result of any such disagreement, it could have an adverse
effect on our business, financial condition, results of operation and prospects.
Our existing collaborations may not continue or be successful, and we may be unable to enter into future collaborative
arrangements to develop and commercialize our unpartnered assets. Generally, our current collaborative partners also have the right to
terminate their collaborations at will or under specified circumstances. If any of our collaborative partners breach or terminate their
agreements with us or otherwise fail to conduct their collaborative activities successfully (for example, by not making required payments
when due, or at all or failing to engage in commercially reasonable efforts to develop products if required), our product development under
these agreements will be delayed or terminated.
Our potential milestone and royalty providers may rely on third parties to provide services in connection with their product candidate
development and manufacturing programs. The inadequate performance by or loss of any of these service providers could affect our
potential milestone and royalty providers’ product candidate development.
Third parties provide services in connection with preclinical and clinical development programs, including in vitro and in vivo
studies, assay and reagent development, immunohistochemistry, toxicology, pharmacokinetics, clinical trial support, manufacturing and
other outsourced activities. If these service providers do not adequately perform the services for which our potential milestone and royalty
providers have contracted, or cease to continue operations, and are not able to find a replacement provider quickly or lose information or
items associated with their drug product candidates, our potential milestone and royalty providers’ development programs and receipt of
any potential resulting income may be delayed.
Agreements with other third parties, many of which are material to our business, expose us to numerous risks and have caused us to
incur additional liabilities.
Because our licensees, suppliers and contractors are independent third parties, they may be subject to different risks than we are
and have significant discretion in, and different criteria for, determining the efforts and resources they will apply related to their agreements
with us. If these licensees, suppliers and contractors do not successfully perform the functions for which they are responsible, we may not
have the capabilities, resources or rights to do so on our own.
We do not know whether we or our licensees will successfully develop and market any of the products that are or may become the
subject of any of our licensing arrangements. In addition, third-party arrangements such as ours also increase uncertainties in the related
decision-making processes and resulting progress under the arrangements, as we and our licensees may reach different conclusions, or
support different paths forward, based on the same information, particularly when large amounts of technical data are involved.
In addition, under the contracts with HCRP, the amortization for the reporting period is calculated based on the payments expected
to be made by the licensees to HCRP over the term of the arrangement. Any changes to the estimated payments by the licensees to HCRP
can result in a material adjustment to revenue previously reported.
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Failure of our potential milestone and royalty providers’ product candidates to meet current Good Manufacturing Practices standards
may subject our licensees to delays in regulatory approval and penalties for noncompliance.
Our potential milestone and royalty providers may rely on third party manufacturers and such contract manufacturers are required
to produce clinical product candidates under cGMP to meet acceptable standards for use in clinical trials and for commercial sale, as
applicable. If such standards change, the ability of contract manufacturers to produce our potential milestone and royalty providers’ drug
product candidates on the schedule required for clinical trials or to meet commercial requirements may be affected. In addition, contract
manufacturers may not perform their obligations under their agreements with our potential milestone and royalty providers or may
discontinue their business before the time required by us to successfully produce clinical and commercial supplies of our potential
milestone and royalty providers’ product candidates.
Contract manufacturers are subject to pre-approval inspections and periodic unannounced inspections by the FDA and
corresponding state and foreign authorities to ensure strict compliance with cGMP and other applicable government regulations and
corresponding foreign standards. We do not have control over a third-party manufacturer’s compliance with these regulations and
standards. Any difficulties or delays in contractors’ manufacturing and supply of our potential milestone and royalty providers’ product
candidates or any failure of our potential milestone and royalty providers’ contractors to maintain compliance with the applicable
regulations and standards could increase costs, reduce revenue, make our licensees postpone or cancel clinical trials, prevent or delay
regulatory approval by the FDA and corresponding state and foreign authorities, prevent the import and/or export of our potential milestone
and royalty providers’ product candidates, or cause any of our potential milestone and royalty providers’ products that may be approved for
commercial sale to be recalled or withdrawn.
Certain of our technologies are in-licensed from third parties, so our and our licensees’ capabilities use of them may be restricted and
subject to additional risks.
We have licensed technologies from third parties. These technologies include phage display technologies licensed to us in
connection with our bacterial cell expression technology licensing program and antibody products. However, our and our licensees and
collaborators’ use of these technologies is limited by certain contractual provisions in the licenses relating to them, and although we have
obtained numerous licenses, intellectual property rights in the area of phage display are particularly complex. If we are unable to maintain
our licenses, patents or other intellectual property, we could lose important protections that are material to continuing our operations and for
future prospects. Our licensors also may seek to terminate our license, which could cause us and our licensees to lose the right to use the
licensed intellectual property and adversely affect our and our licensees’ ability to commercialize our technologies, products or services.
Risks Related to Our Milestone Royalty Streams
We may not be able to successfully identify and acquire potential milestone and royalty streams on other products, product candidates,
or programs, or other companies to grow and diversify our business, and, even if we are able to do so, we may not be able to
successfully manage the risks associated with integrating any such products, product candidates, programs or companies into our
business or we may otherwise fail to realize the anticipated benefits of these acquisitions.
To grow and diversify our business, we plan to continue our business development efforts to identify and seek to acquire and/or
in-license potential milestone and royalty streams or companies. Future growth through acquisition or in-licensing will depend upon the
availability of suitable products, product candidates, programs or companies for acquisition or in-licensing on acceptable prices, terms and
conditions. Even if appropriate opportunities are available, we may not be able to acquire rights to them on acceptable terms, or at all. The
competition to acquire or in-license rights to promising products, product candidates, programs and companies is fierce, and many of our
competitors are large, multinational pharmaceutical and biotechnology companies with considerably more financial, development and
commercialization resources, personnel, and experience than we have. In order to compete successfully in the current business climate, we
may have to pay higher prices for assets than may have been paid historically, which may make it more difficult for us to realize an
adequate return on any acquisition.
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Even if we are able to successfully identify and acquire or in-license new products, product candidates, programs or companies,
we may not be able to successfully manage the risks associated with integrating any products, product candidates, programs or companies
into our business or the risks arising from anticipated and unanticipated problems in connection with an acquisition or in-licensing. Further,
while we seek to mitigate risks and liabilities of potential acquisitions through, among other things, due diligence, indemnification and risk
allocation, there may be risks and liabilities that such due diligence efforts fail to discover, that are not disclosed to us, or that we
inadequately assess. Any failure in identifying and managing these risks and uncertainties effectively would have a material adverse effect
on our business. In any event, we may not be able to realize the anticipated benefits of any acquisition or in-licensing for a variety of
reasons, including the possibility that a product candidate fails to advance to clinical development, proves not to be safe or effective in
clinical trials, or that a product fails to reach its forecasted commercial potential or that the integration of a product, product candidate,
program or company gives rise to unforeseen difficulties and expenditures. Any failure in identifying and managing these risks and
uncertainties would have a material adverse effect on our business.
If our potential royalty providers’ therapeutic product candidates do not receive regulatory approval, our potential royalty providers
will be unable to market them.
Our potential royalty providers’ product candidates cannot be manufactured and marketed in the United States or any other
countries without required regulatory approvals. The U.S. government and governments of other countries extensively regulate many
aspects of our product candidates, including:
● clinical development and testing;
● manufacturing;
● labeling;
● storage;
● record keeping;
● promotion and marketing; and
● importing and exporting.
In the United States, the FDA regulates pharmaceutical products under the Federal Food, Drug, and Cosmetic Act and other laws,
including, in the case of biologics, the Public Health Service Act.
Initiation of clinical trials requires approval by health authorities. Clinical trials involve the administration of the investigational
new drug to healthy volunteers or to patients under the supervision of a qualified principal investigator. Clinical trials must be conducted in
accordance with FDA and International Conference on Harmonization Good Clinical Practices and the European Clinical Trials Directive,
as applicable, under protocols that detail the objectives of the study, the parameters to be used to monitor safety and the efficacy criteria to
be evaluated. Other national, foreign and local regulations also may apply. The developer of the drug must provide information relating to
the characterization and controls of the product before administration to the patients participating in the clinical trials. This requires
developing approved assays of the product to test before administration to the patient and during the conduct of the trial. In addition,
developers of pharmaceutical products must provide periodic data regarding clinical trials to the FDA and other health authorities, and
these health authorities may issue a clinical hold upon a trial if they do not believe, or cannot confirm, that the trial can be conducted
without unreasonable risk to the trial participants.
The results of the preclinical studies and clinical testing, together with chemistry, manufacturing and controls information, are
submitted to the FDA and other health authorities in the form of a NDA for a drug, and in the form of a BLA for a biological product,
requesting approval to commence commercial sales. In responding to an NDA or BLA, the FDA or foreign health authorities may grant
marketing approvals, request additional information or further research, or
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deny the application if they determine the application does not satisfy regulatory approval criteria. Regulatory approval of an NDA, BLA,
or supplement is never guaranteed. The approval process can take several years, is extremely expensive and can vary substantially based
upon the type, complexity, and novelty of the products involved, as well as the target indications. Our potential royalty providers ultimately
may not be able to obtain approval in a timely fashion or at all.
The FDA and foreign health authorities have substantial discretion in the drug and biologics approval processes. Despite the time
and expense incurred, failure can occur at any stage, and our potential development partners could encounter problems that cause
abandonment of clinical trials or cause them to repeat or perform additional preclinical, clinical or manufacturing-related studies.
Changes in the regulatory approval policy during the development period, changes in, or the enactment of additional regulations or
statutes, or changes in regulatory review for a submitted product application may cause delays in the approval or rejection of an
application.
The FDA and other regulatory agencies have substantial discretion in both the product approval process and manufacturing
facility approval process, and as a result of this discretion and uncertainties about outcomes of testing, we cannot predict at what point, or
whether, the FDA or other regulatory agencies will be satisfied with our licensees’ submissions or whether the FDA or other regulatory
agencies will raise questions that may be material and delay or preclude product approval or manufacturing facility approval. In light of this
discretion and the complexities of the scientific, medical and regulatory environment, our or our potential royalty providers’ interpretation
or understanding of the FDA’s or other regulatory agencies’ requirements, guidelines or expectations may prove incorrect, which also could
delay further or increase the cost of the approval process.
Our potential milestone and royalty providers face uncertain results of clinical trials of product candidates.
Drug development has inherent risk, and our potential milestone and royalty providers are required to demonstrate through
adequate and well-controlled clinical trials that product candidates are effective, with a favorable benefit-risk profile for use in their target
profiles before they can seek regulatory approvals for commercial use. It is possible our potential royalty providers may never receive
regulatory approval for any licensed product candidates. Even if a product candidate receives regulatory approval, the resulting product
may not gain market acceptance among physicians, patients, healthcare payors and the medical community.
Our potential milestone and royalty providers’ product candidates require significant additional research and development,
extensive preclinical studies and clinical trials and regulatory approval prior to any commercial sales. This process is lengthy and
expensive, often taking a number of years. As clinical results frequently are susceptible to varying interpretations that may delay, limit or
prevent regulatory approvals, the length of time necessary to complete clinical trials and to submit an application for marketing approval
for a final decision by a regulatory authority varies significantly. As a result, it is uncertain whether:
● our potential milestone and royalty providers’ future filings will be delayed;
● our potential milestone and royalty providers’ preclinical studies will be successful;
● our potential milestone and royalty providers will be successful in generating viable product candidates;
● we will be successful in finding collaboration and licensing partners to advance our product candidates on our behalf;
● our potential milestone and royalty providers will be able to provide necessary data;
● results of future clinical trials by our potential milestone and royalty providers will justify further development; or
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● our potential milestone and royalty providers ultimately will achieve regulatory approval for product candidates in which we
have an interest.
The timing of the commencement, continuation and completion of clinical trials by our potential milestone and royalty providers
may be subject to significant delays relating to various causes, including failure to complete preclinical testing and earlier-stage clinical
trials in a timely manner, inability to engage contract research organizations and other service providers, scheduling conflicts with
participating clinicians and clinical institutions, changes in key personnel at clinical institutions, difficulties in identifying and enrolling
patients who meet trial eligibility criteria and shortages of available drug supply. In addition, since we and our royalty agreement
counterparties license our product candidates to others to fund and conduct clinical trials, we, and they, have limited control over how
quickly and efficiently such licensees advance those trials. Patient enrollment is a function of many factors, including the size of the patient
population, the proximity of patients to clinical sites, the concentration of patients in specialist centers, the eligibility criteria for the trial,
the existence of competing clinical trials and the availability of alternative or new treatments. Regardless of the initial size or relative
complexity of a clinical trial, the costs of such trial may be higher than expected due to increases in duration or size of the trial, changes in
the protocol under which the trial is being conducted, additional or special requirements of one or more of the healthcare centers where the
trial is being conducted, or changes in the regulatory requirements applicable to the trial or in the standards or guidelines for approval of the
product candidate being tested or for other unforeseen reasons.
In addition, our potential milestone and royalty providers may conduct clinical trials in foreign countries, which may subject them
to further delays and expenses as a result of increased drug shipment costs, additional regulatory requirements and the engagement of
foreign clinical research organizations, and may expose our potential milestone and royalty providers to risks associated with foreign
currency transactions to make contract payments denominated in the foreign currency where the trial is being conducted.
New products and technologies of other companies may render some or all of our potential milestone and royalty providers’ product
candidates noncompetitive or obsolete.
New developments by others may render our potential milestone and royalty providers’ product candidates or technologies
obsolete or uncompetitive. Technologies developed and utilized by the biotechnology and pharmaceutical industries are changing
continuously and substantially. Competition in antibody-based technologies is intense and is expected to increase in the future as a number
of established biotechnology firms and large chemical and pharmaceutical companies advance in these fields. Many of these competitors
may be able to develop products and processes competitive with or superior to our potential milestone and royalty providers for many
reasons, including that they may have:
● significantly greater financial resources;
● larger research and development staffs;
● entered into arrangements with, or acquired, biotechnology companies to enhance their capabilities; or
● extensive experience in preclinical testing and human clinical trials.
These factors may enable others to develop products and processes competitive with or superior to our own or those of our
potential milestone and royalty providers. In addition, a significant amount of research in biotechnology is being carried out in universities
and other non-profit research organizations. These entities are becoming increasingly interested in the commercial value of their work and
may become more aggressive in seeking patent protection and licensing arrangements. Furthermore, many companies and universities tend
not to announce or disclose important discoveries or development programs until their patent position is secure or, for other reasons, later.
As a result, we and our potential milestone and royalty providers may not be able to track development of competitive products,
particularly at the early stages.
Positive developments in connection with a potentially competing product may have an adverse impact on our future potential for
receiving revenue derived from development milestones and royalties. For example, if another product
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is perceived to have a competitive advantage, or another product’s failure is perceived to increase the likelihood that our licensed product
will fail, our potential milestone and royalty providers may halt development of product candidates in which we have an interest.
Our potential royalty providers may be unable to price our products effectively or obtain coverage and adequate reimbursement for
sales of our products, which would prevent our potential royalty providers’ products from becoming profitable and negatively affect the
royalties we may receive.
If our potential royalty providers succeed in bringing our product candidates to the market, they may not be considered cost
effective, and reimbursement to the patient may not be available or may not be sufficient to allow our potential royalty providers to sell the
products on a competitive basis. In both the United States and elsewhere, sales of medical products and treatments are dependent, in part,
on the availability of coverage and adequate reimbursement from third-party payors, such as government and private insurance plans.
Significant uncertainty exists as to the coverage and reimbursement status of any products for which our potential royalty providers may
obtain regulatory approval. Even if coverage is available, the associated reimbursement rate may not be adequate for our potential royalty
providers to cover related marketing costs. Additionally, coverage and reimbursement policies for drug products can differ significantly
from payor to payor as there is no uniform policy of coverage and reimbursement for drug products among third-party payors in the United
States. Therefore, the process of obtaining coverage and reimbursement is often time-consuming and costly. Thus, even if our partners’
product candidates are approved by the FDA, our royalty partners may not be able to price the products effectively or obtain coverage and
adequate reimbursement for their products, which could adversely affect the royalties we receive.
Third-party payors are increasingly challenging the prices charged for pharmaceutical products and services. Our business is
affected by the efforts of government and third-party payors to contain or reduce the cost of healthcare through various means. In the
United States, there have been and will continue to be a number of federal and state proposals to implement government controls on
pricing.
In addition, the emphasis on managed care in the United States has increased and will continue to increase the pressure on the
pricing of pharmaceutical products. We cannot predict whether any legislative or regulatory proposals will be adopted or the effect these
proposals or managed care efforts may have on our or our potential milestone and royalty providers’ businesses.
We do not know whether there will be, or will continue to be, a viable market for the product candidates in which we have an ownership
or royalty interest.
Even if product candidates in which we have an interest receive approval in the future, they may not be accepted in the
marketplace. In addition, our potential royalty providers may experience difficulties in launching new products, many of which are novel
and based on technologies that are unfamiliar to the healthcare community. We have no assurance healthcare providers and patients will
accept such products, if developed. Similarly, physicians may not accept a product if they believe other products to be more effective or
more cost effective or are more comfortable prescribing other products.
Furthermore, government agencies, as well as private organizations involved in healthcare, from time to time publish guidelines or
recommendations to healthcare providers and patients. Such guidelines or recommendations can be very influential and may adversely
affect product usage directly (for example, by recommending a decreased dosage of a product in conjunction with a concomitant therapy)
or indirectly (for example, by recommending a competitive product over a product in which we have an ownership or royalty interest).
Consequently, we do not know if physicians or patients will adopt or use products in which we have an ownership or royalty interest for
their approved indications.
Even approved and marketed products are subject to risks relating to changes in the market for such products. Introduction or
increased availability of generic or biosimilar versions of products can alter the market acceptance of branded products. In addition,
unforeseen safety issues may arise at any time, regardless of the length of time a product has been on the market which may lead to
litigation, increased costs and delays or removal of the product from the market.
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We are exposed to an increased risk of product liability claims.
The testing, marketing and sales of medical products entails an inherent risk of allegations of product liability. In the past, we were
party to product liability claims filed against Genentech Inc. and, even though Genentech agreed to indemnify us in connection with these
matters and these matters have been settled, there can be no assurance other product liability lawsuits will not result in defense costs and/or
liability to us or that our insurance or contractual arrangements will provide us with adequate protection against such liabilities. In the event
of one or more large, unforeseen awards of damages against us, our product liability insurance may not provide adequate coverage. A
significant product liability claim for which we were not adequately covered by insurance or indemnified by a third party would have to be
paid from cash or other assets, which could have an adverse effect on our business, financial condition and the value of our common stock.
To the extent we have sufficient insurance coverage, such a claim would presumably result in higher subsequent insurance rates. In
addition, product liability claims can have various other ramifications, regardless of merit or eventual outcome, including loss of future
sales opportunities, discontinuation of clinical trials, increased costs associated with replacing products, a negative impact on our goodwill
and reputation, costs to defend litigation, and divert our management’s attention from our business, each of which could also adversely
affect our business and operating results.
If we and our potential royalty providers are unable to protect our intellectual property, in particular patent protection for principal
products, product candidates and processes in which we have an ownership or royalty interest, and prevent the use of the covered
subject matter by third parties, our potential royalty providers’ ability to compete in the market will be harmed, and we may not realize
our profit potential.
We and our potential royalty providers rely on patent protection, as well as a combination of copyright, trade secret, and trademark
laws to protect our proprietary technology and prevent others from duplicating our products or product candidates. However, these means
may afford only limited protection and may not:
● prevent our competitors from duplicating our products and those of our potential royalty providers;
● prevent our competitors from gaining access to our proprietary information and technology and that of our potential royalty
providers; or
● permit us or our potential royalty providers to gain or maintain a competitive advantage.
Because of the length of time and the expense associated with bringing new products to the marketplace, we and our potential
royalty providers hold and are in the process of applying for a number of patents in the United States and abroad to protect product
candidates and important processes and also have obtained or have the right to obtain exclusive licenses to certain patents and applications
filed by others. However, the mere issuance of a patent is not conclusive as to its validity or its enforceability.
The U.S. Federal Courts, the U.S. Patent & Trademark Office or equivalent national courts or patent offices elsewhere may
invalidate our patents or find them unenforceable. The America Invents Act introduced post-grant review procedures subjecting U.S.
patents to post-grant review procedures similar to European oppositions. U.S. patents owned or licensed by us or our licensees may
therefore be subject to post-grant review procedures, as well as other forms of review and re-examination. A decision in such proceedings
adverse to our interests could result in the loss of valuable patent rights, which would have a material adverse effect on our business. In
addition, the laws of foreign countries may not protect our intellectual property rights effectively or to the same extent as the laws of the
United States.
If our, and our potential royalty providers intellectual property rights are not protected adequately, our potential royalty providers
may not be able to commercialize technologies or products in which we have an ownership or royalty interest, and our competitors could
commercialize such technologies or products, which could result in a decrease in our potential royalty providers’ sales and market share
that would harm our business and operating results. Specifically, the patent position of biotechnology companies generally is highly
uncertain and involves complex legal and factual questions.
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The legal standards governing the validity of biotechnology patents are in transition, and current defenses as to issued biotechnology
patents may not be adequate or available in the future. Accordingly, there is uncertainty as to:
● whether any pending or future patent applications held by us or our potential royalty providers will result in an issued patent,
or whether issued patents will provide meaningful protection against competitors or competitive technologies;
● whether competitors will be able to design around our or our potential royalty providers’ patents or develop and obtain patent
protection for technologies, designs or methods that are more effective than those covered by our or our potential royalty
providers’ patents and patent applications; or
● the extent to which our or our potential royalty providers’ product candidates could infringe on the intellectual property rights
of others, which may lead to costly litigation, result in the payment of substantial damages or royalties, reduce the royalty rate
due to us, and prevent our potential royalty providers from using our technology or product candidates.
If certain patents issued to others are upheld or if certain patent applications filed by others are issued and upheld, our potential
royalty providers may require licenses from others to develop and commercialize certain potential products in which we have an ownership
or royalty interest. These licenses, if required, may not be available on acceptable terms, or may trigger contractual royalty offset clauses in
our license agreements, or those of our royalty-agreement counterparties. We may become involved in litigation to determine the
proprietary rights of others, and any such litigation will presumably be costly, time consuming, may not be adequately covered by
insurance and may have other adverse effects on our business, such as inhibiting our potential royalty providers’ ability to compete in the
marketplace and absorbing significant management time.
Due to the uncertainties regarding biotechnology patents, we also have relied and will continue to rely upon trade secrets, know-
how and continuing technological advancement to develop and maintain our competitive position. Our employees and contractors are
typically required to sign confidentiality agreements under which they agree not to use or disclose any of our proprietary information.
Research and development contracts and relationships between us and our scientific consultants and potential licensees provide access to
aspects of our know-how that are protected generally under confidentiality agreements. These confidentiality agreements may be breached
or may not be enforced by a court. To the extent proprietary information is divulged to competitors or to the public generally, such
disclosure may adversely affect our licensees’ ability to develop or commercialize our products by giving others a competitive advantage or
by undermining our patent position.
In addition, periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and or
applications will be due to the U.S. and various foreign patent offices at various points over the lifetime of our and our licensees’ patents
and/or applications. We have systems in place to remind us to pay these fees, and we rely on our outside patent annuity service to pay these
fees when due. Additionally, the U.S. and various foreign patent offices require compliance with a number of procedural, documentary, fee
payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals to help
us comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with rules
applicable to the particular jurisdiction. However, there are situations in which noncompliance can result in abandonment or lapse of the
patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If such an event were to occur,
it could have a material adverse effect on our business.
Litigation regarding intellectual property and/or the enforcement of our contractual rights against licensees and third parties can be
costly and expose us to risks of counterclaims against us.
We may be required to engage in litigation or other proceedings to protect our intellectual property and/or enforce our contractual
rights against former or current licensees or third parties, including third-party collaborators of such licensees. The cost to us of this
litigation, even if resolved in our favor, could be substantial and parties to such litigation may be able to sustain the cost of such litigation
and proceedings more effectively than we can if they have substantially greater resources than us. Such litigation and any negotiations
leading up to it also may be time-consuming and could
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divert management’s attention and resources. If this litigation is resolved against us, we may lose the value associated with contract rights
contained in our arrangements with licensees and third parties, our patents may be declared invalid, and we could be held liable for
significant damages. While it is our current plan to pursue, on a selective basis, potential material contractual breaches against licensees
and third parties (including third-party collaborators of licensees) and/or infringement of our intellectual property rights or technology,
there can be no assurance that any such enforcement actions will be successful, or if successful, the timing of such success or that we will
have sufficient capital to prosecute any such actions to a successful conclusion.
In addition, we may be subject to claims that we, or our licensees, are infringing other parties’ patents. If such claims are resolved
against us, we or our licensees may be enjoined from developing, manufacturing, selling or importing products, processes or services
unless we obtain a license from the other party. Such license may not be available on reasonable terms or at all, thus preventing us, or our
licensees, from using these products, processes or services and adversely affecting our potential future revenue.
Uncertainties resulting from our participation in intellectual property litigation or other proceedings could have a material adverse
effect on our ability to compete in the marketplace. There could also be public announcements of the results of hearings, motions or interim
proceedings or developments. If securities analysts or investors perceive these results to be negative, the perceived value of the drug
product candidates as to which we hold future potential milestone or royalty interests, or intellectual property could be diminished.
Accordingly, the market price of our common stock may decline. Uncertainties resulting from the initiation and continuation of intellectual
property litigation or other proceedings could have a material adverse effect of our business, financial condition and results of operation.
Risks Related to Employees, Location, Data Integrity, and Litigation
The loss of, COVID-19 related absence of, or changes in any of our key personnel, could delay or prevent achieving our objectives.
Our business efforts could be adversely affected by the loss or COVID-19 related absence of one or more key members of our
staff. We currently do not have key person insurance on any of our employees. In addition, given our minimal employee base, a COVID-19
outbreak in our employee population could significantly hinder our ability to meet our operating objectives. Furthermore, in December
2021, we announced James R. Neal notified us of his decision to retire as our Chief Executive Officer, effective at the earlier of (i)
December 31, 2022, or (ii) the date we hire a new Chief Executive Officer. Changes in management may cause disruption in our business,
strategic and employee relationships, which may delay or prevent the achievement of our business objectives. During the transition periods,
there may be uncertainty among investors, employees and others concerning our future direction and performance.
Because we are a small biopharmaceutical focused company with limited resources, we may not be able to attract and retain qualified
personnel.
We had 12 employees as of March 3, 2022. We may require additional experienced executive, accounting, legal, administrative
and other personnel from time to time in the future. We are highly dependent on principal members of our executive team, the loss of
whose services may adversely impact the achievement of our objectives. There is intense competition for the services of these personnel,
especially in California.
Moreover, we expect the high cost of living in the San Francisco Bay Area, where our headquarters is located, may impair our
ability to attract and retain employees in the future. If we do not succeed in attracting new personnel and retaining and motivating existing
personnel, our business may suffer and we may be unable to implement our current initiatives or grow effectively.
While Mr. Neal has agreed to continue as the Chairman and Chief Executive Officer as per the terms of the separation agreement,
there can be no assurance that a replacement will be found on a timely basis, or at all. Our inability to find a suitable replacement may have
a detrimental impact on the organization and impede the progress of our research, development and commercialization objectives.
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We rely and will continue to rely on outsourcing arrangements for many of our activities, including financial reporting and accounting
and human resources.
Due to our small number of employees, we rely, and expect to continue to rely, on outsourcing arrangements for a significant
portion of our activities, including financial reporting and accounting and human resources, as well as for certain of our functions as a
public company. We may have limited control over these third parties and we cannot guarantee that they will perform their obligations in an
effective and timely manner.
Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and
requirements and insider trading.
We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to
comply with applicable regulations, provide accurate information to regulatory authorities, comply with federal and state fraud and abuse
laws and regulations, report financial information or data accurately or disclose unauthorized activities to us. In particular, the health care
industry is subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive
practices. It is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this
activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or
other actions or lawsuits stemming from a failure to be in compliance with these laws or regulations. If any such actions are instituted
against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our
business, including the imposition of significant fines or other sanctions.
Natural disasters, power shortages, power interruptions or other calamities at our Emeryville headquarters could disrupt our business
and adversely affect our operations.
Our corporate headquarters is located in Emeryville, California. This location is in an area of seismic activity near active
earthquake faults. Any earthquake, tsunami, terrorist attack, riot, fire, power shortage or other calamity affecting our facilities may disrupt
our business and could have material adverse effect on our results of operations.
If a natural disaster, power outage or other event occurred that prevented us from using all or a significant portion of our
headquarters, that damaged critical infrastructure or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible
for us to continue our business for a substantial period of time. We may incur substantial expenses as a result of the limited nature of our
disaster recovery and business continuity plans, which, particularly when taken together with our lack of earthquake insurance, could have
a material adverse effect on our business.
Our business and operations would suffer in the event of system failures.
Despite the implementation of security measures, our internal computer systems and those of our current and any future licensees,
suppliers, contractors and consultants are vulnerable to damage from cyberattacks, computer viruses, unauthorized access, natural disasters,
terrorism, war and telecommunication and electrical failures. We could experience failures in our information systems and computer
servers, which could be the result of a cyberattacks and could result in an interruption of our normal business operations and require
substantial expenditure of financial and administrative resources to remedy. System failures, accidents or security breaches can cause
interruptions in our operations and can result in a material disruption of our development programs and other business operations. The loss
of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly
increase our costs to recover or reproduce the data. Similarly, we rely on third parties to manufacture our product candidates, and conduct
clinical trials of our product candidates, and similar events relating to their computer systems could also have a material adverse effect on
our business. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or
inappropriate disclosure of confidential or proprietary information, we could incur liability and the development of any of our product
candidates could be delayed or otherwise adversely affected.
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If our information technology systems or data are or were compromised by data breaches, cyberattacks, or other security incidents our
intellectual property or other sensitive information could be exposed or stolen and we could experience adverse consequences,
including regulatory investigations or actions; litigation; fines and penalties; a disruption of our business operations; reputational
harm; loss of revenue or profits; loss of customers or sales; and other adverse business consequences.
Our business is increasingly dependent on critical, complex and interdependent information technology systems, including cloud-
based systems, to support business processes as well as internal and external communications. Our computer systems, and those of our
partners and contractors, are potentially vulnerable to breakdown, malicious intrusion and computer viruses that may result in the
impairment of key business processes. Such disruptions and breaches of security could have a material adverse effect on our business,
financial condition and results of operations.
In addition, our data security and information technology systems, as well as those of our partners and contractors, are potentially
vulnerable to data security breaches, whether by employees or others, that may expose sensitive data or personal information to
unauthorized persons.
In the ordinary course of our business, we maintain sensitive data on our networks, including our intellectual property and
proprietary or confidential business information relating to our business and that of our customers and business partners. The secure
maintenance and protection of this information is critical to our business and reputation. We believe companies have been increasingly
subject to a wide variety of security incidents, cyberattacks and other attempts to gain unauthorized access. These threats can come from a
variety of sources, all ranging in sophistication from a person with authorized access to our network, to an individual hacker, to a state-
sponsored attack. Cyber threats may be intentional or accidental, generic or commodity in nature, or they may be custom-crafted against
our information systems. Cyberattacks have become more prevalent and much harder to detect and defend against. Our network and
storage applications may be subject to unauthorized access by hackers or breached due to operator error, malfeasance or other system
disruptions. It is often difficult to anticipate or immediately detect such incidents and the damage caused by such incidents. These data
breaches and any unauthorized access or disclosure of our information or intellectual property could compromise our intellectual property
and expose sensitive business information. A data security breach could also lead to public exposure of personal information of our clinical
trial patients, customers and others which could expose us to liability under foreign, federal, or state privacy laws. Cyberattacks can result
in the theft of proprietary information which could be used to compete against us and could cause us to incur significant remediation costs,
result in product development delays, disrupt key business operations and divert attention of management and key information technology
resources. These incidents could also subject us to liability, expose us to significant expense and cause significant harm to our reputation
and business.
Authorities worldwide have been warning businesses of increased cybersecurity threats from actors seeking to exploit the COVID-
19 pandemic. Moreover, failure to maintain effective internal accounting controls related to data security breaches and cybersecurity in
general could impact our ability to produce timely and accurate financial statements and could subject us to regulatory scrutiny. In addition,
these breaches and other inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm of the
type described above. Moreover, the prevalent use of mobile devices that access confidential information increases the risk of data security
breaches, which could lead to the loss of confidential information, trade secrets or other intellectual property. While we have implemented
security measures that are intended to protect our data security and information technology systems, such measures may not prevent such
events.
We are subject to stringent and changing obligations related to data privacy and security. Significant disruptions of information
technology systems, including cloud-based systems, or breaches of data security could adversely affect our business. Our actual or
perceived failure to comply with any privacy or data security obligations could lead to regulatory investigations or actions; litigation;
fines and penalties; a disruption of our business operations; reputational harm; loss of revenue or profits; loss of customers or sales;
and other adverse business consequences.
We process sensitive and confidential information (including personal data), which subjects us to various obligations related to
data privacy and security (e.g., U.S. and foreign law, regulations, guidance, industry standards, policies, contracts, and other obligations).
For example, the EU implemented in 2018 the GDPR a broad data protection
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framework that expands the scope of current EU data protection law to non-European Union entities that process, or control the processing
of, the personal information of EU subjects, including clinical trial data. The GDPR allows for the imposition of fines and/or corrective
action on entities that improperly use or disclose the personal information of EU subjects, including through a data security breach.
In the U.S., the CCPA became effective on January 1, 2020. The CCPA establishes a privacy framework for covered businesses,
including an expansive definition of personal information and data privacy rights for California residents. Additionally, although not
effective until January 1, 2023, the CPRA, which expands upon the CCPA, was passed in the election on November 3, 2020. The CCPA
gives (and the CPRA will give) California residents expanded privacy rights, including the right to request correction, access and deletion
of their personal information, the right to opt out of certain personal information sharing, and the right to receive detailed information about
how their information is processed. The CCPA and CPRA include a framework with potentially severe statutory damages and private rights
of action and will likely impact our business activities, along with increasing our compliance costs and potential liability. If we fail to
comply with the CCPA and CPRA, we may face significant fines and penalties that could adversely affect our business, financial condition
and results of operations. Other states are beginning to pass similar laws. For example, on March 2, 2021, Virginia enacted the Virginia
Consumer Data Protection Act, or CDPA, which becomes effective on January 1, 2023, and on June 8, 2021, Colorado enacted the
Colorado Privacy Act, or CPA, which takes effect on July 1, 2023.
Complying with the GDPR, CCPA, CPRA, CDPA, CPA, or other laws, regulations, amendments to or re-interpretations of
existing laws and regulations, and contractual or other obligations relating to privacy, data protection, data transfers, data localization, or
information security may require us to make changes to our business to enable us to meet new legal requirements, incur substantial
operational costs, modify our data practices and policies, and restrict our business operations. Further, data incidents experienced by us,
our partners or contractors could lead to significant fines, required corrective action, the loss of trade secrets or other intellectual property,
public disclosure of sensitive clinical or commercial data, and the exposure of personally identifiable information (including sensitive
personal information) of our employees, partners, and others. A data security breach or privacy violation that leads to disclosure or
modification of, or prevents access to, patient information, including personally identifiable information or protected health information,
could result in fines, increased costs or loss of revenue as a result of:
● harm to our reputation;
● fines imposed on us by regulatory authorities;
● additional compliance obligations under federal, state or foreign laws;
● requirements for mandatory corrective action to be taken by us; and
● requirements to verify the correctness of database contents and otherwise subject us to liability under laws and regulations
that protect personal data.
In addition, cyber incidents can be difficult to detect, and any delay in identifying them may lead to increased harm of the type
described above. Moreover, the prevalent use of mobile devices that access confidential information increases the risk of data security
breaches. While we have implemented security measures to protect our data security and information technology systems, such measures
may not prevent such events. Lastly, we cannot guarantee that we are in compliance with all applicable data protection laws and regulations
as they are enforced now or as they evolve.
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Risks Related to Government Regulation
Even after FDA approval, a product may be subject to additional testing or significant marketing restrictions, its approval may be
withdrawn or it may be removed voluntarily from the market.
Even if our potential royalty providers receive regulatory approval for our product candidates, our licensees will be subject to
ongoing regulatory oversight and review by the FDA and other regulatory entities. The FDA, the EMA, or another regulatory agency may
impose, as a condition of the approval, ongoing requirements for post-approval studies or post-approval obligations, including additional
research and development and clinical trials, and the FDA, EMA or other regulatory agency subsequently may withdraw approval based on
these additional trials or obligations.
Even for approved products, the FDA, EMA or other regulatory agency may impose significant restrictions on the indicated uses,
conditions for use, labeling, advertising, promotion, marketing and production of such product. In addition, the labeling, packaging,
adverse event reporting, storage, advertising, promotion and record-keeping for our products are subject to extensive regulatory
requirements.
Furthermore, marketing approval of a product may be withdrawn by the FDA, the EMA or another regulatory agency or such
product may be withdrawn voluntarily by our potential royalty providers based, for example, on subsequently arising safety concerns. The
FDA, EMA and other agencies also may impose various civil or criminal sanctions for failure to comply with regulatory requirements,
including withdrawal of product approval.
Healthcare reform measures and other statutory or regulatory changes could adversely affect our business.
The United States and some foreign jurisdictions have enacted or are considering a number of legislative and regulatory proposals
to change the healthcare system in ways that could affect our potential royalty providers’ ability to sell products in which we have
ownership or and royalty interests, if approved, profitably. Among policy makers and payors in the United States and elsewhere, there is
significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and
expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly
affected by major legislative initiatives. There have been judicial, Congressional and executive branch challenges to certain aspects of the
ACA, as well as efforts by the Trump administration to repeal or replace certain aspects of the ACA. Since January 2017, former President
Trump signed several executive orders and other directives designed to delay, circumvent, or loosen certain requirements mandated by
ACA. Concurrently, Congress considered legislation that would repeal or repeal and replace all or part of ACA. While Congress has not
passed comprehensive repeal legislation, several bills affecting the implementation of certain taxes under the ACA have been signed into
law. The Tax Cuts and Jobs Act of 2017, or Tax Act, includes a provision repealing, effective January 1, 2019, the tax-based shared
responsibility payment imposed by ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that
is commonly referred to as the “individual mandate”. In addition, the 2020 federal spending package permanently eliminated, effective
January 1, 2020, the ACA-mandated “Cadillac” tax on high-cost employer-sponsored health coverage and medical device tax and, effective
January l, 2021, also eliminated the health insurer tax. The Bipartisan Budget Act of 2018, or the BBA, among other things, amends the
ACA, effective January 1, 2019, to increase from 50 percent to 70 percent the point-of-sale discount that is owed by pharmaceutical
manufacturers who participate in Medicare Part D and close the coverage gap in most Medicare drug plans, commonly referred to as the
“donut hole”. On, June 17, 2021, the U.S. Supreme Court dismissed a challenge on procedural grounds that argued the ACA is
unconstitutional in its entirety because the “individual mandate” was repealed by Congress. Thus, the ACA will remain in effect in its
current form. Further, prior to the U.S. Supreme Court ruling, President Biden issued an executive order that initiated a special enrollment
period from February 15, 2021 through August 15, 2021 for purposes of obtaining health insurance coverage through the ACA
marketplace. The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules
that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include
work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the
ACA. It is possible that the ACA will be subject to judicial or Congressional challenges in the future. It is unclear how other such
challenges, and the healthcare reform measures will impact the ACA and our business.
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Other legislative changes have also been proposed and adopted since the ACA was enacted. For example, the Budget Control Act
of 2011 resulted in aggregate reductions in Medicare payments to providers of up to two percent per fiscal year, starting in 2013 and, due to
subsequent legislative amendments to the statute, including the BBA and the Infrastructure Investment and Jobs Act, will remain in effect
through 2031 unless additional Congressional action is taken. However, COVID-19 relief support legislation suspended the 2% Medicare
sequester from May 1, 2020 through March 31, 2022. Under current legislation the actual reduction in Medicare payments will vary from
1% in 2022 to up to 3% in the final fiscal year of this sequester. In addition, the American Taxpayer Relief Act of 2012, among other
things, reduced Medicare payments to several types of providers and increased the statute of limitations period for the government to
recover overpayments to providers from three to five years. Such laws, and others that may affect our business that have been recently
enacted or may in the future be enacted, may result in additional reductions in Medicare and other healthcare funding.
Also, there has been heightened governmental scrutiny recently in the U.S. over pharmaceutical pricing practices in light of the
rising cost of prescription drugs and biologics. Such scrutiny has resulted in several recent Congressional inquiries and proposed and
enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship
between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. At the
federal level, the Trump administration used several means to propose or implement drug pricing reform, including through federal budget
proposals, executive orders and policy initiatives. For example, on July 24, 2020 and September 13, 2020, the Trump administration
announced several executive orders related to prescription drug pricing that attempt to implement several of the administration’s proposals.
The FDA concurrently released a final rule and guidance in September 2020, implementing a portion of the importation executive order
providing pathways for states to build and submit importation plans for drugs from Canada. Further, on November 20, 2020, the U.S.
Department of Health and Human Services, or HHS finalized a regulation removing safe harbor protection for price reductions from
pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit managers, unless the price
reduction is required by law. The implementation of the rule has been delayed by the Biden administration from January 1, 2022 to January
1, 2023 in response to ongoing litigation. The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well
as a new safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers, the implementation of
which have also been delayed pending review by the Biden administration until January 1, 2023. On November 20, 2020, the Centers for
Medicare & Medicaid Services, or CMS issued an interim final rule implementing former President Trump’s Most Favored Nation
executive order, which would tie Medicare Part B payments for certain physician-administered drugs to the lowest price paid in other
economically advanced countries, effective January 1, 2021. As a result of litigation challenging the Most Favored Nation model, on
December 27, 2021, CMS published a final rule that rescinded the Most Favored Nation Model interim final rule. In July 2021, the Biden
administration released an executive order, “Promoting Competition in the American Economy,” with multiple provisions aimed at
prescription drugs. In response to Biden’s executive order, on September 9, 2021, HHS released a Comprehensive Plan for Addressing
High Drug Prices that outlines principles for drug pricing reform and sets out a variety of potential legislative policies that Congress could
pursue to advance these principles. In addition, Congress is considering drug pricing as part of other reform initiatives. At the state level,
legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product
pricing, including price or patient reimbursement constraints, discounts, and restrictions on certain product access. In some cases, such
legislation and regulations have been designed to encourage importation from other countries and bulk purchasing.
