Overview
XOMA, a
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
Significant Developments
Royalty and Commercial Payment Purchase Agreements
Commercial Payment Purchase Agreement with
In
In
Pursuant to the Affitech CPPA, we paid
Kuros Royalty Purchase Agreement
In
Viracta Royalty Purchase Agreement
In
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to DAY101, excluding up to
License and Collaboration Agreements
Rezolute - RZ358 Antibody
In
Novartis - Anti-TGF? Antibody
In
Novartis - Anti-CD40 Antibody
In
Compugen
In
Janssen
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Affimed
In
Public Offering of Series B Depositary Shares Representing Interest in Series B Preferred Stock
In
49 Table of Contents NIAID Contract Closeout
Prior to the sale of our biodefense business in 2016, we performed contract work
for the
Debt ExtinguishmentNovartis Note
In
SVB Loan
In
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
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
52 Table of Contents Results of Operations Revenues Total revenues for the years endedDecember 31, 2021 and 2020, were as follows (in thousands): Year Ended December 31, 2021 2020 Change Revenue from contracts with customers$ 36,518 $ 27,941 $ 8,577
Revenue recognized under units-of-revenue method 1,642 1,444 198 Total revenues
$ 38,160 $ 29,385 $ 8,775
Revenue from Contracts with Customers
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
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
G&A Expenses
G&A expenses include salaries and related personnel costs, professional fees,
and facilities costs. In 2021, G&A expenses were
The increase of
53 Table of Contents 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
Year Ended December 31, 2021 2020 Change SVB Loan$ 373 $ 1,365 $ (992) Novartis Note 88 477 (389) Other - 2 (2) Total interest expense$ 461 $ 1,844 $ (1,383)
The decrease in interest expense compared with 2020 is due to the repayment of
our SVB and Novartis loans in
Other (Expense) Income, Net
The following table shows the activity in other (expense) income, net for
the years ended
Year Ended December 31, 2021 2020 Change
Other (expense) income, net
Change in fair value of equity securities
35 159 (124) Other 5 54 (49) Total other (expense) income, net$ (879) $ 1,225 $ (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
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
We continue to maintain a full valuation allowance against our deferred tax
assets. We had a total of
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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): December 31, December 31, 2021 2020 Change Cash$ 93,328 $ 84,222 $ 9,106 Working capital$ 84,006 $ 75,763 $ 8,243 Year Ended December 31, 2021 2020 Change
Net cash provided by operating activities
(26,500) (209) (26,291) Net cash provided by financing activities 12,835 19,793 (6,958) Net increase in cash$ 9,013 $ 29,676 $ (20,663)
Our primary source of cash provided by operating activities in 2021 was the
Net cash used in investing activities for the year ended
Net cash provided by financing activities for the year ended
Capital Resources
As of
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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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
shares of 8.625% Series A Preferred Stock at the price of
? through a public offering for aggregate gross proceeds of
offering costs of
of Series A Preferred Stock, for net proceeds of
Public Offering of Depositary Shares Representing Interest in Series B
Preferred Stock: In
? B Depositary Shares at the price of
proceeds from the offering were
million were offset against the proceeds from the sale of Series B Depositary
Shares, for net proceeds of
Novartis Note Extinguishment: In
balance to Novartis of
? 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
SVB Loan Extinguishment: In
million and paid the 8.5% final payment fee of
? recognized a non-cash loss on extinguishment of
income, net of the consolidated statement of operations. No outstanding
principal balance of the SVB Loan remained as of
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
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
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We also have potential sales-based milestones that may become due under our
agreements with Aronora, Kuros and
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
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
Recent Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements for information regarding new accounting pronouncements.
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