XOMA Royalty’s Kinnate Pipeline Sale: A Strategic Shift with Upside Potential

XOMA Royalty Corporation (NASDAQ: XOMA) has executed a pivotal move in its biotech royalty aggregation strategy, completing the sale of all five pipeline assets acquired from Kinnate Biopharma Inc. in April 2024. The transaction, announced on April 14, 2025, underscores XOMA’s ability to monetize early-stage assets while aligning shareholder interests through its innovative use of Contingent Value Rights (CVRs). However, the deal also highlights the inherent risks of relying on third-party execution in the volatile biotech sector.

Deal Overview: Maximizing Value Through Structured Royalties

The sale of Kinnate’s pipeline, which includes experimental therapies such as exarafenib (a pan-RAF inhibitor) and KIN-3248 (an FGFR inhibitor), entitles XOMA to up to $270 million in upfront and milestone payments, plus royalties on commercial sales ranging from low single digits to mid-teens. Crucially, holders of Kinnate CVRs—legacy shareholders from the April 2024 acquisition—will receive 85% of all proceeds (upfront, milestones, and royalties) until April 2, 2029, with XOMA retaining 15%. This structure ensures alignment between XOMA’s stakeholders and former Kinnate investors, a key feature of the original merger agreement.

The buyer(s) of the assets remain undisclosed, but the press release clarifies that the assets were licensed to “several parties” through asset purchase agreements. This approach reflects XOMA’s strategy of distributing pipeline assets to partners best positioned to advance them, reducing its operational risk while securing non-dilutive capital.

Strategic Implications: Reinforcing the Royalty Model

XOMA’s decision to offload the unpartnered Kinnate assets aligns with its core mission as a royalty aggregator. By focusing on acquiring future economic rights to late-stage and commercial therapies (e.g., VABYSMO®, OJEMDA™), the company avoids the costly and uncertain path of drug development. CEO Owen Hughes emphasized this rationale: “We distributed Kinnate’s cash to shareholders while creating upside through asset sales.”

The transaction also strengthens XOMA’s balance sheet. With a market capitalization of $239 million and liquid assets exceeding short-term obligations fivefold, the company retains financial flexibility. Analysts at H.C. Wainwright reaffirmed a “Buy” rating, citing diversified revenue streams and a near-90% gross profit margin driven by its royalty portfolio.

Financial Considerations: Upside and Execution Risks

The $270 million potential payout and royalties hinge on the buyers’ ability to advance the Kinnate assets through clinical trials and regulatory approvals. Challenges include:
- Funding Requirements: The purchasers must secure significant capital to develop the pipeline, which includes early-stage programs like a brain-penetrant CDK4 inhibitor.
- Market Viability: Success depends on the therapies’ commercial appeal in competitive oncology markets.
- Regulatory Hurdles: Approval timelines for novel compounds are uncertain, with potential setbacks impacting milestone payments.

The CVR structure mitigates some risk for XOMA, as its direct exposure to the Kinnate assets is limited to 15% of proceeds. However, if the buyers fail to meet development milestones, legacy Kinnate shareholders (via CVRs) and XOMA’s upside could be significantly diluted.

Analyst Perspective: Prudent Strategy with Cautious Optimism

H.C. Wainwright’s price target of $104 reflects confidence in XOMA’s portfolio diversification, including royalties from blockbuster drugs like VABYSMO® (which generated $1.2 billion in sales in 2024). The firm notes that the Kinnate sale “de-risks” XOMA’s balance sheet while preserving upside.

Yet, risks persist.

The company’s reliance on third parties to execute on high-potential assets means its future growth is contingent on external partners’ success.

Conclusion: A Calculated Move with Balanced Outcomes

XOMA Royalty’s sale of the Kinnate pipeline represents a disciplined execution of its royalty aggregation model. By monetizing early-stage assets and sharing proceeds with legacy shareholders, the company reinforces its financial stability while avoiding developmental risks. The $270 million milestone threshold and mid-teens royalties offer compelling upside if the buyers succeed.

However, investors must remain cautious. Regulatory delays or funding shortfalls could truncate the deal’s value, and XOMA’s 15% stake means its direct gains are capped. For now, the transaction aligns with the firm’s strengths: capitalizing on others’ R&D efforts while maintaining a lean, revenue-focused structure.

With a robust royalty portfolio and a $104 price target, XOMA Royalty appears positioned to weather near-term uncertainties. Yet, the true test lies in the buyers’ ability to turn Kinnate’s science into commercial reality—a reminder that even in royalty deals, execution remains king.