An expansion in the government’s role in the U.S. healthcare industry may cause general downward pressure on the prices of
prescription drug products, lower reimbursements for providers, and reduced product utilization, any of which could adversely affect our
business and results of operations. Moreover, there has been heightened governmental scrutiny in the United States of pharmaceutical
pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in several recent congressional
inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product
pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement
methodologies for products. We cannot know what form any such new legislation may take or the market’s perception of how such
legislation would affect us. Any reduction in reimbursement from government programs may result in a similar reduction in payments from
private payors. The implementation of cost containment measures or other healthcare reforms may prevent our potential royalty
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providers from being able to generate revenue, attain profitability, develop, or commercialize our current product candidates in which we
have an ownership or royalty interest.
We and our potential milestone and royalty providers are subject to various state and federal healthcare-related laws and regulations
that if violated may impact the commercialization of our product candidates for which we possess milestone or royalty rights or could
subject us to significant fines and penalties.
Our operations may be directly or indirectly subject to various state and federal healthcare laws, including the federal Anti-
Kickback Statute, the federal False Claims Act and state and federal data privacy and security laws. These laws may impact, among other
things, the commercial operations for any of our product candidates that may be approved for commercial sale.
The federal Anti-Kickback Statute prohibits, among other things, persons and entities from knowingly and willfully soliciting,
offering, receiving or providing any remuneration, directly or indirectly, in cash or in kind, in exchange for or to induce either the referral
of an individual for, or the furnishing or arranging for the purchase, lease, or order of a good or service for which payment may be made
under a federal healthcare program, such as the Medicare and Medicaid programs. The ACA modified the federal Anti-Kickback Statute’s
intent requirement so that a person or entity no longer needs to have actual knowledge of the statute or the specific intent to violate it to
have committed a violation. In addition, several courts have interpreted the statute’s intent requirement to mean that if any one purpose of
an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the statute has been violated. The
Anti-Kickback Statute is broad and prohibits many arrangements and practices that are lawful in businesses outside of the healthcare
industry.
The federal false claims laws, including the False Claims Act, and civil monetary penalties laws prohibit, among other things,
persons and entities from knowingly filing, or causing to be filed, a false claim to, or the knowing use of false statements to obtain payment
from the federal government. Certain suits filed under the False Claims Act, known as “qui tam” actions, can be brought by any individual
on behalf of the government and such individual, commonly known as a “whistleblower”, or “relator” may share in any amounts paid by
the entity to the government in fines or settlement. The filing of qui tam actions has caused a number of pharmaceutical, medical device
and other healthcare companies to have to defend and/or settle a False Claims Act action.
HIPAA created new federal criminal statutes that prohibit, among other things, executing a scheme to defraud any healthcare
benefit program, including a private payor, or falsifying, concealing or covering up a material fact or making any materially false, fictitious
or fraudulent statement in connection with the delivery of, or payment for, health care benefits, items or services.
HIPAA, as amended by the Health Information Technology and Clinical Health Act, and its implementing regulations, also
imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information by entities
subject to the law, such as certain healthcare providers, health plans, and healthcare clearinghouses as well as their respective business
associates and their subcontractors that perform certain functions or activities that involve the use or disclosure of protected health
information on their behalf.
Many states also have adopted laws similar to each of the federal laws described above, some of which apply to healthcare items
or services reimbursed by any source, not only federal healthcare programs, such as the Medicare and Medicaid programs. In addition,
some states have laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance
guidelines and the applicable compliance guidance promulgated by the federal government. Additionally, certain state and local laws
require the registration of pharmaceutical sales representatives, restrict payments that may be made to healthcare providers and other
potential referral sources, and require manufacturers to report information related to payments and other transfers of value to physicians
and other healthcare providers. Further, some states have laws governing the privacy and security of health information in certain
circumstances, many of which are not preempted by HIPAA and differ from each other in significant ways and may not have the same
effect, thus complicating compliance efforts.
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Because of the breadth of these laws, and the narrowness of the statutory exceptions and regulatory safe harbors available, it is
possible that some of our or our potential milestone and royalty providers’ business activities could be subject to challenge under one or
more of such laws.
If we or our potential milestone and royalty providers are found to be in violation of any of the laws and regulations described
above or other applicable state and federal healthcare laws, we or our potential milestone and royalty providers may be subject to penalties,
including significant civil, criminal, and administrative penalties, damages, fines, disgorgement, imprisonment, integrity oversight and
reporting obligations, reputational harm, exclusion from government healthcare reimbursement programs and the curtailment or
restructuring of our or our potential milestone and royalty providers’ operations, any of which could have a material adverse effect on our
business and results of operations. In addition, we and our licensees may be subject to certain analogous foreign laws and violations of such
laws could result in significant penalties.
We are subject to the U.S. Foreign Corrupt Practices Act and other anti-corruption laws, as well as export control laws, import and
customs laws, trade and economic sanctions laws and other laws governing our operations.
We are subject to the U.S. Foreign Corrupt Practices Act and other anti-corruption laws, as well as export control laws, import and
customs laws, trade and economic sanctions laws and other laws governing our operations. Our operations are subject to anti-corruption
laws including the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. §201, the U.S. Travel Act, and other anti-corruption
laws that apply in countries where we do business. The FCPA and these other laws generally prohibit us and our employees and
intermediaries from authorizing, promising, offering, or providing, directly or indirectly, improper or prohibited payments, or anything else
of value, to government officials or other persons to obtain or retain business or gain some other business advantage. We and the royalty
agreement counterparties and licensees who generate our royalties operate in a number of jurisdictions that pose a high risk of potential
FCPA violations, and we participate in collaborations and relationships with third parties whose corrupt or illegal activities could
potentially subject us to liability under the FCPA or local anti-corruption laws, even if we do not explicitly authorize or have actual
knowledge of such activities. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our
international operations might be subject or the manner in which existing laws might be administered or interpreted. We are also subject to
other laws and regulations governing our international operations, including regulations administered by the governments of the United
States and authorities in the European Union, including applicable export control regulations, economic sanctions and embargoes on certain
countries and persons, anti-money laundering laws, import and customs requirements and currency exchange regulations, collectively
referred to as the Trade Control laws. There is no assurance that we will be completely effective in ensuring our compliance with all
applicable anti-corruption laws, including the FCPA or other legal requirements, including Trade Control laws. If we are not in compliance
with the FCPA and other anticorruption laws or Trade Control laws, we may be subject to criminal and civil penalties, disgorgement and
other sanctions and remedial measures, and legal expenses, which could have an adverse impact on our business, financial condition,
results of operations and liquidity. Likewise, any investigation of any potential violations of the FCPA, other anti-corruption laws or Trade
Control laws by the United States or other authorities could also have an adverse impact on our reputation, our business, financial condition
and results of operations. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws
and regulations will involve substantial costs. Because of the breadth of these laws and the narrowness of the statutory exceptions and safe
harbors available, it is possible that some of our business activities or our business arrangements with third parties could be subject to
challenge under one or more of such laws. It is possible that governmental authorities will conclude that our business practices or the
business practices of the royalty agreement counterparties and licensees who generate our royalties may not comply with current or future
statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations or the
operations of the royalty agreement counterparties and licensees who generate our royalties are found to be in violation of any of these laws
or any other governmental regulations, we or the royalty agreement counterparties and licensees who generate our may be subject to
significant criminal, civil and administrative sanctions, including monetary penalties, damages, fines, disgorgement, individual
imprisonment and exclusion from participation in government-funded healthcare programs, such as Medicare and Medicaid, additional
reporting requirements and oversight if we or the royalty agreement counterparties and licensees who generate our royalties become subject
to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, reputational harm, and we
or marketers of products that generate our royalties may be required to curtail or restructure operations, any of which could adversely affect
our ability to operate our business and our results of operations. The risk
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of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatory
authorities or the courts, and their provisions are open to a variety of interpretations. Any action against us for violation of these laws, even
if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the
operation of our business. The shifting compliance environment and the need to build and maintain robust and expandable systems to
comply with multiple jurisdictions with different compliance and/or reporting requirements increases the possibility that a healthcare
company may run afoul of one or more of the requirements.
As we or our potential milestone and royalty providers do more business internationally, we will be subject to additional political,
economic and regulatory uncertainties.
We or our potential milestone and royalty providers may not be able to operate successfully in any foreign market. We believe that
because the pharmaceutical industry is global in nature, international activities will be a significant part of future business activities and
when and if we or our potential milestone and royalty providers are able to generate income, a substantial portion of that income will be
derived from product sales and other activities outside the United States. Foreign regulatory agencies often establish standards different
from those in the United States, and an inability to obtain foreign regulatory approvals on a timely basis could put us at a competitive
disadvantage or make it uneconomical to proceed with a product or product candidate’s development. International sales may be limited or
disrupted by many factors, including without limitation:
● imposition of government controls;
● export license requirements;
● political or economic instability;
● trade restrictions;
● changes in tariffs;
● restrictions on repatriating profits;
● exchange rate fluctuations; and
● withholding and other taxation.
General Risk Factors
Our share price may be volatile, and there may not be an active trading market for our common stock, Series A Preferred Stock or our
Series B Preferred Stock.
There can be no assurance that the market price of our common stock will not decline below its present market price. Additionally,
there may not be an active trading market for our common stock, Series A Preferred Stock or depositary shares representing interests in our
Series B Preferred Stock. The market prices of biotechnology companies have been and are likely to continue to be highly volatile.
Fluctuations in our operating results and general market conditions for biotechnology stocks could have a significant impact on the
volatility of our stock price or the existence of an active trading market for our common stock, Series A Preferred Stock or depositary
shares representing interests in our Series B Preferred Stock. We have experienced significant volatility in the price of our common stock.
From January 1, 2021, through March 3, 2022, the share price of our common stock has ranged from a high of $44.50 to a low of $19.08.
From January 1, 2021, through March 3, 2022, the share price of our Series A Preferred Stock has ranged from a high of $27.57 to a low of
$24.88. From April 12, 2021, through March 3, 2022, the share price of our Series B Preferred Stock has ranged from a high of $27.95 to a
low of $24.05. Additionally, we have two significant holders of our common stock that could
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affect the liquidity of our stock and have a significant negative impact on our stock price if the holders were to quickly sell their ownership
positions.
Our results of operations and liquidity needs could be materially negatively affected by market fluctuations or an economic downturn.
Our results of operations could be materially negatively affected by economic conditions generally, both in the United States and
elsewhere around the world. Concerns over inflation, energy costs, geopolitical issues, the availability and cost of credit, and the U.S.
financial markets have in the past contributed to, and may continue in the future contribute to, increased volatility and diminished
expectations for the economy and the markets. Domestic and international equity markets periodically experience heightened volatility and
turmoil. These events may have an adverse effect on us. In the event of a market downturn, our results of operations could be adversely
affected by those factors in many ways, including making it more difficult for us to raise funds if necessary, and our stock price may
decline.
We have issued equity securities and may issue additional equity securities from time to time, that materially and adversely affect the
price of our common stock, including our Series X preferred stock, Series A Preferred Stock and depositary shares representing
interests in our Series B Preferred Stock.
We expect significant additional capital will be needed in the future to continue our planned operations. To the extent we raise
additional capital by issuing equity securities, our stockholders may experience substantial dilution. We may sell common stock,
convertible securities or other equity securities in one or more transactions at prices and in such a manner as we determine from time to
time, including pursuant to our 2018 Common Stock ATM Agreement, as amended, and 2021 Series B Preferred Stock ATM Agreement. If
we sell common stock, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by
subsequent sales. These sales may also result in material dilution to our existing stockholders, and new investors could gain rights superior
to our existing stockholders. If we issue additional equity securities, the price of our existing securities may be materially and adversely
affected.
As of December 31, 2021, there were 5,003 shares of Series X preferred stock issued and outstanding. Each share of Series X
preferred stock is convertible into 1,000 shares of registered common stock. The total number of shares of common stock issuable upon
conversion of all issued Series X preferred stock would be 5,003,000 shares. Each share is convertible at the option of the holder at any
time, provided that the holder will be prohibited from converting into common stock if, as a result of such conversion, the holder, together
with its affiliates, would beneficially own a number of shares above a conversion blocker, which was initially set at 19.99% of our total
common stock then issued and outstanding immediately following the conversion of such shares. A holder of Series X preferred shares
may elect to increase or decrease the conversion blocker above or below 19.99% on 61 days’ notice, provided the conversion blocker does
not exceed the limits under Nasdaq Marketplace Rule 5635(b), to the extent then applicable. If holders of our Series X convertible
preferred stock elect to convert their preferred shares into common stock such conversion would dilute our currently outstanding common
stock both in number and in earnings per share. BVF (and its affiliates), as current holders of all shares of our Series X preferred stock,
would, if they converted all such shares to common stock, obtain majority voting control of the Company. As of December 31, 2021, BVF
owned approximately 31.2% of our total outstanding shares of common stock, and if all of the Series X convertible preferred shares were
converted, BVF would own 52.3% of our total outstanding shares of common stock. Additionally, as of April 9, 2021, we had issued and
outstanding 984,000 shares of Series A Preferred Stock and 1,600,000 depositary shares, each representing a 1/1000th fractional interest in
a share of our Series B Preferred Stock.
In addition, funding from collaboration partners and others has in the past and may in the future involve issuance by us of our
common stock. We cannot be certain how the purchase price of such shares, the relevant market price or premium, if any, will be
determined or when such determinations will be made.
Any issuance by us of equity securities, whether through an underwritten public offering, an at the market offering, a private
placement, in connection with a collaboration or otherwise could result in dilution in the value of our issued and outstanding shares, and a
decrease in the trading price of our securities.
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We may sell additional equity or debt securities to fund our operations, which may result in dilution to our stockholders and impose
restrictions on our business.
In order to raise additional funds to support our operations, we may sell additional equity or convertible debt securities, which
would result in dilution to our stockholders and/or debt securities which may impose restrictive covenants that would adversely impact our
business. The sale of additional equity or convertible debt securities could result in additional dilution or result in other rights or obligations
that adversely affect our stockholders. For example, holders of shares of our Series A Preferred Stock are entitled to receive, when and as
declared by our Board of Directors, out of funds legally available for the payment of dividends, cumulative cash dividends at the rate of
8.625% of the $25.00 liquidation preference per year (equivalent to $2.15625 per year). Additionally, holders of depositary shares
representing interests in our Series B Preferred Stock are entitled to receive, when and as declared by our Board of Directors, out of funds
legally available for the payment of dividends, cumulative cash dividends at the rate of 8.375% of the $25,000 liquidation preference per
share of Series B Preferred Stock ($25.00 per depositary share) per year (equivalent to $2,093.75 per year per share or $2.09375 per year
per depositary share). The incurrence of indebtedness would result in increased fixed payment obligations and could also result in certain
restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license
intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business.
Our organizational documents contain provisions that may prevent transactions that could be beneficial to our stockholders and may
insulate our management from removal.
Our charter and by-laws:
● require certain procedures to be followed and time periods to be met for any stockholder to propose matters to be considered
at annual meetings of stockholders, including nominating directors for election at those meetings; and
● authorize our Board of Directors to issue up to 1,000,000 shares of preferred stock without stockholder approval and to set
the rights, preferences and other designations, including voting rights, of those shares as the Board of Directors may
determine.
In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law (the “DGCL”), that may
prohibit large stockholders, in particular those owning 15% or more of our outstanding common stock, from merging or combining with us.
These provisions of our organizational documents and the DGCL, alone or in combination with each other, may discourage
transactions involving actual or potential changes of control, including transactions that otherwise could involve payment of a premium
over prevailing market prices to holders of common stock, could limit the ability of stockholders to approve transactions that they may
deem to be in their best interests, and could make it considerably more difficult for a potential acquirer to replace management.
As a public company in the United States, we are subject to the Sarbanes-Oxley Act. We have determined our disclosure controls and
procedures and our internal control over financial reporting are effective. We can provide no assurance that we will, at all times, in the
future be able to report that our disclosure controls and internal controls over financial reporting are effective.
Companies that file reports with the SEC, including us, are subject to the requirements of Section 404 of the SOX. Section 404
requires management to establish and maintain a system of internal control over financial reporting, and annual reports on Form 10-K filed
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), must contain a report from management assessing the
effectiveness of our internal control over financial reporting. Ensuring we have adequate internal financial and accounting controls and
procedures in place to produce accurate financial statements on a timely basis is a time-consuming effort that needs to be re-evaluated
frequently. Failure on our part to have effective internal financial and accounting controls would cause our financial reporting to be
unreliable, could have a material
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adverse effect on our business, operating results, and financial condition, and could cause the trading price of our common stock to fall.
Our ability to use our net operating loss carry-forwards and other tax attributes will be substantially limited by Section 382 of the U.S.
Internal Revenue Code.
Under the federal income tax law, federal net operating losses incurred in 2018 and in future years may be carried forward
indefinitely, but the deductibility of such federal net operating losses is limited. It is uncertain if and to what extent various states will
conform to the federal tax law. In addition, Section 382 of the U.S. Internal Revenue Code of 1986, as amended, and corresponding
provisions of state law, generally limit the ability of a corporation that undergoes an “ownership change” to utilize its net operating loss
carry-forwards (“NOLs”) and certain other tax attributes against any taxable income in taxable periods after the ownership change. The
amount of taxable income in each taxable year after the ownership change that may be offset by pre-change NOLs and certain other pre-
change tax attributes is generally equal to the product of (a) the fair market value of the corporation’s outstanding shares (or, in the case of
a foreign corporation, the fair market value of items treated as connected with the conduct of a trade or business in the United States)
immediately prior to the ownership change and (b) the long-term tax exempt rate (i.e., a rate of interest established by the U.S. Internal
Revenue Service that fluctuates from month to month). In general, an “ownership change” occurs whenever the percentage of the shares of
a corporation owned, directly or indirectly, by “5-percent shareholders” (within the meaning of Section 382 of the Internal Revenue Code)
increases by more than 50 percentage points over the lowest percentage of the shares of such corporation owned, directly or indirectly, by
such “5-percent shareholders” at any time over the preceding three years.
Based on an analysis under Section 382 of the Internal Revenue Code (which subjects the amount of pre-change NOLs and certain
other pre-change tax attributes that can be utilized to an annual limitation), we experienced an ownership change in February 2017, when
we completed an equity financing for net proceeds of $24.8 million that significantly impacted the availability of our tax attributes against
future income. Further, due to the existence of a net unrealized built-in loss at the ownership change date, Section 382 further limits our
ability to fully utilize the tax deductions associated with certain of our assets, including depreciation and amortization deductions
recognized during the 60-month period following the ownership change ending in 2022. Although these deductions will occur in the post-
change period, Section 382 treats the deductions as pre-change losses subject to the annual 382 limitation. As of December 31, 2021, we
have excluded the NOLs and research and development credits that will expire as a result of the annual limitations. To the extent that we do
not utilize our carry-forwards within the applicable statutory carry-forward periods, either because of Section 382 limitations or the lack of
sufficient taxable income, the carry-forwards will also expire unused.
The 2017 tax reform law, as modified by 2020 tax legislation, and possible future changes in tax laws or regulations could adversely
affect our business and financial condition.
On December 22, 2017, former President Trump signed into law comprehensive tax legislation (the “Tax Cuts and Jobs Act”) that
significantly revised the Internal Revenue Code of 1986, as amended (the “Code”). Future guidance from the U.S. Internal Revenue
Service and other tax authorities with respect to the Tax Cuts and Jobs Act may affect us, and certain aspects of the Tax Cuts and Jobs Act
could be repealed or modified in future legislation. For example, on March 27, 2020, the CARES Act was enacted, which includes changes
to the tax provisions that benefit business entities and makes certain technical corrections to the Tax Cuts and Jobs Act. On June 29, 2020,
California Assembly Bill 85 (AB 85) was signed into law, which suspends the use of California net operating losses and limits the use of
California research tax credits for tax years beginning in 2020 and before 2023. Changes in corporate tax rates, the realization of net
deferred tax assets relating to our U.S. operations, the taxation of foreign earnings, and the deductibility of expenses under the Tax Cuts and
Jobs Act, the CARES Act, or future tax reform legislation could have a material impact on the value of our deferred tax assets, could result
in significant one-time charges in future taxable years, and could increase our future U.S. tax expense. The foregoing items, as well as any
other future changes in tax laws, could have a material adverse effect on our business, cash flow, financial condition, or results of
operations. In addition, it is uncertain if and to what extent various states will conform to the Tax Cuts and Jobs Act, the CARES Act, or
any newly enacted federal tax legislation.
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Stockholder and private lawsuits, and potential similar or related lawsuits, could result in substantial damages, divert management’s
time and attention from our business, and have a material adverse effect on our business, financial condition and results of operations.
Securities-related class action and stockholder derivative litigation has often been brought against companies, including many
biotechnology companies, which experience volatility in the market price of their securities. This risk is especially relevant for us because
biotechnology and biopharmaceutical companies often experience significant stock price volatility in connection with their product
development programs.
It is possible that suits will be filed, or allegations received from stockholders, naming us and/or our officers and directors as
defendants. These potential lawsuits are subject to inherent uncertainties, and the actual defense and disposition costs will depend upon
many unknown factors. The outcome of these lawsuits is uncertain. We could be forced to expend significant time and resources in the
defense of these suits, and we may not prevail. In addition, we may incur substantial legal fees and costs in connection with these lawsuits.
Although we carry insurance to protect us from such claims, our insurance may not provide adequate coverage. It is possible that we could,
in the future, incur judgments or enter into settlements of claims for monetary damages. A decision adverse to our interests on these actions
could result in the payment of substantial damages, or possibly fines, and could have a material adverse effect on our cash flow, results of
operations and financial position.
Monitoring, initiating and defending against legal actions, including any currently pending litigation, are time-consuming for our
management, are likely to be expensive and may detract from our ability to fully focus our internal resources on our business activities. The
outcome of litigation is always uncertain, and in some cases could include judgments against us that require us to pay damages, enjoin us
from certain activities, or otherwise affect our legal or contractual rights, which could have a significant adverse effect on our business. In
addition, the inherent uncertainty of any future litigation could lead to increased volatility in our stock price and a decrease in the value of
an investment in our common stock.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We currently lease space in one building that houses our corporate headquarters in Emeryville, California. The building lease
expires in February 2023, and total net lease liability from January 2022 until expiration of the lease is $0.2 million. We believe our
facilities are adequate to meet our requirements for the near term.
Item 3. Legal Proceedings
From time to time, we may be involved in litigation relating to claims arising out of our operations. We are not currently involved
in any material legal proceedings. We may, however, be involved in material legal proceedings in the future. Such matters are subject to
uncertainty and there can be no assurance that such legal proceedings will not have a material adverse effect on our business, results of
operations, financial position or cash flows.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market for Registrant’s Common Equity
Our common stock trades on The Nasdaq Global Market tier of the Nasdaq Stock Market LLC (“Nasdaq”) under the symbol
“XOMA.” On March 3, 2022, there were 196 stockholders of record of our common stock, one of which was Cede & Co., a nominee for
Depository Trust Company (“DTC”). All of the shares of our common stock held by brokerage firms, banks and other financial institutions
as nominees for beneficial owners are deposited into participant accounts at DTC and are therefore considered to be held of record by
Cede & Co. as one stockholder.
Dividend Policy
We have not paid dividends on our common stock. Holders of shares of our Series A Preferred Stock are entitled to receive, when
and as declared by our Board of Directors, out of funds legally available for the payment of dividends, cumulative cash dividends at the
rate of 8.625% of the $25.00 liquidation preference per year (equivalent to $2.15625 per year per share) per year. Holders of our Series B
Preferred Stock are entitled to receive, when and as declared by our Board of Directors, out of funds legally available for the payment of
dividends, cumulative cash dividends at the rate of 8.375% of the $25,000 liquidation preference per year of Series B Preferred Stock
($25.00 per depositary share) per year (equivalent to $2,093.75 per year per share or $2.09375 per year per depositary share). We do not
anticipate paying cash dividends on our common stock in the foreseeable future.
Recent Sales of Unregistered Securities
None.
Item 6. Reserved
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
XOMA, a Delaware corporation, is a biotech royalty aggregator. We have a sizable portfolio of economic rights to future potential
milestone and royalty payments associated with partnered pre-commercial therapeutic candidates. Our portfolio was built through licensing
our proprietary products and platforms from our legacy discovery and development business, combined with the acquisition of rights to
future milestones and royalties that we have made since our royalty aggregator business model was implemented in 2017. Our drug royalty
aggregator business is focused on early to mid-stage clinical assets, primarily in Phase 1 and 2, with significant commercial sales potential
that are licensed to large-cap partners. We expect that most of our future revenue will be based on payments we may receive for milestones
and royalties related to these programs.
The generation of future revenues related to licenses, milestones, and royalties is dependent on the achievement of milestones or
product sales by our existing licensees. Although we generated net income of $15.8 million and $13.3 million and positive cash flows from
operations of $22.7 million and $10.1 million for the years ended December 31, 2021 and 2020, respectively, we do not expect these results
to be indicative of future performance. The payments we received from Novartis pursuant to our Anti-TGFβ Antibody License Agreement
in 2021 and 2020 of $35.0 million and $25.0 million, respectively, were one-time milestone payments that do not represent recurring
revenue.
Significant Developments
Royalty and Commercial Payment Purchase Agreements
Commercial Payment Purchase Agreement with Affitech
In October 2021, we entered into the Affitech CPPA, pursuant to which we purchased a future stream of commercial payment
rights to Roche’s faricimab from Affitech for an upfront payment of $6.0 million. We are eligible to receive commercial payments from
Roche consisting of 0.50% of future net sales of faricimab for a ten-year period following the first commercial sales in each applicable
jurisdiction.
In January 2022, Genentech, a member of the Roche group, received approval from the FDA to commercialize faricimab
(faricimab-svoa) for the treatment of wet, or neovascular, age-related macular degeneration and diabetic macular edema. Pursuant to the
Affitech CPPA, we paid Affitech a $5.0 million regulatory approval milestone tied to these U.S. marketing approvals. We may pay up to an
additional $15.0 million to Affitech based upon the achievement of certain regulatory approval milestones and sales milestones
representing a portion of the commercial payment receipts.
Kuros Royalty Purchase Agreement
In July 2021, we entered into the Kuros RPA, pursuant to which we acquired the rights to 100% of the potential future royalties
from commercial sales, which are tiered from high single-digit to low double-digits, and up to $25.5 million in pre-commercial milestone
payments associated with an existing license agreement related to Checkmate Pharmaceuticals’ vidutolimod (CMP-001), a Toll-like
receptor 9 agonist, packaged in a virus-like particle, for an upfront payment of $7.0 million. We may pay additional sales-based milestones
to Kuros of up to $142.5 million representing a portion of the future royalties on commercial sales.
Viracta Royalty Purchase Agreement
In March 2021, we entered into the Viracta RPA, pursuant to which we acquired the right to receive future royalties, milestones,
and other payments related to two clinical-stage drug candidates for $13.5 million. The first candidate, DAY101 (pan-RAF kinase
inhibitor), is being developed by Day One Biopharmaceuticals, and the second candidate, vosaroxin (topoisomerase II inhibitor), is being
developed by Denovo Biopharma. We acquired the right to receive (i) up to $54.0 million in potential milestones, potential royalties on
sales, if approved, and other payments related
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to DAY101, excluding up to $20.0 million consideration retained by Viracta, and (ii) up to $57.0 million in potential regulatory and
commercial milestones and high single-digit royalties on sales related to vosaroxin, if approved.
License and Collaboration Agreements
Rezolute – RZ358 Antibody
In January 2022, Rezolute dosed the last patient in its Phase 2b clinical trial for RZ358, which triggered a $2.0 million milestone
payment due to XOMA pursuant to our Rezolute License Agreement.
Novartis – Anti-TGFβ Antibody
In October 2021, we earned a $35.0 million milestone payment upon dosing of the first patient in Novartis’ first NIS793 Phase 3
clinical trial. We are eligible to receive remaining milestones up to a total of $410.0 million under the Anti-TGFβ Antibody License
Agreement. Upon receipt of regulatory approval to commercialize NIS793, we will receive tiered royalties on any net product sales that
range from the mid single-digit to the low double-digit percentage rates. In July 2021, Novartis announced the FDA had granted Orphan
Drug Designation to NIS793 in combination with standard of care chemotherapy for the treatment of pancreatic cancer.
Novartis – Anti-CD40 Antibody
In September 2021, Novartis announced its decision to discontinue its study of CFZ533 (iscalimab) in the prevention of organ
rejection in patients receiving a kidney transplant after an interim analysis of data. Novartis is continuing other iscalimab studies in
indications other than kidney transplant, for example, liver transplant, Sjögren’s Syndrome and Lupus Nephritis.
Compugen
In September 2021, we earned a $0.5 million milestone payment under our license agreement with Compugen triggered by the
dosing of the first patient in a Phase 1/2 study of AZD2936, a TIGIT/PD-1 bispecific antibody, in patients with advanced or metastatic non-
small cell lung cancer. AZD2936 is derived from COM902 and is being developed by AstraZeneca.
Janssen
In May 2021, we announced we earned a $0.5 million milestone from Janssen, upon dosing of the first patient in a Phase 3 clinical
trial evaluating one of Janssen’s biologic assets. In December 2021, we earned a $0.2 million milestone pursuant to our agreement with
Janssen.
Affimed
In April 2021, we entered into a new agreement with Affimed under which we are eligible to receive payments from Affimed on
potential future commercial sales related to three ICE molecules and pre-loaded natural killer cells containing the ICE molecules.
Additionally, we are eligible to receive a milestone upon the first product candidate in each program achieving marketing approval.
Public Offering of Series B Depositary Shares Representing Interest in Series B Preferred Stock
In April 2021, we closed a public offering of 1,600,000 Series B Depositary Shares at the price of $25.00 per Series B Depositary
Share. Total gross proceeds from the offering were $40.0 million. Total offering costs of $2.9 million were offset against the proceeds from
the sale of Series B Depositary Shares, for net proceeds of $37.1 million.
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NIAID Contract Closeout
Prior to the sale of our biodefense business in 2016, we performed contract work for the U.S. government under multi-year
contracts funded with federal funds from NIAID. The contract work was performed on a cost plus fixed fee basis and invoices were
provisional until finalized. As such, we operated under provisional rates from 2010 through 2015, subject to adjustment based on final
approved rates upon agreement with the government. In 2019, NIH engaged KPMG to perform an audit of our incurred cost submissions
for 2013, 2014 and 2015, and, based on the results of KPMG’s procedures, which were completed in December 2020, we recognized an
estimated refund liability representing amounts owed to NIH of $1.4 million on our consolidated balance sheet as of December 31, 2020. In
December 2021, NIH completed its review of the audit as part of the related contract close-out process, which included the finalization of
rates for years 2010 through 2015, and approved a finalized refund liability of $1.3 million. The $0.1 million reduction in the liability, from
its previously recorded $1.4 million estimated amount, was recognized as an increase of revenue from contracts with customers in the
consolidated statement of operations and comprehensive income for the year ended December 31, 2021. In December 2021, we paid the
final amount owed to NIH of $1.3 million and no balance of the contingent liability remained on the consolidated balance sheets as of
December 31, 2021.
Debt Extinguishment
Novartis Note
In June 2021, we repaid our outstanding principal balance to Novartis of $9.1 million. No amount was recorded as an
extinguishment gain or loss in other (expense) income, net of the consolidated statement of operations. No outstanding principal balance of
the Novartis Note remained as of December 31, 2021.
SVB Loan
In June 2021, we repaid our principal balance of $6.5 million and paid the 8.5% final payment fee of $1.4 million to SVB. We
recognized a non-cash loss on extinguishment of $0.3 million in other (expense) income, net of the consolidated statement of operations.
No outstanding principal balance of the SVB Loan remained as of December 31, 2021.
COVID-19
The COVID-19 pandemic continues to pose risks to our business as clinical trials industry-wide have slowed. Our business is
dependent on the continued development and commercialization efforts of our licensees and our royalty agreement counterparties and their
licensees. We have been monitoring and continue to monitor our portfolio programs for potential delays in underlying research programs
and elections of our partners to continue or cease development. Delays in clinical trials and underlying research programs have and may
further lead to delayed revenue from milestones from our licensees and royalty agreement counterparties or, if certain research programs
are discontinued, we may recognize impairment charges for our royalty receivables. COVID-19, the related variants, and the timing of
vaccine distribution may impact our underlying programs in a variety of ways which are unknown in length and scope at this time.
Critical Accounting Estimates
A summary of the significant accounting policies is provided in Note 2 to our Consolidated Financial Statements. The preparation
of financial statements in accordance with generally accepted accounting principles, or GAAP, requires us to make estimates, assumptions
and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and
liabilities. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances, the results of which form our basis for making judgments about the carrying
values of assets and liabilities and the reported amounts of revenues and expenses that are not readily apparent from other sources. Actual
results may differ from those estimates under different assumptions and conditions.
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Management considers an accounting estimate to be critical if:
● it requires a significant level of estimation uncertainty; and
● changes in the estimate are reasonably likely to have a material effect on our financial condition or results of operations.
We believe the following critical accounting policies and estimates describe the more significant judgments and estimates used in
the preparation of our consolidated financial statements.
Revenue Recognition
We recognize revenue from all contracts with customers according to ASC 606, except for contracts that are within the scope of
other standards, such as leases, insurance, collaboration arrangements and financial instruments. We recognize revenue when our customer
obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those
goods or services.
We have certain license arrangements in the scope of ASC 606. The terms of these agreements may contain multiple performance
obligations, which primarily include transfer of our licenses. Prior to recognizing revenue, we make estimates of the transaction price,
including variable consideration that is subject to a constraint. Amounts of variable consideration are included in the transaction price to the
extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur and when the uncertainty
associated with the variable consideration is subsequently resolved. Variable consideration may include payments based upon the
achievement of specified milestones, and royalty payments based on product sales derived from the license agreements. The royalty
payments will be recognized as revenue when the related sales occur, as far as there are no unsatisfied performance obligations remaining.
If there are multiple distinct performance obligations, we allocate the transaction price to each distinct performance obligation based on its
relative standalone selling price. All licenses we grant to customers are unique, as each uses a specific technology of XOMA or is geared
towards a specific unique product candidate. Thus, there is no observable evidence of standalone selling price for the licenses. The
standalone selling price is generally determined using a valuation approach based on discounted cash flow analysis. For licenses that are
bundled with other promises, we utilize judgement to assess the nature of the combined performance obligation to determine whether the
combined performance obligation is satisfied over time or at a point in time. Under our license agreements, the nature of the combined
performance obligation is the granting of licenses to the customers. As such, we recognize revenue related to the combined performance
obligation upon transfer of the license to the customers or completion of the transfer of related materials and services (i.e., point in time).
Sale of Future Revenue Streams
In 2016, prior to the implementation of our royalty aggregator business model, we sold our rights to receive certain milestones and
royalties on product sales pursuant to our agreement with HCRP. We defer recognition of the proceeds we received from HCRP and
recognize such unearned revenue as revenue under the units-of-revenue method over the life of the underlying license agreement. Under
the units-of-revenue method, amortization for a reporting period is calculated by computing a ratio of the proceeds received from the
purchaser to the total payments expected to be made to the purchaser over the term of the agreement, and then applying that ratio to the
period’s cash payment.
Estimating the total payments expected to be received by HCRP over the term of the arrangement requires management to use
subjective estimates and assumptions. Changes to our estimate of the payments expected to be made to HCRP over the term of the
arrangement could have a material effect on the amount of revenues recognized in any particular period.
Stock-based Compensation
Stock-based compensation expense for stock options and other stock awards is estimated at the grant date based on the award’s
fair value-based measurement. The valuation of stock-based compensation awards is determined at the date of grant using the Black-
Scholes option pricing model (the “Black-Scholes Model”). This model requires highly complex
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and subjective inputs, such as the expected term of the option and expected volatility. These inputs are subjective and generally require
significant analysis and judgment to develop. Our current estimate of volatility is based on the historical volatility of our stock price. To the
extent volatility in our stock price increases in the future, our estimates of the fair value of options granted in the future could increase,
thereby increasing stock-based compensation cost recognized in future periods. To establish an estimate of expected term, we consider the
vesting period and contractual period of the award and our historical experience of stock option exercises, post-vesting cancellations and
volatility. The risk-free rate is based on the yield available on United States Treasury zero-coupon issues. Forfeitures are recognized as they
occur.
We review our valuation assumptions quarterly and, as a result, we likely will update our valuation assumptions used to value
stock-based awards granted in future periods utilizing current data. In the future, as additional empirical evidence regarding these input
estimates becomes available, we may change or refine our approach of deriving these input estimates. These changes could impact our fair
value-based measurement of stock options granted in the future. Changes in the fair value-based measurement of stock awards could
materially impact our operating results.
Purchase of Rights to Future Milestones, Royalties and Commercial Payments
We have purchased rights to receive a portion of certain future developmental, regulatory and commercial sales milestones, and
royalties on sales of products currently in clinical development. We acquired such rights from various entities and recorded the amount paid
for these rights as long-term royalty receivables. We have accounted for the purchased rights as a financial asset in accordance with ASC
310.
We account for milestone and royalty rights related to developmental pipeline products on a non-accrual basis using the cost
recovery method. Except for faricimab, these developmental pipeline products are non-commercialized, non-approved products that require
FDA or other regulatory approval, and thus have uncertain cash flows. The related receivable balances are classified as noncurrent since no
payments are probable to be received in the near term. Faricimab (faricimab-svoa) received FDA approval in January 2022, and we do not
yet have a foundation upon which to estimate receipts expected to be collected in the near term; therefore, they remain classified as
noncurrent until such time an estimate can be made. Under the cost recovery method, any milestone, royalty, or other payment received is
recorded as a direct reduction of the recorded receivable balance. When the recorded receivable balance has been fully collected, any
additional amounts collected will be recognized as revenue.
We may be obligated to make contingent payments related to certain product development and regulatory approval milestones and
sales-based milestones. If the contingent payments fall within the scope of ASC 815, the contingent payments are measured at fair value at
the inception of the arrangement, subject to remeasurement to fair value at the end of each reporting period. Any changes in the estimated
fair value are recorded in the consolidated statement of operations and comprehensive income.
We review these balances for impairment on a quarterly basis using updates from our partners, press releases and public
information on clinical trials. If we determine an impairment is necessary, the impairment recorded will be based on an estimate of
discounted future cash flows, which will rely on assumptions including probability of technical success and discount rate. Changes to these
assumptions could have a material impact on our financial statements. No impairment has been recorded as of December 31, 2021.
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Results of Operations
Revenues
Total revenues for the years ended December 31, 2021 and 2020, were as follows (in thousands):
Revenue from contracts with customers
Revenue recognized under units-of-revenue method
Total revenues
Revenue from Contracts with Customers
Year Ended
December 31,
2021
$ 36,518
1,642
$ 38,160
2020
$ 27,941
1,444
$ 29,385
Change
$ 8,577
198
$ 8,775
Revenue from contracts with customers includes upfront fees, annual licenses fees and milestone payments related to the out-
licensing of our product candidates and technologies. The primary components of revenue from contracts with customers in 2021 was
$35.0 million in milestone revenue earned under our Anti-TGFβ Antibody License Agreement with Novartis, $0.5 million of milestone
revenue recognized in the third quarter of 2021 under our license agreement with Compugen and $0.5 million and $0.2 million of milestone
revenue recognized in the second and fourth quarter of 2021, respectively, related to milestone events under our license agreement with
Janssen. The primary components of revenue from contracts with customers in 2020 was $25.0 million in milestone revenue earned under
our Anti-TGFβ Antibody License Agreement with Novartis and $2.0 million earned under our collaboration agreement with Takeda. The
milestones received from Novartis in 2021 and 2020 are one-time payments and do not represent recurring revenue.
Revenue recognized under units-of-revenue method
Revenues recognized under the units-of-revenue method include the amortization of unearned revenue from the sale of royalty
interests to HCRP in 2016. The increase in 2021 compared with 2020 was due to increased sales of products underlying the agreements
with HCRP.
R&D Expenses
R&D expenses were consistent at $0.2 million in 2021 and 2020. We do not expect to incur substantial internal R&D expenses in
2022 due to the focus on our royalty aggregator business model.
G&A Expenses
G&A expenses include salaries and related personnel costs, professional fees, and facilities costs. In 2021, G&A expenses were
$20.5 million compared with $16.8 million in 2020.
The increase of $3.7 million in 2021 as compared with 2020 was primarily due to a $2.2 million increase in stock-based
compensation expense for stock options, $0.8 million increase in salary and related expenses, $0.4 million increase in legal and consulting
costs and $0.2 million increase in insurance costs.
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Other (Expense) Income
Interest Expense
Amortization of debt issuance costs and discounts are included in interest expense. Interest expense is shown below for the years
ended December 31, 2021 and 2020 (in thousands):
Year Ended
December 31,
SVB Loan
Novartis Note
Other
Total interest expense
$
$
2021
Change
373
88
—
461
2020
$ 1,365
477
2
$ 1,844
$
(992)
(389)
(2)
$ (1,383)
The decrease in interest expense compared with 2020 is due to the repayment of our SVB and Novartis loans in June 2021. We
expect our interest expense to further decrease in 2022 as we have no outstanding loan balances, however if we elect to obtain new debt
financing, our interest expense may increase.
