XOMA Royalty: A Biotech Royalty Aggregator with Explosive Growth Potential

In the high-stakes world of biotech investing, identifying undervalued plays with strong near-term catalysts and scalable growth potential is a rare but rewarding pursuit. XOMA Royalty (NASDAQ: XOMA) has emerged as a standout candidate in this category, delivering a stunning Q2 2025 performance that underscores its unique business model and strategic vision. With revenue surging 82.6% quarter-over-quarter to $15.91 million and net income turning positive in Q1 2025 at $2.37 million, XOMA has demonstrated the power of its royalty aggregator approach. For investors seeking exposure to the biotech sector without the volatility of drug development, XOMA offers a compelling case.

A Turnaround Story: From Net Loss to Profitability

XOMA's Q2 2025 results were nothing short of remarkable. The company not only exceeded revenue expectations by a wide margin but also transitioned from a net loss to a profit in Q1 2025. This transformation was driven by robust royalty and milestone payments from key partners, including $11.7 million in Q2 alone. The cash flow generated from these streams allowed XOMA to repurchase over 107,500 shares in 2025, signaling management's confidence in the stock's intrinsic value.

The company's disciplined capital deployment further amplified its growth. Strategic acquisitions of Turnstone Biologics, LAVA Therapeutics, and HilleVax added contingent value rights (CVRs) to its portfolio, offering upside potential while managing risk. Additionally, the $20 million acquisition of mezagitamab royalty rights from BioInvent International could unlock up to $16.25 million in milestones and mid-single-digit royalties. These moves highlight XOMA's ability to scale its portfolio without overleveraging, a critical trait for long-term sustainability.

Near-Term Catalysts: Pipeline Advancements and Regulatory Milestones

XOMA's pipeline is a goldmine of near-term catalysts. Rezolute's Phase 3 sunRIZE study for ersodetug, targeting congenital hyperinsulinism, completed enrollment in Q2 2025, with data expected in December 2025. A positive outcome could accelerate commercialization and boost royalty payments. Similarly, the European Medicines Agency (EMA) accepted Day One Biopharmaceuticals and Ipsen's Marketing Authorization Application (MAA) for tovorafenib, triggering a $4 million milestone payment for XOMA.

Zevra Therapeutics' submission of an MAA for arimoclomol to treat Niemann-Pick Type C further strengthens XOMA's pipeline. These developments are not isolated events but part of a broader trend of partner progress, which is expected to generate a steady stream of milestone and royalty payments. For investors, these catalysts represent concrete opportunities to capitalize on XOMA's growing exposure to high-impact therapies.

Financial Health and Cost Discipline: A Foundation for Growth

XOMA's financials are equally impressive. The company ended Q2 2025 with $78.5 million in cash and cash equivalents, a strong liquidity position that supports continued growth. General and administrative (G&A) expenses dropped to $7.8 million in Q2 2025 from $11.0 million in Q2 2024, reflecting cost management efforts. This reduction, coupled with increased royalty income, positions XOMA to achieve consistent cash flow positivity—a rarity in the biotech sector.

Investment Thesis: Undervalued with Scalable Potential

Despite its strong performance, XOMA remains undervalued relative to its growth trajectory. The company's biotech royalty aggregator model offers a unique advantage: it generates income from commercial-stage drugs without the risks of drug development. This structure provides a stable cash flow base while allowing for upside through milestone payments and strategic acquisitions.

For investors, the key takeaway is clear: XOMA is a high-conviction play with a diversified portfolio, disciplined management, and a pipeline brimming with near-term catalysts. The stock's recent outperformance——reflects growing confidence in its model, but there is still room for appreciation as the company scales its royalty streams and executes on its acquisition strategy.

Conclusion: A Buy for Biotech-Driven Portfolios

XOMA Royalty's Q2 2025 results validate its position as a leader in the biotech royalty aggregator space. With a strong cash position, strategic acquisitions, and a pipeline of high-impact therapies, the company is well-positioned to deliver scalable growth. For investors seeking exposure to the biotech sector with lower volatility and higher predictability, XOMA offers an attractive entry point. The near-term catalysts—Phase 3 data, MAA approvals, and milestone payments—provide a clear roadmap for value creation, making XOMA a compelling addition to any growth-oriented portfolio.

In a market where uncertainty is the norm, XOMA's disciplined approach and proven execution make it a standout opportunity. The time to act is now.