XOMA

XOMA($XOMA) Investment Dilemma: 968% Revenue Surge Amid Major Shareholder's $27.6M Sell-Off

07/02/2025 20:36

XOMA Royalty Corporation ($XOMA) is sending mixed signals to investors, presenting a complex investment case that demands careful analysis. The biotech royalty aggregator has delivered explosive revenue growth of 968% year-over-year while simultaneously witnessing significant share disposals by its major shareholder, creating a puzzling dynamic for market participants. Headquartered in Emeryville, California, XOMA operates a unique business model focused on acquiring milestone and royalty rights from biotech drug candidates. Rebranded as XOMA Royalty Corporation in July 2024, the company has expanded its portfolio to over 120 assets while maintaining a lean workforce of just 13 employees. The recent June 27 announcement of the Turnstone Biologics acquisition agreement demonstrates the company's aggressive expansion strategy. The standout feature is XOMA's remarkable revenue acceleration. Q1 2025 revenue surged 968% year-over-year to $15.9 million, with trailing twelve-month revenue reaching $42.91 million. This dramatically exceeded analyst expectations, suggesting the company's royalty portfolio has entered a meaningful revenue-generating phase. Notable milestones include an $8.1 million payment related to Day One Biopharmaceuticals' priority review voucher sale, demonstrating concrete monetization of portfolio assets. However, insider trading patterns reveal concerning signals that investors cannot ignore. Major shareholder BVF Partners L.P. has conducted two substantial sell-offs totaling $27.6 million this year. In January, the firm disposed of 650,717 shares for $16.98 million, followed by another 392,723 shares for $10.64 million in May. This represents significant stake reduction despite the company's impressive operational improvements. Conversely, management exhibits the opposite behavior. Chief Investment Officer Bradley Sitko has been consistently purchasing shares throughout the year, most recently acquiring 2,000 shares for $50,780 on June 30. His purchase prices typically range in the mid-$20s, suggesting confidence in current valuations around $26.34. SVP Thomas Burns also purchased 1,000 shares in April, reinforcing management's conviction in the company's prospects. This contrasting activity reflects XOMA's current financial paradox. The company maintains strong liquidity with $92.65 million in cash and healthy operating margins of 37.26%, yet continues posting net losses of $8.62 million. More concerning is the debt-to-equity ratio of 135%, substantially exceeding the typical 40% safety threshold. Total debt of $114.45 million surpasses cash holdings, requiring ongoing financial monitoring. XOMA's stock price began the year around $26, plummeted to $18-20 during February-April, then recovered starting in May. The current $26.34 level represents a return to early-year levels, driven by Q1 earnings surprises and portfolio expansion announcements. However, major shareholder selling appears to be capping upside momentum. Analyst sentiment remains constructive with a consensus 'buy' rating and $55 price target, implying over 100% upside potential. Projections suggest profitability by 2026 with expected annual revenue growth of 31-34% over the next three years, significantly outpacing the 21-23% biotech industry average. The path to profitability hinges on sustaining current growth trajectories while managing operational expenses. Key upcoming catalysts include Q2 earnings scheduled for August 12-15, where revenue momentum continuation and profitability progress will be closely scrutinized. The Turnstone Biologics acquisition completion and mezagitamab royalty rights acquisition worth up to $30 million could further enhance portfolio value. From an investment perspective, XOMA presents a clear dilemma. Explosive revenue growth and a promising royalty portfolio offer compelling upside, but persistent losses, high leverage, and major shareholder selling raise red flags. Management's continued buying is encouraging, though their transaction volumes pale compared to BVF Partners' disposals. Therefore, investors considering XOMA must carefully monitor the company's path to profitability and financial stability while preparing for the inherent volatility characteristic of biotech investments.