Other (Expense) Income, Net
The following table shows the activity in other (expense) income, net for the years ended December 31, 2021 and 2020 (in
thousands):
Other (expense) income, net
Change in fair value of equity securities
Investment income
Other
Total other (expense) income, net
Year Ended
December 31,
2021
2020
Change
$
$
(919)
35
5
(879)
$
$
1,012
159
54
1,225
$
$
(1,931)
(124)
(49)
(2,104)
The fluctuation in other (expense) income, net for 2021 as compared to 2020, is primarily due to the change in fair value of equity
securities which consist of shares of Rezolute’s common stock.
We own equity securities consisting of shares of Rezolute’s common stock which are remeasured at fair value at each reporting
period. During the years ended December 31, 2021 and 2020, we remeasured the fair value of the equity securities and recognized a loss of
$0.9 million and a gain of $1.0 million, respectively.
The decrease in investment income for 2021 as compared to the same period of 2020 is due to lower rates of return on our cash
deposits.
Provision for Income Taxes
We recorded a $1.5 million income tax benefit for the year ended December 31, 2020, as a result of the CARES Act, which was
enacted on March 27, 2020. The CARES Act permits us to carry back losses from 2018 to offset income in 2017 resulting in an income tax
receivable. During the second quarter of 2021, we received $1.5 million in cash for our income tax receivable. We recorded a $0.1 million
income tax expense for the year ended December 31, 2021.
We continue to maintain a full valuation allowance against our deferred tax assets. We had a total of $5.9 million of gross
unrecognized tax benefits, none of which would impact our effective tax rate to the extent that we continue to maintain a full valuation
allowance against our deferred tax assets. We do not expect our unrecognized tax benefits to change significantly over the next twelve
months.
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Liquidity and Capital Resources
The following table summarizes our unrestricted cash, our working capital and our cash flow activities as of and for each of the
periods presented (in thousands):
Cash
Working capital
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by financing activities
Net increase in cash
December 31,
2021
93,328
84,006
$
$
December 31,
2020
84,222
75,763
$
$
Change
$ 9,106
$ 8,243
Year Ended December 31,
2021
22,678
(26,500)
12,835
9,013
$
$
2020
$ 10,092
(209)
19,793
$ 29,676
$
Change
12,586
(26,291)
(6,958)
$ (20,663)
Our primary source of cash provided by operating activities in 2021 was the $35.0 million milestone payment received from
Novartis, partially offset by our operating expenses of $20.6 million excluding non-cash expenses including stock-based compensation of
$6.2 million. Our primary source of cash provided by operating activities in 2020 was the $17.7 million cash portion of the $25.0 million
milestone received from Novartis, partially offset by our operating expenses of $17.0 million, less non-cash expenses including stock-based
compensation of $4.0 million.
Net cash used in investing activities for the year ended December 31, 2021, of $26.5 million was due to our acquisitions under
RPAs and a CPPA, including a $13.5 million payment pursuant to the Viracta RPA, a $7.0 million payment pursuant to the Kuros RPA and
a $6.0 million payment pursuant to the Affitech CPPA. Net cash used in investing activities for the year ended December 31, 2020 of $0.2
million was due to the purchase of milestone and royalty rights of $1.2 million in connection with the Second Bioasis RPA in November
2020, partially offset by $1.0 million milestone payment received in connection with the Agenus RPA.
Net cash provided by financing activities for the year ended December 31, 2021 of $12.8 million was primarily due to the receipt
of net cash proceeds of $37.1 million from our public offering of Series B Preferred Stock, $1.1 million net cash provided from the exercise
of stock options after related tax payments, partially offset by $4.3 million cash used in the principal payments of debt, $17.1 million cash
used to extinguish outstanding loans and $3.5 million payment of dividends on our Series A Preferred Stock and Series B Preferred Stock.
Net cash provided by financing activities for the year ended December 31, 2020, of $19.8 million was primarily due to the receipt of net
cash proceeds of $22.6 million from the public offering of Series A Preferred Stock and $2.4 million net cash provided from the exercise of
stock options after related tax payments, partially offset by $5.3 million cash used in the principal payments of debt.
Capital Resources
As of December 31, 2021, we had $93.3 million and $2.0 million in unrestricted and restricted cash, respectively. Based on our
current cash balance and our ability to control discretionary spending, such as royalty acquisitions, we have evaluated and concluded our
financial condition is sufficient to fund our planned operations, commitments, and contractual obligations for a period of at least one year
following the filing date of this report.
Our planned spending includes increased personnel related costs to hire a new CEO and fund our employee retention efforts. To
support our royalty aggregator business model, we engage third parties to assist in our evaluation of potential acquisitions of milestone and
royalty streams. Additional operating expenses, including consulting and legal costs, may increase in 2022 in response to an anticipated
increase in the volume of acquisition targets evaluated or completed.
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Table of Contents
We have primarily financed our operations and acquisitions through the issuance of our common stock, Series A and Series B
Preferred Stock, and amounts received as milestone payments under our license agreements. The generation of future revenues related to
licenses, milestones, and royalties is dependent on the achievement of milestones or product sales by our existing licensees. Milestone
payments earned in 2021 and 2020 are not indicative of anticipated milestones in future periods. We may seek additional capital through
use of our 2018 Common Stock ATM Agreement or 2021 Series B Preferred Stock ATM Agreement (see Note 12 of the Consolidated
Financial Statements), or through other public or private debt or equity transactions. Our ability to raise additional capital in the equity and
debt markets, should we choose to do so, is dependent on a number of factors, including, but not limited to, the market demand for our
common and preferred stock, which are subject to a number of development and business risks and uncertainties, our creditworthiness and
the uncertainty that we would be able to raise such additional capital at a price or on terms that are favorable to us. If we are unable to raise
additional funds when we need them, our business and operations may be adversely affected.
Our recent financing activities are summarized below and described in more detail in Note 12 of our Consolidated Financial
Statements:
● Public Offering of Series A Preferred Stock: In December 2020, we sold 984,000 shares of 8.625% Series A Preferred
Stock at the price of $25.00 per share, through a public offering for aggregate gross proceeds of $24.6 million. Total offering
costs of $2.0 million were offset against the proceeds from the sale of Series A Preferred Stock, for net proceeds of $22.6
million.
● Public Offering of Depositary Shares Representing Interest in Series B Preferred Stock: In April 2021, we closed a
public offering of 1,600,000 Series B Depositary Shares at the price of $25.00 per depositary share. Total gross proceeds
from the offering were $40.0 million. Total offering costs of $2.9 million were offset against the proceeds from the sale of
Series B Depositary Shares, for net proceeds of $37.1 million.
● Novartis Note Extinguishment: In June 2021, we repaid our outstanding principal balance to Novartis of $9.1 million. No
amount was recorded as an extinguishment gain or loss in other (expense) income, net of the consolidated statement of
operations. No outstanding principal balance of the Novartis Note remained as of December 31, 2021.
● SVB Loan Extinguishment: In June 2021, we repaid our principal balance of $6.5 million and paid the 8.5% final payment
fee of $1.4 million to SVB. We recognized a non-cash loss on extinguishment of $0.3 million in other (expense) income, net
of the consolidated statement of operations. No outstanding principal balance of the SVB Loan remained as of December 31,
2021.
Material Cash Requirements
Our material cash requirements in the short and long term consist of the following expenditures:
Operating expenditures: Our primary uses of cash and operating expenses relate to employee and related costs, consultants to
support our administrative and business development efforts, legal and accounting services, insurance, investor relations and IT services.
Our headquarters lease expires in February 2023, and we are currently evaluating our office space needs, however, due to our small staff
and minimal operating space requirements, we do not expect to incur material incremental costs associated with our current or future
building leases.
RPAs and CPPAs: A significant component of our business model is to acquire rights to potential future milestone and royalty
streams. We expect to continue deploying capital toward these acquisitions in the near and long term.
We also have potential contingent consideration of $8.1 million recorded on our consolidated balance sheets as of December 31,
2021, for development and regulatory approval milestones due under our agreements with Affitech and Bioasis. We paid $5.0 million in
regulatory approval milestones to Affitech in January 2022 and expect the remaining $3.1 million contingent payments may become due in
the near term. We have evaluated and concluded our existing capital resources are adequate to meet those needs.
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We also have potential sales-based milestones that may become due under our agreements with Aronora, Kuros and Affitech. All
of these sales-based milestones represent a portion of the funds we may receive in the future pursuant to these agreements, and therefore
will be fully funded by the related royalty or commercial payment receipts.
Collaborative Agreements, Royalties and Milestone Payments: We have committed to make potential future milestone
payments and legal fees to third parties as part of licensing and development programs. Payments under these agreements become due and
payable only upon the achievement of certain developmental, regulatory and commercial milestones by our licensees. Because it is
uncertain if and when these milestones will be achieved, such contingencies, aggregating up to $6.3 million have not been recorded on our
consolidated balance sheet as of December 31, 2021. We are unable to determine precisely when and if our payment obligations under the
agreements will become due as these obligations are based on milestone events, the achievement of which is subject to a significant number
of risks and uncertainties. All payments due will be funded by a portion of the related milestone or royalty revenue we receive or will be
reimbursed by our licensees.
Dividends: Holders of our Series A Preferred Stock are entitled to receive, when and as declared by our Board of Directors,
cumulative cash dividends at the rate of 8.625% of the $25.00 liquidation preference per year (equivalent to $2.15625 per share of Series A
Preferred Stock per year). Holders of Series B Depositary Shares are entitled to receive, when and as declared by our Board of Directors,
cumulative cash dividends at the rate of 8.375% of the $25,000 liquidation preference per share of Series B Preferred Stock ($25.00 per
depositary share) per year, which is equivalent to $2,093.75 per year per share of Series B Preferred Stock ($2.09375 per year per
depositary share). Dividends on the Series A and Series B Preferred Stock are payable in arrears on or about the 15th day of January, April,
July and October of each year. Since original issuance, all dividends have been paid as scheduled. We expect to continue making these
dividend payments as scheduled using our existing capital resources.
Recent Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements for information regarding new accounting pronouncements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, or the
Exchange Act, and are not required to provide the information required under this item.
Item 8. Financial Statements and Supplementary Data
The following consolidated financial statements of the registrant, related notes and report of independent registered public
accounting firm are set forth beginning on page F-1 of this report.
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34)
Consolidated Balance Sheets
Consolidated Statements of Comprehensive Income
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
F-1
F-3
F-4
F-5
F-6
F-7
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Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Senior Vice
President, Finance and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is
defined under Rule 13a-15 promulgated under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this
report. Our disclosure controls and procedures are intended to ensure that the information we are required to disclose in the reports that we
file or submit under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to our management,
including the Chief Executive Officer and Senior Vice President, Finance and Chief Financial Officer, as the principal executive and
financial officers, respectively, to allow timely decisions regarding required disclosures. Based on this evaluation, our Chief Executive
Officer and our Senior Vice President, Finance and Chief Financial Officer concluded that our disclosure controls and procedures were
effective as of the end of the period covered by this report.
Management’s Report on Internal Control over Financial Reporting
Management, including our Chief Executive Officer and our Senior Vice President, Finance and Chief Financial Officer, is
responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Exchange Act
Rules 13a-15(f)). The Company’s internal control system was designed to provide reasonable assurance to the Company’s management and
board of directors regarding the preparation and fair presentation of published financial statements in accordance with accounting
principles generally accepted in the United States.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. In making this
assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”)
in Internal Control—Integrated Framework (2013 Framework). Based on our assessment we believe that, as of December 31, 2021, our
internal control over financial reporting is effective based on those criteria.
This Annual Report does not include an attestation report by our registered public accounting firm regarding internal control over
financial reporting. Management's report is not subject to attestation by our registered public accounting firm under Section 404(b) of the
Sarbanes-Oxley Act pursuant to the rules established by the Securities and Exchange Commission, which permit us to provide only our
management report in this Annual Report.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal controls over financial reporting as defined in Rule 13a-15(f) under the Exchange Act
during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over
financial reporting. While COVID-19 resulted in our staff operating remotely, our established internal control structure is not impacted. As
we continue to monitor and adapt to the changing environment due to COVID-19, we will continue to evaluate our internal controls over
financial reporting.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdiction that Prevents Inspections
None.
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Item 10. Directors, Executive Officers, Corporate Governance
PART III
Information required by this Item will be included in the Company’s proxy statement for the 2022 Annual Meeting of
Stockholders (“2022 Proxy Statement”), under the sections labeled “Proposal 1—Election of Directors,” “Information about our Executive
Officers” and “Delinquent Section 16(a) Reports” and is incorporated by reference. The 2022 Proxy Statement will be filed with the SEC
within 120 days after the end of the fiscal year to which this report relates.
Code of Ethics
The Company’s Code of Ethics applies to all employees, officers and directors including the Chief Executive Officer (principal
executive officer) and the Senior Vice President, Finance and Chief Financial Officer (principal financial and principal accounting officer)
and is posted on the Company’s website at https://investors.xoma.com/corporate-governance. We intend to satisfy the applicable disclosure
requirements regarding amendments to, or waivers from, provisions of our Code of Ethics by posting such information on our website.
Item 11. Executive Compensation
Information required by this Item will be included in the sections labeled “Compensation of Executive Officers,” “Summary
Compensation Table,” “Outstanding Equity Awards as of December 31, 2021,” “Pension Benefits,” “Non-Qualified Deferred
Compensation” and “Compensation of Directors” appearing in our 2022 Proxy Statement and is incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information required by this Item will be included in the sections labeled “Common Stock of Certain Beneficial Owners and
Management” and “Equity Compensation Plan Information” appearing in our 2022 Proxy Statement and is incorporated by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information required by this Item will be included in the section labeled “Transactions with Related Persons” appearing in our
2022 Proxy Statement and is incorporated by reference.
Item 14. Principal Accountant Fees and Services
Information required by this Item will be included in the section labeled “Proposal 3 – Ratification of Appointment of Independent
Registered Public Accounting Firm” appearing in our 2022 Proxy Statement and is incorporated by reference.
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Table of Contents
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are included as part of this Annual Report on Form 10-K:
(1) Financial Statements:
All financial statements of the registrant referred to in Item 8 of this Report on Form 10-K.
(2) Financial Statement Schedules:
All financial statements schedules have been omitted because the required information is included in the consolidated
financial statements or the notes thereto or is not applicable or required.
(3) Exhibits:
Exhibit
Number
Exhibit Description
Form SEC File No.
Exhibit
Filing Date
Incorporation By Reference
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
Certificate of Incorporation of XOMA Corporation
8-K12G3
000-14710
Certificate of Amendment of Certificate of Incorporation
of XOMA Corporation
8-K
000-14710
3.1
3.1
01/03/2012
05/31/2012
Certificate of Amendment to the Amended Certificate of
Incorporation of XOMA Corporation
Certificate of Amendment to the Amended Certificate of
Incorporation of XOMA Corporation
Certificate of Designation of Preferences, Rights and
Limitations of Series X Convertible Preferred Stock
Certificate of Designation of 8.625% Series A
Cumulative Perpetual Preferred Stock
8-K
000-14710
3.1
05/28/2014
8-K
000-14710
3.1
10/18/2016
8-K
000-14710
3.1
02/16/2017
8-K
000-14710
3.1
12/11/2020
Certificate of Designation of 8.375% Series B Cumulative
Perpetual Preferred Stock
8-K
001-39801
3.1
04/08/2021
Certificate of Correction of the Certificate of Designation
of 8.375% Series B Cumulative Perpetual Preferred Stock
10-Q
001-39801
3.8
08/05/2021
Certificate of Amendment to the Certificate of
Designation of 8.375% Series B Cumulative Perpetual
Preferred Stock of XOMA Corporation.
8-K
001-39801
3.1
08/05/2021
3.10
By-laws of XOMA Corporation
8-K12G3
000-14710
3.2
01/03/2012
60
Table of Contents
Exhibit
Number
4.1
4.2
4.3
4.4
4.5
4.6+
10.1*
10.2*
10.3*
10.4*
10.5*
10.6†
10.7†
10.8†
Exhibit Description
Form SEC File No.
Exhibit
Filing Date
Incorporation By Reference
Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4, 3.5, 3.6,
3.7, 3.8, 3.9 and 3.10
Specimen of Common Stock Certificate
Deposit Agreement, effective as of April 9, 2021, by and
among XOMA Corporation, American Stock Transfer &
Trust Company, LLC, as depositary, and the holders of
the depositary receipts issued thereunder
8-K
8-K
000-14710
001-39801
Form of Warrants (May 2018 Warrants)
10-Q
000-14710
Form of Warrants (March 2019 Warrants)
10-Q
000-14710
Description of Registrant’s Securities
4.1
4.1
4.6
4.7
01/03/2012
04/08/2021
08/07/2018
05/06/2019
Amended and Restated 2010 Long Term Incentive and
Stock Award Plan
DEF 14A
000-14710
Appendix
A
04/05/2019
Form of Stock Option Agreement for Amended and
Restated 2010 Long Term Incentive and Stock Award
Plan
10-K
000-14710
10.6A
03/14/2012
2016 Incentive Compensation Plan
10-Q
000-14710
Amended 2015 Employee Share Purchase Plan
Form of Subscription Agreement and Authorization of
Deduction under the 2015 Employee Stock Purchase Plan
8-K
S-8
000-14710
333-204367
10.1
10.2
99.2
05/04/2016
05/24/2017
05/21/2015
10-Q/A
000-14710
10.43
12/04/2002
10-K
000-14710
10.24C
03/11/2009
10-K
000-14710
10.25B
03/14/2012
License Agreement by and between XOMA Ireland
Limited and MorphoSys AG, dated as of February 1,
2002
Amended and Restated Research, Development and
Commercialization Agreement, executed November 7,
2008, by and between Novartis Vaccines and Diagnostics,
Inc. (formerly Chiron Corporation) and XOMA (US)
LLC
Amendment No. 1 to Amended and Restated Research,
Development and Commercialization Agreement,
effective as of April 30, 2010, by and between Novartis
Vaccines and Diagnostics, Inc. (formerly Chiron
Corporation) and XOMA (US) LLC
61
Table of Contents
Exhibit
Number
10.9†
10.10†
10.11
10.12
10.13†
10.14
10.15†
10.16
Exhibit Description
Form SEC File No.
Exhibit
Filing Date
Incorporation By Reference
10-Q
000-14710
10.4
11/06/2015
10-K
000-14710
10.46
03/08/2007
10-Q
000-14710
10.48
05/10/2007
10-K
000-14710
10.31B
03/11/2009
10-Q/A
000-14710
10.35
03/05/2010
10-Q
000-14710
10.1
08/10/2015
10-Q
000-14710
10.2
11/06/2015
10-K
000-14710
10.60
03/16/2017
Amendment to Amended and Restated Research,
Development and Commercialization Agreement, dated
September 30, 2015, by and between XOMA (US) LLC
and Novartis Vaccines and Diagnostics, Inc. (formerly
Chiron Corporation)
Collaboration Agreement, dated as of November 1, 2006,
between Takeda Pharmaceutical Company Limited and
XOMA (US) LLC
First Amendment to Collaboration Agreement, effective
as of February 28, 2007, between Takeda Pharmaceutical
Company Limited and XOMA (US) LLC
Second Amendment to Collaboration Agreement,
effective as of February 9, 2009, among Takeda
Pharmaceutical Company Limited and XOMA (US) LLC
Discovery Collaboration Agreement dated September 9,
2009, by and between XOMA Development Corporation
and Arana Therapeutics Limited
Letter Agreement, dated June 19, 2015, by and between
XOMA (US) LLC and Novartis Vaccines and
Diagnostics, Inc.
License Agreement, dated September 30, 2015, by and
between XOMA (US) LLC and Novartis Institutes for
Biomedical Research, Inc.
Protective Rights Agreement dated December 21, 2016
by and between XOMA (US) LLC and HealthCare
Royalty Partners II, L.P. relating to the Royalty Interest
Acquisition Agreement dated December 20, 2016, by and
between XOMA Corporation and HealthCare Royalty
Partners II, L.P. and the Amended and Restated License
Agreement, dated effective as of October 27, 2006,
between XOMA (US) LLC and DYAX, Corp.
10.17
Protective Rights Agreements dated December 21, 2016
by and between XOMA (US) LLC and HealthCare
Royalty Partners II, L.P. relating to the Royalty Interest
Acquisition Agreement dated
10-K
000-14710
10.61
03/16/2017
62
Table of Contents
Exhibit
Number
10.18
10.19
10.20
10.21†
10.22†
10.23
10.24†
Exhibit Description
Form SEC File No.
Exhibit
Filing Date
Incorporation By Reference
December 20, 2016, by and between XOMA Corporation
and HealthCare Royalty Partners II, L.P. and the License
Agreement, dated effective as of August 18, 2005,
between XOMA (US) LLC and Wyeth Pharmaceuticals
Royalty Interest Acquisition Agreement dated December
20, 2016, by and between XOMA Corporation and
HealthCare Royalty Partners II, L.P., relating to the
Amended and Restated License Agreement, dated
effective as of October 27, 2006, between XOMA (US)
LLC and DYAX, Corp.
Royalty Interest Acquisition Agreement dated December
20, 2016, by and between XOMA Corporation and
HealthCare Royalty Partners II, L.P., relating to the
License Agreement, dated effective as of August 18,
2005, between XOMA (US) LLC and Wyeth
Pharmaceuticals
Amendment of Section 6.10(a) and (b), dated March 8,
2017, to Royalty Interest Acquisition Agreements dated
December 20, 2016, by and between XOMA Corporation
and HealthCare Royalty Partners II, L.P.
IL-1b Target License Agreement, dated August 24, 2017,
by and between XOMA Corporation and Novartis
Pharma AG
License Agreement, dated August 24, 2017, by and
between XOMA Corporation and Novartis Pharma AG
Asset Purchase Agreement, dated November 4, 2015,
between XOMA Corporation and Ology Bioservices Inc.
(formerly Nanotherapeutics Inc., now a wholly owned
subsidiary of National Resilience, Inc.)
License Agreement, dated March 23, 2016, between
XOMA Corporation and Ology Bioservices Inc.
(formerly Nanotherapeutics Inc., now a wholly owned
subsidiary of National Resilience, Inc.))
63
10-K
000-14710
10.62
03/16/2017
10-K
000-14710
10.63
03/16/2017
10-K
000-14710
10.64
03/16/2017
10-Q
000-14710
10.2
11/06/2017
10-Q
000-14710
10.3
11/06/2017
10-Q
000-14710
10.4
11/06/2017
10-Q
000-14710
10.5
11/06/2017
Table of Contents
Exhibit
Number
10.25†
Exhibit Description
Form SEC File No.
Exhibit
Filing Date
Incorporation By Reference
Amendment and Restatement, dated February 2, 2017, to
the Asset Purchase Agreement, dated November 4, 2015,
and License Agreement, dated March 23, 2016, between
XOMA Corporation and Ology Bioservices Inc.
(formerly Nanotherapeutics Inc., now a wholly owned
subsidiary of National Resilience, Inc.))
10-Q
000-14710
10.6
11/06/2017
10.26+*
Amended and Restated Employment Agreement, dated
December 15, 2021, between XOMA Corporation and
James R. Neal
10.27*
10.28*
10.29*
10.30†
10.31†
10.32†
10.33†
Officer Employment Agreement, dated August 7, 2017,
between XOMA Corporation and Thomas Burns
Amended and Restated Change of Control Severance
Agreement, dated August 7, 2017, to the Change of
Control Severance Agreement, dated January 3, 2011,
between XOMA Corporation and James R. Neal
Amended and Restated Change of Control Severance
Agreement, dated August 7, 2017, to the Change of
Control Severance Agreement, dated October 28, 2015,
between XOMA Corporation and Thomas Burns
10-Q
000-14710
10.8
11/06/2017
10-Q
000-14710
10.9
11/06/2017
10-Q
000-14710
10.10
11/06/2017
Royalty Purchase Agreement dated September 20, 2018,
between XOMA Corporation and Agenus Inc.
10-Q
000-14710
10.9
11/07/2018
License Agreement, dated December 6, 2017, between
XOMA (US) LLC and Rezolute, Inc. (formerly
AntriaBio)
Amendment No. 1, dated March 30, 2018, to the License
Agreement, dated December 6, 2017, between XOMA
(US) LLC and Rezolute, Inc. (formerly AntriaBio, Inc.)
Amendment No. 2, dated January 7, 2019, to the License
Agreement, dated December 6, 2017, between XOMA
(US) LLC and Rezolute, Inc. (formerly AntriaBio)
10-K
000-14710
10.66
03/07/2018
10-Q
000-14710
10.1
05/09/2018
10-K
000-14710
10.71
03/07/2019
64
Table of Contents
Exhibit
Number
10.34
10.35#
10.36#
10.37#
10.38#
10.39#
10.40
10.41
10.42
10.43
Exhibit Description
Form SEC File No.
Exhibit
Filing Date
Incorporation By Reference
Common Stock Sales Agreement, dated December 18,
2018, by and between XOMA Corporation and H.C.
Wainwright & Co., LLC
Royalty Purchase Agreement dated April 7, 2019,
between XOMA (US) LLC and Aronora, Inc.
Royalty Purchase Agreement dated September 26, 2019,
between XOMA (US) LLC and Palobiofarma, S.L
License Agreement between the Company and Novartis
International Pharmaceutical Ltd., dated September 30,
2015 (this exhibit was previously filed under confidential
treatment request as Exhibit 10.2 to Form 10-Q filed
November 6, 2015)
Amendment to Amended and Restated Research,
Development and Commercialization Agreement,
between the Company and Novartis Vaccine and
Diagnostics, Inc., dated September 30, 2015 (this exhibit
was previously filed under confidential treatment request
as Exhibit 10.4 to Form 10-Q filed November 6, 2015)
Collaboration and License Agreement, dated as of March
5, 2020, by and between XOMA (US) LLC and Cadila
Healthcare Limited
Form of Amended and Restated Indemnification
Agreement for Directors and Officers
Non-Exclusive License Agreement, dated November 30,
2001, between XOMA Ireland Limited ("XOMA") Sesen
Bio, Inc. and (formerly Viventia Biotech Inc.)
Amendment No. 1, dated July 24, 2020, to the Non-
Exclusive License Agreement, dated November 30, 2001,
between XOMA Ireland Limited ("XOMA") and Sesen
Bio, Inc.
Amendment No. 1, dated March 10, 2021, to the
Common Stock Sales Agreement, dated December 18,
2018, by and between XOMA Corporation and H.C.
Wainwright & Co., LLC
65
8-K
000-14710
10.1
12/18/2018
10-Q
000-14710
10.1
08/06/2019
10-Q
000-14710
10.1
11/05/2019
10-Q
000-14710
10.1
11/05/2020
10-Q
000-14710
10.2
11/05/2020
10-Q
000-14710
10.1
05/05/2020
10-K
001-39801
10.56
03/10/2021
10-K
001-39801
10.57
03/10/2021
10-K
001-39801
10.58
03/10/2021
10-K
001-39801
10.59
03/10/2021
Table of Contents
Exhibit
Number
10.44#
10.45#
10.46#
10.47#
Exhibit Description
Form SEC File No.
Exhibit
Filing Date
Incorporation By Reference
Royalty Purchase Agreement dated March 22, 2021
between XOMA (US) LLC and Viracta Therapeutics, Inc.
10-Q
001-39801
10.1
05/06/2021
Settlement and Release Agreement, dated April 15, 2021,
by and among XOMA (US) LLC and Affimed N.V.,
Affimed GmbH Affimed
Royalty Purchase Agreement, dated July 14, 2021, by and
among XOMA (US) LLC and Kuros Royalty Fund (US)
LLC
At Market Issuance Sales Agreement, dated August 5,
2021, by and between XOMA Corporation and B. Riley
Securities, Inc.
10-Q
001-39801
10.1
08/05/2021
10-Q
001-39801
10.2
11/04/2021
8-K
001-39801
10.1
08/05/2021
10.48 + #
Commercial Payment Purchase Agreement, dated
October 6, 2021, by and among XOMA (US) LLC and
Affitech Research AS
21.1+
23.1+
24.1+
31.1+
31.2+
32.1+
Subsidiaries of the Company
Consent of Deloitte & Touche LLP, Independent
Registered Public Accounting Firm
Power of Attorney (included on the signature pages
hereto)
Certification of Chief Executive Officer, as required by
Rule 13a-14(a) or Rule 15d-14(a)
Certification of Chief Financial Officer, as required by
Rule 13a-14(a) or Rule 15d-14(a)
Certification of Chief Executive Officer and Chief
Financial Officer, as required by Rule 13a-14(b) or Rule
15d-14(b) and Section 1350 of Chapter 63 of Title 18 of
the United States Code (18 U.S.C. §1350)(1)
101.INS+
Inline XBRL Instance Document
101.SCH+
Inline XBRL Taxonomy Extension Schema Document
101.CAL+
Inline XBRL Taxonomy Extension Calculation Linkbase
Document
66
Table of Contents
Exhibit
Number
101.DEF+
Exhibit Description
Form SEC File No.
Exhibit
Filing Date
Incorporation By Reference
Inline XBRL Taxonomy Extension Definition Linkbase
Document
101.LAB+
Inline XBRL Taxonomy Extension Labels Linkbase
Document
101.PRE+
Inline XBRL Taxonomy Extension Presentation Linkbase
Document
104
Cover Page Interactive Data File (formatted as Inline
XBRL and contained in Exhibit 101)
† Confidential treatment has been granted with respect to certain portions of this exhibit. This exhibit omits the information subject to
this confidentiality request. Omitted portions have been filed separately with the SEC.
* Indicates a management contract or compensation plan or arrangement.
+ Filed herewith.
# Portions of this exhibit have been omitted as the Registrant has determined that (i) the omitted information is not material and (ii) the
omitted material is of the type that the Registrant treats as private or confidential.
(1) This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission
and is not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-K), irrespective of any general
incorporation language contained in such filing.
The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Annual Report on
Form 10-K.
Item 16. Form 10-K Summary
None.
67
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 8th day of March 2022.
SIGNATURES
XOMA Corporation
By:
/s/ JAMES R. NEAL
James R. Neal
Chief Executive Officer and Chairman
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints James
Neal and Thomas Burns, and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for him or her and in his or her name, place, and stead, in any and all capacities, to sign any and all amendments to this
Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the SEC,
granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, and any of them or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ James R. Neal
(James R. Neal)
Chief Executive Officer (Principal Executive Officer) and Chairman of the
Board of Directors
/s/ Thomas Burns
(Thomas Burns)
Senior Vice President, Finance and Chief Financial Officer
(Principal Financial and Principal Accounting Officer)
/s/ W. Denman Van Ness
(W. Denman Van Ness)
/s/ Joseph M. Limber
(Joseph M. Limber)
/s/ Jack L. Wyszomierski
(Jack L. Wyszomierski)
/s/ Matthew Perry
(Matthew Perry)
/s/ Barbara Kosacz
(Barbara Kosacz)
/s/ Natasha Hernday
(Natasha Hernday)
/s/ Heather L. Franklin
(Heather L. Franklin)
Director
Director
Director
Director
Director
Director
Director
68
March 8, 2022
March 8, 2022
March 8, 2022
March 8, 2022
March 8, 2022
March 8, 2022
March 8, 2022
March 8, 2022
March 8, 2022
Table of Contents
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34)
Consolidated Balance Sheets
Consolidated Statements of Comprehensive Income
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
F-1
F-3
F-4
F-5
F-6
F-7
69
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of XOMA Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of XOMA Corporation and subsidiaries (the "Company") as of
December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive income, stockholders' equity, and cash
flows, for the each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the "financial
statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of
December 31, 2021 and 2020, and the results of its operations and its cash flows for the each of the two years in the period ended
December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of
our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our
audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the
financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit
matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical
audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Long-Term Royalty and Commercial Payment Receivables — Refer to Notes 2 and 5 to the financial statements
Critical Audit Matter Description
The Company has purchased rights to receive a portion of certain future developmental, regulatory and commercial sales
milestones, royalties, and option fees on sales of products currently in clinical development. As of December 31, 2021, the carrying value
of the long-term royalty and commercial payment receivables (“milestone and royalty rights”) is $69.1 million. The Company accounts for
milestone and royalty rights on a non-accrual basis using the cost recovery method. The milestone and royalty rights relate to
developmental pipeline products which are non-commercialized, non-approved products that require FDA or other regulatory approval, and
thus have uncertain cash flows. Management assesses any impairment indicators and changes in expected recoverability of the long-term
receivable asset regularly.
F-1
Table of Contents
The determination of impairment indicators requires obtaining and assessing all available information regarding the
developmental pipeline products as of the Company’s financial reporting dates. The Company obtains information through available
sources including: 1) updates from the selling party of the milestone and royalty rights, 2) publicly available clinical trial data and news,
and 3) public disclosures provided by the research companies developing the products.
We identified the accounting evaluation of impairment indicators as a critical audit matter, primarily due to the Company’s
reliance on third parties to disclose updates to the Company timely for the Company's required financial reporting deadlines. The timing of
disclosure to the Company of a change in the use, or intent for future use, of the licenses related to the milestone and royalty rights could
have a significant impact on the fair value of milestone and royalty rights and a significant change in fair value could cause a significant
impairment. Performing audit procedures to evaluate whether management had appropriately identified impairment indicators involved
challenging and complex auditor judgment, including the need to involve more experienced auditors in assessing the completeness of
available information and if any available public information represents an impairment indicator as of the Company’s financial reporting
date.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the evaluation of assumptions used in the impairment assessment of the long-term royalty
receivables included, but were not limited to, the following:
•
Considering the impact of changes in the regulatory environment on management’s impairment indicator conclusions.
• We evaluated the Company’s assessment of impairment indicators by developing an independent expectation of impairment
indicators through research of third-party disclosures and clinical trial news for programs associated with the milestone and
royalty rights and comparing such expectation to those included in the impairment analysis.
• We inspected the Company’s documentation of inquiries and written correspondence to obtain program updates from the selling
parties of the milestone and royalty rights throughout the year and through the Company’s reporting date.
•
Confirmed with the selling parties of the milestone and royalty rights that complete information known to the selling party
regarding the associated research programs was provided timely, completely, and accurately to the Company.
/s/ DELOITTE & TOUCHE LLP
San Francisco, California
March 8, 2022
We have served as the Company's auditor since 2018.
F-2
Table of Contents
XOMA Corporation
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
Current assets:
Cash
Restricted cash
Short-term equity securities
Trade and other receivables, net
Income tax receivable
Prepaid expenses and other current assets
Total current assets
Long-term restricted cash
Property and equipment, net
Operating lease right-of-use assets
Long-term royalty and commercial payment receivables
Long-term equity securities
Other assets - long term
Total assets
Current liabilities:
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable
Accrued and other liabilities
Income taxes payable
Contingent consideration under RPAs and CPPAs
Operating lease liabilities
Unearned revenue recognized under units-of-revenue method
Contingent liabilities
Current portion of long-term debt
Preferred stock dividend accrual
Total current liabilities
Unearned revenue recognized under units-of-revenue method – long-term
Long-term debt
Long-term operating lease liabilities
Other liabilities - long term
Total liabilities
Commitments and Contingencies (Note 13)
Stockholders’ equity:
Preferred Stock, $0.05 par value, 1,000,000 shares authorized:
8.625% Series A cumulative, perpetual preferred stock, 984,000 shares issued and outstanding at December 31, 2021
and December 31, 2020
8.375% Series B cumulative, perpetual preferred stock, 1,600 and zero shares issued and outstanding at
December 31, 2021 and December 31, 2020, respectively
Convertible preferred stock, 5,003 shares issued and outstanding at December 31, 2021 and December 31, 2020
Common stock, $0.0075 par value, 277,333,332 shares authorized, 11,315,263 and 11,228,792 shares issued and
outstanding at December 31, 2021 and December 31, 2020, respectively
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
December 31,
2021
December 31,
2020
$
$
$
93,328
2,049
774
209
—
613
96,973
—
13
200
69,075
—
301
166,562
1,072
525
91
8,075
195
1,641
—
—
1,368
12,967
11,685
—
34
—
24,686
49
—
—
84,222
1,611
—
263
1,526
443
88,065
531
21
359
34,575
1,693
41
125,285
456
642
—
75
179
1,452
1,410
8,088
—
12,302
13,516
12,764
229
50
38,861
49
—
—
85
1,307,030
(1,165,288)
141,876
166,562
$
84
1,267,377
(1,181,086)
86,424
125,285
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-3
Table of Contents
XOMA Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except per share amounts)
Revenues:
Revenue from contracts with customers
Revenue recognized under units-of-revenue method
Total revenues
Operating expenses:
Research and development
General and administrative
Total operating expenses
Income from operations
Other (expense) income, net:
Interest expense
Loss on extinguishment of debt
Other (expense) income, net
Income before income tax
Income tax (expense) benefit
Net income and comprehensive income
Net income and comprehensive income available to common stockholders (Note 11), basic
Net income and comprehensive income available to common stockholders (Note 11), diluted
Basic net income per share available to common stockholders
Diluted net income per share available to common stockholders
Weighted average shares used in computing basic net income per share available to common stockholders
Weighted average shares used in computing diluted net income per share available to common stockholders
Year Ended
December 31,
2021
2020
$
$
$
$
$
$
36,518
1,642
38,160
171
20,460
20,631
17,529
(461)
(300)
(879)
15,889
(91)
15,798
7,787
7,968
0.69
0.65
11,288
12,192
27,941
1,444
29,385
170
16,799
16,969
12,416
(1,844)
—
1,225
11,797
1,501
13,298
8,793
9,010
0.82
0.78
10,674
11,503
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Table of Contents
XOMA Corporation
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
Series A
Preferred Stock
Shares Amount Shares Amount Shares Amount Shares Amount
Series B
Preferred Stock
Convertible
Preferred Stock
Common Stock
Balance, December 31, 2020
Issuance of preferred stock
Preferred stock dividends
Stock-based compensation
expense
Exercise of stock options
Exercise of common stock
warrants
Issuance of common stock
related to 401(k) contribution
and ESPP
Net income and comprehensive
income
Balance, December 31, 2021
984 $
—
—
—
—
—
—
—
984 $
49
—
—
—
—
—
—
—
49
— $
2
—
—
—
—
—
—
2 $
—
—
—
—
—
—
—
—
—
5 $
—
—
—
—
—
—
—
5 $
—
—
—
—
—
—
—
—
—
Series A
Preferred Stock
Shares Amount Shares Amount Shares Amount Shares Amount
Series B
Preferred Stock
Convertible
Preferred Stock
Common Stock
Balance, December 31, 2019
Issuance of preferred stock
Issuance of common stock
related to Series Y preferred
stock conversion
Stock-based compensation
expense
Exercise of stock options
Issuance of common stock
related to 401(k) contribution
and ESPP
Disgorgement of stockholder's
short-swing profits
Net income and comprehensive
income
Balance, December 31, 2020
— $
984
—
—
—
—
—
—
984 $
—
49
—
—
—
—
—
—
49
— $
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
—
6 $
—
(1)
—
—
—
—
—
5 $
—
—
—
—
—
—
—
—
—
Additional
Paid-In
Capital
1,267,377
37,140
(4,867)
6,195
1,052
—
11,229 $
—
—
—
77
5
84 $
—
—
—
1
—
Accumulated
Deficit
(1,181,086) $
$
—
—
—
—
—
—
4
—
133
—
11,315 $
—
85 $
—
$
1,307,030
15,798
(1,165,288) $
Additional
Paid-In
Capital
1,238,299
22,572
(10)
3,961
2,406
136
13
Accumulated
Deficit
(1,194,384) $
$
—
—
—
—
—
—
9,759 $
—
73 $
—
1,253
—
211
6
—
10
—
1
—
—
—
11,229 $
—
84 $
—
$
1,267,377
13,298
(1,181,086) $
Total
Stockholders’
Equity
86,424
37,140
(4,867)
6,195
1,053
—
133
15,798
141,876
Total
Stockholders’
Equity
43,988
22,621
—
3,961
2,407
136
13
13,298
86,424
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Table of Contents
XOMA Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense
Common stock contribution to 401(k)
Depreciation
Amortization of debt issuance costs, debt discount and final payment on debt
Non-cash portion of Novartis Milestone Payment
Reduction of contingent NIH refund liability
Non-cash lease expense
Loss on extinguishment of debt
Change in fair value of equity securities
Changes in assets and liabilities:
Trade and other receivables, net
Income tax receivable
Prepaid expenses and other assets
Accounts payable and accrued liabilities
Income taxes payable
Operating lease liabilities
Unearned revenue recognized under units-of-revenue method
Contingent NIH refund liability
Other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Payments related to purchase of royalty rights and other commercial payment rights
Receipts related to purchased royalty rights
Purchase of property and equipment
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from issuance of preferred stock
Payment of preferred and common stock issuance costs
Proceeds from exercise of options and other share-based compensation
Principal payments – debt
Payment for extinguishment of debt
Payment for preferred stock dividends
Taxes paid related to net share settlement of equity awards
Other
Net cash provided by financing activities
Net increase in cash and restricted cash
Cash and restricted cash at the beginning of the period
Cash and restricted cash at the end of the period
Supplemental Cash Flow Information:
Cash paid for interest
Non-cash investing and financing activities:
Estimated fair value of contingent consideration under the Affitech CPPA
Preferred stock dividend accrual
Interest added to principal balance on long-term debt
Accrued cost related to issuance of capital stock
Year Ended December 31,
2021
2020
$
15,798
$
13,298
6,195
90
7
200
—
(105)
160
300
919
54
1,526
(169)
765
91
(179)
(1,642)
(1,305)
(27)
22,678
(26,500)
—
—
(26,500)
40,000
(3,385)
1,584
(4,250)
(17,103)
(3,499)
(488)
(24)
12,835
9,013
86,364
95,377
311
8,000
1,368
—
—
$
$
$
$
$
$
3,961
88
22
698
(7,300)
—
150
—
(1,012)
2,670
(1,526)
83
(542)
—
(163)
(1,444)
612
497
10,092
(1,200)
1,000
(9)
(209)
24,600
(1,945)
4,850
(5,313)
—
—
(2,395)
(4)
19,793
29,676
56,688
86,364
692
—
—
490
264
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Table of Contents
1. Description of Business
XOMA Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
XOMA (referred to as “XOMA” or the “Company”), a Delaware corporation, is a biotech royalty aggregator with a sizable
portfolio of economic rights to future potential milestone and royalty payments associated with partnered pre-commercial therapeutic
candidates. The Company’s portfolio was built through licensing its proprietary products and platforms from its legacy discovery and
development business, combined with the acquisition of rights to future milestones and royalties that the Company has made since the
royalty aggregator business model was implemented in 2017. The Company’s drug royalty aggregator business is focused on early to mid-
stage clinical assets primarily in Phase 1 and 2 with significant commercial sales potential that are licensed to large-cap partners. The
Company expects that most of its future revenue will be based on payments the Company may receive for milestones and royalties related
to these programs.
