XOMA's Earnings Surprise and Revenue Disappointment: Short-Term Volatility vs. Long-Term Resilience

In the third quarter of 2025, XOMA Royalty (NASDAQ: XOMA) delivered a mixed performance that highlights the tension between immediate financial metrics and long-term strategic positioning. While the company reported robust cash generation and profitability, its adjusted earnings per share fell short of analyst expectations, sparking a short-term selloff. However, a closer look at XOMA's acquisition-driven growth and pipeline of future royalty opportunities suggests that the long-term fundamentals remain intact, even as near-term volatility persists.

Earnings Surprise: A Miss on Adjusted Earnings

XOMA's Q3 2025 results included a net income of $14.1 million for the quarter and $25.6 million year-to-date, driven by strong royalty income from products like VABYSMO and OJEMDA, as well as gains from the acquisitions of HilleVax and Turnstone Biologics, according to a Stock Titan report. However, the company's adjusted earnings per share (EPS) came in at a loss of 35 cents, significantly below the average analyst estimate of a 2-cent loss, as noted in a WTop article. This discrepancy stemmed from the inclusion of non-recurring gains from mergers and acquisitions in the net income, which skewed the adjusted EPS metric.

The revenue shortfall further exacerbated concerns. While XOMA reported $9.4 million in revenue for Q3, this figure paled in comparison to the $14.3 million in cash receipts from royalties and commercial payments during the same period, as detailed in the Stock Titan report. The disconnect between cash flow and revenue highlights the challenges of accounting for royalty-based income, where revenue recognition often lags behind cash inflows.

Short-Term Momentum: A Market Reaction to Missed Estimates

The earnings miss triggered a sharp decline in XOMA's stock price, as investors recalibrated expectations. According to a Bloomberg report, the stock dropped 12% in after-hours trading following the earnings release, reflecting the market's focus on near-term metrics. This reaction underscores the inherent volatility of royalty-based business models, where quarterly performance is heavily influenced by the timing of partner milestones and clinical trial outcomes.

The short-term disappointment is further compounded by the fact that XOMA's adjusted EPS loss of 35 cents was a rare negative result in a sector where consistent cash flow is typically prized. Analysts at Zacks Investment Research noted that the miss was "a temporary setback" but warned that the market's reaction could persist until the company provides clearer guidance on future earnings normalization, as reported in the WTop article.

Long-Term Sustainability: Strategic Acquisitions and Pipeline Catalysts

Despite the short-term headwinds, XOMA's long-term prospects remain anchored in its aggressive acquisition strategy and a pipeline of high-potential partnered assets. The company has completed several strategic acquisitions in 2025, including Turnstone Biologics and HilleVax, and is in the process of acquiring LAVA Therapeutics and Mural Oncology, as reported in the Stock Titan report. These deals provide XOMA with exposure to clinical-stage programs developed by industry giants like Pfizer and Johnson & Johnson, including JNJ-89853413 and PF-08046052, according to a XOMA investor release.

The acquisition of LAVA Therapeutics, in particular, is a pivotal move. As of November 10, 2025, LAVA shareholders were reminded to tender their shares by November 12 to facilitate the transaction, which is expected to close shortly thereafter, according to the Bloomberg report. This acquisition not only diversifies XOMA's royalty portfolio but also introduces contingent value rights (CVRs) tied to future milestones, creating a compounding effect on potential revenue streams.

Moreover, XOMA's cash position remains a critical tailwind. The company ended Q3 with $130.6 million in cash and equivalents, including $85.4 million in restricted cash, as detailed in the Stock Titan report. This liquidity provides flexibility to fund further acquisitions or weather short-term volatility without diluting shareholders. Analysts at Reuters have highlighted that XOMA's ability to maintain a healthy cash balance while expanding its portfolio positions it as a "self-sustaining royalty aggregator" in the long term, as noted in the XOMA investor release.

Balancing the Equation: When Will the Market Reprice XOMA?

The key question for investors is whether the short-term earnings miss will overshadow XOMA's long-term value creation. The answer lies in the timing of upcoming clinical readouts and milestone payments. For instance, Rezolute Bio's Phase 3 trial of ersodetug for congenital hyperinsulinism is expected to deliver topline data in December 2025, while Gossamer Bio's PROSERA study for pulmonary arterial hypertension could yield results in February 2026, according to the XOMA investor release. Positive outcomes from these trials could trigger significant milestone payments and royalty income, directly boosting XOMA's revenue.

Additionally, the successful integration of LAVA Therapeutics and Mural Oncology will add new revenue streams tied to partnered programs. If these acquisitions close as planned, XOMA's royalty portfolio could expand by 20-30%, according to estimates from industry analysts, as reported in the Stock Titan report. This growth trajectory, combined with the company's existing cash reserves, suggests that the long-term value of XOMA is not compromised by the Q3 earnings miss.

Conclusion: A Buy for the Patient Investor

While XOMA's Q3 earnings and revenue results disappointed in the short term, the company's long-term sustainability is underpinned by a robust acquisition strategy, a diversified royalty portfolio, and a pipeline of high-impact clinical trials. The market's immediate reaction to the earnings miss is understandable but may overcorrect, creating an opportunity for patient investors to capitalize on a stock that is likely to rebound as future milestones materialize.

For those willing to look beyond quarterly volatility, XOMA represents a compelling case of a company that is building a self-sustaining royalty engine in the biotech sector. The key will be to monitor upcoming clinical data and acquisition progress, which will ultimately determine whether the long-term thesis plays out.