Liquidity and Financial Condition
The Company has incurred significant operating losses and negative cash flows from operations since its inception. As of
December 31, 2021, the Company had unrestricted and restricted cash of $93.3 million and $2.0 million, respectively. The restricted cash
balance may only be used to pay dividends on the outstanding Series A Preferred Stock and the outstanding Series B Preferred Stock (Note
12).
In June 2021, the Company repaid its outstanding debt obligations to SVB and Novartis, for a total of $17.1 million (Note 8).
Based on the Company’s current cash balance and its ability to control discretionary spending, such as royalty acquisitions, the Company
has evaluated and concluded its financial condition is sufficient to fund its planned operations and commitments and contractual obligations
for a period of at least one year following the date that these consolidated financial statements are issued.
2. Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All
intercompany accounts and transactions among consolidated entities were eliminated upon consolidation. The accompanying consolidated
financial statements were prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States for
financial information and with the instructions to Form 10-K and Article 10 of Regulation S-X.
Use of Estimates
The preparation of financial statements in conformity with GAAP in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures. On an ongoing basis,
management evaluates its estimates including, but not limited to, those related to revenue recognition, revenue recognized under units-of-
revenue method, royalty receivables, equity securities, legal contingencies, contingent consideration and stock-based compensation. The
Company bases its estimates on historical experience and on various other market-specific and other relevant assumptions that are believed
to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ significantly from these estimates, such as the Company’s billing under government contracts and
amortization of the payments received from HCRP. Under the Company’s contracts with the NIAID, a part of the NIH, the Company billed
using NIH’s provisional rates and thus is subject to future audits at the discretion of NIAID’s contracting office. In October of 2019, NIH
notified the Company that it engaged KPMG to perform an audit of the Company’s incurred cost submissions for 2013, 2014 and 2015. As
of December 31, 2020, the audit procedures were completed, and the Company adjusted its estimated liability owed to NIH to $1.4 million.
In December 2021, the NIH
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completed its review of the audit as part of the related contract close-out process, which included the finalization of rates for years 2010
through 2015, and the Company adjusted its liability owed to NIH to $1.3 million. In December 2021, the Company paid the final
approved refund liability of $1.3 million. As such, no contingent liability remained on the Company’s consolidated balance sheets as of
December 31, 2021.
In addition, under the contracts with HCRP, the amortization for the reporting period is calculated based on the payments expected
to be made by the licensees to HCRP over the term of the arrangement. Any changes to the estimated payments by the licensees to HCRP
can result in a material adjustment to revenue previously reported.
The COVID-19 pandemic has resulted in a global slowdown of economic activity which has led to delays and could result in
further delays or terminations of some clinical trials underlying the Company’s RPAs. Estimates and assumptions about future events and
their effects cannot be determined with certainty and therefore require the exercise of judgment. These estimates may change, as new
events occur and additional information is obtained, and are recognized in the consolidated financial statements as soon as they become
known. Actual results could differ from those estimates and any such differences may be material to the Company’s financial statements.
Cash and Restricted Cash
Cash consists of bank deposits held in business checking and interest-bearing deposit accounts. As of December 31, 2021 and
2020, the Company did not have any cash equivalent balances, defined as highly liquid financial instruments purchased with original
maturities of three months or less.
Restricted cash consists of bank deposits held to pay dividends on the Company’s Series A Preferred Stock and Series B Preferred
Stock.
The Company maintains cash and restricted cash balances at commercial banks. Balances commonly exceed the amount insured by
the Federal Deposit Insurance Corporation. The Company has not experienced any losses in such accounts, and management believes that
the Company is not exposed to any significant credit risk with respect to such cash and restricted cash.
The following table provides a reconciliation of cash and restricted cash reported within the consolidated balance sheets that sum
to the total of the same amounts shown in the consolidated statements of cash flows (in thousands):
Cash
Restricted cash
Total cash and restricted cash
Revenue Recognition
Year Ended December 31,
2020
2021
$
$
93,328
2,049
95,377
$
$
84,222
2,142
86,364
The Company recognizes revenue from all contracts with customers according to ASC 606, except for contracts that are within the
scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. The Company recognizes revenue
when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects
to receive in exchange for those goods or services.
To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company
performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract;
(iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize
revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it
is probable that Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At
contract inception, once
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the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract
and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then
recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation based on relative fair
values, when (or as) the performance obligation is satisfied.
The Company recognizes revenue from its license and collaboration arrangements and royalties. The terms of the arrangements
generally include payment to the Company of one or more of the following: non-refundable, upfront license fees, development, regulatory
and commercial milestone payments, and royalties on net sales of licensed products.
License of intellectual property
If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified
in the arrangement, the Company recognizes revenue from non-refundable, upfront fees allocated to the license when the license is
transferred to the customer and the customer is able to use and benefit from the license. For licenses that are bundled with other promises,
such as transfer of related materials, process and know-how, the Company utilizes judgement to assess the nature of the combined
performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time. Under the
Company’s license agreements, the nature of the combined performance obligation is the granting of licenses to the customers as the other
promises are not separately identifiable in the context of the arrangement. Since the Company grants the license to a customer as it exists at
the point of transfer and is not involved in any future development or commercialization of the products related to the license, the nature of
the license is a right to use the Company’s intellectual property as transferred. As such, the Company recognizes revenue related to the
combined performance obligation upon completion of the delivery of the related materials, process and know-how (i.e., at a point in time).
Milestone payments
At the inception of each arrangement that includes development and regulatory milestone payments, the Company evaluates
whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price. ASC 606
suggests two alternatives to use when estimating the amount of variable consideration: the expected value method and the most likely
amount method. Under the expected value method, an entity considers the sum of probability-weighted amounts in a range of possible
consideration amounts. Under the most likely amount method, an entity considers the single most likely amount in a range of possible
consideration amounts. The Company uses the most likely amount method for development and regulatory milestone payments.
If it is probable that a significant cumulative revenue reversal would not occur, the associated milestone value is included in the
transaction price. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not
considered probable of being achieved until those approvals are received. The transaction price is then allocated to each performance
obligation on a relative stand-alone selling price basis. The Company recognizes revenue as or when the performance obligations under the
contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability or achievement of each
such milestone and any related constraint, and if necessary, adjusts its estimates of the overall transaction price. Any such adjustments are
recorded on a cumulative catch-up basis, which would affect revenue and earnings in the period of adjustment.
Royalties
For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is
deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales
occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially
satisfied).
Upfront payments and fees are recorded as deferred revenue upon receipt or when due and may require deferral of revenue
recognition to a future period until the Company performs its obligations under these arrangements. Amounts payable to the Company are
recorded as accounts receivable when the Company’s right to consideration is unconditional. The Company does not assess whether a
contract has a significant financing component if the expectation at contract
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inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will
be one year or less.
Sale of Future Revenue Streams
The Company has sold its rights to receive certain milestones and royalties on product sales. In the circumstance where the
Company has sold its rights to future milestones and royalties under a license agreement and also maintains limited continuing involvement
in the arrangement (but not significant continuing involvement in the generation of the cash flows that are due to the purchaser), the
Company defers recognition of the proceeds it receives for the sale of milestone or royalty streams and recognizes such unearned revenue
as revenue under units-of-revenue method over the life of the underlying license agreement. Under the units-of-revenue method,
amortization for a reporting period is calculated by computing a ratio of the proceeds received from the purchaser to the total payments
expected to be made to the purchaser over the term of the agreement, and then applying that ratio to the period’s cash payment.
Estimating the total payments expected to be received by the purchaser over the term of such arrangements requires management
to use subjective estimates and assumptions. Changes to the Company’s estimate of the payments expected to be made to the purchaser
over the term of such arrangements could have a material effect on the amount of revenues recognized in any particular period.
Stock-Based Compensation
The Company recognizes compensation expense for all stock-based payment awards made to the Company’s employees,
consultants and directors that are expected to vest based on estimated fair values. The valuation of stock option awards is determined at the
date of grant using the Black-Scholes Option Pricing Model (the “Black-Scholes Model”). The Black-Scholes Model requires inputs such
as the expected term of the option, expected volatility and risk-free interest rate. To establish an estimate of expected term, the Company
considers the vesting period and contractual period of the award and its historical experience of stock option exercises, post-vesting
cancellations and volatility. The estimate of expected volatility is based on the Company’s historical volatility. The risk-free rate is based on
the yield available on United States Treasury zero-coupon issues corresponding to the expected term of the award. The Company records
forfeitures when they occur. The Company records compensation expense for service-based awards on a straight-line basis over the
requisite service period, which is generally the vesting period of the award, or to the date on which retirement eligibility is achieved, if
shorter.
Equity Securities
The Company entered into a license agreement with Rezolute in December 2017, in which it received shares of common stock
from Rezolute (Note 4). Equity investments in Rezolute are classified in the consolidated balance sheets as equity securities. The equity
securities are measured at fair value, with changes in fair value recorded in the other (expense) income, net line item of the consolidated
statement of operations and comprehensive income at each reporting period. The Company remeasures its equity investments at each
reporting period until such time that the investment is sold or disposed of. If the Company sells an investment, any realized gains and losses
on the sale of the securities will be recognized in the consolidated statement of operations and comprehensive income in the period of sale.
In October 2020, Rezolute completed a 1:50 reverse stock split of its common shares (the “Rezolute Reverse Stock Split”) and
started trading on the Nasdaq Stock Market. As a result, the Company’s number of shares of Rezolute common stock was reduced from
8,093,010 shares (pre reverse-split shares) to 161,861 shares (post reverse-split shares). All subsequent disclosures of Rezolute share
numbers will be presented post reverse-split.
Purchase of Rights to Future Milestones, Royalties and Commercial Payments
The Company has purchased rights to receive a portion of certain future developmental, regulatory and commercial sales
milestones, royalties and option fees on sales of products currently in clinical development. The Company acquired such rights from
various entities and recorded the amount paid for these rights as long-term royalty receivables (Note 5). In addition, the Company may be
obligated to make contingent payments related to certain product
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development milestones, fees upon exercise of options related to future license products and sales-based milestones. The contingent
payments are evaluated whether they are freestanding instruments or embedded derivatives. If the contingent payments fall within the
scope of ASC 815, the contingent payments are measured at fair value at the inception of the arrangement, subject to remeasurement to fair
value each reporting period. Any changes in the estimated fair value are recorded in the consolidated statement of operations and
comprehensive income.
The Company accounts for milestone and royalty rights related to developmental pipeline products on a non-accrual basis using
the cost recovery method. These developmental pipeline products are non-commercialized, non-approved products that require FDA or
other regulatory approval, and thus have uncertain cash flows. The Company is not yet able to reliably forecast future cash flows given
their pre-commercial stages of development. The related receivable balance is classified as noncurrent since no payments are probable to be
received in the near term. Under the cost recovery method, any milestone or royalty payment received is recorded as a direct reduction of
the recorded receivable balance. When the recorded receivable balance has been fully collected, any additional amounts collected are
recognized as revenue.
The Company reviews public information on clinical trials, press releases and updates from its partners regularly to identify any
impairment indicators or changes in expected recoverability of the long-term royalty receivable asset. If an impairment indicator is
identified, and the Company determines expected future cash flows discounted to the current period are less than the carrying value of the
asset, the Company will record impairment. The impairment will be recognized by reducing the financial asset to an amount that represents
the present value of the most recent estimate of future cash flows. No impairment indicators were identified, and no impairment was
recorded as of December 31, 2021 and December 31, 2020.
Leases
The Company leases its headquarters office space in Emeryville, California.
The Company determines the initial classification and measurement of its right-of-use assets and lease liabilities at the lease
commencement date and thereafter if modified. The lease term includes any renewal options and termination options that the Company is
reasonably certain to exercise. The present value of lease payments is determined by using the interest rate implicit in the lease, if that rate
is readily determinable; otherwise, the Company uses its incremental borrowing rate. The incremental borrowing rate is determined by
using the rate of interest that the Company would pay to borrow on a collateralized basis an amount equal to the lease payments for a
similar term and in a similar economic environment. The Company built its incremental borrowing rate starting with the interest rate on its
fully collateralized debt and then adjusted it for lease term length.
Rent expense for the operating lease is recognized on a straight-line basis, over the reasonably assured lease term based on the
total lease payments and is included in operating expenses in the consolidated statements of operations and comprehensive income.
The Company has elected the practical expedient to not separate lease and non-lease components. The Company’s non-lease
components are primarily related to property maintenance, which varies based on future outcomes, and thus is recognized in rent expense
when incurred.
Income Taxes
The Company accounts for income taxes using the liability method under which deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to reverse. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount which is more likely than not to be realizable.
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The recognition, derecognition and measurement of a tax position is based on management’s best judgment given the facts,
circumstances and information available at each reporting date. The Company’s policy is to recognize interest and penalties related to the
underpayment of income taxes as a component of income tax expense. To date, there have been no interest or penalties charged in relation
to the unrecognized tax benefits.
Prior Period Reclassifications
Within the consolidated statement of cash flows, the Company presented principal payments on its finance lease and proceeds
from disgorgement of stockholder's short-swing profits together in order for the prior period to conform with current period presentation.
Net Income per Share Attributable to Common Stockholders
The Company calculates basic and diluted income per share attributable to common stockholders using the two-class method. The
Company’s convertible Series X preferred stocks participate in any dividends declared by the Company on its common stock and are
therefore considered to be participating securities. The Company’s Series A and Series B Preferred Stock do not participate in any
dividends or distribution by the Company on its common stock and are therefore not considered to be participating securities.
Under the two-class method, net income, as adjusted for any accumulated dividends on Series A and Series B Preferred Stock for
the period and any deemed dividends related to beneficial conversion features on convertible preferred stock, if applicable, is allocated to
each class of common stock and participating security as if all of the net income for the period had been distributed. Undistributed earnings
allocated to participating securities are subtracted from net income in determining net income attributable to common stockholders. During
periods of loss, the Company allocates no loss to participating securities because they have no contractual obligation to share in the losses
of the Company. Basic net income per share attributable to common stockholders is then calculated by dividing the net income attributable
to common stockholders by the weighted average number of shares of common stock outstanding during the period. All participating
securities are excluded from the basic weighted average common shares outstanding.
Diluted net income per share attributable to common stockholders is based on the weighted average number of shares outstanding
during the period, adjusted to include the assumed exercise of certain stock options and warrants for common stock. The calculation of
diluted net income per share attributable to common stockholders requires that, to the extent the average market price of the underlying
shares for the reporting period exceeds the exercise price of any outstanding options or warrants, the presumed exercise of such securities
are dilutive to net income per share attributable to common stockholders for the period. Adjustments to the denominator are required to
reflect the related dilutive shares. The Company’s Series A and Series B Preferred Stock become convertible upon the occurrence of
specific events other than a change in the Company’s share price and therefore, are not included in the diluted shares until the contingency
is resolved.
Comprehensive Income
Comprehensive income is comprised of two components: net income and other comprehensive income. Other comprehensive
income refers to gains and losses that under U.S. GAAP are recorded as an element of stockholders’ equity but are excluded from net
income. The Company did not record any transactions within other comprehensive income in the periods presented and, therefore, the net
income and comprehensive income were the same for all periods presented.
Accounting Pronouncements Recently Adopted
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The
amendments in ASU 2019-12 are intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes
certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.
ASU 2019-12 is effective for the Company on January 1, 2021. The Company adopted ASU 2019-12, on January 1, 2021. The adoption of
ASU 2019-12 did not have a material impact on the Company’s consolidated financial statements.
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In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate
Reform on Financial Reporting. These amendments provide temporary optional guidance to ease the potential burden in accounting for
reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to
contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate
expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance
is effective for all entities as of March 12, 2020 through December 31, 2022 and can be adopted as of any date from the beginning of an
interim period that includes or is subsequent to March 12, 2020. The Company adopted ASU 2020-04 as of January 1, 2021. The adoption
of this ASU did not have a material impact on the Company’s consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and
Derivative and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU reduces the number of accounting models for
convertible debt instruments and convertible preferred stock and amends the guidance for the derivatives scope exception for contracts in
an entity’s own equity to reduce form-over-substance-based accounting conclusion. In addition, this ASU improves and amends the related
EPS guidance. These amendments are effective for the Company for fiscal years beginning after December 15, 2023, including interim
period within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including
interim periods within those fiscal years. Adoption is either a modified retrospective method or a fully retrospective method of transition.
The Company adopted ASU 2020-06 on January 1, 2021. The adoption of this ASU did not have a material impact on the Company’s
consolidated financial statements.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments. ASU 2016-13 replaced the incurred loss impairment methodology under current GAAP with a methodology that
reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss
estimates. ASU 2016-13 requires use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial
instruments. Adoption of the standard requires using a modified retrospective approach through a cumulative-effect adjustment to retained
earnings as of the effective date to align existing credit loss methodology with the new standard. ASU 2016-13 will be effective for all
entities except public companies that are not smaller reporting companies for fiscal years beginning after December 15, 2022, including
interim periods within those fiscal years, using a modified retrospective approach. Early adoption is permitted. The Company plans to
adopt ASU 2016-13 and related updates as of January 1, 2023. The Company is currently evaluating the impact of adopting this new
accounting guidance on its consolidated financial statements.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments
(Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity
(Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options.
The amendments in ASU No. 2021-04 provide guidance to clarify and reduce diversity in an issuer’s accounting for modifications or
exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or
exchange. The amendments in this ASU No. 2021-04 are effective for all entities for fiscal years beginning after December 15, 2021, and
interim periods within those fiscal years, with early adoption permitted, including interim periods within those fiscal years. The Company
plans to adopt ASU 2021-04 and related updates on January 1, 2022. The Company does not expect the adoption of this ASU to have a
material impact on its consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations – Accounting for Contract Assets and Contact
Liabilities from Contracts with Customers. The guidance is intended to improve the accounting for acquired revenue contracts with
customers in a business combination by addressing diversity in practice. The guidance requires an acquirer to recognize and measure
contract assets and liabilities acquired in a business combination in accordance with Topic 606 as if they had originated the contracts, as
opposed to at fair value on the acquisition date. The standard will be effective for business combinations that occur after January 1, 2023.
Early adoption is permitted. The Company is currently evaluating the impacts of the provisions of ASU 2021-08 and the Company does not
expect this ASU to have a material impact on its consolidated financial statements.
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3. Consolidated Financial Statement Detail
Equity Securities
As of December 31, 2021 and December 31, 2020, equity securities consisted of an investment in Rezolute’s common stock of
$0.8 million and $1.7 million, respectively (Note 4). For the years ended December 31, 2021 and December 31, 2020, the Company
recognized a loss of $0.9 million and a gain of $1.0 million, respectively, due to the change in fair value of its investment in Rezolute’s
common stock in the other (expense) income, net line item of the consolidated statements of operations and comprehensive income.
Accrued and Other Liabilities
Accrued and other liabilities consisted of the following (in thousands):
Accrued legal and accounting fees
Accrued payroll and benefits
Accrued incentive compensation
Other accrued liabilities
Total
4. Licensing and Other Arrangements
Novartis – Anti-TGFβ Antibody (NIS793)
December 31,
2021
December 31,
2020
295
135
55
40
525
$
351
136
71
84
642
$
On September 30, 2015, the Company and Novartis entered into the Anti-TGFβ Antibody License Agreement under which the
Company granted Novartis an exclusive, world-wide, royalty-bearing license to the Company’s anti-transforming growth factor beta
(“TGFβ”) antibody program (now “NIS793”). Under the terms of the Anti-TGFβ Antibody License Agreement, Novartis has worldwide
rights to NIS793 and is responsible for the development and commercialization of antibodies and products containing antibodies arising
from NIS793. Unless terminated earlier, the Anti-TGFβ Antibody License Agreement will remain in effect, on a country-by-country and
product-by-product basis, until Novartis’s royalty obligations end. The Anti-TGFβ Antibody License Agreement contains customary
termination rights relating to material breach by either party. Novartis also has a unilateral right to terminate the Anti-TGFβ Antibody
License Agreement on an antibody-by-antibody and country-by-country basis or in its entirety on one hundred eighty days’ notice.
The Company concluded that there were multiple promised goods and services under the Anti-TGFβ Antibody License
Agreement, including the transfer of license, regulatory services and transfer of materials, process and know-how, which were determined
to represent one combined performance obligation. The Company recognized the entire upfront payment of $37.0 million as revenue in the
consolidated statement of comprehensive loss in 2015 as it had completed its performance obligations as of December 31, 2015.
The Company was eligible to receive up to a total of $480.0 million in development, regulatory and commercial milestones under
the Anti-TGFβ Antibody License Agreement. During the year ended December 31, 2017, Novartis achieved a clinical development
milestone pursuant to the Anti-TGFβ Antibody License Agreement, and as a result, the Company earned a $10.0 million milestone
payment which was recognized as license fees in the consolidated statement of operations and comprehensive income.
The Company concluded that the development and regulatory milestone payments are solely dependent on Novartis’s performance
and achievement of the specified events. The Company determined that it is not probable that a significant cumulative revenue reversal will
not occur in future periods for these future payments. Therefore, the remaining development and regulatory milestones are fully constrained
and excluded from the transaction price until the respective milestone is achieved. Any consideration related to commercial milestones
(including royalties) will be recognized when
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the related sales occur as they were determined to relate predominantly to the licenses granted to Novartis and therefore, have also been
excluded from the transaction price. At the end of each reporting period, the Company will update its assessment of whether an estimate of
variable consideration is constrained and update the estimated transaction price accordingly.
The Company is also eligible to receive royalties on sales of licensed products, which are tiered based on sales levels and range
from a mid single-digit percentage rate to up to a low double-digit percentage rate. Novartis’s obligation to pay royalties with respect to a
particular product and country will continue for the longer of the date of expiration of the last valid patent claim covering the product in
that country, or ten years from the date of the first commercial sale of the product in that country.
On October 21, 2020, the Company earned a $25.0 million milestone upon the dosing of the first patient in Novartis’ first NIS793
Phase 2 clinical trial. As specified under the terms of the Anti-TGFβ Antibody License Agreement, the Company received $17.7 million in
cash and the remaining balance of $7.3 million was recognized as a reduction to the Company's debt obligation to Novartis.
On October 20, 2021, the Company earned a $35.0 million milestone payment upon dosing of the first patient in Novartis’ first
NIS793 Phase 3 clinical trial. The Company is eligible to receive remaining milestones up to a total of $410.0 million under the Anti-TGFβ
Antibody License Agreement.
As of December 31, 2021 and December 31, 2020, there are no contract assets or contract liabilities related to this arrangement.
None of the costs to obtain or fulfill the contract were capitalized. The Company recognized $35.0 million and $25.0 million as revenue
from contracts with customers in the consolidated statement of operations and comprehensive income for the years ended December 31,
2021 and 2020, respectively.
Novartis – Anti-IL-1β Antibody (VPM087) and IL-1 Beta
On August 24, 2017, the Company and Novartis entered into the Gevokizumab License Agreement under which the Company
granted to Novartis an exclusive, worldwide, royalty-bearing license to gevokizumab (“VPM087”), a novel anti-Interleukin-1 (“IL-1”) beta
allosteric monoclonal antibody and related know-how and patents. Under the terms of the Gevokizumab License Agreement, Novartis is
solely responsible for the development and commercialization of VPM087 and products containing VPM087.
On August 24, 2017, pursuant to a separate agreement (the “IL-1 Target License Agreement”), the Company granted to Novartis
non-exclusive licenses to its intellectual property covering the use of IL-1 beta targeting antibodies in the treatment and prevention of
cardiovascular disease and other diseases and conditions, and an option to obtain an exclusive license (the “Exclusivity Option”) to such
intellectual property for the treatment and prevention of cardiovascular disease.
Under the Gevokizumab License Agreement, the Company received total consideration of $30.0 million for the license and rights
granted to Novartis. Of the total consideration, $15.7 million was paid in cash and $14.3 million (equal to €12.0 million) was paid by
Novartis, on behalf of the Company, to settle the Company’s outstanding debt with Les Laboratories Servier (“Servier”) (the “Servier
Loan”). In addition, Novartis extended the maturity date on the Company’s debt to Novartis. The Company also received $5.0 million cash
related to the sale of 539,131 shares of the Company’s common stock, at a purchase price of $9.2742 per share. The fair market value of the
common stock issued to Novartis was $4.8 million, based on the closing stock price of $8.93 per share on August 24, 2017, resulting in a
$0.2 million premium paid to the Company.
Based on the achievement of pre-specified criteria, the Company is eligible to receive up to $438.0 million in development,
regulatory and commercial milestones under the Gevokizumab License Agreement. The Company is also eligible to receive royalties on
sales of licensed products, which are tiered based on sales levels and range from the high single-digits to mid-teens. Under the IL-1 Target
License Agreement, the Company received an upfront cash payment of $10.0 million and is eligible to receive low single-digit royalties on
canakinumab sales in cardiovascular indications
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covered by the Company’s patents. Should Novartis exercise the Exclusivity Option, the royalties on canakinumab sales will increase to the
mid single-digits.
Unless terminated earlier, the Gevokizumab License Agreement and IL-1 Target License Agreement will remain in effect, on a
country-by-country and product-by-product basis, until Novartis’ royalty obligations end. The two agreements contain customary
termination rights relating to material breach by either party. Novartis also has a unilateral right to terminate the Gevokizumab License
Agreement on a product-by-product and country-by-country basis or in its entirety on six months’ prior written notice to the Company.
Under the IL-1 Target License Agreement, Novartis has a unilateral right to terminate the agreement on a product-by-product and country-
by-country basis or in its entirety upon a prior written notice.
The Gevokizumab License Agreement and IL-1 Target License Agreement were accounted for as one arrangement because they
were entered into at the same time in contemplation of each other. The Company concluded that there are multiple promised goods and
services under the combined arrangement, including the transfer of license to IL-1 beta targeting antibodies, and the transfer of license,
know-how, process, materials and inventory related to the VPM087 antibody, which were determined to represent two distinct performance
obligations. The Company determined that the Exclusivity Option is not an option with material right because the upfront payments to the
Company were not negotiated to provide an incremental discount for the future additional royalties upon exercise of the Exclusivity
Option. Therefore, the Company concluded that the Exclusivity Option is not a performance obligation. The additional royalties will be
recognized as revenue when, and if, Novartis exercises its option because the Company has no further performance obligations at that
point.
At the inception of the arrangement, the Company determined that the transaction price under the arrangement was $40.2 million,
which consisted of the $25.7 million upfront cash payments, the $14.3 million Servier Loan payoff and the $0.2 million premium on the
sale of the common stock. The transaction price was allocated to the two performance obligations based on their standalone selling prices.
The Company determined that the nature of the two performance obligations is the right to use the licenses as they exist at the point of
transfer, which occurred when the transfer of materials, process and know-how, and filings to regulatory authority were completed. During
the year ended December 31, 2017, the Company recognized the entire transaction price of $40.2 million as revenue upon completion of
the delivery of the licenses and related materials, process and know-how and filings to regulatory authority.
The Company concluded that the development and regulatory milestone payments are solely dependent on Novartis’ performance
and achievement of specified events. The Company determined that it is not probable that a significant cumulative revenue reversal will not
occur in future periods for these future payments. Therefore, the development and regulatory milestones are fully constrained and excluded
from the transaction price until the respective milestone is achieved. Any consideration related to commercial milestones (including
royalties) will be recognized when the related sales occur as they were determined to relate predominantly to the licenses granted to
Novartis and therefore, have also been excluded from the transaction price. At the end of each reporting period, the Company will update
its assessment of whether an estimate of variable consideration is constrained and update the estimated transaction price accordingly.
As of December 31, 2021 and December 31, 2020, there are no contract assets or contract liabilities related to this arrangement
and none of the costs to obtain or fulfill the contract were capitalized. The Company did not recognize any revenue related to this
arrangement during the years ended December 31, 2021 and 2020.
Takeda
On November 1, 2006, the Company entered into the Takeda Collaboration Agreement with Takeda under which the Company
agreed to discover and optimize therapeutic antibodies against multiple targets selected by Takeda.
Under the terms of the Takeda Collaboration Agreement, the Company may receive additional milestone payments aggregating up
to $19.0 million relating to TAK-079 (mezagitamab) and TAK-169, and low single-digit royalties on future sales of all products subject to
this license. The Company’s right to milestone payments expires on the later of the receipt of payment from Takeda of the last amount to be
paid under the agreement or the cessation by Takeda of all
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research and development activities with respect to all program antibodies, collaboration targets or collaboration products. The Company’s
right to royalties expires on the later of 13.5 years from the first commercial sale of each royalty-bearing discovery product or the
expiration of the last-to-expire licensed patent (or 12 years from first commercial sale if there is significant generic competition post patent-
expiration).
In February 2009, the Company expanded the existing collaboration to provide Takeda with access to multiple antibody
technologies, including a suite of research and development technologies and integrated information and data management systems. The
Company may receive milestones of up to $3.3 million per discovery product candidate and low single-digit royalties on future sales of all
antibody products subject to this license. The Company’s right to milestone payments expires on the later of the receipt of payment from
Takeda of the last amount to be paid under the agreement or the cessation by Takeda of all research and development activities with respect
to all program antibodies, collaboration targets or collaboration products. The Company’s right to royalties expires on the later of 10 years
from the first commercial sale of such royalty-bearing discovery product or the expiration of the last-to-expire licensed patent.
As of December 31, 2021 and December 31, 2020, there are no contract assets or contract liabilities related to this arrangement
and none of the costs to obtain or fulfill the contract were capitalized. During the years ended December 31, 2021 and 2020, the Company
recognized annual license fee revenue of $0.1 million from Takeda. On November 16, 2020, the first patient was dosed in Takeda’s Phase 2
study of mezagitamab and the Company earned a $2.0 million milestone payment from Takeda. The Company is eligible to receive
remaining milestones up to a total of $16.0 million under the Takeda Collaboration Agreement. During the years ended December 31, 2021
and 2020, the Company recognized $0.1 million and $2.1 million, respectively, as revenue from contracts with customers in the
consolidated statement of operations and comprehensive income.
Rezolute
On December 6, 2017, the Company entered into a license agreement with Rezolute pursuant to which the Company granted an
exclusive global license to Rezolute to develop and commercialize X358 (now “RZ358”) products for all indications. The Company and
Rezolute also entered into a common stock purchase agreement pursuant to which Rezolute agreed to issue to the Company, as
consideration for receiving the license for RZ358, a certain number of its common stock related to its future financing activities.
Under the terms of the license agreement, Rezolute is responsible for all development, regulatory, manufacturing and
commercialization activities associated with RZ358 and is required to make certain development, regulatory and commercial milestone
payments to the Company of up to $232.0 million in the aggregate based on the achievement of pre-specified criteria. Under the license
agreement, the Company is also eligible to receive royalties ranging from the high single-digits to the mid-teens based upon annual net
sales of any commercial product incorporating RZ358. Rezolute is obligated to take customary steps to advance RZ358, including using
diligent efforts to commence the next clinical study for RZ358 by a certain deadline and to meet certain spending requirements on an
annual basis for the program until a marketing approval application for RZ358 is accepted by the FDA. Rezolute’s obligation to pay
royalties with respect to a particular RZ358 product and country will continue for the longer of the date of expiration of the last valid patent
claim covering the product in that country, or twelve years from the date of the first commercial sale of the product in that country.
Rezolute’s future royalty obligations in the United States will be reduced by 20% if the manufacture, use or sale of a licensed product is not
covered by a valid XOMA patent claim, until such a claim is issued.
Pursuant to the license agreement, XOMA is eligible to receive a low single-digit royalty on sales of Rezolute’s other non-RZ358
products from its current programs, including RZ402 which is in Phase 1 clinical testing. Rezolute’s obligation to pay royalties with respect
to a particular Rezolute product and country will continue for the longer of twelve years from the date of the first commercial sale of the
product in that country or for so long as Rezolute or its licensee is selling such product in such country, provided that any such licensee
royalty will terminate upon the termination of the licensee’s obligation to make payments to Rezolute based on sales of such product in
such country
The license agreement contains customary termination rights relating to material breach by either party. Rezolute also has a
unilateral right to terminate the license agreement in its entirety on ninety days’ notice at any time. To the extent
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permitted by applicable laws, the Company has the right to terminate the license agreement if Rezolute challenges the licensed patents.
No consideration was exchanged upon execution of the arrangement. In consideration for receiving the license for RZ358,
Rezolute agreed to issue shares of its common stock and pay cash to the Company upon the occurrence of Rezolute’s financing activities.
The license agreement was subsequently amended in 2018, 2019 and 2020. Pursuant to the terms of the license agreement as
amended, the Company received a total of $6.0 million upon Rezolute’s achievement of financing activities and $8.5 million in installment
payments through October 2020. The Company also received 161,861 shares of Rezolute’s common stock.
As of December 31, 2021 and December 31, 2020, there were no contract assets or contract liabilities related to this arrangement.
None of the costs to obtain or fulfill the contract were capitalized. The Company did not recognize any revenue related to this arrangement
during the years ended December 31, 2021 and 2020.
The Company reassessed the development and regulatory milestones and concluded that such variable consideration is fully
constrained and excluded from the transaction price as of December 31, 2021 and 2020.
Janssen Biotech
The Company and Janssen were parties to a license agreement which was terminated in 2017. In August 2019, the Company and
Janssen entered into a new agreement pursuant to which the Company granted a non-exclusive license to Janssen to develop and
commercialize certain drug candidates under the XOMA patents and know-how. Under the new agreement, Janssen made a one-time
payment of $2.5 million to XOMA. Additionally, for each drug candidate, the Company is entitled to receive milestone payments of up to
$3.0 million upon Janssen’s achievement of certain clinical development and regulatory approval events. Additional milestones may be due
for drug candidates which are the subject of multiple clinical trials. Upon commercialization, the Company is eligible to receive 0.75%
royalty on net sales of each product. Janssen’s obligation to pay royalties with respect to a particular product and country will continue until
the eighth-year-and-sixth-month anniversary of the first commercial sale of the product in such country. The new agreement will remain in
effect unless terminated by mutual written agreement of the parties.
The Company concluded that the new agreement should be accounted for separately from any prior arrangements with Janssen
and that the license grant is the only performance obligation under the new agreement. The Company recognized the entire one-time
payment of $2.5 million as revenue in the consolidated statement of operations and comprehensive loss for the year ended December 31,
2019 as it had completed its performance obligation.
The Company concluded that the development and regulatory milestone payments are solely dependent on Janssen’s performance
and achievement of specified events and thus it is not probable that a significant cumulative revenue reversal will not occur in future
periods for these future payments. Therefore, the development and regulatory milestones are fully constrained and excluded from the
transaction price until the respective milestone is achieved. Any consideration related to royalties will be recognized when the related sales
occur as they were determined to relate predominantly to the license granted to Janssen and therefore, have also been excluded from the
transaction price. At the end of each reporting period, the Company will update its assessment of whether an estimate of variable
consideration is constrained and update the estimated transaction price accordingly.
In May 2021, the Company earned a $0.5 million milestone from Janssen, upon dosing of the first patient in a Phase 3 clinical trial
evaluating one of Janssen’s biologic assets. In December 2021, the Company earned a $0.2 million milestone pursuant to its agreement
with Janssen.
As of December 31, 2021 and December 31, 2020, there were no contract assets or contract liabilities related to this arrangement.
None of the costs to obtain or fulfill the contract were capitalized. Milestone revenue of $0.7 million and $0.4 million was recognized for
the years ended December 31, 2021 and 2020, respectively.
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Affimed
In April 2021, the Company and Affimed entered into a contractual agreement, under which the Company is eligible to receive
payments from Affimed on potential future commercial sales related to three ICE molecules and preloaded natural killer cells containing
the ICE molecules. Additionally, the Company is eligible to receive a milestone upon the first product candidate in each program achieving
marketing approval.
The Company concluded that the commercial milestone payments are solely dependent on Affimed’s performance and
achievement of specified events. The Company determined that it is not probable that a significant cumulative revenue reversal will not
occur in future periods for these future payments. Therefore, the commercial milestones are fully constrained and excluded from the
transaction price until the respective milestone is achieved. Any consideration related to commercial milestones (including royalties) will
be recognized when the related approvals occur and therefore, have also been excluded from the transaction price. At the end of each
reporting period, the Company will update its assessment of whether an estimate of variable consideration is constrained and update the
estimated transaction price accordingly.
As of December 31, 2021, there were no contract assets or contract liabilities related to this arrangement. None of the costs to
obtain or fulfill the contract were capitalized. No revenue was recognized for the year ended December 31, 2021.
NIAID
Prior to the sale of the Company’s biodefense business in 2016, the Company performed services under contracts funded with
federal funds from NIAID including under a $64.8 million multiple-year contract (Contract No. HHSN272200800028C), for development
of anti-botulinum antibody product candidates and a $28.0 million multiple-year contract (Contract No. HHSN272201100031C) for
development of broad-spectrum antitoxins for the treatment of human botulism poisoning. The contract work was being performed on a
cost plus fixed fee basis over a three-year period. The Company recognized revenue under the arrangement as the services were performed
on a proportional performance basis. Consistent with the Company’s other contracts with the U.S. government, invoices were provisional
until finalized. The Company operated under provisional rates from 2010 through 2015, subject to adjustment based on actual rates upon
agreement with the government. In 2014, upon completion of NIAID’s review of hours and external expenses, XOMA agreed to exclude
certain hours and external expenses resulting in a $0.4 million receivable and $0.8 million deferred revenue balances. As of December 31,
2017, the Company wrote off the $0.4 million receivable from NIAID as the likelihood of collection was remote. In October of 2019, NIH,
which includes NIAID, notified the Company that it engaged KPMG to perform an audit of the Company’s incurred cost submissions for
2013, 2014 and 2015. The KPMG testing procedures were completed in December 2020. As a result, the Company recognized $1.4 million
as estimated refund liabilities owed to NIH on the consolidated balance sheet as of December 31, 2020. The additional $0.6 million liability
was recognized as a reduction of revenue from contracts with customers in the consolidated statement of operations and comprehensive
income for the year ended December 31, 2020. In December 2021, NIH completed its review of the audit as part of the related contract
close-out process, which included the finalization of rates for years 2010 through 2015, and approved a finalized refund liability of $1.3
million. The $0.1 million reduction in the liability, from its previously recorded $1.4 million estimate, was recognized as revenue from
contracts with customers in the consolidated statement of operations and comprehensive income for the year ended December 31, 2021. In
December 2021, the Company paid the finalized refund liability owed to NIH of $1.3 million and no balance of the contingent liability
remained on the consolidated balance sheets as of December 31, 2021.
Sale of Future Revenue Streams
On December 21, 2016, the Company entered into two royalty interest sale agreements (together, the “Royalty Sale Agreements”)
with HCRP. Under the first Royalty Sale Agreement, the Company sold its right to receive milestone payments and royalties on future sales
of products subject to a License Agreement, dated August 18, 2005, between XOMA and Wyeth Pharmaceuticals (subsequently acquired
by Pfizer) for an upfront cash payment of $6.5 million, plus potential additional payments totaling $4.0 million in the event three specified
net sales milestones were met in 2017, 2018 and 2019. Based on actual sales, 2017, 2018, and 2019 sales milestones were not achieved.
Under the second Royalty Sale
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Agreement entered into in December 2016, the Company sold its right to receive certain royalties under an Amended and Restated License
Agreement dated October 27, 2006 between XOMA and Dyax Corp. for a cash payment of $11.5 million.
The Company classified the proceeds received from HCRP as unearned revenue, to be recognized as revenue under units-of-
revenue method over the life of the license agreements because of the Company’s limited continuing involvement in the Acquisition
Agreements. Such limited continuing involvement is related to the Company’s undertaking to cooperate with HCRP in the event of
litigation or a dispute related to the license agreements. Because the transaction was structured as a non-cancellable sale, the Company does
not have significant continuing involvement in the generation of the cash flows due to HCRP and there are no guaranteed rates of return to
HCRP, the Company recorded the total proceeds of $18.0 million as unearned revenue recognized under units-of-revenue method. The
Company allocated the total proceeds between the two Royalty Sale Agreements based on the relative fair value of expected payments to
be made to HCRP under the license agreements. The unearned revenue is being recognized as revenue over the life of the underlying
license agreements under the "units-of-revenue" method. Under this method, amortization for a reporting period is calculated by computing
a ratio of the allocated proceeds received from HCRP to the payments expected to be made by the licensees to HCRP over the term of the
Acquisition Agreements, and then applying that ratio to the period’s cash payment. During the third quarter of 2018, the Shire product
underlying the Dyax Corp. license agreement was approved, and the Company began recognizing revenue under the units-of-revenue
method due to sales of the approved product.
The Company recognized $1.6 million and $1.4 million as revenue under units-of-revenue method under these arrangements
during the years ended December 31, 2021 and December 31, 2020, respectively. As of December 31, 2020, the current and non-current
portion of the remaining unearned revenue recognized under units-of-revenue method was $1.5 million and $13.5 million, respectively. As
of December 31, 2021, the Company classified $1.6 million and $11.7 million as current and non-current unearned revenue recognized
under units-of-revenue method, respectively.
5. Royalty and Commercial Payment Purchase Agreements
Royalty Purchase Agreement with Agenus
On September 20, 2018, the Company entered into the Agenus RPA, pursuant to which the Company acquired the right to receive
33% of the future royalties on six Incyte Europe S.a.r.l. (“Incyte”) immuno-oncology assets, currently in development, due to Agenus from
Incyte (net of certain royalties payable by Agenus to a third party) and 10% of all future developmental, regulatory and commercial
milestones related to these assets. However, the Company did not have a right to the expected near-term milestone associated with the entry
of INCAGN2390 (anti-TIM-3) into its Phase 1 clinical trial. The future royalties due to Agenus from Incyte are based on low single to mid-
teen digit percentage of applicable net sales.
In addition, the Company acquired the right to receive 33% of the future royalties on MK-4830, an immuno-oncology product
currently in clinical development, due to Agenus from Merck and 10% of all future developmental, regulatory and commercial milestones
related to this asset. The future royalties due to Agenus from Merck are based on low single-digit percentage of applicable net sales.
Pursuant to the Agenus RPA, the Company’s share in future potential development, regulatory and commercial milestones is up to $59.5
million. There is no limit on the amount of future royalties on sales that the Company may receive under the agreements.
Under the terms of the Agenus RPA, the Company paid Agenus $15.0 million.
At the inception of the agreement, the Company recorded $15.0 million as long-term royalty receivables in the consolidated
balance sheets.
In November 2020, MK-4830 advanced into Phase 2 development and Agenus earned a $10.0 million clinical development
milestone under its license agreement with Merck, of which the Company earned $1.0 million. In accordance with the cost recovery
method, the $1.0 million milestone received was recorded as a direct reduction of the recorded long-term royalty receivable balance.
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The Company continues to assess that no further payments are probable to be received under this agreement in the near term.
Under the cost recovery method, the Company does not expect to recognize any income related to milestones and royalties received until
the investment has been fully collected. The Company performed its quarterly impairment assessment and no impairment indicators were
identified. Accordingly, no impairment was recorded as of December 31, 2021.
Royalty Purchase Agreement with Bioasis
On February 25, 2019, the Company entered into the Bioasis RPA, pursuant to which the Company acquired potential future
milestone and royalty rights from Bioasis for product candidates that are being developed pursuant to a license agreement between Bioasis
and Prothena Biosciences Limited. In addition, the Company was granted options to purchase a 1% royalty right on the next two license
agreements entered into between Bioasis and third-party licensees subject to certain payments and conditions as well as a right of first
negotiation on the purchase of royalty rights on subsequent Bioasis license agreements with third parties. Upon exercise of the option
related to the second license agreement executed by Bioasis, the Company may be obligated to pay up to $0.3 million per licensed product.
Upon exercise of the option related to the third license agreement executed by Bioasis, the Company may be obligated to pay up to $0.4
million per licensed product.
Under the terms of the Bioasis RPA, the Company paid $0.3 million and will make contingent future cash payments of up to $0.2
million to Bioasis as the licensed product candidates reach certain development milestones (the “Bioasis Contingent Consideration”).
At the inception of the agreement, the Company recorded $0.4 million as long-term royalty receivables in its consolidated balance
sheet, including the estimated fair value of the Bioasis Contingent Consideration of $0.1 million. Future changes in the estimated fair value
of the contingent consideration will be recognized in the other (expense) income, net line item of the consolidated statement of operations
and comprehensive income. As of December 31, 2021, there was no change in the fair value of the contingent consideration from its initial
value and no amounts were paid during the year ended December 31, 2021. The Company continues to assess that no payments are
probable to be received under this agreement in the near term. Under the cost recovery method, the Company does not expect to recognize
any income related to milestones and royalties received until the investment has been fully collected. The Company performed its quarterly
impairment assessment and no impairment indicators were identified. Accordingly, no impairment was recorded as of December 31, 2021.
On November 2, 2020, the Company entered into the Second Bioasis RPA, pursuant to which the Company acquired potential
future milestone and other payments, and royalty rights from Bioasis for product candidates that are being developed pursuant to a research
collaboration and license agreement between Bioasis and Chiesi. The Company paid Bioasis $1.2 million upon closing of the Second
Bioasis RPA for the purchased rights.
At the inception of the Second Bioasis RPA, the Company recorded $1.2 million as long-term royalty receivables in its
consolidated balance sheet. The Company continues to assess that no payments are probable to be received under the Second Bioasis RPA
in the near term. Under the cost recovery method, the Company does not expect to recognize any income related to milestones and other
payments until the investment has been fully collected. The Company performed its quarterly impairment assessment and no impairment
indicators were identified. Accordingly, no impairment was recorded as of December 31, 2021.
Royalty Purchase Agreement with Aronora
On April 7, 2019, the Company entered into the Aronora RPA which closed on June 26, 2019. Under the Aronora RPA, the
Company acquired the right to receive future royalties and a portion of upfront, milestone, and option payments (the “Non-Royalties”)
related to five anti-thrombotic hematology drug candidates. Three candidates were subject to Aronora’s collaboration with Bayer (the
“Bayer Products”), including one which was subject to an exclusive license option by Bayer. The Company will receive 100% of future
royalties and 10% of future Non-Royalties economics from these Bayer Products. The other two candidates are unpartnered (the “non-
Bayer Products”) for which the Company will receive low single-digit percentage of net sales and 10% of Non-Royalties. The future
payment percentage for Non-Royalties will
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be reduced from 10% to 5% upon the Company’s receipt of two times the total cumulative amount of consideration paid by the Company
to Aronora. In July 2020, Bayer elected to not exercise its option on the third Bayer Product and that product is now subject to the same
economics as the non-Bayer Products.
Under the terms of the Aronora RPA, the Company paid Aronora a $6.0 million upfront payment at the close of the transaction.
The Company financed $3.0 million of the upfront payment with a term loan under its Loan and Security Agreement with SVB (Note 8).
The Company was required to make a contingent future cash payment of $1.0 million for each of the three Bayer Products that were active
on September 1, 2019 (up to a total of $3.0 million, the “Aronora Contingent Consideration”). Pursuant to the Aronora RPA, if the
Company receives $250.0 million in cumulative royalties on net sales per product, the Company will be required to pay associated tiered
milestone payments to Aronora in an aggregate amount of up to $85.0 million per product (the “Royalty Milestones”). The Royalty
Milestones are paid based upon various royalty tiers prior to reaching $250.0 million in cumulative royalties on net sales per
product. Royalties per product in excess of $250.0 million are retained by the Company.
At the inception of the agreement, the Company recorded $9.0 million as long-term royalty receivables in its consolidated balance
sheet, including the estimated fair value of the Aronora Contingent Consideration of $3.0 million. In September 2019, the Company paid
the $3.0 million contingent consideration to Aronora. As the Company receives royalties from Aronora for a product, the Company will
recognize the liability for future Royalty Milestones for such product when probable and estimable. The Company continues to assess that
no payments are probable to be received under this agreement in the near term.
Under the cost recovery method, the Company does not expect to recognize any income related to milestones and royalties
received until the investment has been fully collected. The Company performed its quarterly impairment assessment and no impairment
indicators were identified. Accordingly, no impairment was recorded as of December 31, 2021.
Royalty Purchase Agreement with Palobiofarma
On September 26, 2019, the Company entered into the Palo RPA, pursuant to which the Company acquired the rights to potential
royalty payments in low single-digit percentages of aggregate net sales associated with six drug candidates in various clinical development
stages, targeting the adenosine pathway with potential applications in solid tumors, non-Hodgkin’s lymphoma, asthma/chronic obstructive
pulmonary disease, ulcerative colitis, idiopathic pulmonary fibrosis, lung cancer, psoriasis and nonalcoholic steatohepatitis and other
indications (the “Palo Licensed Products”) that are being developed by Palo. Novartis is a development partner on NIR178, one of the Palo
Licensed Products, and NIR178 is being developed pursuant to a license agreement between Palo and Novartis.
Under the terms of the Palo RPA, the Company paid Palo a $10.0 million payment at the close of the transaction which occurred
simultaneously upon parties’ entry into the Palo RPA on September 26, 2019.
At the inception of the agreement, the Company recorded $10.0 million as long-term royalty receivables in its consolidated
balance sheet. The Company continues to assess that no payments are probable to be received under this agreement in the near term. Under
the cost recovery method, the Company does not expect to recognize any income related to royalties received until the investment has been
fully collected. The Company performed its quarterly impairment assessment and no impairment indicators were identified. Accordingly,
no impairment was recorded as of December 31, 2021.
Royalty Purchase Agreement with Viracta
On March 22, 2021, the Company entered into the Viracta RPA, pursuant to which the Company acquired the right to receive
future royalties, milestones, and other payments related to two clinical-stage drug candidates for $13.5 million. The first candidate,
DAY101 (pan-RAF kinase inhibitor), is being developed by Day One Biopharmaceuticals, and the second candidate, vosaroxin
(topoisomerase II inhibitor), is being developed by Denovo Biopharma. The Company acquired the right to receive (i) up to $54.0 million
in potential milestones, potential royalties on sales, if approved, and other payments related to DAY101, excluding up to $20.0 million
consideration retained by Viracta, and (ii) up to $57.0
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million in potential regulatory and commercial milestones and high single-digit royalties on sales related to vosaroxin, if approved.
At the inception of the Viracta RPA, the Company recorded $13.5 million as long-term royalty receivables in its consolidated
balance sheet. No payments are probable to be received under the Viracta RPA in the near term. Under the cost recovery method, the
Company does not expect to recognize any income related to royalties, milestones and other payments until the investment has been fully
collected. The Company performed its quarterly impairment assessment and no impairment indicators were identified. Accordingly, no
impairment was recorded as of December 31, 2021.
Royalty Purchase Agreement with Kuros
On July 14, 2021, the Company entered into the Kuros RPA, pursuant to which the Company acquired the rights to 100% of the
potential future royalties from commercial sales, which are tiered from high single-digit to low double-digits, and up to $25.5 million in
pre-commercial milestone payments associated with an existing license agreement related to Checkmate Pharmaceuticals’ vidutolimod
(CMP-001), a Toll-like receptor 9 agonist, packaged in a virus-like particle, for an upfront payment of $7.0 million. The Company may pay
up to an additional $142.5 million to Kuros in sales-based milestones.
At the inception of the Kuros RPA, the Company recorded $7.0 million as long-term royalty receivables in its consolidated
balance sheet. No payments are probable to be received under the Kuros RPA in the near term. Under the cost recovery method, the
Company does not expect to recognize any income related to royalties, milestones and other payments until the investment has been fully
collected. The Company performed its quarterly impairment assessment and no impairment indicators were identified. Accordingly, no
impairment was recorded as of December 31, 2021.
Commercial Payment Purchase Agreement with Affitech
On October 6, 2021, the Company entered into the Affitech CPPA, pursuant to which, the Company purchased a future stream of
commercial payment rights to Roche’s faricimab from Affitech for an upfront payment of $6.0 million. The Company is eligible to receive
0.50% of future net sales of faricimab for a ten-year period following the first commercial sales in each applicable jurisdiction. The
Company may pay up to an additional $20.0 million based on the achievement of certain regulatory and sales milestones (Note 15). At the
inception of the Affitech CPPA, the Company recorded $14.0 million as long-term royalty receivables which includes the $6.0 million
upfront payment and $8.0 million in regulatory milestones in its consolidated balance sheet. The Company concluded the regulatory
milestone payments of $8.0 million meet the definition of a derivative under ASC 815 and should be accounted at fair value and recorded
as a current liability at the inception of the transaction. Therefore, the regulatory milestone payments were recorded as contingent liabilities
in its consolidated balance sheet. The Company concluded the sales-based milestone payments of $12.0 million do not meet the definition
of a derivative under ASC 815 and a liability will be recognized when probable and estimable.
Under the cost recovery method, the Company does not expect to recognize any income related to future commercial payment
receipts until the investment has been fully collected. The Company performed its quarterly impairment assessment and no impairment
indicators were identified. Accordingly, no impairment was recorded as of December 31, 2021.
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The following table summarizes the long-term royalty receivable activities including acquisitions of royalty rights, commercial
payment rights and cash receipts for achievement of contractual milestones during the years ended December 31, 2021 and 2020 (in
thousands):
Balance at January 1, 2020
Acquisition of royalty rights:
Bioasis
Cash receipts for achievement of contractual milestones:
Agenus
Balance at December 31, 2020
Acquisition of royalty and commercial payment rights:
Viracta
Kuros
Affitech
Balance at December 31, 2021
6. Fair Value Measurements
$
34,375
1,200
(1,000)
34,575
13,500
7,000
14,000
69,075
$
The Company records its financial assets and liabilities at fair value. The carrying amounts of certain of the Company’s financial
instruments, including cash, trade receivables, net and accounts payable, approximate their fair value due to their short maturities. Fair
value is defined as the exchange price that would be received from selling an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The accounting guidance for fair value establishes a framework for measuring fair
value and a fair value hierarchy that prioritizes the inputs used in valuation techniques. The accounting standard describes a fair value
hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to
measure fair value which are the following:
Level 1 – Observable inputs, such as unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs, either directly or indirectly, other than quoted prices in active markets for identical assets or
liabilities, such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active or
other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or
liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the
assets or liabilities; therefore, requiring an entity to develop its own valuation techniques and assumptions.
The following tables set forth the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a
recurring basis as follows (in thousands):
Assets:
Equity securities
Liabilities:
Contingent consideration under RPAs and CPPAs
Fair Value Measurements at December 31, 2021 Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
774
$
— $
— $
774
— $
— $
8,075
$
8,075
$
$
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Assets:
Equity securities
Liabilities:
Contingent consideration
Fair Value Measurements at December 31, 2020 Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
$
— $
— $
— $
1,693
— $
75
Total
$
$
1,693
75
Transfers to and from Levels 1, 2, and 3 are recognized at the end of the reporting period. On June 30, 2021, the Company’s equity
investment in Rezolute’s common stock transferred from Level 3 to Level 1. In reporting periods prior to June 30, 2021, the Company
applied an illiquidity discount to the fair value of Rezolute’s common stock due to the lack of trading volume, resulting in classification as
Level 3. Since June 30, 2021, there has been sufficient and consistent trading volume on the Nasdaq Stock Market to provide an estimate of
fair value utilizing quoted prices in an active market for the identical securities as of the reporting date, resulting in classification as Level
1. There were no transfers between levels during 2020.
Equity Securities
The following table reconciles the beginning and ending balance for the Level 3 financial assets recurring fair value measurement
for the year ended December 31, 2021 (in thousands):
Year Ended
Balance at December 31, 2019
Change in fair value
Balance at December 31, 2020
Change in fair value
Transfer out of Level 3 as of June 30, 2021
Balance at December 31, 2021
$
December 31, 2021
681
$
1,012
1,693
617
(2,310)
—
$
The equity securities consisted of an investment in Rezolute’s common stock and are classified on the consolidated balance sheets
as current assets as of December 31, 2021, and long-term assets as of December 31, 2020. The reclassification from noncurrent to current
assets was due to the equity securities achieving sufficient and consistent trading volume on the Nasdaq Stock Market during the second
quarter of 2021. The equity securities are revalued each reporting period with changes in fair value recorded in the other (expense) income,
net line item of the consolidated statements of operations and comprehensive income.
As of December 31, 2020, the Company and its valuation specialist, valued the equity securities using the closing price for
Rezolute’s common stock traded on the Nasdaq Stock Market and adjusted for an illiquidity discount. The inputs that were used to
calculate the illiquidity discount were based on observable and unobservable estimates and judgments and therefore were classified as a
Level 3 fair value measurement. As the Company has the right and option to sell up to 100,000 shares of Rezolute’s common stock back to
Rezolute after December 31, 2019 (Note 4), the fair value of the equity securities was determined by dividing the total shares of Rezolute’s
common stock held by the Company into two tranches based on the estimated time to a potential liquidity event.
As of December 31, 2021, the Company valued the equity securities using the closing price for Rezolute’s common stock traded
on the Nasdaq Stock Market. The inputs that were used to calculate the fair value of the equity securities were observable prices in active
markets and therefore were classified as a Level 1 fair value measurement.
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The closing price of Rezolute’s common stock as per the Nasdaq Stock Market was $4.78 and $11.99 as of December 31, 2021
and December 31, 2020, respectively. The estimated fair value of the equity securities as of December 31, 2020 was calculated based on the
following assumptions:
Closing common stock price
Tranche 1:
Discount for lack of marketability
Estimated time to liquidity of shares
Tranche 2:
Discount for lack of marketability
Estimated time to liquidity of shares
December 31,
2021
December 31,
2020
$
4.78
$
11.99
N/A(1) %
12 %
0.25 year
N/A(1) %
14 %
0.67 years
(1) Due to sufficient and consistent trading volume, the equity investment will be measured at the closing price per the Nasdaq Stock
Market. The assumptions related to the unobservable inputs identified above, and any changes in those assumptions thereto, will no
longer be considered in determining the fair value of the equity securities.
Changes in any of the assumptions related to the unobservable inputs identified above may change the fair value of the equity
securities.
Contingent Consideration
The estimated fair value of the contingent consideration liability at the inception of the Bioasis RPA represents the future
consideration that is contingent upon the achievement of specified development milestones for a product candidate. The fair value
measurement is based on significant Level 3 inputs such as anticipated timelines and probability of achieving development milestones of
each licensed product candidate.
The estimated fair value of the contingent consideration liability at the inception of the Affitech CPPA represents the future
consideration that is contingent upon the achievement of specified regulatory milestones. The fair value measurement is based on
significant Level 3 inputs such as anticipated timelines and probability of achieving regulatory milestones.
Changes in the fair value of the liability for contingent consideration will be recorded in the other (expense) income, net line item
of the consolidated statements of operations and comprehensive income until settlement. As of December 31, 2021, there were no changes
in the estimated fair value of the contingent consideration recorded pursuant to the Bioasis RPA and Affitech CPPA from the initial values
of $0.1 million and $8.0 million, respectively.
7. Lease Agreement
The Company leases one facility in Emeryville, California under an operating lease that expires in February 2023. The Emeryville
lease contains an option to extend the lease for an additional term, however, the Company is not reasonably certain to exercise this option.
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The following table summarizes maturity of the Company’s operating lease liabilities as of December 31, 2021 (in thousands):
Undiscounted lease payments
2022
2023
2024
Total undiscounted lease payments
Present value adjustment
Total net lease liabilities
Operating
Leases
202
34
—
236
(7)
229
$
The following table summarizes the cost components of the Company’s operating lease for the years ended December 31, 2021
and 2020, respectively (in thousands):
Lease costs:
Operating lease cost
Variable lease cost (1)
Total lease costs
Year Ended December 31,
2021
2020
$
$
177 $
8
185
$
177
7
184
(1) Under the terms of the lease agreement, the Company is also responsible for certain variable lease payments that are not
included in the measurement of the lease liability. Variable lease payments include non-lease components such as common
area maintenance fees.
The following information represents supplemental disclosure for the statement of cash flows related to operating leases (in
thousands):
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows under operating leases
Year Ended December 31,
2021
2020
$
196 $
189
The present value assumptions used in calculating the present value of the lease payments for the Company’s operating lease as of
December 31, 2021 and December 31, 2020 were as follows:
Weighted-average remaining lease term
Weighted-average discount rate
8. Long-Term Debt and Other Financings
SVB Loan
December 31,
2021
1.17 years
December 31,
2020
2.17 years
5.51 %
5.51 %
On May 7, 2018 (the “Effective Date”), the Company executed the SVB Loan Agreement with SVB. Under the Loan Agreement,
upon the Company’s request, SVB made advances (each, a “Term Loan Advance”) available to the Company up to $20.0 million (the
“Term Loan”). The Company was allowed to borrow advances under the Term Loan from the Effective Date until the earlier of March 31,
2019 or an event of default (the “Draw Period”). The interest rate was calculated at a rate equal to the greater of (i) 4.75%, or (ii) 0.25%
plus the prime rate as reported from time to time in The Wall Street Journal.
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Payments under the Loan Agreement were interest only until the first anniversary of the funding date of each Term Loan Advance.
The interest-only period was followed by equal monthly payments of principal and interest over 24 months. Each Term Loan Advance was
scheduled to mature at the earlier of (i) the 23 months following the applicable term loan amortization date for each such Term Loan
Advance (ii) March 1, 2023, or (iii) 30 days prior to the earliest maturity of any portion of the Company’s loan with Novartis (the “Loan
Maturity Date”). After repayment, no Term Loan Advance (or any portion thereof) may be reborrowed. The entire principal balance,
including a final payment fee equal to 8.5% of the original principal, was due and payable on the Loan Maturity Date.
In June 2021, the Company repaid its principal balance of $6.5 million and paid the 8.5% final payment fee of $1.4 million to
SVB. The Company also paid SVB a prepayment fee of 1% of the outstanding principal balance.
In connection with the Loan Agreement, the Company issued a warrant to SVB which is exercisable in whole or in part for up to
an aggregate of 6,332 shares of common stock with an exercise price of $23.69 per share (the “Warrant”). The Warrant may be exercised on
a cashless basis and is exercisable within 10 years from the date of issuance or upon the consummation of certain acquisitions of the
Company. The fair value of the Warrant issued to SVB was determined using the Black-Scholes Model and was estimated to be $0.1
million. In addition, the Company incurred debt issuance costs of $0.2 million in connection with the Loan Agreement.
On March 4, 2019, the Loan Agreement was amended to extend the Draw Period from March 31, 2019 to March 31, 2020. In
connection with the amendment, the Company issued a second warrant to SVB which is exercisable in whole or in part for up to an
aggregate of 4,845 shares of common stock with an exercise price of $14.71 per share. The fair value of the second warrant issued to SVB
was determined using the Black-Scholes Model and was estimated to be $0.1 million.
Both warrants may be exercised on a cashless basis and are exercisable within 10 years from the date of issuance or upon the
consummation of certain acquisitions of the Company. As of December 31, 2021, both warrants are outstanding.
In September 2018, the Company borrowed advances of $7.5 million under the Loan Agreement in connection with the Agenus
RPA (Note 5). The Company recorded a discount of $0.3 million against the debt, which was being amortized to interest expense over the
term of the Term Loan Advance using the effective interest method.
During the year ended December 31, 2019, the Company borrowed advances totaling $9.5 million under the Loan Agreement in
connection with the Aronora RPA, Palo RPA and payment of the Aronora Contingent Consideration (Note 5). The Company recorded a
discount of $45,000 against the debt, which was being amortized to interest expense over the term of the Term Loan Advance using the
effective interest method.
The Company recorded $0.2 million of non-cash interest expense resulting from the amortization of the discount and accretion of
the final payment before the loan was extinguished in June 2021 and $0.6 million for the year ended December 31, 2020.
As of December 31, 2020, the carrying value of the debt under the Loan Agreement was $11.8 million. Of this amount, $8.1
million was classified as current portion of long-term debt and $3.7 million was classified as long-term debt on the consolidated balance
sheet. In June 2021, the Company paid off its entire outstanding principal balance to SVB. Upon repayment of the principal balance, the
Company recognized a loss on extinguishment of $0.3 million in other (expense) income, net of the consolidated statement of operations
for the year ended December 31, 2021. As of December 31, 2021, there was no carrying value of the debt under the Loan Agreement.
Novartis Note
In May 2005, the Company executed the Novartis Note Agreement with Novartis, which was due and payable in full in June 2015.
Under the Novartis Note Agreement, the Company borrowed semi-annually to fund up to 75% of the Company’s research and development
and commercialization costs under its collaboration arrangement with Novartis, not to exceed $50.0 million in aggregate principal amount.
Interest on the principal amount of the loan accrued at six-month LIBOR plus 2% and the interest rate reset in June and December annually.
Accrued interest was payable semi-annually in
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June and December of each year or, at the Company’s election, the semi-annual interest payments could be added to the outstanding
principal amount, in lieu of a cash payment, as long as the aggregate principal amount did not exceed $50.0 million. The Company made
this election for all interest payments. Loans under the Novartis Note Agreement were secured by the Company’s interest in its
collaboration with Novartis, including any payments owed to it thereunder. In June 2021, the Company repaid its outstanding principal
balance to Novartis of $9.1 million and extinguished its debt obligation.
On September 30, 2015, concurrent with the execution of a license agreement with Novartis as discussed in Note 4, XOMA and
Novartis, who assumed the rights to the note from Novartis Vaccines Diagnostics, Inc. executed an amendment to the Novartis Note
Agreement (the “Secured Novartis Note Amendment”) under which the parties extended the maturity date of the note from September 30,
2015 to September 30, 2020, and eliminated the mandatory prepayment previously required to be made with certain proceeds of pre-tax
profits and royalties. In addition, upon achievement of a specified development and regulatory milestone, the then-outstanding principal
amount of the note was to be reduced by $7.3 million rather than the Company receiving such amount as a cash payment.
On September 22, 2017, in connection with the Gevokizumab License Agreement with Novartis, the Company and Novartis
executed an amendment to the Novartis Secured Note Amendment under which the parties further extended the maturity date of the
Novartis Secured Note Amendment from September 30, 2020 to September 30, 2022.
On October 21, 2020, the first patient was dosed in Novartis’s first NIS793 Phase 2 clinical trial and the Company earned a $25.0
million milestone pursuant to the Anti-TGFβ Antibody License Agreement, of which $17.7 million was received in cash and $7.3 million
was recognized as a reduction to the debt obligation to Novartis.
As of December 31, 2020, the outstanding principal balance under the Novartis Secured Note Amendment was $9.1 million and
was included in long-term debt in the accompanying consolidated balance sheet. In June 2021, the Company repaid its entire outstanding
debt balance to Novartis. The repayment of principal did not result in any gain or loss on extinguishment. As of December 31, 2021, there
was no carrying value of the debt under the Novartis Note Agreement.
Interest Expense
Amortization of debt issuance costs and discounts are included in interest expense. Interest expense in the consolidated statements
of operations and comprehensive income for the years ended December 31, 2021 and 2020, relates to the following debt instruments (in
thousands):
SVB Loan
Novartis Note
Other
Total interest expense
9. Income Taxes
Year Ended December 31,
2021
2020
$
$
$
373
88
—
$
461
1,365
477
2
1,844
The Company has pre-tax book income of $15.9 million and $11.8 million for the year ended December 31, 2021 and 2020,
respectively. The Company has $0.1 million income tax expense and $1.5 million income tax benefit for the years ended December 31,
2021 and 2020, respectively.
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The provision (benefit) for income taxes, all classified as current, consists of the following (in thousands):
Federal
State
Total
Year Ended December 31,
2021
$
91
—
$
91
2020
(1,501)
—
(1,501)
$
$
Reconciliation between the tax provision computed at the federal statutory income tax rate and the Company’s actual effective
income tax rate is as follows:
Federal tax at statutory rate
Stock compensation and other permanent differences
Federal orphan drug credit
Tax benefit related to CARES Act
Tax benefit related to net operating loss carryforward utilization
Valuation allowance
Total
Year Ended December 31,
2020
2021
21 %
9 %
(2)%
— %
(11)%
(16)%
1 %
21 %
(6)%
— %
(13)%
— %
(15)%
(13)%
On March 27, 2020, the CARES Act was enacted, which includes a five-year NOL carryback provision which enabled the
Company to benefit from certain losses at the former federal tax rate of 34%. In 2020, the Company recorded tax benefits of $1.5 million
related to the NOL carryback provision. During the year ended December 31, 2021, the Company received $1.5 million in cash for its
income tax receivable.
The significant components of net deferred tax assets at December 31, 2021 and 2020 were as follows (in thousands):
Capitalized research and development expenses
Net operating loss carryforwards
Research and development and other tax credit carryforwards
Stock compensation
Unearned revenue
Other
Total deferred tax assets
Valuation allowance
Net deferred tax assets
December 31,
$
$
2021
7,822
17,657
13,125
4,778
2,817
807
47,006
(47,006)
$
— $
2020
11,500
17,638
13,454
5,158
3,462
401
51,613
(51,613)
—
The net decrease in the valuation allowance was $4.6 million and $3.9 million, for the years ended December 31, 2021 and 2020,
respectively.
Accounting standards provide for the recognition of deferred tax assets if realization of such assets is more likely than not. Based
upon the weight of available evidence, which includes the Company’s four sources of taxable income including historical operating
performance and the repeal of NOL carryback, the Company has determined that total deferred tax assets should be fully offset by a
valuation allowance.
Based on an analysis under Section 382 of the Internal Revenue Code (which subjects the amount of pre-change NOLs and certain
other pre-change tax attributes that can be utilized to annual limitations), the Company experienced an ownership change in February 2017
which substantially limits the future use of its pre-change NOLs and certain other pre-change tax attributes per year. The Company has
excluded the related tax attributes that will expire as a result of the annual limitations in the deferred tax assets as of December 31, 2021
and December 31, 2020. To the extent that the Company
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does not utilize its carryforwards within the applicable statutory carryforward periods, either because of Section 382 limitations or the lack
of sufficient taxable income, the carryforwards will expire unused.
As of December 31, 2021, the Company had federal NOL carry-forwards of approximately $78.8 million and state NOL carry-
forwards of approximately $38.1 million to offset future taxable income. $13.6 million of federal NOL carryforwards will begin to expire
in 2036 and the remainder may be carried forward indefinitely. The state NOL carryforwards will begin to expire in 2033. The Company
had federal orphan credit of $2.0 million which if not utilized will expire in 2037. The Company also had $19.8 million of California
research and development tax credits which have no expiration date.
Under the 2017 federal income tax law, as modified by the federal tax law changes enacted in March 2020, federal NOLs incurred
in tax years beginning after December 31, 2017 may be carried forward indefinitely, but, for taxable years beginning after December 31,
2020, the deductibility of such federal NOLs may only be utilized to offset 80% of taxable income annually.
The Company files income tax returns in the U.S. federal jurisdiction and various states. The Company’s federal income tax
returns for tax years 2018 and beyond remain subject to examination by the Internal Revenue Service. The Company’s state income tax
returns for tax years 2017 and beyond remain subject to examination by state tax authorities. In addition, all of the NOLs and research and
development credit carryforwards that may be used in future years are still subject to adjustment.
The following table summarizes the Company’s activity related to its unrecognized tax benefits (in thousands):
Year Ended December 31,
2021
2020
Balance at January 1
Increase related to current year tax position
Increase related to prior year tax position
Balance at December 31
$
$
5,938
$
—
—
$
5,938
5,517
—
421
5,938
As of December 31, 2021, the Company had a total of $5.9 million of gross unrecognized tax benefits, none of which would affect
the effective tax rate upon realization as the Company currently has a full valuation allowance against its deferred tax assets. The reversal
of related deferred tax assets will be offset by a valuation allowance, should any of these uncertain tax positions be favorably settled in the
future.
The Company does not expect its unrecognized tax benefits to change significantly over the next twelve months. The Company
will recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. Through December
31, 2021, the Company has not accrued interest or penalties related to uncertain tax positions.
10. Stock Based Compensation
The Company may grant qualified and non-qualified stock options, common stock and other stock-based awards under various
plans to directors, officers, employees and other individuals. Stock options are granted at exercise prices of not less than the fair market
value of the Company’s common stock on the date of grant. Additionally, the Company has an ESPP that allows employees to purchase
Company shares at a purchase price equal to 85% of the lower of the fair market value of the Company’s common stock on the first trading
day of the offering period or on the last day of the offering period.
Employee Stock Purchase Plan
In May 2015, the Company’s stockholders approved the 2015 Employee Stock Purchase Plan (the “2015 ESPP”), which replaced
the Company’s legacy 1998 ESPP. Under the 2015 ESPP, the Company reserved 15,000 shares of common stock for issuance as of its
effective date of July 1, 2015, subject to adjustment in the event of a stock split, stock dividend,
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combination or reclassification or similar event. The 2015 ESPP allows eligible employees to purchase shares of the Company’s common
stock at a discount through payroll deductions of up to 10% of their eligible compensation, subject to any plan limitations. The 2015 ESPP
provides for six-month offering periods ending on May 31 and November 30 of each year. At the end of each offering period, employees
are able to purchase shares at 85% of the lower of the fair market value of the Company’s common stock on the first trading day of the
offering period or on the last day of the offering period.
In February 2017, the Compensation Committee and the Board of Directors adopted, and in May 2017, the Company’s
stockholders approved, an amendment to the Company’s 2015 ESPP. The amendment (a) increased by 250,000 the shares of common stock
(from 15,000 shares to a total of 265,000 shares) available for issuance under the 2015 ESPP; and (b) increased the maximum number of
shares of common stock an employee may purchase in any offering period to 2,500. As of December 31, 2021, the Company had 237,072
remaining authorized shares available for purchase under the ESPP.
During the years ended December 31, 2021 and 2020, employees purchased 2,225 and 2,746 shares of common stock,
respectively, under the 2015 ESPP.
Deferred Savings Plan
Under section 401(k) of the Internal Revenue Code of 1986, the Board of Directors adopted, effective June 1, 1987, a tax-qualified
deferred compensation plan for employees of the Company. Participants may make contributions which defer up to 50%of their eligible
compensation per payroll period, up to a maximum for 2021 and 2020 of $19,500 (or $26,000 for employees over 50 years of age). The
Company may, at its sole discretion, make contributions each plan year, in cash or in shares of the Company’s common stock, in amounts
which match up to 50% of the salary deferred by the participants. The expense related to these contributions was $0.1 million for the years
ended December 31, 2021 and December 31, 2020, and 100% was paid in common stock for each year. The Company applies shares from
plan forfeitures of terminated employees toward the Company’s matching contribution.
Stock Option Plans
In May 2010, the Compensation Committee and Board of Directors adopted, and in July 2010 the Company’s stockholders
approved the 2010 Plan. The 2010 Plan was amended in 2016, 2017 and 2019 to (a) increase the number of shares of common stock
issuable under the 2010 Plan; (b) increase the number of shares of common stock issuable under the 2010 Plan as incentive stock options;
and (c) extend the term of the 2010 Plan to April 1, 2029. As of December 31, 2021, the number of shares of common stock reserved for
issuance under the 2010 Plan is 3,029,062 shares.
From the 2010 Plan, the Company grants stock options to eligible employees, consultants and directors. Stock-based awards
granted under the 2010 Plan may be exercised when vested and generally expire ten years from the date of the grant or three to six months
from the date of termination of employment (longer in case of death or certain retirements).
As of December 31, 2021, the Company had 161,140 shares available for grant under the 2010 Plan. As of December 31, 2021,
options to purchase 1,911,177 shares of common stock were outstanding under the 2010 Plan.
Stock Options
Stock options generally vest monthly over three years for employees and one year for directors. Stock options held by employees
who qualify for retirement age (defined as employees that are a minimum of 55 years of age and the sum of their age plus years of full-time
employment with the Company exceeds 70 years) vest on the earlier of scheduled vest date or the date of retirement.
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Stock Option Plans Summary
The following table summarizes the Company’s stock option activity for the year ended December 31, 2021.
Outstanding at January 1, 2021
Granted
Exercised
Forfeited, expired or cancelled
Outstanding at December 31, 2021
Exercisable at December 31, 2021
As of December 31, 2021
Weighted
Average
Exercise
Price
Per Share
Weighted
Average
Contractual
Term
(in years)
Aggregate
Intrinsic
Value
(in thousands)
20.66
32.02
13.61
46.59
20.64
18.75
6.31 $
51,401
6.33
5.69
$
$
15,103
14,894
Number of
shares
1,827,906
325,211
(77,305)
(164,635)
1,911,177
1,553,696
$
$
$
The aggregate intrinsic value of stock options exercised in 2021 and 2020 was $1.6 million and $5.4 million, respectively.
The weighted-average grant-date fair value per share of the options granted in 2021 and 2020 was $22.23 and $18.41,
respectively.
As of December 31, 2021, $4.1 million of total unrecognized compensation expense related to stock options is expected to be
recognized over a weighted average period of 2.21 years.
Stock-based Compensation Expense
The fair value of stock options granted during the years ended December 31, 2021 and 2020, was estimated based on the
following weighted average assumptions for:
Dividend yield
Expected volatility
Risk-free interest rate
Expected term
Year Ended December 31,
2021
2020
0 %
83 %
0.95 %
0 %
100 %
0.72 %
5.66 years
5.64 years
The following table shows total stock-based compensation expense for stock options and ESPP in the consolidated statements of
operations and comprehensive income (in thousands):
Research and development
General and administrative
Total stock-based compensation expense
11. Net Income Per Share Attributable to Common Stockholders
Year Ended December 31,
2021
2020
$
$
— $
6,195
6,195
$
—
3,961
3,961
Potentially dilutive securities are excluded from the calculation of diluted net income per share attributable to common
stockholders if their inclusion is anti-dilutive.
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The following table shows the weighted-average outstanding securities considered anti-dilutive and therefore excluded from the
computation of diluted net income per share attributable to common stockholders (in thousands):
Convertible preferred stock
Common stock options
Warrants for common stock
Total
Year Ended December 31,
2021
2020
—
479
—
479
—
616
6
622
The following is a reconciliation of the numerator (net income) and denominator (number of shares) used in the calculation of
basic and diluted net income per share attributable to common stockholders (in thousands):
Numerator
Net income
Less: Series A accumulated dividends
Less: Series B accumulated dividends
Less: Allocation of undistributed earnings to participating securities
Net income available to common stockholders, basic
Add: Adjustments to undistributed earnings allocated to participating securities
Net income available to common stockholders, diluted
Denominator
Weighted average shares used in computing basic net income per share available
to common stockholders
Effect of dilutive stock options
Effect of dilutive warrants
Weighted average shares used in computing diluted net income per share
available to common stockholders
Basic net income per share available to common stockholders
Diluted net income per share of common stock
Year Ended December 31,
2021
2020
$
$
$
$
$
15,798
(2,122)
(2,438)
(3,451)
7,787
181
7,968
11,288
900
4
12,192
0.69
0.65
$
$
$
$
$
13,298
(88)
—
(4,417)
8,793
217
9,010
10,674
824
5
11,503
0.82
0.78
12. Capital Stock
Series X and Series Y Convertible Preferred Stock
The Company sold directly to BVF 5,003 shares of Series X convertible preferred stock in 2017 and 1,252.772 shares of Series Y
convertible preferred stock in 2018. There were no shares of Series Y convertible preferred stock outstanding as of December 31, 2021,
after BVF converted all Series Y preferred stock into common stock on April 15, 2020.
As of December 31, 2021 and 2020, there were 5,003 shares authorized and issued of Series X convertible preferred stock.
The Series X and Series Y convertible preferred stock have the following characteristics, which are set forth in Certificates of
Designation of Preferences, Rights and Limitations filed with the Delaware Secretary of State.
Dividends— Holders of convertible preferred stock are entitled to receive dividends on shares of convertible preferred stock equal
(on an as if converted to common stock basis) to and in the same form as dividends actually paid on the Company’s common stock.
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Liquidation Rights— In the event of the Company’s liquidation, dissolution or winding up, holders of convertible preferred stock
will participate, on a pro-rata basis, with any distribution of proceeds to holders of common stock.
Conversion— Each share of Series X and Series Y is convertible into 1,000 shares of registered common stock based on a
conversion price of $4.03 per share and $13.00 per share of common stock respectively.
Voting Rights— Convertible preferred stock will generally have no voting rights, except as required by law and except that the
consent of the holders of the outstanding convertible preferred stock will be required to amend the terms and to issue additional shares of
the preferred stock.
Classification— The Company evaluated the convertible preferred stock for liability or equity classification under the applicable
accounting guidance and determined that equity treatment was appropriate because the convertible preferred stock did not meet the
definition of the liability instruments defined thereunder for convertible instruments. Specifically, the convertible preferred shares are not
mandatorily redeemable and do not embody an obligation to buy back the shares outside of the Company’s control in a manner that could
require the transfer of assets. Additionally, the Company determined that the convertible preferred stock would be recorded as permanent
equity, not temporary equity, given that they are not redeemable for cash or other assets (i) on a fixed or determinable date, (ii) at the option
of the holder, and (iii) upon the occurrence of an event that is not solely within control of the Company. The Company has also evaluated
the embedded conversion and contingent redemption features within the convertible preferred stock in accordance with the accounting
guidance for derivatives and determined that bifurcation is not required for any embedded feature.
Beneficial Conversion Feature— The fair value of the common stock into which the Series X convertible preferred stock is
convertible exceeded the allocated purchase price of the Series X convertible preferred stock by $5.6 million on the date of issuance, as
such the Company recorded a deemed dividend. The Company recognized the resulting beneficial conversion feature as a deemed dividend
equal to the number of shares of Series X convertible preferred stock sold on February 16, 2017 multiplied by the difference between the
fair value of the common stock and the Series X convertible preferred stock effective conversion price per share on that date. The dividend
was reflected as a one-time, non-cash, deemed dividend to the holders of Series X convertible preferred stock on the date of issuance,
which is the date the stock first became convertible. There was no beneficial conversion feature associated with the issuance of Series Y
convertible preferred stock.
Series A Preferred Stock
On December 15, 2020, the Company sold 984,000 shares of its 8.625% Series A cumulative, perpetual preferred stock at the
price of $25.00 per share, through a public offering for aggregate gross proceeds of $24.6 million. Total offering costs of $2.0 million were
offset against the proceeds from the sale of Series A Preferred Stock, for total net proceeds of $22.6 million.
Mr. Matthew Perry, a member of the Company’s Board of Directors and President of BVF, purchased 200,000 shares of Series A
Preferred Stock in the public offering at the public offering price of $25.00 per share for an aggregate amount of $5.0 million. The spouse
of James Neal, the Company’s Chief Executive Officer and Chairman of the Board of Directors, purchased 8,000 shares of the Series A
Preferred Stock in the public offering at the public offering price of $25.00 per share for an aggregate amount of $0.2 million.
As of December 31, 2021 and 2020, there were 984,000 shares authorized and issued of Series A Preferred Stock.
The Series A preferred stock have the following characteristics, which are set forth in the Certificates of Designation of
Preferences, Rights and Limitations filed with the Delaware Secretary of State.
Dividends— Holders of the Series A Preferred Stock shall be entitled to receive, when, and if authorized by the Board of Directors
and declared by the Corporation, cumulative cash dividends at the rate of 8.625% per annum of the $25.00 liquidation preference per share
of the Series A Preferred Stock. Such dividends will accumulate and be cumulative from, and including, the date of original issue of the
Series A Preferred Stock. Dividends will be payable in arrears on or about the 15th day of January, April, July and October of each year
beginning on or about April 15, 2021. The amount of
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any dividend payable on the Series A Preferred Stock for any period greater or less than a full Dividend Period shall be prorated and
computed on the basis of a 360-day year consisting of twelve 30-day months.
Liquidation Rights— In the event of the Company’s liquidation, dissolution or winding up, holders of Series A Preferred Stock
will rank senior to all classes or series of common stock as to dividend rights and rights upon liquidation, dissolution or winding-up and on
parity with respect to the distribution of assets with the Company’s Series X Preferred Stock. The Series A Preferred Stock have a par value
of $0.05 per share and a liquidation preference of $25.00 per share plus any accrued and unpaid dividends.
Redemption and Special Optional Redemption— The Company, at its option, may redeem the Series A Preferred Stock, in whole
or in part, at any time for a cash redemption price, plus any accrued and unpaid dividends, as follows: (i) $26.00 per share between
December 15, 2021 and December 15, 2022, (ii) $25.75 per share between December 15, 2022 and December 15, 2023, (iii) $25.50 per
share between December 15, 2023 and December 15, 2024 (iv) $25.25 per share between December 15, 2024 and December 15, 2025 and
$25.00 per share on or after December 15, 2025. The Company also has a special optional redemption option whereby, upon the occurrence
of a delisting event or change of control event, the Company may redeem outstanding Series A Preferred Stock at an amount of $25.00 per
share.
Conversion— The shares of Series A Preferred Stock are not convertible into or exchangeable for any other property or securities
of the Company except upon the occurrence of a delisting event or change in control event and the Company has not, on or before the date
of such an event, provided the required notice of its election to redeem the Series A Preferred Stock pursuant to its redemption right or
special optional redemption right. In this case, the holder of shares of Series A Preferred Stock can convert some or all of their Series A
Preferred Stock into a number of shares of common stock per share equal to the lesser of (A) (i) the sum of the $25.00 liquidation
preference per share of Series A Preferred Stock to be converted plus (y) the amount of any accrued and unpaid dividends to, but not
including, the event date, as applicable by (ii) the common stock price and (B) 1.46071 (the “Share Cap”). The common stock price to be
used in the latter noted calculation for a delisting event will be the average of the closing price per share of the Company’s common stock
on the 10 consecutive trading days immediately preceding, but not including, the effective date of the delisting event. The common stock
price used in the event of a change in control event will, alternatively, be based on market price according to the definition in the Certificate
of Designation.
Voting Rights— Holders of the Series A Preferred Stock generally will have no voting rights, but will have limited voting rights if
the issuer fails to pay dividends for six or more quarters (whether or not declared or consecutive) and in certain other events.
Classification—The Company evaluated the convertible preferred stock for liability or equity classification under the applicable
accounting guidance and determined that treatment as equity was appropriate.
Depositary Shares Representing Interest in Series B Preferred Stock
On April 9, 2021, the Company sold 1,600,000 Series B Depositary Shares, at the price of $25.00 per Series B Depositary Share,
through a public offering for aggregate gross proceeds of $40.0 million. Total offering costs of $2.9 million were offset against the proceeds
from the sale of Series B Depositary Shares, for net proceeds of $37.1 million.
The spouse of James Neal, the Chief Executive Officer and Chairman of the Board of Directors, purchased 8,000 shares of the
Series B Depositary Shares in the public offering at the public offering price of $25.00 per share for an aggregate amount of $0.2 million.
As of December 31, 2021, there were 3,600 shares authorized and 1,600 issued of Series B Preferred Stock.
The Series B Preferred Stock has the following characteristics, which are set forth in the Certificate of Designation of 8.375%
Series B Cumulative Perpetual Preferred Stock, as corrected, filed with the Delaware Secretary of State.
Dividends— Holders of Series B Preferred Stock shall be entitled to receive cash dividends, when and if declared by the Board of
Directors at the rate of 8.375% per annum of the $25,000.00 liquidation preference per share, which equals
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$2,093.75 per share each year. Such dividends shall be payable quarterly in arrears on or about the 15th calendar day of each January,
April, July and October commencing on or about July 15, 2021. The dividends will accumulate and be cumulative from, and including, the
date of original issue of the Series B Preferred Stock, on the basis of a 360-day year consisting of twelve 30-day months. Dividends will be
payable to holders of record as they appear in the stockholder records of the Company (or the depositary in the case of Series B Depositary
Shares representing underlying Series B Preferred Stock) at the close of business on the applicable dividend record date.
Liquidation Preference - Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, before any
distribution or payment shall be made to holders of shares of Common Stock or any other class or series of capital stock of the Company
ranking junior to the Series B Preferred Stock, the holders of shares of Series B Preferred Stock shall be paid out of the assets of the
Company, after payment of or provision for the debts and other liabilities and any class or series of capital stock, as to rights upon any
voluntary or involuntary liquidation, dissolution or winding up, senior to the Series B Preferred Stock. The Series B Preferred Stock have a
par value of $0.05 per share and a liquidation preference of $25,000.00 per share plus any accrued and unpaid dividends.
Redemption and Special Redemption - On and after April 15, 2022, the Company, at its option, may redeem the Series B Preferred
Stock, for cash, in whole or in part, at any time or from time to time, as follows: (i) between April 15, 2022 to April 15, 2023, at a
redemption price of $26,000.00 per share ($26.00 per depositary share), (ii) between April 15, 2023 to April 15, 2024, at a redemption
price of $25,750.00 per share ($25.75 per depositary share), (iii) between April 15, 2024 to April 15, 2025, at a redemption price of
$25,500.00 per share ($25.50 per depositary share), (iv) between April 15, 2025 to April 15, 2026, at a redemption price of $25,250.00 per
share ($25.25 per depositary share), and (v) after April 15, 2026, at a redemption price of $25,000.00 per share ($25.00 per depositary
share), and in each case, plus any accrued and unpaid dividends thereon up to but not including the date fixed for redemption, without
interest. If fewer than all of the outstanding shares of Series B Preferred Stock are to be redeemed, the shares to be redeemed will be
determined pro rata or by lot. Upon the occurrence of a delisting event or change of control the Company will have the option to redeem
the Series B Preferred Stock, in whole or in part, for cash at $25,000.00 per share plus accrued and unpaid dividends.
Conversion - The shares of Series B Preferred Stock are not convertible into or exchangeable for any other property or securities
of the Company, except upon the occurrence of a delisting event or a change of control, each holder Series B Preferred Stock will have the
right (unless the Company has elected to redeem the Series B Preferred Stock) to convert some or all of the shares of Series B Preferred
Stock held by such holder on the delisting event conversion date or change of control conversion date into a number of shares of the
common stock (or equivalent value of alternative consideration) per share of Series B Preferred Stock, equal to the lesser of (A) the
quotient obtained by dividing (1) the sum of the $25,000.00 per share liquidation preference plus the amount of any accumulated and
unpaid dividends up to, but not including, the delisting event conversion date or change of control conversion date, as applicable (unless the
delisting event conversion date or change of control conversion date, is after a record date for a Series B Preferred Stock dividend payment
and prior to the corresponding Series B Preferred Stock dividend payment date, in which case no additional amount for such accumulated
and then remaining unpaid dividend will be included in this sum) by (2) the common stock price (such quotient, the “Conversion Rate”);
and (B) 1,253.13 (1.25313 per depositary share) (i.e., the “Share Cap”), subject to certain adjustments described in the Series B Preferred
Stock Certificate of Designation.
Voting Rights— Holders of the Series B Preferred Stock generally will have no voting rights, but will have limited voting rights if
the issuer fails to pay dividends for six or more quarters (whether or not declared or consecutive) and in certain other events.
Classification—The Company evaluated the convertible preferred stock for liability or equity classification under the applicable
accounting guidance and determined that treatment as equity was appropriate.
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Dividends
During the year ended December 31, 2021, the Company’s Board of Directors declared and paid cash dividends on the Company’s
Series A Preferred Stock and Series B Depositary shares as follows.
Dividend Declaration Date
March 17, 2021
May 21, 2021
July 28, 2021
October 20, 2021
$
$
$
$
Series A Preferred Stock
Cash Dividend Declared
($ per share)
Series B Depositary Share
Cash Dividend Declared
($ per share)
Dividend Payment Date
0.71875 $
$
0.53906
$
0.53906
$
0.53906
N/A (1) April 15, 2021
July 15, 2021
0.55833
0.52344 October 15, 2021
January 18, 2022
0.52344
(1) The Company sold 1,600,000 Series B Depositary Shares on April 9, 2021. As such, the first dividend was declared on May 21,
2021.
As of December 31, 2021, the Company held restricted cash of $2.0 million in a segregated account that may only be used to pay
dividends on the Series A and Series B Preferred Stock.
BVF Ownership
In February 2020, BVF elected to increase the beneficial ownership limitation of the Series Y preferred stock to 50%, which
became effective on April 11, 2020. On April 15, 2020, BVF converted all of its shares of Series Y preferred stock into common stock. As
of December 31, 2021, BVF owned approximately 31.2% of the Company’s total outstanding shares of common stock, and if all the Series
X convertible preferred shares were converted, BVF would own 52.3% of the Company’s total outstanding shares of common stock. The
Company’s Series A Preferred Stock becomes convertible upon the occurrence of specific events and as of December 31, 2021, the
contingency was not met, therefore the Series A Preferred Stock is not included in the as-converted ownership calculation. Due to its
significant equity ownership, BVF is considered a related party of the Company.
2018 Common Stock ATM Agreement
On December 18, 2018, the Company entered into the 2018 Common Stock ATM Agreement with HCW, under which the
Company may offer and sell from time to time at its sole discretion shares of its common stock through HCW as its sales agent, in an
aggregate amount not to exceed $30.0 million. HCW may sell the shares by any method permitted by law deemed to be an “at the market”
offering as defined in Rule 415 of the Securities Act, and will use its commercially reasonable efforts consistent with its normal trading and
sales practices to sell the shares up to the amount specified. The Company will pay HCW a commission of up to 3% of the gross proceeds
of any shares of common stock sold under the 2018 Common Stock ATM Agreement. On March 10, 2021, the Company amended the 2018
Common Stock ATM Agreement with HCW to increase the aggregate amount of shares of its common stock that it could sell through
HCW as its sales agent to $50.0 million. No shares have been sold under the 2018 Common Stock ATM Agreement since the agreement
was executed.
2021 Series B Preferred Stock ATM Agreement
On August 5, 2021, the Company entered into the 2021 Series B Preferred Stock ATM Agreement with B. Riley, under which the
Company may offer and sell from time to time, at its sole discretion, through or to B. Riley, as agent or principal an aggregate amount not
to exceed $50.0 million of its Series B Depositary Shares. B. Riley may sell the shares by any method permitted by law deemed to be an “at
the market” offering as defined in Rule 415 of the Securities Act, and will use its commercially reasonable efforts consistent with its
normal trading and sales practices to sell the shares up to the amount specified. The Company will pay B. Riley a commission of up to 3%
of the gross proceeds of any Series B Depositary Shares sold under the 2021 Series B Preferred Stock ATM Agreement. No shares have
been sold under the 2021 Series B Preferred Stock ATM Agreement since the agreement was executed.
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Common Stock Warrants
As of December 31, 2021 and 2020, the following common stock warrants were outstanding:
Issuance Date
February 2016
May 2018
March 2019
Expiration Date
Balance Sheet Classification
Exercise Price
per Share
December 31,
December 31,
2021
2020
February 2021
May 2028
March 2029
Stockholders’ equity
Stockholders’ equity
Stockholders’ equity
$
$
$
15.40
23.69
14.71
—
6,332
4,845
11,177
8,249
6,332
4,845
19,426
In February 2016, in conjunction with services provided by a third-party consultant, the Company issued a warrant to purchase up
to an aggregate of 8,249 unregistered shares of the Company’s common stock at an exercise price equal to $15.40 per share. The warrant
was exercisable immediately and had a five-year term expiring in February 2021. As of December 31, 2020, the estimated fair value of the
warrant of $0.1 million was calculated using the Black-Scholes Model and was classified in stockholders’ equity on the consolidated
balance sheet. In February 2021, the Company issued 4,917 shares of common stock upon a cashless exercise of the common stock
warrants held by Torreya Partners LLC. There is no balance of these warrants on the consolidated balance sheet as of December 31, 2021.
In May 2018, the Company issued SVB a warrant in connection with the SVB Loan Agreement (Note 8) which is exercisable in
whole or in part for up to an aggregate of 6,332 shares of common stock with an exercise price of $23.69 per share. The warrant may be
exercised on a cashless basis and is exercisable within 10 years from the date of issuance or upon the consummation of certain acquisitions
of the Company. The fair value of the warrant issued to SVB was determined using the Black-Scholes Model and was estimated to be $0.1
million. The warrant is classified in stockholders’ equity on the consolidated balance sheets.
In March 2019, the Loan Agreement was amended to extend the Draw Period from March 31, 2019 to March 31, 2020. In
connection with the amendment, the Company issued a second warrant to SVB which is exercisable in whole or in part for up to an
aggregate of 4,845 shares of common stock with an exercise price of $14.71 per share. The second warrant may be exercised on a cashless
basis and is exercisable within 10 years from the date of issuance or upon the consummation of certain acquisitions of the Company. The
fair value of the second warrant issued to SVB was determined using the Black-Scholes Model and was estimated to be $0.1 million. As of
December 31, 2021, both warrants are outstanding and no shares have been issued upon exercise of the warrants.
13. Commitments and Contingencies
Collaborative Agreements, Royalties and Milestone Payments
The Company has committed to make potential future milestone payments and legal fees to third parties as part of licensing and
development programs. Payments under these agreements become due and payable only upon the achievement of certain developmental,
regulatory and commercial milestones by the Company’s licensees. Because it is uncertain if and when these milestones will be achieved,
such contingencies, aggregating up to $6.3 million (assuming one product per contract meets all milestones events) have not been recorded
on the accompanying consolidated balance sheets. The Company is unable to determine precisely when and if payment obligations under
the agreements will become due as these obligations are based on milestone events, the achievement of which is subject to a significant
number of risks and uncertainties.
Contingent Consideration
Pursuant to the Company’s royalty and commercial payment purchase agreements with Bioasis, Aronora, Kuros and Affitech, the
Company has committed to pay the Bioasis Contingent Consideration, the Aronora Royalty Milestones, the Kuros Sales Milestones and the
Affitech regulatory and sales milestones. The Company recorded $0.1 million and $8.0 million for the Bioasis Contingent Consideration
and the Affitech Regulatory Milestones, respectively, which, represents the estimated fair value of these potential future payments at the
inception of the respective agreements. The contingent
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consideration is remeasured at fair value at each reporting period, with changes in fair value recorded in other (expense) income, net. As of
December 31, 2021, there were no changes in the estimated fair value of the Bioasis Contingent Consideration and the Affitech Sales
Milestones from the initial value. The liability for future Aronora Royalty Milestones, Kuros Sales Milestones and Affitech Sales
Milestones will be recorded when the amounts, by product, are estimable and probable. As of December 31, 2021, none of these Aronora
Royalty Milestones, Kuros Sales Milestones or Affitech Sales Milestones were assessed to be probable and as such, no liability was
recorded on the consolidated balance sheet.
14. Concentration of Risk, Segment and Geographic Information
Concentration of Risk
Cash and receivables are financial instruments which potentially subject the Company to concentrations of credit risk, as well as
liquidity risk.
The Company has not experienced any significant credit losses and does not generally require collateral on receivables. For the
year ended December 31, 2021, one partner represented 92% of total revenues. For the year ended December 31, 2020, one partner
represented 85% of total revenues. As of December 31, 2021 and 2020, one partner represented 100% of the trade receivables balance.
Segment Information
The Company has determined that it operates in one business segment as it only reports operating results on an aggregate basis to
the chief operating decision maker of the Company.
Geographic Information
Revenue attributed to the following geographic regions was as follows (in thousands) based on the location of the licensees:
Europe
United States
Asia Pacific
Total
The Company’s property and equipment is held in the United States.
15. Subsequent Events
Year Ended December 31,
2021
35,000
2,610
550
38,160
$
$
2020
25,010
1,275
3,100
29,385
$
$
On January 28, 2022, Genentech, a member of the Roche group, received approval from the FDA to commercialize faricimab
(faricimab-svoa) for the treatment of wet, or neovascular, age-related macular degeneration and diabetic macular edema. Upon approval,
the Company became eligible to receive a 0.5% commercial payment stream on net sales associated with faricimab for a ten-year period
following its first commercial sale in the United States. The Company acquired this interest under the Affitech CPPA, pursuant to which,
the Company paid Affitech a $5.0 million milestone tied to these U.S. marketing approvals. The Company may pay up to an additional
$15.0 million to Affitech based on the achievement of certain regulatory approval and sales milestones.
In January 2022, Rezolute dosed the last patient in its Phase 2b clinical trial for RZ358, which triggered a $2.0 million milestone
payment due to XOMA pursuant to the Company’s Rezolute License Agreement.
F-40
Exhibit 4.6
DESCRIPTION OF XOMA CORPORATION CAPITAL STOCK
The following is a description of the Common Stock, $0.0075 par value (the “Common Stock”), Preferred Stock, $0.05 par value
(the “Preferred Stock”) and depositary shares of XOMA Corporation (the “Company”). The Common Stock, 8.625% Series A
Cumulative Perpetual Preferred Stock (the “Series A Preferred Stock”) and the depositary shares (the “Series B Depositary Shares”)
representing the 8.375% Series B Cumulative Perpetual Preferred Stock (the “Series B Preferred Stock”) are the only securities of the
Company registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Common Stock
General. The Company is authorized to issue up to 277,333,332 shares of Common Stock. The following description is based on
(i) the Company’s Certificate of Incorporation, as currently in effect (the “Certificate of Incorporation”), (ii) the Company’s By-laws,
as currently in effect (the “By-laws”), and (iii) the Delaware General Corporation Law (the “DGCL”). The following summary
description of the Common Stock of the Company is qualified in its entirety by reference to the provisions of the Certificate of
Incorporation and By-laws, copies of which have been filed as exhibits to the Company’s Annual Report on Form 10-K filed herewith,
and the applicable provisions of the DGCL.
Dividend Rights. The holders of our Common Stock have the right to receive dividends and distributions, whether payable in cash
or otherwise, as may be declared from time to time by our board of directors, from legally available funds.
Voting Rights. Each holder of our Common Stock is generally entitled to one vote for each share of Common Stock owned of
record on all matters submitted to a vote of our stockholders. Except as otherwise required by law, holders of Common Stock (as well
as holders of any Preferred Stock entitled to vote with the common stockholders) will generally vote together as a single class on all
matters presented to the stockholders for their vote or approval, including the election of directors. Any matter brought before the
stockholders for a vote, other than the election of directors, will generally be decided by a majority of the votes cast on the matter,
unless the matter is one in which an express provision of the DGCL, the Certificate of Incorporation, the By-laws, the rules or
regulations of any stock exchange applicable to us, applicable law or pursuant to any regulation applicable to us or our securities
requires a different vote, in which case the express provision will govern and control the decision of the matter. Directors will be
elected by a plurality of the votes cast and entitled to vote generally on the election of directors. There are no cumulative voting rights
with respect to the election of directors or any other matters.
No Preemptive or Similar Rights. Holders of our Common Stock have no redemption rights, conversion rights or preemptive
rights to purchase or subscribe for our securities.
Right to Receive Liquidation Distributions. In the event of our liquidation, dissolution or winding-up, holders of our Common
Stock will be entitled to share equally in the assets available for distribution after payment of all creditors and the liquidation
preferences of our Preferred Stock (if any).
The rights of the holders of our Common Stock are subject to, and may be adversely affected by, the rights of holders of shares of any
Preferred Stock that we may designate and issue in the future.
Preferred Stock
General. Under our Certificate of Incorporation, our board of directors is authorized to issue up to 1,000,000 shares of Preferred
Stock, and, by resolution, to divide the Preferred Stock into series and, with respect to each series,
to determine the designations and the powers, preferences and rights, and the qualifications, limitations and restrictions thereof,
including the dividend rights, conversion or exchange rights, voting rights, redemption rights and terms, liquidation preferences,
sinking fund provisions and the number of shares constituting the series. Our board of directors can, without stockholder approval but
subject to the terms of the Certificate of Incorporation and to any resolution of the stockholders approved by at least 75% of all issued
shares entitled to vote in respect thereof, issue Preferred Stock with voting and other rights that could adversely affect the voting
power of the holders of our Common Stock and which could have certain anti-takeover effects. Before we may issue any series of
Preferred Stock, our board of directors will be required to adopt resolutions creating and designating such series of Preferred Stock.
The following summary description of the Preferred Stock of the Company, including the Series B Depositary Shares, is qualified
in its entirety by reference to the provisions of the Certificate of Incorporation, By-laws and the certificates of designation of
preferences, rights and limitations of each series of the Preferred Stock, copies of which have been filed as exhibits to the Company’s
Annual Report on Form 10-K, and the applicable provisions of the DGCL. As of December 31, 2021, 5,003 shares of Series X
Preferred Stock, 984,000 shares of Series A Preferred Stock and 1,600 shares of Series B Depositary Shares were issued and
outstanding.
The 8.625% Series A Cumulative Perpetual Preferred Stock. We have designated 984,000 shares of our Preferred Stock as
Series A Preferred Stock.
The Series A Preferred Stock will rank, as to dividend rights and rights upon our liquidation, dissolution or winding up:
● senior to all classes or series of our Common Stock and to all other equity securities issued by us expressly designated as
ranking junior to the Series A Preferred Stock;
● senior with respect to the payment of dividends and on parity with respect to the distribution of assets upon our liquidation,
dissolution or winding up with our Series X Preferred Stock and on parity with any future class or series of our equity securities
expressly designated as ranking on parity with the Series A Preferred Stock;
● junior to all equity securities issued by us with terms specifically providing that those equity securities rank senior to the
Series A Preferred Stock with respect to the payment of dividends and the distribution of assets upon our liquidation, dissolution
or winding up, none of which exists on the date hereof; and;
● effectively junior to all our existing and future indebtedness (including indebtedness convertible into our Common Stock or
Preferred Stock) and to the indebtedness and other liabilities of (as well as any preferred equity interests held by others in) our
existing or future subsidiaries.
Dividends. We will pay cumulative cash dividends on the Series A Preferred Stock, when and as declared by our board of
directors, at the rate of 8.625% of the $25.00 liquidation preference per share per year (equivalent to $2.15625 per year). Dividends
will be payable quarterly in arrears, on or about the 15th day of January, April, July and October; provided that if any dividend
payment date is not a business day, then the dividend which would otherwise have been payable on that dividend payment date may be
paid on the next succeeding business day, and no interest, additional dividends or other sums will accumulate. Dividends will
accumulate and be cumulative from, and including, the date of original issuance. The first dividend, which was paid on April 15, 2021
in the amount of $0.71875 per share of Series A Preferred Stock, was for more than a full quarter and covered the period from, and
including, the first date we issued and sold the Series A Preferred Stock through, but not including, April 15, 2021. Dividends on the
Series A Preferred Stock will continue to accumulate whether or not (i) any of our agreements prohibit the current payment of
dividends, (ii) we have earnings or funds legally available to pay the dividends, or (iii) our board of directors does not declare the
payment of the dividends.
Liquidation Preference. The liquidation preference of each share of Series A Preferred Stock is $25.00. Upon liquidation, holders
of our Series A Preferred Stock will be entitled to receive the liquidation preference with respect to their shares of Series A Preferred
Stock plus an amount equal to accumulated but unpaid dividends with respect to such shares.
Optional Redemption. On and after December 15, 2021, the first anniversary of December 15, 2020, to but excluding the second
anniversary, the shares of Series A Preferred Stock will be redeemable at our option, in whole or in part, at a redemption price equal to
$26.00 per share, plus any accrued and unpaid dividends. On and after December 15, 2022, the second anniversary of December 15,
2020, to but excluding the third anniversary, the shares of Series A Preferred Stock will be redeemable at our option, in whole or in
part, at a redemption price equal to $25.75 per share, plus any accrued and unpaid dividends. On and after December 15, 2023, the
third anniversary of December 15, 2020, to but excluding the fourth anniversary, the shares of Series A Preferred Stock will be
redeemable at our option, in whole or in part, at a redemption price equal to $25.50 per share, plus any accrued and unpaid dividends.
On and after December 15, 2024, the fourth anniversary of December 15, 2020, to but excluding the fifth anniversary, the shares of
Series A Preferred Stock will be redeemable at our option, in whole or in part, at a redemption price equal to $25.25 per share, plus
any accrued and unpaid dividends. On and after December 15, 2025, the fifth anniversary of December 15, 2020, the shares of Series
A Preferred Stock will be redeemable at our option, in whole or in part, at a redemption price equal to $25.00 per share, plus any
accrued and unpaid dividends.
Special Optional Redemption Upon a Change of Control or Delisting Event. Upon the occurrence of a Delisting Event (as
defined below), we may, at our option, redeem the Series A Preferred Stock, in whole or in part, within 90 days after the first date on
which such Delisting Event occurred, for cash, at a redemption price of $25.00 per share, plus any accrued and unpaid dividends up to,
but not including, the date of redemption.
With respect to the Series A Preferred Stock, a “Delisting Event” occurs when, after the original issuance of Series A Preferred
Stock, both (i) the shares of Series A Preferred Stock are no longer listed on Nasdaq, the New York Stock Exchange (the “NYSE”) or
the NYSE American LLC (“NYSE AMER”), or listed or quoted on an exchange or quotation system that is a successor to Nasdaq, the
NYSE or the NYSE AMER, and (ii) we are not subject to the reporting requirements of the Exchange Act, but any Series A Preferred
Stock is still outstanding.
Upon the occurrence of a Change of Control (as defined below), we may, at our option, redeem the Series A Preferred Stock, in
whole or in part within 120 days after the first date on which such Change of Control occurred, for cash, at a redemption price of
$25.00 per share, plus any accrued and unpaid dividends up to, but not including, the date of redemption.
With respect to the Series A Preferred Stock, a “Change of Control” occurs when, after the original issuance of the Series A
Preferred Stock, the following have occurred and are continuing:
● the acquisition by any person, including any syndicate or group deemed to be a “person” under Section 13(d)(3) of the
Exchange Act, of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or
series of purchases, mergers or other acquisition transactions of shares of our company entitling that person to exercise more
than 50% of the total voting power of all shares of our company entitled to vote generally in elections of directors (except
that such person will be deemed to have beneficial ownership of all securities that such person has the right to acquire,
whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition); and
● following the closing of any transaction referred to in the bullet point above, neither we nor any acquiring or surviving entity
(or if, in connection with such transaction shares of our Common Stock are converted into or exchanged for (in whole or in
part) common equity securities of another entity), has a class of common securities (or ADRs representing such securities)
listed on Nasdaq, the NYSE or the NYSE AMER, or listed or quoted on an exchange or quotation system that is a successor
to Nasdaq, the NYSE or the NYSE AMER.
We refer to redemption following a Delisting Event or Change of Control as a “special optional redemption.” If, prior to the
Delisting Event Conversion Date (as defined below) or the Change of Control Conversion Date (as defined below), as applicable, we
have provided or provide notice of exercise of any of our redemption rights relating to the Series A Preferred Stock (whether our
optional redemption right or our special optional redemption right), the holders of the Series A Preferred Stock will not have the
conversion right described below.
Conversion. Upon the occurrence of a Delisting Event or a Change of Control, as applicable, each holder of Series A Preferred
Stock will have the right (unless, prior to the Delisting Event Conversion Date or Change of Control Conversion Date, as applicable,
we have provided or provide notice of our election to redeem the Series A Preferred Stock) to convert some or all of the Series A
Preferred Stock held by such holder on the Delisting Event Conversion Date or Change of Control Conversion Date, as applicable,
into a number of shares of our Common Stock (or equivalent value of alternative consideration) per share of Series A Preferred Stock
equal to the lesser of:
● the quotient obtained by dividing (1) the sum of the $25.00 per share liquidation preference plus the amount of any
accumulated and unpaid dividends up to, but not including, the Delisting Event Conversion Date or Change of Control
Conversion Date, as applicable (unless the Delisting Event Conversion Date or Change of Control Conversion Date, as
applicable is after a record date for a Series A Preferred Stock dividend payment and prior to the corresponding Series A
Preferred Stock dividend payment date, in which case no additional amount for such accumulated and unpaid dividend will
be included in this sum) by (2) the Common Stock Price (as defined below); and
● 1.46071 (i.e., the Share Cap), subject to certain adjustments; and subject, in each case, to certain conditions, including, under
specified circumstances, an aggregate cap on the total number of shares of our Common Stock issuable upon conversion and
to provisions for the receipt of alternative consideration.
If, prior to the Delisting Event Conversion Date or Change of Control Conversion Date, as applicable, we have provided or
provide a redemption notice, whether pursuant to our special optional redemption right or our optional redemption right, holders of
Series A Preferred Stock will not have any right to convert the Series A Preferred Stock, and any Series A Preferred Stock
subsequently selected for redemption that has been tendered for conversion will be redeemed on the related date of redemption instead
of converted on the Delisting Event Conversion Date or Change of Control Conversion Date, as applicable.
In the event that the conversion would result in the issuance of fractional shares of Common Stock, we will pay the holder of Series A
Preferred Stock cash in lieu of such fractional shares.
Except as provided above in connection with a Delisting Event or Change of Control, shares of the Series A Preferred Stock are not
convertible into or exchangeable for any other securities or property.
For purposes of this description of the Series A Preferred Stock, “Change of Control Conversion Date” means a business day
fixed by our board of directors that is not fewer than 20 days nor more than 35 days after the date on which we provide notice to the
holders of the Series A Preferred Stock of a Change of Control.
For purposes of this description of the Series A Preferred Stock, “Common Stock Price” for any Change of Control will be: (1) if
the consideration to be received in the Change of Control by the holders of our Common Stock is solely cash, the amount of cash
consideration per share of Common Stock; and (2) if the consideration to be received in the Change of Control by holders of our
Common Stock is other than solely cash (x) the average of the closing prices for our Common Stock on the principal U.S. securities
exchange on which our Common Stock is then traded (or, if no closing sale price is reported, the average of the closing bid and ask
prices per share or, if more than one in either case, the average of the average closing bid and the average closing ask prices per share)
for the ten consecutive trading days immediately preceding, but not including, the date on which such Change of Control occurred as
reported on the principal U.S. securities exchange on which our Common Stock is then traded, or (y) the average of the last quoted bid
prices for our Common Stock in the over-the-counter market as reported by OTC Markets Group Inc. or similar organization for the
ten consecutive trading days immediately preceding, but not including, the date on which such Change of Control occurred, if our
Common Stock is not then listed for trading on a U.S. securities exchange. The “Common Stock Price” for any Delisting Event will
be the average of the closing price per share of our Common Stock on the 10 consecutive trading days immediately preceding, but not
including, the effective date of the Delisting Event.
For purposes of this description of the Series A Preferred Stock, “Delisting Event Conversion Date” means a business day fixed
by our board of directors that is not fewer than 20 days nor more than 35 days after the date on which we provide notice to the holders
of the Series A Preferred Stock of a Delisting Event.
Voting Rights. Holders of Series A Preferred Stock generally will have no voting rights. However, if we do not pay dividends on
any outstanding shares of Series A Preferred Stock for six or more quarterly dividend periods (whether or not declared or
consecutive), holders of Series A Preferred Stock (voting separately as a class with all other outstanding series of preferred stock upon
which like voting rights have been conferred and are exercisable) will be entitled to elect two additional directors to our board of
directors to serve until all unpaid dividends have been fully paid or declared and set apart for payment. In addition, certain material
and adverse changes to the terms of the Series A Preferred Stock cannot be made without the affirmative vote of holders of at least 66
2/3% of the outstanding shares of Series A Preferred Stock, voting as a separate class. In any matter in which the Series A Preferred
Stock may vote, each share of Series A Preferred Stock shall be entitled to one vote.
The 8.375% Series B Cumulative Perpetual Preferred Stock and the Series B Depositary Shares. We have designated 3,600
shares of our Preferred Stock as Series B Preferred Stock.
The Series B Preferred Stock underlying the Series B Depositary Shares will rank, as to dividend rights and rights upon our
liquidation, dissolution or winding up:
● senior to all classes or series of our Common Stock and to all other equity securities issued by us expressly designated as
ranking junior to the Series B Preferred Stock;
● senior with respect to the payment of dividends and on parity with respect to the distribution of assets upon our liquidation,
dissolution or winding up with our Series X Preferred Stock;
● on parity with our Series A Preferred Stock, and with any future class or series of our equity securities expressly designated
as ranking on parity with the Series B Preferred Stock;
● junior to all equity securities issued by us with terms specifically providing that those equity securities rank senior to the
Series B Preferred Stock with respect to the payment of dividends and the distribution of assets upon our liquidation,
dissolution or winding up, none of which exists on the date hereof; and
● effectively junior to all our existing and future indebtedness (including indebtedness convertible into our Common Stock or
Preferred Stock) and to the indebtedness and other liabilities of (as well as any preferred equity interests held by others in)
our existing or future subsidiaries.
Dividends. We will pay cumulative cash dividends on the Series B Preferred Stock, when and as declared by our board of
directors, at the rate of 8.375% of the $25,000.00 liquidation preference ($25.00 per depositary share) per year (equivalent to
$2,093.75 per share or $2.09375 per depositary share per year). Dividends will be payable quarterly in arrears, on or about the 15th
day of January, April, July and October; provided that if any dividend payment date is not a business day, then the dividend which
would otherwise have been payable on that dividend payment date may be paid on the next succeeding business day, and no interest,
additional dividends or other sums will accumulate. Dividends will accumulate and be cumulative from, and including, the date of
original issuance. Dividends on the Series B Preferred Stock underlying the Series B Depositary Shares will continue to accumulate
whether or not (i) any of our agreements prohibit the current payment of dividends, (ii) we have earnings or funds legally available to
pay the dividends, or (iii) our board of directors does not declare the payment of the dividends.
Liquidation Preference. The liquidation preference of each share of Series B Preferred Stock is $25,000.00 ($25.00 per
depositary share). Upon liquidation, holders of our Series B Preferred Stock will be entitled to receive the liquidation preference with
respect to their shares of Series B Preferred Stock plus an amount equal to accumulated but unpaid dividends with respect to such
shares.
Optional Redemption. On and after April 15, 2022, the shares of Series B Preferred Stock will be redeemable at our option, in
whole or in part, at a redemption price equal to $26,000.00 per share ($26.00 per depositary share), plus any accrued and unpaid
dividends. On and after April 15, 2023, the shares of Series B Preferred Stock will be redeemable at our option, in whole or in part, at
a redemption price equal to $25,750.00 per share ($25.75 per depositary share), plus any accrued and unpaid dividends. On and after
April 15, 2024, the shares of Series B Preferred
Stock will be redeemable at our option, in whole or in part, at a redemption price equal to $25,500.00 per share ($25.50 per depositary
share), plus any accrued and unpaid dividends. On and after April 15, 2025, the shares of Series B Preferred Stock will be redeemable
at our option, in whole or in part, at a redemption price equal to $25,250.00 per share ($25.25 per depositary share), plus any accrued
and unpaid dividends. On and after April 15, 2026, the shares of Series B Preferred Stock will be redeemable at our option, in whole
or in part, at a redemption price equal to $25,000.00 per share ($25.00 per depositary share), plus any accrued and unpaid dividends.
On or after the date fixed for redemption of shares of Series B Preferred Stock, each holder of Series B Depositary Shares to be
redeemed must present and surrender the depositary receipts evidencing the Series B Depositary Shares to the depositary at the place
designated in the notice of redemption. The redemption price of such Series B Depositary Shares will then be paid to or on the order
of the person whose name appears on such depositary receipts as the owner thereof.
Special Optional Redemption Upon a Change of Control or Delisting Event. Upon the occurrence of a Delisting Event (as
defined below), we may, at our option, redeem the Series B Preferred Stock, in whole or in part, within 90 days after the first date on
which such Delisting Event occurred, for cash, at a redemption price of $25,000.00 per share (equivalent to $25.00 per depositary
share), plus any accrued and unpaid dividends up to, but not including, the date of redemption, and the depositary will redeem a
proportional number of Series B Depositary Shares representing the shares redeemed.
With respect to the Series B Preferred Stock, a “Delisting Event” occurs when, after the original issuance of Series B Preferred
Stock, both (i) the shares of Series B Preferred Stock (or the Series B Depositary Shares) are no longer listed on Nasdaq, the NYSE or
the NYSE AMER, or listed or quoted on an exchange or quotation system that is a successor to Nasdaq, the NYSE or the NYSE
AMER, and (ii) we are not subject to the Exchange Act, but any Series B Preferred Stock is still outstanding.
Upon the occurrence of a Change of Control (as defined below), we may, at our option, redeem the Series B Preferred Stock
underlying the Series B Depositary Shares, in whole or in part within 120 days after the first date on which such Change of Control
occurred, for cash, at a redemption price of $25,000.00 per share (equivalent to $25.00 per depositary share), plus any accrued and
unpaid dividends up to, but not including, the date of redemption, and the depositary will redeem a proportional number of Series B
Depositary Shares representing the shares redeemed.
With respect to the Series B Preferred Stock, a “Change of Control” occurs when, after the original issuance of the Series B
Preferred Stock, the following have occurred and are continuing:
● the acquisition by any person, including any syndicate or group deemed to be a “person” under Section 13(d)(3) of the
Exchange Act, of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or
series of purchases, mergers or other acquisition transactions of shares of our company entitling that person to exercise more
than 50% of the total voting power of all shares of our company entitled to vote generally in elections of directors (except
that such person will be deemed to have beneficial ownership of all securities that such person has the right to acquire,
whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition); and
● following the closing of any transaction referred to in the bullet point above, neither we nor any acquiring or surviving entity
(or if, in connection with such transaction shares of our Common Stock are converted into or exchanged for (in whole or in
part) common equity securities of another entity), has a class of common securities (or ADRs representing such securities)
listed on Nasdaq, the NYSE or the NYSE AMER, or listed or quoted on an exchange or quotation system that is a successor
to Nasdaq, the NYSE or the NYSE AMER.
We refer to redemption following a Delisting Event or Change of Control as a “special optional redemption.” If, prior to the
Delisting Event Conversion Date or the Change of Control Conversion Date (each as defined below), as applicable, we have provided
or provide notice of exercise of any of our redemption rights relating to the Series B Preferred Stock (whether our optional redemption
right or our special optional redemption right), the holders of Series B Depositary Shares representing interests in the Series B
Preferred Stock will not have the conversion right described below.
Conversion. Upon the occurrence of a Delisting Event or a Change of Control, as applicable, each holder of Series B Depositary
Shares representing interests in the Series B Preferred Stock will have the right (unless, prior to the Delisting Event Conversion Date
or Change of Control Conversion Date, as applicable, we have provided or provide notice of our election to redeem the Series B
Preferred Stock) to direct the depositary, on such holder’s behalf, to convert some or all of the Series B Preferred Stock underlying the
Series B Depositary Shares held by such holder on the Delisting Event Conversion Date or Change of Control Conversion Date, as
applicable into a number of shares of our Common Stock (or equivalent value of alternative consideration) per depositary share equal
to the lesser of:
● the quotient obtained by dividing (1) the sum of the $25.00 per depositary share liquidation preference plus the amount of
any accumulated and unpaid dividends up to, but not including, the Delisting Event Conversion Date or Change of Control
Conversion Date, as applicable (unless the Delisting Event Conversion Date or Change of Control Conversion Date, as
applicable is after a record date for a Series B Preferred Stock dividend payment and prior to the corresponding Series B
Preferred Stock dividend payment date, in which case no additional amount for such accumulated and unpaid dividend will
be included in this sum) by (2) the Common Stock Price (as defined herein); and
● 1.25313 (i.e., the Share Cap), subject to certain adjustments; and subject, in each case, to certain conditions, including, under
specified circumstances, an aggregate cap on the total number of shares of our Common Stock issuable upon conversion and
to provisions for the receipt of alternative consideration.
If, prior to the Delisting Event Conversion Date or Change of Control Conversion Date, as applicable, we have provided or
provide a redemption notice, whether pursuant to our special optional redemption right or our optional redemption right, holders of
Series B Depositary Shares representing interests in the Series B Preferred Stock will not have any right to direct the depositary to
convert the Series B Preferred Stock, and any Series B Preferred Stock subsequently selected for redemption that has been tendered
for conversion will be redeemed on the related date of redemption instead of converted on the Delisting Event Conversion Date or
Change of Control Conversion Date, as applicable.
Because each depositary share represents a 1/1000th interest in a share of the Series B Preferred Stock, the number of shares of
Common Stock ultimately received for each depositary share will be equal to the number of shares of Common Stock received upon
conversion of each share of Series B Preferred Stock divided by 1000. In the event that the conversion would result in the issuance of
fractional shares of Common Stock, we will pay the holder of Series B Depositary Shares cash in lieu of such fractional shares.
Except as provided above in connection with a Delisting Event or Change of Control, shares of the Series B Preferred Stock are
not convertible into or exchangeable for any other securities or property.
For purposes of this description of the Series B Preferred Stock and the underlying Series B Depositary Shares, “Change of
Control Conversion Date” means a business day fixed by our board of directors that is not fewer than 20 days nor more than 35 days
after the date on which we provide the notice described above to the holders of the Series B Depositary Shares representing interests in
the Series B Preferred Stock.
For purposes of this description of the Series B Preferred Stock and the underlying Series B Depositary Shares, “Common Stock
Price” for any Change of Control will be: (1) if the consideration to be received in the Change of Control by the holders of our
Common Stock is solely cash, the amount of cash consideration per share of Common Stock; and (2) if the consideration to be
received in the Change of Control by holders of our Common Stock is other than solely cash (x) the average of the closing prices for
our Common Stock on the principal U.S. securities exchange on which our Common Stock is then traded (or, if no closing sale price is
reported, the average of the closing bid and ask prices per share or, if more than one in either case, the average of the average closing
bid and the average closing ask prices per share) for the ten consecutive trading days immediately preceding, but not including, the
date on which such Change of Control occurred as reported on the principal U.S. securities exchange on which our Common Stock is
then traded, or (y) the average of the last quoted bid prices for our Common Stock in the over-the-counter market as reported by OTC
Markets Group Inc. or similar organization for the ten consecutive trading days immediately preceding, but not including, the date on
which such Change of Control occurred, if our Common Stock is not then
listed for trading on a U.S. securities exchange. The “Common Stock Price” for any Delisting Event will be the average of the closing
price per share of our Common Stock on the 10 consecutive trading days immediately preceding, but not including, the effective date
of the Delisting Event.
For purposes of this description of the Series B Preferred Stock and the underlying Series B Depositary Shares, “Delisting Event
Conversion Date” means a business day fixed by our board of directors that is not fewer than 20 days nor more than 35 days after the
date on which we provide the notice described above to the holders of the Series B Depositary Shares representing interests in the
Series B Preferred Stock.
Voting Rights. Holders of the Series B Depositary Shares representing interests in the Series B Preferred Stock generally will
have no voting rights. However, if we do not pay dividends on any outstanding shares of Series B Preferred Stock for six or more
quarterly dividend periods (whether or not declared or consecutive), holders of Series B Preferred Stock (voting separately as a class
with all other outstanding series of preferred stock upon which like voting rights have been conferred and are exercisable) will be
entitled to elect two additional directors to our Board of Directors to serve until all unpaid dividends have been fully paid or declared
and set apart for payment. In addition, certain material and adverse changes to the terms of the Series B Preferred Stock cannot be
made without the affirmative vote of holders of at least 66 2/3% of the outstanding shares of Series B Preferred Stock, voting as a
separate class. In any matter in which the Series B Preferred Stock may vote, each share of Series B Preferred Stock shall be entitled
to one vote. As a result, each depositary share will be entitled to 1/1000th of a vote.
The Series X Preferred Stock. We have designated 5,003 shares of our Preferred Stock as Series X Preferred Stock. The Series X
Preferred Stock ranks:
● senior to any class or series of our capital stock created specifically ranking by its terms junior to the Series X Preferred
Stock;
● on parity to our Common Stock;
● on parity to any class or series of our capital stock created specifically ranking by its terms on parity with the Series X
Preferred Stock; and
● junior to any class or series of our capital stock created specifically ranking by its terms senior to the Series X Preferred
Stock;
in each case, as to distributions of assets upon our liquidation, dissolution or winding up whether voluntarily or involuntarily.
Dividends. Holders of Series X Preferred Stock are entitled to receive dividends on shares of Series X Preferred Stock equal (on
an as-converted basis) to and in the same form as dividends actually paid on our Common Stock or other junior securities.
Liquidation Preference. In the event of our liquidation, dissolution, or winding up, holders of our Series X Preferred Stock will
participate pari passu (on an as-converted basis, without regard to any blocker provisions) with any distribution of proceeds to holders
of our Common Stock.
Redemption. We are not obligated to redeem or repurchase any shares of Series X Preferred Stock. Shares of Series X Preferred
Stock are not otherwise entitled to any redemption rights or mandatory sinking fund or analogous fund provisions.
Conversion. The Series X Preferred Stock is convertible at the option of the holders thereof at any time after issuance into the
number of registered shares of Common Stock determined by dividing the aggregate stated value of the Series X Preferred Stock
being converted by the conversion price then in effect. The initial conversion price is $4.03 and is subject to adjustment as described
below. No holder may request a conversion of its Series X Preferred Stock to the extent such conversion would result in the holder and
its affiliates beneficially owning more than a pre-
set conversion blocker threshold, which will initially be set at 19.99% of our Common Stock then outstanding (the “Beneficial
Ownership Limitation”). The amount of beneficial ownership of a holder and its affiliates will be determined in accordance with
Section 13(d) of the Exchange Act, and the rules and regulations of that section.
Conversion Price Adjustment-Stock Dividends and Stock Splits. If we pay a stock dividend or otherwise make a distribution
payable in Common Stock on our Common Stock or any Common Stock equivalents, subdivide or combine our outstanding Common
Stock, or reclassify our Common Stock in such a way that we issue additional shares of our capital stock, the conversion price will be
adjusted by multiplying the then-existing conversion price by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately before the distribution, dividend, adjustment or recapitalization and the denominator of which is the
number of shares of Common Stock outstanding immediately after such action.
Fundamental Transaction. If we effect a “fundamental transaction” (as defined below), then upon any future conversion of the
Series X Preferred Stock, the holders will have the right to receive, for each share of Common Stock they would have received upon
such conversion, the same kind and amount of securities, cash or property as such holder would have been entitled to receive in the
fundamental transaction had it been the holder of Common Stock immediately prior to the fundamental transaction. The term
“fundamental transaction” means any of the following:
● a merger or consolidation of the Company with or into another entity or any stock sale to, or other business combination in
which the Company is not the surviving entity;
● the sale of all or substantially all of our assets in one transaction or a series of related transactions;
● any completed tender offer or exchange offer involving holders of Common Stock in which more than 50% of the Common
Stock is converted or exchanged into other securities, cash or property, regardless of who makes such offer; or
● any reclassification of Common Stock or any compulsory share exchange by which our Common Stock is effectively
converted into or exchanged for other securities, cash or property (but not a reverse stock split).
If the holders of Common Stock are given a choice as to the securities, cash or property to be received in a fundamental
transaction, the holders of Series X Preferred Stock will be given the same choice on conversion of such holders’ shares.
Voting Rights. The Series X Preferred Stock has no voting rights, except to the extent expressly provided in our Certificate of
Incorporation or as otherwise required by law. However, so long as 2,502 shares of Series X Preferred Stock are outstanding, we may
not take any of the following actions without the affirmative consent of holders of a majority of the outstanding Series X Preferred
Stock:
● amend our Certificate of Incorporation, By-laws or other charter documents so as to materially, specifically and adversely
affect the preferences, rights, or privileges of the Series X Preferred Stock;
● issue additional shares of Series X Preferred Stock or increase or decrease the number of authorized shares of Series X
Preferred Stock;
● sell, assign, monetize, pledge or otherwise divest or encumber our rights under any material license agreement, joint venture
or other partnership agreement to which we are a party as of the date of this offering and involving any drug or drug
candidate;
● issue or commit to issue any other equity securities, with certain exceptions;
● issue any equity-based award or compensation to certain of our officers, unless the award has been unanimously approved by
our compensation committee at a time when a designee appointed by the Series X Preferred holders is then serving on that
committee; or
● enter into any agreement or understanding to take any of the actions listed above.
Anti-takeover Effects of Provisions of our Certificate of Incorporation and By-laws and Delaware Law
Certificate of Incorporation and By-laws Provisions. Our Certificate of Incorporation authorizes our board of directors to issue
up to 1,000,000 shares of Preferred Stock without stockholder approval and to set the rights, preferences and other designations,
including voting rights, of those shares as the board of directors may determine. In addition, our By-laws require certain procedures to
be followed and time periods to be met for any stockholder to propose matters to be considered at annual meetings of stockholders,
including nominating directors for election at those meetings. Our By-laws also provide that our board of directors is able to elect a
director to fill a vacancy created by the expansion of the board of directors or due to the resignation or departure of an existing board
member. Provisions of Delaware law and our Certificate of Incorporation and By-laws could make the acquisition of our company
through a tender offer, a proxy contest or other means more difficult and could make the removal of incumbent officers and directors
more difficult. We expect these provisions to discourage coercive takeover practices and inadequate takeover bids and to encourage
persons seeking to acquire control of our company to first negotiate with our board of directors. We believe that the benefits provided
by our ability to negotiate with the proponent of an unfriendly or unsolicited proposal outweigh the disadvantages of discouraging
these proposals. We believe the negotiation of an unfriendly or unsolicited proposal could result in an improvement of its terms.
Delaware Law. We are subject to Section 203 of the DGCL, an anti-takeover law. In general, Section 203 prohibits a publicly
held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years
following the date the person became an interested stockholder, unless:
● prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested stockholder;
● upon completion of the transaction that resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding (a) shares owned by persons who are directors and
also officers, and (b) shares owned by employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
● on or subsequent to the date of the transaction, the business combination is approved by the board and authorized at an
annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66% of the
outstanding voting stock which is not owned by the interested stockholder.
Generally, a “business combination” includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to
the interested stockholder. An “interested stockholder” is a person who, together with affiliates and associates, beneficially owns, or is
an affiliate of the corporation and within three years prior to the determination of interested stockholder status did own, 15% or more
of a corporation’s outstanding voting securities. We expect the existence of this provision to have an anti-takeover effect with respect
to transactions our board of directors does not approve in advance.
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (“Agreement”) between James R. Neal (“Employee”) and
XOMA Corporation (“XOMA” or the “Company”) (collectively, the “Parties”) is effective as of December 15,
2021 (the “Agreement Effective Date”).
Exhibit 10.26
Preamble:
● XOMA wishes to enter into this Agreement to assure the continued services of Employee for a period
until a new CEO is hired or until December 31, 2022, whichever occurs first; and
● Employee is willing to enter into this Agreement and to serve in the employ of XOMA upon the terms
and conditions hereinafter provided;
● NOW, THEREFORE, in consideration of the mutual covenants herein contained, the Parties agree as
follows:
1. Employment. Employee is currently employed with XOMA in the position of Chief Executive
Officer (“CEO”). Employee will continue to serve in this role until the Company hires a new CEO. Upon the
hiring of a new CEO, the Board of Directors (the “Board”) will determine Employee’s employment termination
date (the “Separation Date”), at which time Employee’s employment with the Company will cease. If the
Company has not hired a new CEO as of January 1, 2023, then such date will become Employee’s Separation
Date, unless the Parties mutually agree in writing to a different Separation Date. Employee’s terms of
employment between the Agreement Effective Date and the Separation Date (the “Transition Period”) will be
governed by the terms of this Agreement, which shall supersede and replace, in entirety, the Officer
Employment Agreement between Employee and the Company dated August 7, 2017.
2. Position and Responsibilities. Employee shall devote reasonable best efforts and substantially all of
Employee’s time and attention to employment with XOMA. Employee shall perform those duties and
responsibilities as may be directed by the Board, to whom Employee will report. Such duties shall include
(without limitation) delivering 2022 operating results, serving as the external face of XOMA, retaining and
recruiting talent, and leading the search for a new CEO (to be approved and appointed by the Board). Effective
as of the Agreement Effective Date, Employee will also be appointed to serve as the Chair of the Board, with
such appointment to terminate in the discretion of the Board. While employed by XOMA, Employee may not
accept consulting or other business or non-profit opportunities without first obtaining written approval from the
Board. The Company acknowledges that the Board has previously approved the following appointments by Employee:
Chairman of the Board of Palisade Bio, Inc. and Chairman of the Board of Monterey Bio. In addition, while employed
by XOMA, except on behalf of XOMA, Employee will not directly or indirectly serve as an officer, director,
stockholder, employee, partner, proprietor, investor, joint venturer, associate, representative or consultant of any
other person, corporation, firm, partnership or other entity whatsoever known by Employee to compete with
XOMA (or that is planning or preparing to compete with XOMA), anywhere in the world, in any line of
business engaged in (or planned to be engaged in) by XOMA; provided, however, that Employee may purchase
or otherwise acquire up to (but not more than) five percent (5%) of any class of securities
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of any enterprise (but without participating in the activities of such enterprise) if such securities are listed on
any national or regional securities exchange.
3. Term of Employment. The term of Employee’s employment with XOMA shall be the Transition
Period. Consistent with XOMA policy, Employee’s employment relationship with XOMA is at-will.
Accordingly, Employee may resign Employee’s employment with XOMA at any time and for any reason
whatsoever simply by notifying XOMA; and XOMA may terminate Employee’s employment at any time, with
or without Cause (as defined in Section 7(d)) or advance notice, subject to the provisions of Sections 7 and 8.
4. Compensation and Reimbursement of Expenses.
(a)
Compensation. Employee will receive for services to be rendered hereunder a Base Salary
paid at the rate of $725,000 per year, less applicable payroll deductions and withholdings (the “Base
Salary”), paid on XOMA’s ordinary payroll cycle. In addition, starting on January 1, 2022, Employee
will receive a bonus equal to 60% of Base Salary, which will be paid in equal installments on the
Company’s ordinary payroll cycle.
(b)
Equity Awards. Employee has already been granted Stock Awards, which will continue to
be governed by the terms of the applicable stock option and equity incentive award plans or agreements
and grant notices. For purposes of this Agreement, “Stock Awards” shall mean all stock options,
restricted stock and restricted stock units and such other awards granted pursuant to XOMA’s stock
option and equity incentive award plans or agreements and any shares of stock issued upon exercise
thereof. In addition, following the Agreement Effective Date, in accordance with the Company’s option
grant policy, the Company will grant Employee a stock option to purchase 60,000 shares of the
Company’s common stock, subject to the terms of the Company’s equity incentive plan and a vesting
schedule to be set forth in the applicable option award documentation.
(c)
Reimbursement of Expenses. XOMA shall reimburse Employee for all reasonable travel
and other expenses incurred in performing Employee’s obligations under this Agreement in a manner
consistent with XOMA policies.
5. Participation in Benefit Plans. The payments provided in Section 4 are in addition to benefits
Employee is entitled to under any employee benefit plan of XOMA for which Employee is or becomes eligible.
6. Compliance with Proprietary Information Agreement and XOMA Policies. Employee is required to
remain in compliance with the terms of the Employee Confidential Information and Inventions Assignment
Agreement that Employee has previously executed (the “Confidentiality Agreement”). In addition, Employee is
required to abide by XOMA’s policies and procedures (including but not limited to XOMA’s Employee
Handbook), as adopted or modified from time to time within XOMA’s discretion; provided, however, that in the
event the terms of this Agreement differ from or are in conflict with XOMA’s general employment policies or
practices, this Agreement shall control.
7. Termination of Employment.
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(a)
Termination by Employee. As provided in Section 3, Employee may resign Employee’s
employment with XOMA at any time, including for “Good Reason.” For purposes of this Agreement,
Employee shall have “Good Reason” for resignation from employment with XOMA in the event of a
material breach of this Agreement by the Company. In order to resign for Good Reason, Employee must
provide the Company with notice of the material breach giving rise to Good Reason within thirty (30)
days after its occurrence; the Company will then have thirty (30) days to cure; and then Employee must
resign within thirty (30) days after the end of the cure period if the material breach has not been cured.
Employee will not be entitled to the Continuity Incentive set forth in Section 8 if Employee resigns
without Good Reason prior to the Company hiring a new CEO, or December 31, 2022, whichever comes
first. If Employee resigns with Good Reason prior to the Company hiring a new CEO, or December 31,
2022, whichever comes first, then Employee will be entitled to the Continuity Incentive set forth in
Section 8 below, subject to the terms and conditions therein.
(b)
Termination by XOMA Without Cause. Employee may be terminated by XOMA without
Cause, but in such case, Employee shall be entitled to the Continuity Incentive set forth in Section 8
below, subject to the terms and conditions therein. The termination of Employee’s employment upon
the hiring of a new CEO will be deemed a termination without Cause.
(c)
Termination Upon Death or Permanent Disability. Except as required by law and as
provided in Section 8, all benefits and other rights of Employee under this Agreement shall be
terminated by Employee’s death or Permanent Disability. For purposes of this Agreement, “Permanent
Disability” is defined as Employee being incapable of performing duties to XOMA by reason of any
medically determined physical or mental impairment that can be expected to last for a period of more
than six (6) consecutive months from the first date of Employee’s absence due to the disability. XOMA
will give Employee at least four (4) weeks written notice of termination due to such disability. The
Company may terminate Employee’s employment due to death or Permanent Disability, in which case
Employee shall be entitled to the Continuity Incentive benefits set forth in Section 8, subject to the terms
and conditions therein.
(d)
Termination by XOMA for Cause. XOMA may terminate Employee’s employment for
Cause, in which case, Employee will not be entitled to the Continuity Incentive benefits under Section 8.
For purposes of this Agreement, XOMA will have Cause to terminate Employee’s employment as the
result of:
(i)
willful material fraud or material dishonesty in connection with Employee’s
performance under this Agreement;
(ii)
(iii)
(iv)
failure by Employee to materially perform the duties of CEO;
material breach of this Agreement or of XOMA’s Code of Ethics;
misappropriation of a material business opportunity of XOMA;
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(v)
(vi)
a felony.
misappropriation of any XOMA funds or property; or
conviction of, or the entering of a plea of guilty or no contest with respect to,
(e)
Notice and Opportunity to Cure. It shall be a condition precedent to XOMA’s right to
terminate Employee’s employment for the reasons set forth in Sections 7(d)(ii) or (iii) of this Agreement
that (i) XOMA shall first have given Employee written notice stating with specificity the reason for the
termination (“Breach”) and (ii) if such Breach is capable of cure or remedy, Employee will have a period
of thirty (30) days after the notice is given to remedy the Breach.
(f)
Return of XOMA Property. Upon termination of employment for any reason, and as a
precondition to Employee’s receipt of the Continuity Incentive benefits set forth in Section 8, Employee
shall immediately return to XOMA all documents, telephones, computers, keys, credit cards, other
property and records of XOMA, and all copies, within Employee’s possession, custody or control.
(g)
Release of Claims. As a condition of receiving the Continuity Incentive benefits set forth
in Section 8, Employee shall execute and deliver to XOMA a release of claims in favor of XOMA
substantially in the form attached hereto as Exhibit A (the “Release Agreement”) within the timeframe
set forth in the Release Agreement, but not later than forty-five (45) days following Employee’s
Separation Date, and allow the Release Agreement to become effective according to its terms (by not
invoking any legal right to revoke it) within any applicable time period set forth in the Release
Agreement.
8. Continuity Incentive. Subject to Sections 7(f) and 7(g) and Employee’s continued compliance with
all legal and contractual obligations to the Company, upon the termination of Employee’s employment with
XOMA due to a resignation for Good Reason, or as provided in Section 7(b) (Termination without Cause) or
Section 7(c) (Termination due to death or Permanent Disability), Employee shall be entitled to a Continuity
Incentive in the amount of $1,160,000. In addition, if Employee’s resignation for Good Reason or Termination
without Cause is effective before September 30, 2022, then the Continuity Incentive shall be increased to
include the amount of salary and bonus that Employee would have received had he remained employed through
September 30, 2022. This Continuity Incentive will be paid in equal monthly installments over a twelve (12)
month period, starting in January 2023, less deductions and withholdings; provided that, if the Release
Agreement does not become fully effective prior to January 31, 2023, then the first Continuity Incentive
payment will occur on the date the Release Agreement becomes fully effective, and the remaining Continuity
Incentive payments will be made on last day of each calendar month in 2023.
9. Change in Control Benefits. This Transition Agreement shall not affect the terms and conditions of
the Parties’ Amended and Restated Change of Control Severance Agreement, effective as of August 7, 2017
(the “CoC Agreement”), which agreement shall remain in full force and effect. In the event such severance
provisions are triggered, then the provisions of the CoC Agreement providing for severance benefits to
Employee as a result of such termination shall apply in lieu of the provisions of this Agreement, provided that if
the economic benefits to the Employee
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under the CoC are less than those provided in this Agreement, then the economic terms herein shall apply.
10. Binding Agreement. This Agreement shall be binding upon, and inure to the benefit of, the Parties
and their respective permitted successors and assigns.
11. Compliance with Section 409A of the Code.
(a) It is intended that this Agreement will comply with Section 409A of the Code and its
regulations and guidelines (collectively, “Section 409A”), to the extent the Agreement is subject to
Section 409A, and the Agreement shall be interpreted on a basis consistent with such intent. If an
amendment of the Agreement is necessary in order for it to comply with Section 409A, the Parties will
negotiate in good faith to amend the Agreement in a manner that preserves the original intent of the
Parties to the extent reasonably possible. No action or failure to act under this Section 11 shall subject
XOMA to any claim, liability, or expense, and XOMA shall not have any obligation to indemnify or
otherwise protect Employee from the obligation to pay any taxes, interest or penalties under Section
409A.
(b) If Employee is deemed on the date of “separation from service” (under Treas. Reg.
Section 1.409A-1(h)) to be a “specified employee” (under Treas. Reg. Section 1.409A-1(i)), then with
regard to any payment or benefit that is considered deferred compensation under Section 409A of the
Code payable on account of a “separation from service” that is required to be delayed under Section
409A(a)(2)(B) of the Code (after taking into account any applicable exceptions to such requirement),
such payment or benefit shall be made or provided on the earlier of (i) the expiration of the six (6)-
month period measured from the date of Employee’s “separation from service,” or (ii) the date of
Employee’s death (“Delay Period”). Upon expiration of the Delay Period, all payments and benefits
delayed under this Section 11(b) shall be paid or reimbursed to Employee in a lump sum and any
remaining payments and benefits due under this Agreement shall be paid or provided on the payment
dates specified. For purposes of any provision of this Agreement providing for the payment of any
amounts or benefits upon or following a termination of employment, references to Employee’s
“termination of employment” (and corollary terms) shall be construed to refer to Employee’s “separation
from service” (under Treas. Reg. Section 1.409A-1(h)).
(c) With respect to any reimbursement or in-kind benefit arrangements of XOMA and its
subsidiaries that constitute deferred compensation for purposes of Section 409A, except as otherwise
permitted by Section 409A, the following conditions shall be applicable: (A) the amount eligible for
reimbursement, or in-kind benefits provided, under any such arrangement in one calendar year may not
affect the amount eligible for reimbursement, or in-kind benefits to be provided, under such arrangement
in any other calendar year (except that the benefit plans may impose a limit on the amount that may be
reimbursed or paid), (B) any reimbursement must be made on or before the last day of the calendar year
following the calendar year in which the expense was incurred, and (C) the right to reimbursement or in-
kind benefits is not subject to liquidation or exchange for
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another benefit. Whenever payments under this Agreement are to be made in installments, each such
installment shall be deemed to be a separate payment for purposes of Section 409A.
12. Notices. Notices and all other communications contemplated by this Agreement shall be in writing
and shall be deemed to have been duly given upon actual confirmed receipt by mail, courier or email. In the
case of Employee, mailed notices shall be addressed to Employee at the home or personal email address that
Employee most recently communicated to XOMA in writing. In the case of XOMA, mailed notices shall be
addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary.
13. Successors.
(a) XOMA’s Successors. Any successor to XOMA (direct or indirect, by purchase, lease,
merger, amalgamation, consolidation, liquidation or otherwise) to all or substantially all of XOMA’s
business or assets shall assume XOMA’s obligations under this Agreement and agree expressly to
perform XOMA’s obligations under this Agreement in the same manner and to the same extent as
XOMA would be required to perform such obligations in the absence of a succession. For all purposes
under this Agreement, the term “XOMA” shall include any successor to XOMA’s business or assets
which executes and delivers the assumption agreement described in this Section 13(a) or which becomes
bound by the terms of this Agreement by operation of law.
(b) Employee’s Successors. Without the written consent of XOMA, Employee shall not assign
or transfer this Agreement or any right or obligation under this Agreement to any other person or entity.
However, except as otherwise set forth herein, the terms of this Agreement and all rights of Employee
shall inure to the benefit of, and be enforceable by, Employee’s personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and legatees.
14. Amendment of Agreement. Changes in Employee’s employment terms, other than those changes
expressly reserved to XOMA’s or the Board’s discretion in this Agreement, require a written modification
approved by XOMA and signed by Employee and a duly authorized officer of XOMA other than Employee.
15. Waiver. Any party’s failure to enforce any provision or provisions of the Agreement will not in any
way be construed as a waiver of any such provision or provisions, nor prevent any party from thereafter
enforcing each and every other provision of the Agreement. The rights granted to the Parties herein are
cumulative and will not constitute a waiver of any party’s right to assert all other legal remedies available to it
under the circumstances.
16. Severability. In the event any provision of this Agreement is determined to be invalid or
unenforceable, in whole or in part, this determination shall not affect any remaining part of such provision or
any other provision of this Agreement and the provision in question shall be modified so as to be rendered
enforceable in a manner consistent with the intent of the Parties insofar as possible under applicable law.
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17. Governing Law. This Agreement shall be construed and enforced in accordance with the laws of the
State of California without regard to conflicts of law principles. Employee expressly consents to personal
jurisdiction and venue in the state and federal courts for Alameda County, California for any lawsuit filed there
against Employee by XOMA arising from or related to this Agreement.
18. Fees and Costs. The Parties shall each bear their own costs, expert fees, attorneys’ fees and other
fees incurred in connection with this Agreement.
19. Counterparts. This Agreement may be executed in counterparts which shall be deemed to be part of
one original, and facsimile and electronic signatures shall be equivalent to original signatures.
20. Complete Agreement. This Agreement, together with Employee’s Confidentiality Agreement and
the CoC Agreement, forms the complete and exclusive embodiment of the entire agreement between the Parties
with regard to this subject matter, and supersedes and replaces any other agreements or promises made to
Employee by anyone, whether oral or written.
COMPANY:
XOMA CORPORATION
By: /s/ W. Denman Van Ness
W. Denman Van Ness
Chairman of the Board
/s/ James R. Neal
James R. Neal
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EMPLOYEE:
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EXHIBIT A
FORM RELEASE OF CLAIMS AGREEMENT
This Release of Claims Agreement (“Release Agreement”) is entered into between XOMA Corporation
(“XOMA”) and James R. Neal (“Employee”). XOMA and Employee (collectively, the “Parties”) are parties to
an Amended and Restated Employment Agreement (“Transition Agreement”) and agree as follows:
1. Termination. Employee’s employment with XOMA terminated on _________, 20__.
2. Release of Claims. In exchange for the compensation, benefits and other consideration to be
provided to Employee under the Transition Agreement that Employee is not otherwise entitled to receive,
Employee hereby generally and completely releases XOMA and XOMA (US) LLC, and their past and present
officers, agents, directors, employees, investors, shareholders, administrators, partners, attorneys, agents,
insurers, affiliates, divisions, subsidiaries, parents, predecessor and successor corporations, and assigns
(collectively, the “Released Parties”), from, and agrees not to sue or otherwise institute any legal or
administrative proceedings concerning, any and all claims, duties, liabilities, obligations and causes of action,
both known and unknown, that arise out of or are in any way related to events, acts, conduct or omissions
occurring prior to or on the date Employee signs this Release Agreement (collectively, the “Released Claims”).
The Released Claims include but are not limited to:
(a) all claims arising out of or in any way related to Employee’s employment with XOMA or the
termination of that employment;
(b) all claims related to compensation or benefits from XOMA, including salary, bonuses,
commissions, vacation, paid time off, expense reimbursements, severance pay, fringe benefits, stock, stock
options, or any other ownership, equity or profits interests in XOMA (including but not limited to any right to
purchase, or actual purchase, of shares of stock of XOMA);
(c) all claims for breach of contract, wrongful termination and breach of the implied covenant of
good faith and fair dealing;
(d) all tort claims, including claims for fraud, defamation, emotional distress and discharge in
violation of public policy;
(e) all federal, state and local statutory claims, including claims for discrimination, harassment,
retaliation, attorneys’ fees or other claims arising under the Federal Civil Rights Act of 1964, the federal Civil
Rights Act of 1991, the federal Age Discrimination in Employment Act of 1967 (the “ADEA”), the federal
Americans with Disabilities Act of 1990, the federal Fair Labor Standards Act, the federal the Employee
Retirement Income Security Act of 1974, the federal Worker Adjustment and Retraining Notification Act, the
California Fair Employment and Housing Act and the California Labor Code, and all amendments to and
regulations issued under each such statute;
260523219 v5
(f) all claims for violation of the federal or any state constitution;
(g) all claims arising out of any other laws and regulations relating to employment or
employment discrimination; and
(h) all claims for attorneys’ fees and costs.
3. Acknowledgment of Waiver of Claims under ADEA. Employee acknowledges that Employee is
knowingly and voluntarily waiving and releasing any rights Employee may have under the ADEA, and that the
consideration given for the waiver and release in this Section 3 is in addition to anything of value to which
Employee is already entitled. Employee further acknowledges that Employee has been advised, as required by
the ADEA, that: (a) Employee’s waiver and release do not apply to any rights or claims that may arise after the
date Employee signs this Release Agreement; (b) Employee should consult with an attorney prior to signing this
Release Agreement (although Employee may choose voluntarily not to do so); (c) Employee has twenty-one
(21) days to consider this Release Agreement (although Employee may choose voluntarily to sign it earlier);
(d) Employee has seven (7) days following the date Employee signs this Release Agreement to revoke the
Release Agreement (by providing written notice of Employee’s revocation to the Legal Department at XOMA);
and (e) this Release Agreement will not be effective until the date upon which the revocation period has
expired, which will be the eighth (8th) day after the date that this Release Agreement is signed by Employee
provided that Employee does not revoke it (the “Effective Date”).
4. Waiver of Unknown Claims. In giving the releases set forth in this Release Agreement, which
include claims which may be unknown to Employee at present, Employee acknowledges that Employee has
read and understands Section 1542 of the California Civil Code which reads as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO
EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM OR HER WOULD HAVE
MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE
DEBTOR OR RELEASED PARTY.
Employee hereby expressly waives and relinquishes all rights and benefits under that section and any law or
legal principle of similar effect in any jurisdiction with respect to Employee’s release of claims herein,
including but not limited to the release of unknown and unsuspected claims.
5. Excluded Claims. Notwithstanding the foregoing, the following are not included in the Released
Claims (the “Excluded Claims”): (a) any rights or claims for indemnification Employee may have pursuant to
any written indemnification agreement with XOMA to which Employee is a party or under applicable law; (b)
any rights which cannot be waived as a matter of law; (c) any rights Employee has to file or pursue a claim for
workers’ compensation or unemployment insurance; and (d) any claims for breach of the Transition Agreement
or this Release Agreement. In addition, nothing in this Release Agreement prevents Employee from filing,
cooperating
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with or participating in any proceedings before the Equal Employment Opportunity Commission, the
Department of Labor, the California Department of Fair Employment and Housing or any analogous
federal or state government agency, except that Employee acknowledges and agrees that Employee
hereby waives Employee’s right to any monetary benefits in connection with any such claim, charge or
proceeding. Employee represents and warrants that, other than the Excluded Claims, Employee is not aware of
any claims Employee has or might have against any of the Released Parties that are not included in the Released
Claims.
6. Representations. Employee represents that Employee has been paid all compensation owed and for
all time worked; Employee has received all the leave and leave benefits and protections for which Employee is
eligible pursuant to the federal Family and Medical Leave Act, the California Family Rights Act, any applicable
law or XOMA policy; and Employee has not suffered any on the job injury for which Employee has not already
filed a workers’ compensation claim.
7. Nondisparagement. Employee agrees not to disparage XOMA, and XOMA’s officers, directors,
employees, shareholder, members and agents, in any manner likely to be harmful to them or their business,
business reputation or personal reputation. Similarly, Employee understands that XOMA agrees to direct its
directors and officers not to disparage Employee in any manner likely to be harmful to Employee’s business
reputation or personal reputation. Nothing in this provision, however, shall prevent either Employee or XOMA
from responding accurately and fully to any request for information if required by legal process or in connection
with a government investigation. In addition, nothing in this provision or this Release Agreement is intended to
prohibit or restrain Employee in any manner from making disclosures that are protected under the
whistleblower provisions of federal law or regulation or under other applicable law or regulation.
8. No Voluntary Adverse Action. Employee agrees that Employee will not voluntarily provide
assistance, information or advice, directly or indirectly (including through agents or attorneys), to any person or
entity in connection with any proposed or pending litigation, arbitration, administrative claim, cause of action,
or other formal proceeding of any kind brought against XOMA, its parent or subsidiary entities, affiliates,
officers, directors, employees or agents, nor shall Employee induce or encourage any person or entity to bring
any such claims; provided, however, that Employee must respond accurately and truthfully to any question,
inquiry or request for information when required by legal process (e.g., a valid subpoena or other similar
compulsion of law) or as part of a government investigation.
9. Return of XOMA Property; Compliance with Proprietary Information Agreement. Employee
represents that Employee has complied fully with Section 7(g) of the Transition Agreement and the provisions
of Employee’s Employee Confidential Information and Invention Assignment Agreement with XOMA (the
“Confidentiality Agreement”), and further agrees to continue to abide by Employee’s continuing obligations
under the Confidentiality Agreement.
10. Fees and Costs. The Parties shall each bear their own costs, expert fees, attorneys’ fees and other
fees incurred in connection with this Release Agreement.
11. No Representations. Employee represents that Employee has had the opportunity to consult with an
attorney, and has carefully read and understands the scope and effect of the
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provisions of this Release Agreement. Neither Party has relied upon any representations or statements made by
the other Party which are not specifically set forth in this Release Agreement.
12. Severability. In the event any provision of this Release Agreement is determined to be invalid or
unenforceable, in whole or in part, this determination shall not affect any remaining part of such provision or
any other provision of this Release Agreement and the provision in question shall be modified so as to be
rendered enforceable in a manner consistent with the intent of the Parties insofar as possible under applicable
law.
13. Entire Agreement. This Release Agreement, together with the Transition Agreement, forms the
complete and exclusive embodiment of the entire agreement between the Parties with regard to this subject
matter. This Release Agreement may only be modified or amended in a writing signed by Employee and a duly
authorized officer of XOMA other than Employee.
14. Governing Law. This Release Agreement shall be construed and enforced in accordance with the
laws of the State of California without regard to conflicts of law principles. Employee expressly consents to
personal jurisdiction and venue in the state and federal courts for Alameda County, California for any lawsuit
filed there against Employee by XOMA arising from or related to this Release Agreement.
15. Counterparts. This Release Agreement may be executed in counterparts which shall be deemed to
be part of one original, and facsimile and electronic signatures shall be equivalent to original signatures.
COMPANY:
XOMA CORPORATION
By: /s/ XOMA CORPORATION
EMPLOYEE:
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/s/ James R. Neal
James R. Neal
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted
because it is both (i) not material and (ii) is the type that the registrant treats as private or confidential.
EXECUTION COPY
Exhibit 10.48
COMMERCIAL PAYMENT PURCHASE AGREEMENT
dated as of October 6, 2021
between
AFFITECH RESEARCH AS, as Seller,
and
XOMA (US) LLC, as Purchaser
COMMERCIAL PAYMENT PURCHASE AGREEMENT
This COMMERCIAL PAYMENT PURCHASE AGREEMENT (this “Agreement”), dated as of October 6,
2021 (the “Effective Date”), is between AFFITECH RESEARCH AS (formerly known as AFFITECH AS), a
Norwegian company with the organization number 976 567 900, with their office and place of business at
Lillogata SM, 0484 Oslo, Norway (“Seller” or “Assignor”), and XOMA (US) LLC, a Delaware limited
liability company with its principal place of business at 2200 Powell Street, Suite 310, Emeryville, California
94608 (“Purchaser” or “Assignee”).
W I T N E S E T H:
WHEREAS, Seller and its Affiliates (collectively, “Affitech”) on the one hand, and F. Hoffmann-La
Roche Ltd, with an office and place of business at Grenzacherstrasse 124, 4070 Basel, Switzerland (“Roche
Basel”) and Hoffmann-La Roche Inc., with an office and place of business at 150 Clove Road, Suite 8, Little
Falls, New Jersey 07424, U.S.A. (“Roche Little Falls”; Roche Basel and Roche Little Falls together referred to
as “Roche”) on the other hand, were parties to that certain Research and License Agreement effective as of May
4, 2007 (the “Roche License Agreement”), pursuant to which Affitech performed certain research and granted
Roche certain rights and licenses;
WHEREAS, pursuant to that certain Asset Purchase Agreement, effective as of December 14, 2020, by
and between Affitech and Roche (the “Roche APA”), the parties thereto terminated and superseded the Roche
License Agreement, and, among other matters, Affitech sold to Roche certain assets and granted to Roche
certain rights and licenses in exchange for certain payments to be made by Roche to Affitech or its assignee;
WHEREAS, Seller has [*] (as defined in the Roche APA) under the Roche APA and provided written
notice and instructions to Roche as required thereunder and, as a result, is entitled to receive such payments in
the amount of 0.5% of Net Sales of Products, pursuant to and subject to the terms and conditions of the Roche
APA;
WHEREAS, Seller now desires to sell, assign, transfer, convey and grant to Purchaser, free and clear of
all Liens (as defined below), and Purchaser desires to purchase, acquire and accept from Seller, the Purchased
Commercial Payments (as defined below), upon the terms and subject to the conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual agreements, representations and
warranties set forth herein, and of other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto (each a “Party,” and collectively, the “Parties”) covenant and agree as
follows:
ARTICLE I
DEFINED TERMS AND RULES OF CONSTRUCTION
Section 1.1 Defined Terms. The following terms, as used herein, shall have the following respective
meanings. Capitalized terms used but not defined in this Agreement shall have the meaning given to them or
referenced in the Assignment Agreement.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not
material and (ii) is the type that the registrant treats as private or confidential.
1
“Affiliate” means, with respect to any Person, any other Person that, directly or indirectly through one or more
intermediaries, Controls or is Controlled by or is under common Control with such Person.
“Affitech” has the meaning set forth in the recitals.
“Agreement” has the meaning set forth in the preamble.
“Applicable Law” means, with respect to any Person, all laws, rules, regulations and orders of Governmental
Authorities applicable to such Person or any of its properties or assets.
“Assigned Commercial Payments” has the meaning set forth in the Assignment Agreement.
“Assignment Agreement” means the Assignment Agreement executed by Roche, Seller and Purchaser,
substantially in the form attached hereto as Exhibit 1.
“Bankruptcy Event” means the occurrence of any of the following in respect of a Person: (a) an admission in
writing by such Person of its inability to pay its debts generally or a general assignment by such Person for the
benefit of creditors; (b) the filing of any petition or answer by such Person seeking to adjudicate itself as
bankrupt or insolvent, or seeking for itself any liquidation, winding-up, reorganization, arrangement,
adjustment, protection, relief or composition of such Person or its debts under any Applicable Law relating to
bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization, examination, relief of debtors or
other similar Applicable Law now or hereafter in effect, or seeking, consenting to or acquiescing in the entry of
an order for relief in any case under any such Applicable Law, or the appointment of or taking possession by a
receiver, trustee, custodian, liquidator, examiner, assignee, sequestrator or other similar official for such Person
or for any substantial part of its property; (c) corporate or other entity action taken by such Person to authorize
any of the actions set forth in clause (a) or clause (b) above; or (d) without the consent or acquiescence of such
Person, the entering of an order for relief or approving a petition for relief or reorganization or any other
petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or other
similar relief under any present or future bankruptcy, insolvency or similar Applicable Law, or the filing of any
such petition against such Person, or, without the consent or acquiescence of such Person, the entering of an
order appointing a trustee, custodian, receiver or liquidator of such Person or of all or any substantial part of the
property of such Person, in each case where such petition or order shall remain unstayed or shall not have been
stayed or dismissed within ninety (90) days from entry thereof; provided that in the case of an involuntary
petition, such Person has not challenged such petition within ninety (90) days thereof.
“Bill of Sale” means that certain bill of sale dated as of the Closing Date executed by Seller and Purchaser
substantially in the form attached hereto as Exhibit 2.
“Business Day” means any day that is not a Saturday, Sunday or other day on which commercial banks in
California are authorized or required by Applicable Law to remain closed.
“CDA” has the meaning set forth in Section 7.9.
“Closing” has the meaning set forth in Section 2.5.
2
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not
material and (ii) is the type that the registrant treats as private or confidential.
“Closing Date” has the meaning set forth in Section 2.5.
“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the
management or policies of a Person, whether through the ability to exercise voting power, by contract or
otherwise. “Controlling” and “Controlled” have meanings correlative thereto.
“Dollar” or the sign “$” means United States dollars.
“EMA” shall mean the European Medicines Agency and any successor agency thereto.
“Excluded Liabilities and Obligations” has the meaning set forth in Section 2.3.
“FDA” means the U.S. Food and Drug Administration and any successor agency thereto.
“GAAP” means generally accepted accounting principles in effect in the United States from time to time.
“Governmental Authority” means the government of the United States, any other nation or any political
subdivision thereof, whether state or local, and any agency, authority (including supranational authority),
commission, instrumentality, regulatory body, self-regulatory body, court, central bank or other Person
exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or
pertaining to government, including the FDA, the EMA and any other government authority in any jurisdiction.
“Lien” means any security interest, mortgage, pledge, hypothecation, assignment, deposit arrangement,
encumbrance, lien (statutory or otherwise), charge against or interest in property or other priority or preferential
arrangement of any kind or nature whatsoever, in each case to secure payment of a debt or other liability or
performance of an obligation, including any conditional sale or any sale with recourse.
“Net Sales” has the meaning given to it in the Assignment Agreement.
“Party” and “Parties” has the meaning set forth in the preamble.
“Payment Period” has the meaning given to it in the Assignment Agreement.
“Permitted Liens” means any Liens created, permitted or required by the Transaction Documents in favor of
Purchaser or its Affiliates.
“Person” means any natural person, firm, corporation, limited liability company, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, Governmental Authority or any other legal
entity, including public bodies, whether acting in an individual, fiduciary or other capacity.
“Product” has the meaning given to it in the Assignment Agreement.
“Product Approval” means, with respect to the Product for a particular indication, a successful biologics
license application (BLA) or new drug application (NDA) approval by the FDA or
3
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not
material and (ii) is the type that the registrant treats as private or confidential.
marketing authorization application (MAA) grant by the EMA, as applicable, of the Product for such indication,
the official approval of which is required before any lawful commercial sale or marketing of the Product for
such indication.
“Purchase Price” has the meaning set forth in Section 2.2.
“Purchased Commercial Payments” or “Purchased Assets” means all of Seller’s rights under the Roche APA
to receive or obtain:
(a) 0.50% of Nets Sales of all Products during the applicable Payment Period in all countries payable by
Roche pursuant to Section [*] of the Roche APA (a monetary claim (Nw. enkelt pengekrav) under Norwegian
law) and Section [*] of the Assignment Agreement at the times set forth in the Assignment Agreement and all
of Sellers’ entire right to receive payment of all such amounts (including the right to receive [*] under the
Roche APA and the rights assigned to Purchaser pursuant to the Assignment Agreement), in each case, (i)
regardless of how Roche and/or Affitech characterize such payments or consideration and (ii) without
reduction, deduction or other Set-off, including any such reduction, deduction or other Set-off [*] (such as those
relating to [*]), subject to the terms of the Assignment Agreement.
(b) all accounts evidencing the rights to the payments and amounts described in clause (a) above;
(c) all proceeds of any of the foregoing; and
(d) all of Seller’s rights under [*] and [*] of the Roche APA, in each case to the extent pertaining to the
Assigned Commercial Payments including the right to enforce such rights directly against Roche.
“Purchaser” has the meaning set forth in the preamble.
“Purchaser Account” means Purchaser’s deposit account with Silicon Valley Bank which account Purchaser
may change from time to time by furnishing written notice to Roche.
“Roche” has the meaning set forth in the recitals.
“Roche Basel” has the meaning set forth in the recitals.
“Roche Little Falls” has the meaning set forth in the recitals.
“Roche APA” has the meaning set forth in the recitals.
“Roche License Agreement” has the meaning set forth in the recitals.
“SEC” means the U.S. Securities and Exchange Commission.
“Seller” has the meaning set forth in the preamble.
“Seller Account” means the Seller’s account with DB Norway which account Seller may change from time to
time by furnishing written notice to Purchaser.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not
material and (ii) is the type that the registrant treats as private or confidential.
4
“Set-off” means any set-off, off-set, rescission, counterclaim, credit, reduction, or deduction, including any of
the foregoing resulting from Seller’s breach of the Roche License Agreement, Roche APA, or the Assignment
Agreement.
“Tax” or “Taxes” means any federal, state, local or non-U.S. income, gross receipts, license, payroll,
employment, excise, severance, occupation, premium, windfall profits, environmental, customs duties, capital
stock, franchise, profits, withholding, social security, unemployment, disability, real property, personal property,
abandoned property, value added, alternative or add-on minimum, estimated or other tax of any kind
whatsoever, including any interest, penalty or addition thereto, whether disputed or not.
“Third Party” shall mean any Person other than Seller or Purchaser or their respective Affiliates.
“Transaction Documents” means this Agreement, the Settlement Agreement (as defined in the Assignment
Agreement), the Assignment Agreement, the Bill of Sale, and the CDA.
“U.S.” or “United States” means the United States of America, its fifty (50) states, each territory thereof and
the District of Columbia.
Section 1.2 Rules of Construction. Unless the context otherwise requires, in this Agreement:
(a)
A term has the meaning assigned to it, and an accounting term not otherwise defined has
the meaning assigned to it in accordance with GAAP.
(b) Words of the masculine, feminine or neuter gender shall mean and include the correlative
words of other genders.
(c)
The definitions of terms shall apply equally to the singular and plural forms of the terms
defined.
(d)
the phrase “without limitation.”
The terms “include,” “including” and similar terms shall be construed as if followed by
(e)
Unless otherwise specified, references to an agreement or other document include
references to such agreement or document as from time to time amended, restated, reformed, supplemented or
otherwise modified in accordance with the terms thereof (subject to any restrictions on such amendments,
restatements, reformations, supplements or modifications set forth herein or in any of the other Transaction
Documents) and include any annexes, exhibits and schedules attached thereto.
(f)
References to any Applicable Law shall include such Applicable Law as from time to
time in effect, including any amendment, modification, codification, replacement or reenactment thereof or any
substitution therefor.
(g)
References to any Person shall be construed to include such Person’s successors and
permitted assigns (subject to any restrictions on assignment, transfer or delegation
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not
material and (ii) is the type that the registrant treats as private or confidential.
5
set forth herein or in any of the other Transaction Documents), and any reference to a Person in a particular
capacity excludes such Person in other capacities.
(h)
The word “will” shall be construed to have the same meaning and effect as the word
“shall.”
(i)
The words “hereof,” “herein,” “hereunder” and similar terms when used in this
Agreement shall refer to this Agreement as a whole and not to any particular provision hereof, and Article,
Section and Exhibit references herein are references to Articles and Sections of, and Exhibits to, this Agreement
unless otherwise specified.
(j)
In the computation of a period of time from a specified date to a later specified date, the
word “from” means “from and including” and each of the words “to” and “until” means “to but excluding.”
(k) Where any payment is to be made, any funds are to be applied or any calculation is to be
made under this Agreement on a day that is not a Business Day; unless this Agreement otherwise provides, such
payment shall be made, such funds shall be applied and such calculation shall be made on the succeeding
Business Day, and payments shall be adjusted accordingly.
(l)
Any reference herein to a term that is defined by reference to its meaning in the Roche
APA shall refer to such term’s meaning in the Roche APA as in existence on the date hereof.
ARTICLE II
PURCHASE AND SALE OF THE PURCHASED COMMERCIAL PAYMENTS
Section 2.1
Purchase and Sale.
(a)
Subject to the terms and conditions of this Agreement, on the Closing Date, Seller hereby
sells, assigns, transfers and conveys to Purchaser, and Purchaser hereby purchases, acquires and accepts from
Seller, all of Seller’s rights, title and interest in and to the Purchased Commercial Payments, free and clear of
any and all Liens, other than Permitted Liens. Seller and Purchaser intend and agree that the sale, assignment,
transfer and conveyance of the Purchased Commercial Payments under this Agreement shall be, and are, a true,
complete, absolute and irrevocable assignment and sale by Seller to Purchaser of the Purchased Commercial
Payments and that such assignment and sale shall provide Purchaser with the full benefits of ownership and as
purchaser of the Purchased Commercial Payments. Neither Seller nor Purchaser intends the transactions
contemplated under the Transaction Documents to be, or for any purpose to be characterized as, a loan from
Purchaser to Seller or a pledge. Seller waives any right to contest or otherwise assert that this Agreement does
not constitute a true, complete, absolute and irrevocable sale and assignment by Seller to Purchaser of the
Purchased Commercial Payments under Applicable Law, which waiver shall be enforceable against Seller in
any Bankruptcy Event in respect of Seller.
(b)
The Parties further acknowledge and agree that the Purchased Commercial Payments and
the sale, assignment, transfer and conveyance thereof under this Agreement fully
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not
material and (ii) is the type that the registrant treats as private or confidential.
6
comply with and do not violate any Applicable Law and that they will not contest the validity or enforceability
of the Purchased Commercial Payments thereunder. Without limiting the foregoing, each Party represents and
warrants to the other Party that, to the best of its knowledge, all such payment obligations and the sale and
assignment thereof, as contemplated herein and as described in the Assignment Agreement, are fully
enforceable against the Parties and the parties thereto under all such Applicable Law. To the fullest extent
possible under Applicable Law, Seller waives any right to contest or otherwise assert that any such payment
obligations or the sale, assignment, transfer and conveyance of the Purchased Commercial Payments under this
Agreement fail to comply with, violate, or are otherwise unenforceable under Applicable Law, which waiver
shall be enforceable against Seller in any Bankruptcy Event in respect of Seller.
Section 2.2
Purchase Price. In full consideration for the sale, assignment, transfer and conveyance
of the Purchased Commercial Payments, and subject to the terms and conditions set forth herein, Purchaser
shall pay (or cause to be paid) to Seller, or Seller’s designee the following amount(s) (the “Purchase Price”):
(a)
on the Closing Date, the sum of Six Million Dollars ($6,000,000), in immediately
available funds by wire transfer to Seller Account (“Initial Payment”);
(b)
the following one-time milestone payments within [*] Business Days from the first
achievement of the corresponding milestone event specified below (collectively, the “Affitech Milestone
Payments”):
(i)
Product Approvals:
Milestone Event achieved by Roche
Product Approval in the U.S. of the Product for a first (1st)
indication by FDA
[*]
Product Approval in the U.S. of the Product for a second
(2nd) indication by FDA
[*]
Total Affitech Milestone Payments possible under this
Section 2.2(b)(i):
Affitech Milestone Payment
Two million, five hundred thousand
Dollars ($2,500,000 USD)
[*]
Two million, five hundred thousand
Dollars ($2,500,000 USD)
[*]
[*]
(ii)
Sales-Based Milestones: Purchaser shall pay to Seller out of its receipts of the
Assigned Commercial Payments from Roche a one-time, sales-based milestone payment, within [*] Business
Days from the end of the applicable Calendar Year, following the first achievement by Roche of annual Net
Sales of the Product in a given Calendar Year (“Annual Net Sales”) that exceed each of the following
thresholds in such Calendar Year (each, the “Annual Net Sales Threshold”):
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not
material and (ii) is the type that the registrant treats as private or confidential.
7
Annual Net Sales Threshold
First Calendar Year ending on or before [*] in which
Roche’s Annual Net Sales of the Product exceed [*] in such
Calendar Year*
First Calendar Year in which Roche’s Annual Net Sales of
the Product exceed [*] in such Calendar Year
First Calendar Year in which Roche’s Annual Net Sales of
the Product exceed [*] in such Calendar Year
First Calendar Year in which Roche’s Annual Net Sales of
the Product exceed [*] in such Calendar Year
Total Affitech Milestone Payments possible under this
Section 2.2(b)(ii):
Affitech Milestone Payment
[*]
[*]
[*]
[*]
[*]
*If the first Annual Net Sales Threshold set forth in the table above is not achieved in a given Calendar Year
prior to [*], the corresponding first Affitech Milestone Payment of [*] shall terminate and shall not be payable
(regardless of whether the corresponding Annual Net Sales threshold is later achieved), although other Affitech
Milestone Payments set forth above remain eligible to become payable upon achievement of the Annual Net
Sales thresholds corresponding to such other Affitech Milestone Payments as otherwise required in this Section
2.2(b).
For clarity, each of the foregoing Affitech Milestone Payments shall only be paid once, regardless of whether
such Annual Net Sales Threshold is subsequently achieved in a future Calendar Year. In the event that more
than one of the foregoing Annual Net Sales Thresholds is first achieved in a single Calendar Year, then the
corresponding sales-based Affitech Milestone Payment for each such milestone event shall be payable to Seller
hereunder.
Section 2.3 No Assumed Obligations. Notwithstanding any provision in this Agreement or any other
writing to the contrary, Purchaser is purchasing, acquiring and accepting only the Purchased Commercial
Payments and is not assuming any liability or obligation of Seller or any of Seller’s Affiliates of whatever
nature, whether presently in existence or arising or asserted hereafter, whether known or unknown (including
any liability or obligation of Seller under the Roche License Agreement, the Roche APA, or the Assignment
Agreement and any payments required to be made to Third Parties). All such liabilities and obligations shall be
retained by and remain liabilities and obligations of Seller or its Affiliates, as the case may be (the “Excluded
Liabilities and Obligations”).
Section 2.4
Excluded Assets. Purchaser does not, by purchase, acquisition or acceptance of the
rights, title or interest granted hereunder or otherwise pursuant to any of the Transaction Documents, purchase,
acquire or accept any assets or rights, contract or otherwise, of Seller other than the Purchased Commercial
Payments.
Section 2.5 Closing. The closing of the transactions contemplated under this Agreement (the
“Closing”) shall take place remotely simultaneously with the execution and delivery of this
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not
material and (ii) is the type that the registrant treats as private or confidential.
8
Agreement via electronic delivery of the executed Transaction Documents and other deliverables. The date on
which the Closing occurs is referred to herein as the “Closing Date”.
Section 2.6 Closing Deliverables of Seller. At the Closing, Seller shall deliver or cause to be
delivered to Purchaser the following:
(a)
(b)
(c)
this Agreement executed by Seller;
the Bill of Sale executed by Seller;
the Assignment Agreement duly executed by Roche and Seller;
Section 2.7 Closing Deliverables of Purchaser. At the Closing, Purchaser shall execute and deliver
or cause to be delivered to Seller the following:
(a)
(b)
(c)
(d)
this Agreement executed by Purchaser;
the Bill of Sale executed by Purchaser;
the Assignment Agreement duly executed by Purchaser; and
the Initial Payment in accordance with Section 2.2(a).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Purchaser as follows:
Section 3.1 Organization. Seller is a corporation duly organized, validly existing and in good
standing under the laws of Norway and has all necessary power and authority, and all licenses, permits,
franchises, authorizations, consents and approvals, required to own its property and conduct its business as now
conducted and to exercise its rights and to perform its obligations under the Roche APA and the Transaction
Documents. Seller is duly qualified to transact business and is in good standing in each jurisdiction in which
such qualification or good standing is required by Applicable Law.
Section 3.2
Solvency. Seller has determined that, and by virtue of its entering into the transactions
contemplated by the Transaction Documents and its authorization, execution and delivery of the Transaction
Documents, Seller’s incurrence of any liability hereunder or thereunder or contemplated hereby or thereby is in
its own best interests. Upon consummation of the transactions contemplated by the Transaction Documents and
the application of the proceeds therefrom, (a) the present fair saleable value of Seller’s property and assets will
be greater than the sum of its debts, liabilities and other obligations, including contingent liabilities; (b) the
present fair saleable value of Seller’s property and assets will be greater than the amount that would be required
to pay its probable liabilities on its existing debts, liabilities and other obligations, including contingent
liabilities, as they become absolute and matured; (c) Seller will be able to realize upon its assets and pay its
debts, liabilities and other obligations, including contingent liabilities, as they mature; (d) Seller will not be
rendered insolvent, will not have unreasonably
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not
material and (ii) is the type that the registrant treats as private or confidential.
9
small capital with which to engage in its business and will not be unable to pay its debts as they mature; (e)
Seller has not incurred, will not incur and does not have any present plans or intentions to incur debts, liabilities
or other obligations beyond its ability to pay such debts, liabilities or other obligations as they become absolute
and matured; (f) Seller will not have become subject to any Bankruptcy Event; (g) after the Closing, Seller will
have enough capital to operate its business for at least one (1) year following the Closing; and (h) Seller will not
have been rendered insolvent within the meaning of Section 101(32) of Title 11 of the United States Code. No
step has been taken or is intended by Seller or, to the knowledge of Seller, any other Person to make Seller
subject to a Bankruptcy Event,
Section 3.3
Taxes; No Liens or Conflicts. Seller has paid all Taxes required to be paid by it, except
for any such Taxes that are not yet due or delinquent, and there are no unpaid Taxes or other amounts due by
Seller to any taxing authority. There are no Liens for Taxes upon the Purchased Commercial Payments or any of
Seller’s assets. Without limiting the foregoing, the Purchased Commercial Payments are free and clear of all
Liens (other than Permitted Liens), and upon the sale, assignment, transfer and conveyance by Seller of the
Purchased Commercial Payments to Purchaser, Purchaser shall acquire good, valid and marketable title to and
rights as owner of the Purchased Commercial Payments free and clear of all Liens (other than Permitted Liens).
None of the execution and delivery by Seller of any of the Transaction Documents, the performance by Seller of
the obligations contemplated hereby or thereby or the consummation of the transactions contemplated by this
Agreement or any of the other Transaction Documents will contravene, conflict with, result in a breach,
violation, cancellation or termination of, constitute a default, give any Person the right to exercise any remedy
or obtain any additional rights under any term or provision of (a) any contract, agreement, commitment, or
obligation to which Seller or any of its Affiliates is a party or by which Seller or any of its Affiliates or any of
their respective assets or properties is bound or committed or (b) any of the organizational documents of Seller.
Section 3.4 Roche APA. Neither Seller, and to the knowledge of Seller, nor Roche are in breach or
violation of or in default under or have previously been in breach or violation of or in default under, the Roche
APA. Nothing in the redacted portions of the Roche APA will adversely affect the Purchaser’s right to receive
the Assigned Commercial Payments. Seller has not received or sent any notice (i) regarding the termination,
breach, default or violation of, or the intention to terminate, breach, default, or violate, the Roche APA, in whole
or in part, (ii) that any event has occurred that, with notice or the passage of time or both, would constitute a
default under the Roche APA, (iii) challenging the legality, validity or enforceability of the Roche APA or
Roche’s obligation [*] thereunder, or (iv) asserting that Seller or Roche is in default of their obligations
thereunder. To the knowledge of Seller, no event has occurred that, with notice or the passage of time or both,
would (1) give Roche the right to refuse to [*] thereunder, (2) give Roche or Seller the right to terminate the
Roche APA, or (3) constitute or give rise to any breach or default in the performance of the Roche APA by
Seller or Roche. Without limiting the foregoing, Seller has completed [*] under the Roche APA and the Roche
License Agreement and has fully complied with all such obligations under the Roche APA and the Roche
License Agreement, including (A) completing [*] (as defined in the Roche APA) under Section [*] of the Roche
APA, (B) providing [*] in connection with the [*], providing [*] relating to [*] and [*] as required under Section
[*] of the Roche APA, (C) completing [*] (as defined in the Roche APA) and [*] as required under Section [*]
of the Roche APA. Seller has [*] and provided proper and timely notice and instructions to Roche [*] and [*],
in each instance, consistent with the terms and conditions of the
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not
material and (ii) is the type that the registrant treats as private or confidential.
10
Roche APA, including Section [*] thereof. For the avoidance of doubt, Purchaser acknowledges that the
Assigned Commercial Payments, and Roche’s obligations to make such payments, are subject to the terms and
conditions of the Roche APA and the Assignment Agreement. For example, Roche may (i) cease the
development and/or commercial activities with regard to the Product, and/or (ii) not make a filing of a BLA for
the Product or (iii) not launch the Product, in which case the Assigned Commercial Payments would not accrue.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller as of the date hereof as follows:
Section 4.1 Organization. Purchaser is a limited liability company, duly organized, validly existing
and in good standing under the laws of the State of Delaware, and has all necessary powers and authority, and
all licenses, permits, franchises, authorizations, consents and approvals of all Governmental Authorities,
required to own its property and conduct its business as now conducted and to exercise its rights and to perform
its obligations under the Transaction Documents. Purchaser is duly qualified to transact business and is in good
standing in each jurisdiction in which such qualification or good standing is required by Applicable Law.
Section 4.2
Solvency. Purchaser has determined that, and by virtue of its entering into the
transactions contemplated by the Transaction Documents and its authorization, execution and delivery of the
Transaction Documents, Purchaser’s incurrence of any liability hereunder or thereunder or contemplated hereby
or thereby is in its own best interests. Prior to and upon consummation of the transactions contemplated by the
Transaction Documents and the application of the proceeds therefrom, (a) the present fair saleable value of
Purchaser’s property and assets will be greater than the sum of its debts, liabilities and other obligations; (b) the
present fair saleable value of Purchaser’s property and assets will be greater than the amount that would be
required to pay its probable liabilities on its existing debts, liabilities and other obligations, as they become
absolute and matured; (c) Purchaser will be able to realize upon its assets and pay its debts, liabilities and other
obligations, as they mature; (d) Purchaser will not be rendered insolvent and will not be unable to pay its debts
as they mature; (e) Purchaser has not incurred, will not incur and does not have any present plans or intentions
to incur debts, liabilities or other obligations beyond its ability to pay such debts, liabilities or other obligations
as they become absolute and matured; (f) Purchaser will not have become subject to any Bankruptcy Event; (g)
after the Closing, Purchaser will have enough capital to operate its business for at least one (1) year following
the Closing; and (h) Seller will not have been rendered insolvent within the meaning of Section 101(32) of Title
11 of the United States Code. No step has been taken or is intended by Purchaser or, to the knowledge of
Purchaser, any other Person to make Purchaser subject to a Bankruptcy Event.
Section 4.3 No Conflicts. None of the execution and delivery by Purchaser of any of the Transaction
Documents, the performance by Purchaser of the obligations contemplated hereby or thereby or the
consummation of the transactions contemplated by this Agreement or any of the other Transaction Documents
will contravene, conflict with, result in a breach, violation,
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not
material and (ii) is the type that the registrant treats as private or confidential.
11
cancellation or termination of, constitute a default, give any Person the right to exercise any remedy or obtain
any additional rights under any term or provision of (a) any contract, agreement, commitment, or obligation to
which Purchaser or any of its Affiliates is a party or by which Purchaser or any of its Affiliates or any of their
respective assets or properties is bound or committed or (b) any of the organizational documents of Purchaser.
Section 4.4 No Broker. There is no broker, finder, investment banker, financial advisor or other
Person acting or who has acted on behalf of Purchaser or its Affiliates, who is entitled to receive any brokerage,
finder’s or financial advisory fee from Seller or any of its Affiliates in connection with the transactions
contemplated by this Agreement.
ARTICLE V
COVENANTS
The Parties covenant and agree as follows:
Section 5.1 Commercially Reasonable Efforts; Further Assurances.
(a)
Subject to the terms and conditions of this Agreement, each Party will use commercially
reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary to
consummate the transactions contemplated by the Transaction Documents to which Seller or Purchaser, as
applicable, is party, including to (i) effect the sale, assignment, transfer and conveyance of the Purchased
Commercial Payments to Purchaser pursuant to this Agreement, (ii) execute and deliver such other documents,
certificates, instruments, agreements and other writings and to take such other actions as may be necessary or
desirable, or reasonably requested by the other Party, in order to consummate or implement expeditiously the
transactions contemplated by any Transaction Document to which Seller or Purchaser, as applicable, is party,
and (iii) enable the other Party to exercise or enforce any of its rights under the Transaction Documents.
(b)
Each Party shall comply with all Applicable Laws with respect to the Transaction
Documents, their respective performance thereunder and the transactions pursuant thereto.
(c)
Neither Party shall enter into any contract, agreement or other legally binding
arrangement (whether written or oral), or grant any right to any other Person, in each case that would (i) conflict
with the Transaction Documents or the assignments made, rights granted or obligations to be performed by it
thereunder, (ii) impair the other Party’s ability to perform its obligations under the Transaction Documents, or
(iii) serve or operate to limit, circumscribe or impair any of the other Party’s rights under the Transaction
Documents (or the other Party’s ability to exercise any such rights).
Section 5.2 Non-Impairment of Purchaser’s Rights. Seller shall not, without the prior written
consent of Purchaser, (i) forgive, release or reduce any amount, or delay or postpone any amount, owed to
Seller or Purchaser relating to the Purchased Commercial Payments or take any action inconsistent with or that
otherwise impairs any right of Purchaser to receive the full benefit and payment in full of the Purchased
Commercial Payments as contemplated herein or as otherwise contemplated in the Assignment Agreement
(including to perform and comply in all respects with
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not
material and (ii) is the type that the registrant treats as private or confidential.
12
its duties and obligations under the Roche APA), (ii) waive, amend, cancel, terminate or fail to terminate any
material rights constituting or relating to the Purchased Commercial Payments, nor (iii) withhold any consent,
grant any consent, exercise or waive (or fail to exercise or waive) any right or option, send (or refrain from
sending) any notice, or take or fail to take any action in respect of, affecting or relating to the Purchased
Commercial Payments.
Section 5.3
Existence. Seller shall (a) preserve and maintain its existence, (b) preserve and maintain
its rights, franchises and privileges, and (c) qualify and remain qualified in good standing in each jurisdiction in
which it is organized or qualified to do business for at least [*] following the Closing.
ARTICLE VI
PAYMENTS; DAMAGES
Section 6.1
Payments.
(a)
General.
(i)
In accordance with this Agreement and the Assignment Agreement, Purchaser has
the right to directly receive all Purchased Commercial Payments to the Purchaser Account. Without limiting the
foregoing, the Parties intend that Seller and Roche shall follow the payment instructions set forth in the
Assignment Agreement.
(ii)
Upon execution of the Assignment Agreement, Purchaser will be solely
responsible to collect payment of the Purchased Commercial Payments from the payor pursuant to the
Assignment Agreement. Without limiting the foregoing, other than Seller’s performance of its obligations
under this Agreement and the Assignment Agreement, Seller has no obligation with respect to the payment or
non-payment of the Purchased Commercial Payments to Purchaser by Roche, and Purchaser understands that
the accrual of the Purchased Commercial Payments are subject to the conditions set forth in the Roche APA and
the Assignment Agreement, as applicable.
this Agreement by wire transfer of immediately available funds.
(iii)
Purchaser shall make all payments required to be made by it to Seller pursuant to
(iv)
Purchaser shall be entitled to deduct and withhold from any consideration payable
pursuant to this Agreement such amounts as it is required to deduct and withhold with respect to the making of
such payment under any Applicable Law relating to Tax. To the extent that any amounts are so deducted and
withheld and paid over to or deposited with the relevant Governmental Authority, such withheld amounts shall
be treated for all purposes of this Agreement as having been paid to Seller in respect to which such deduction
and withholding were made; provided that Purchaser must (1) promptly furnish to Seller evidence of any and all
such amounts withheld and/or deducted and payments thereof and (2) provide full cooperation with Seller to
reduce or avoid any withholding.
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not
material and (ii) is the type that the registrant treats as private or confidential.
13
(b)
Erroneous Payments.
(i)
If Roche or any other Person (notwithstanding the terms of the Assignment
Agreement (as applicable) or any other payment instructions specified by Purchaser from time to time) makes
any payment in respect of the Purchased Commercial Payments that is owed to Purchaser as a Purchased
Commercial Payment hereunder, to Seller (or to any of its Affiliates) instead of to Purchaser, then (1) Seller
shall hold (or cause such Affiliate to hold) such payment in trust for the sole benefit of Purchaser; (2) Seller (or
such Affiliate) shall have no right, title or interest whatsoever in such payment and shall not create or suffer to
exist any Lien thereon; and (3) Seller (or such Affiliate) promptly, and in any event no later than [*] Business
Days following the receipt by Seller (or such Affiliate) of such payment, shall remit, or cause to be remitted, an
amount equal to such payment to the Purchaser Account, without Set-off, by wire transfer of immediately
available funds, in the exact form received with all necessary endorsements.
(ii)
If Roche takes (1) any Set-off in full or partial satisfaction of a judgment against
Seller or a settlement with Seller, (2) any Set-off resulting from Seller’s breach of the Roche APA or this
Agreement for which Roche may otherwise be entitled to take or claim based on Seller’s breach of the Roche
APA, or the Assignment Agreement, as applicable, or (3) any other Set-off based on other amounts Seller
allegedly owes Roche, in any case where such Set-off has the effect of reducing the amount of any Commercial
Payment otherwise required to be paid by Roche to Purchaser pursuant to the Assignment Agreement, then,
without limiting any other rights or remedies of Purchaser, Purchaser shall have the right to credit and set-off
against any Affitech Milestone Payments otherwise payable under Section 2.2 the amount of any such Set-off
taken by Roche.
(iii)
If Seller fails to timely comply with its obligations under the foregoing clause (i),
then all amounts not timely paid by the due date provided therein shall accrue interest from and including the
date such amount was due through but excluding the date such payment in full (together with all interest
thereon) is made to Purchaser, at a rate, calculated on a 365-day or 366-day basis, as applicable, equal to the
then-current prime rate of interest quoted in the Money Rates section of the on-line edition of the Wall Street
Journal (at http://www.markets.wsj.com) plus [*], compounded annually, not to exceed the maximum interest
that may be charged under Applicable Law.
(c)
Seller shall not attempt to revoke, amend, modify, supplement, restate, waive, cancel or
terminate the executed Assignment Agreement or the Roche APA without the prior written consent of
Purchaser.
ARTICLE VII
MISCELLANEOUS
Section 7.1
Termination. This Agreement shall terminate six (6) months following the full payment
and satisfaction of any amounts due to the Purchaser under the Roche APA, the Assignment Agreement and this
Agreement and receipt by Purchaser of all payments of the Purchased Commercial Payments to which it is
entitled pursuant to the terms of this Agreement. In the event of the termination of this Agreement pursuant to
this Section 7.1, this Agreement shall
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not
material and (ii) is the type that the registrant treats as private or confidential.
14
become void and of no further force and effect, except for those rights and obligations that have accrued prior to
the date of such termination or relate to any period prior thereto, including the payment in accordance with the
terms hereof of the Purchased Commercial Payments or other monetary payment on account of the Purchased
Commercial Payments, or remain outstanding pursuant to the terms of this Agreement. Notwithstanding the
foregoing, (a) Article I, Section 5.3, Article VI, and Article VII shall survive such termination; and (b) other
than with respect to the surviving provisions enumerated in clause (a), there shall be no liability on the part of
any Party, any of its Affiliates or Controlling Persons or any of their respective officers, directors, equity-
holders, debtholders, members, partners, Controlling Persons, managers, agents or employees, other than as
provided for in this Section 7.1. Nothing contained in this Section 7.1 shall relieve any Party from liability for
any breach of this Agreement that occurs prior to such termination, which liability shall survive such
termination.
Section 7.2
Survival. All representations, warranties and covenants made herein and in any other
Transaction Document or any certificate or other written documentation delivered pursuant thereto shall survive
the Closing and shall continue in full force and effect, and any Party shall be entitled to recover any losses
related thereto until the termination of this Agreement pursuant to Section 7.1 hereof.
Section 7.3
Specific Performance; Equitable Relief. Each of the Parties acknowledges that the
other Party will have no adequate remedy at law if it fails to perform any of its obligations under any of the
Transaction Documents. In such event, each of the Parties agrees that the other Party shall have the right, in
addition to any other rights it may have (whether at law or in equity), to specific performance of this Agreement
and to pursue any other equitable remedies including injunction. Each of the Parties may pursue such specific
performance or other equitable remedies without going through any of the procedures set forth in Article VI.
Section 7.4 Notices. All notices, consents, waivers and other communications hereunder shall be in
writing and shall be effective (a) upon receipt when sent through registered, certified or first-class mail, return
receipt requested, postage prepaid, with such receipt to be effective the date of delivery indicated on the return
receipt, (b) upon receipt when sent by an overnight courier, (c) on the date personally delivered to an authorized
officer of the Party to which sent, or (d) on the date transmitted by facsimile or other electronic transmission
with a confirmation of receipt, in each case confirmed in writing as above with a copy emailed and addressed to
the recipient as follows:
if to Seller, to:
Affitech Research AS
Lillogata 5M
0484 Oslo
Norway
Attn: Managing Director
Email: [*]
with a copy to (which shall not constitute notice):
15
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) is the type that the registrant
treats as private or confidential.
Actigen Ltd
St. John’s Innovation Centre
Cowley Road, Cambridge
CB4 0WS
United Kingdom
Attn: Managing Director
if to Purchaser, to:
XOMA (US) LLC
2200 Powell Street, Suite 310
Emeryville, CA 94608
Attention: Legal Department
Telephone: [*]
Facsimile: [*]
Email: [*]
with a copy to (which shall not constitute notice):
Paul Hastings LLP
4747 Executive Drive
Twelfth Floor
San Diego, CA 92121
Attention: Deyan Spiridonov
Telephone: (858) 458-3000
Email: spiri@paulhastings.com
Each Party may, by notice given in accordance herewith to the other Party,
designate any further or different address to which subsequent notices, consents,
waivers and other communications shall be sent.
Section 7.5
Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the Parties and their respective
successors and permitted assigns. Except as set forth in the penultimate sentence of
this Section 7.5, Seller shall not be entitled to transfer or assign (including by merger,
consolidation, operation of law or otherwise) any of Seller’s obligations and rights
under this Agreement, without the written consent of the Purchaser. Purchaser may
assign any of its rights to receive the Purchased Commercial Payments hereunder, in
whole or in part, to any Third Party, subject to the terms of the Assignment
Agreement. Purchaser shall give notice of any such assignment to Seller promptly
after the occurrence thereof. Notwithstanding the foregoing, either Party may, except
that in the case of Seller not before the first anniversary of the Effective Date, without
the written consent of the other, assign this Agreement and its rights and delegate its
obligations hereunder to (1) an Affiliate or (2) an entity that acquires all or
substantially all of the business or assets of the assigning party to which this
Agreement pertains in connection with (i) the transfer or sale of all or substantially all
of its business, or (ii) in the event of its merger, consolidation, change in control or
similar transaction, in the case of each of (i) and (ii), if and only if any such permitted
assignee assumes
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not
material and (ii) is the type that the registrant treats as private or confidential.
16
unconditionally in a written document all obligations of its assignor under this
Agreement and delivers to the non-assigning Party such written document at least [*]
Business Days prior to the consummation of the applicable transaction. Any
purported assignment in violation of this Section 7.5 shall be null and void ab initio.
Section 7.6 Nature of Relationship. The relationship between Seller and
Purchaser is solely that of seller and purchaser, and neither Seller nor Purchaser has
any fiduciary or other special relationship with the other Party or any of its Affiliates.
Nothing contained herein or in any other Transaction Document shall be deemed to
constitute Seller and Purchaser as a partnership, an association, a joint venture or any
other kind of entity or legal form for any purposes, including any Tax purposes. The
Parties agree that they shall not take any inconsistent position with respect to such
treatment in any filing with any Governmental Authority.
Section 7.7
together with
the
Entire Agreement. This Agreement,
Exhibits hereto (which are incorporated herein by reference), the CDA, and the other
Transaction Documents constitute the entire agreement between the Parties with
respect to the subject matter hereof and supersede all prior agreements (except for the
CDA), understandings and negotiations, both written and oral, between the Parties
with respect to the subject matter of this Agreement. No representation, inducement,
promise, understanding, condition or warranty not set forth herein (or in the Exhibits
hereto or the other Transaction Documents) has been made or relied upon by either
Party. Neither this Agreement nor any provision hereof is intended to confer upon
any Person other than the Parties and the other Persons referenced in Article VI any
rights or remedies hereunder.
Section 7.8 Governing Law.
(a)
THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL SUBSTANTIVE
LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO THE
RULES THEREOF RELATING TO CONFLICTS OF LAW, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
(b)
Each of the Parties hereby irrevocably and unconditionally
submits, for itself and its property, to the exclusive jurisdiction of a court with
applicable jurisdiction located in the Southern District of New York located in the
Borough of Manhattan, and any appellate court from any thereof, in any action or
proceeding arising out of or relating to this Agreement, or for recognition or
enforcement of any judgment, and each of the Parties hereby irrevocably and
unconditionally agrees that all claims in respect of any such action or proceeding may
be heard and determined in such court located in the Southern District of New York
in the Borough of Manhattan. Each of the Parties agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by Applicable
Law.
(c)
Each of the Parties hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any objection that it
may now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement in any court referred to in this Section 7.8.
Each of the Parties hereby irrevocably waives, to the
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not
material and (ii) is the type that the registrant treats as private or confidential.
17
fullest extent permitted by Applicable Law, the defense of an inconvenient forum to
the maintenance of such action or proceeding in any such court.
(d)
Each of the Parties irrevocably consents to service of process
in the manner provided for notices in Section 7.4. Nothing in this Agreement will
affect the right of any Party to serve process in any other manner permitted by
Applicable Law.
Section 7.9 Confidentiality. All Confidential Information (as defined in
that certain Mutual Confidentiality Agreement, effective as of [*], by and between
the Parties (the “CDA”)) exchanged by the Parties for purposes of fulfilling this
Agreement, shall remain in the ownership of the originating Party, shall be
considered and be maintained as Confidential Information as specified in the CDA,
the terms and conditions of which are hereby incorporated herein by reference in their
entirety and made part of this Agreement. The Parties agree that the Parties are and
shall be subject to the terms and conditions of the CDA as applied to all such
Confidential Information exchanged by the Parties for purposes of fulfilling this
Agreement, which terms and conditions shall continue to apply hereunder and run
concurrently with the term of this Agreement and for a period of [*] years thereafter.
Notwithstanding the foregoing, the terms and conditions of the CDA as incorporated
herein are expressly amended to further include the obligation to use Confidential
Information only for the purpose of fulfilling obligations hereunder, and shall not
otherwise be used for the benefit of the Party receiving Confidential Information or
for the benefit of a Third Party without prior written approval from the Party
disclosing the Confidential Information.
Section 7.10 Severability. If one or more provisions of this Agreement are
held to be invalid, illegal or unenforceable by a court of competent jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision of this
Agreement, which shall remain in full force and effect, and the Parties shall replace
such invalid, illegal or unenforceable provision with a new provision permitted by
Applicable Law and having an economic effect as close as possible to the invalid,
illegal or unenforceable provision. Any provision of this Agreement held invalid,
illegal or unenforceable only in part or degree by a court of competent jurisdiction
shall remain in full force and effect to the extent not held invalid, illegal or
unenforceable.
Section 7.11 Counterparts. This Agreement may be signed in any number
of counterparts, each of which shall be deemed an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument. This Agreement
shall become effective when each Party shall have received a counterpart hereof
signed by the other Party. Any counterpart may be executed by facsimile or other
electronic transmission, and such facsimile or other electronic transmission shall be
deemed an original.
Section 7.12 Amendments; No Waivers. Neither this Agreement nor any
term or provision hereof may be amended, supplemented, restated, waived, changed
or modified except with the written consent of the Parties. No failure or delay by
either Party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege. No
notice to or demand on either Party in any case shall entitle it to any notice or
demand in similar or other circumstances. No waiver or approval hereunder shall,
except as may otherwise be stated in such waiver or approval, be applicable to
subsequent transactions. No
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not
material and (ii) is the type that the registrant treats as private or confidential.
18
waiver or approval hereunder shall require any similar or dissimilar waiver or
approval thereafter to be granted hereunder.
Section 7.13 Cumulative Remedies. The remedies herein provided are
cumulative and not exclusive of any remedies provided by Applicable Law.
Section 7.14 Table of Contents and Headings. The Table of Contents and
headings of the Articles and Sections of this Agreement have been inserted for
convenience of reference only, are not to be considered a part hereof and shall in no
way modify or restrict any of the terms or provisions hereof.
Section 7.15 No Presumption Against Drafting Party. Each of the Parties
acknowledges that each Party to this Agreement has been represented by counsel in
connection with this Agreement and the transactions contemplated by this
Agreement. Accordingly, any rule of law or any legal decision that would require
interpretation of any claimed ambiguities in this Agreement or any other Transaction
Document against the drafting party has no application and is expressly waived.
[SIGNATURE PAGE FOLLOWS]
19
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not
material and (ii) is the type that the registrant treats as private or confidential.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
Effective Date.
AFFITECH RESEARCH AS
/s/ Michael Braunagel
By:
Name: Michael Braunagel
Title: Managing Director
XOMA (US) LLC
/s/ Jim Neal
By:
Name: Jim Neal
Title: Chief Executive Officer
Exhibit List
Exhibit A: Form of Assignment Agreement
Exhibit B: Bill of Sale
Exhibit C: Roche APA
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not
material and (ii) is the type that the registrant treats as private or confidential.
Subsidiaries of the Company
XOMA Technology Ltd.
XOMA (US) LLC
XOMA UK Limited
Jurisdiction of Organization
Bermuda
Delaware
United Kingdom
Exhibit 21.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements (Nos. 333-151416, 333-171429, 333-174730, 333-181849, 333-198719, 333-204367, 333-
212238, 333-218378 and 333-232398) on Form S-8 pertaining to the Amended and Restated 2010 Long Term Incentive and Stock Award Plan and the Amended 2015
Employee Stock Purchase Plan of XOMA Corporation and in the Registration Statement (No. 333- 223493) on Form S-3 of our report dated March 8, 2022, relating to
the consolidated financial statements of XOMA Corporation, appearing in this Annual Report on Form 10-K for the year ended December 31, 2021.
Exhibit 23.1
/s/ Deloitte & Touche LLP
San Francisco, California
March 8, 2022
Exhibit 31.1
I, James R. Neal, certify that:
1. I have reviewed this annual report on Form 10-K of XOMA Corporation;
Certification
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f))) for the registrant and we have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles.
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent
function):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: March 8, 2022
/s/ JAMES R. NEAL
James R. Neal
Chief Executive Officer and Chairman of the Board of
Directors
Exhibit 31.2
I, Thomas Burns, certify that:
1. I have reviewed this annual report on Form 10-K of XOMA Corporation;
Certification
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f))) for the registrant and we have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles.
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent
function):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: March 8, 2022
/s/ THOMAS BURNS
Thomas Burns
Senior Vice President, Finance and Chief Financial Officer
CERTIFICATION
Exhibit 32.1
Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)
and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), James R. Neal, Chief Executive Officer and
Chairman of the Board of Directors of XOMA Corporation (the “Company”), and Thomas Burns, Senior Vice President, Finance and
Chief Financial Officer of the Company, each hereby certifies that, to the best of his or her knowledge:
1. The Company’s Annual Report on Form 10-K for the year ended December 31, 2021, to which this Certification is attached
as Exhibit 32.1, fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act; and
2. The information contained in Exhibit 32.1 fairly presents, in all material respects, the financial condition and results of
operations of the Company.
IN WITNESS WHEREOF, the undersigned have set their hands hereto as of the 8th day of March, 2022
/s/ JAMES R. NEAL
James R. Neal
Chief Executive Officer and Chairman of the Board of Directors
/s/ THOMAS BURNS
Thomas Burns
Senior Vice President, Finance and Chief Financial Officer
3. This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange
Commission and is not to be incorporated by reference into any filing of XOMA Corporation under the Securities Act of
1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form
10-K), irrespective of any general incorporation language contained in such filing.