XOMA Royalty Plummets 24.7%: Failed Trial Sparks Sector-Wide Reassessment

Summary
• XOMA Royalty (XOMA) slumps 24.7% intraday to $25.87, a 23.7% drop from its 52-week high of $39.92
• Rezolute’s Phase 3 trial failure for congenital hyperinsulinism treatment erodes investor confidence
• Turnover surges to 208,002 shares, with price below 200D MA of $28.40

Today’s collapse in XOMA Royalty’s stock has sent shockwaves through the biotech sector. The 24.7% intraday freefall follows Rezolute’s announcement that its Phase 3 sunRIZE trial for HI treatment failed to meet primary endpoints. With the stock trading at a 52-week low and technical indicators flashing bearish signals, the market is recalibrating its expectations for XOMA’s royalty pipeline and strategic positioning in an AI-driven biotech landscape.

Failed Phase 3 Trial Derails XOMA's Partnership Hopes
XOMA Royalty’s 24.7% intraday plunge is directly tied to Rezolute’s announcement that its Phase 3 sunRIZE trial for congenital hyperinsulinism (HI) failed to meet its primary endpoint. The drug, ersodetug, showed a 45% reduction in hypoglycemia events at the highest dose but failed to achieve statistical significance compared to a 40% placebo improvement. This outcome nullifies a key milestone in XOMA’s partnership with Rezolute, which had secured $18 million upfront and $222 million in potential milestones. The failure also eliminates a critical revenue stream for XOMA, which had received a $5 million milestone payment upon trial enrollment completion. With Rezolute’s shares down 88.48%, the partnership’s value has evaporated, triggering a cascading sell-off in XOMA’s stock.

Biotech Sector Volatility Amid AI-Driven Disruption
The biotech sector is navigating a dual narrative: AI-driven innovation and regulatory uncertainty. While sector leader Amgen (AMGN) rose 0.5% on the day, XOMA’s collapse highlights the fragility of partnerships reliant on unproven therapies. Broader sector news underscores AI’s transformative role in drug discovery and diagnostics, yet XOMA’s lack of AI integration—combined with its reliance on high-risk royalty agreements—has left it exposed. Firms like Novartis and Lilly, leveraging AI for pipeline optimization, contrast sharply with XOMA’s current trajectory, amplifying its underperformance.

Bearish Options and Technical Divergence Signal Aggressive Shorting Opportunities
• 200D MA: $28.40 (price 23.7% below)
• RSI: 55.26 (oversold but lacks reversal signals)
• MACD: -0.529 (bearish divergence from signal line -0.808)
• Bollinger Bands: Price at $25.87, 29.61 below lower band

XOMA’s technical structure confirms a breakdown. The stock is trading below its 200-day average and within a 29.61–34.19 volatility range favoring short-term sellers. Two options stand out for bearish exposure:

• XOMA20251219P25 (Put, $25 strike, 12/19 expiration):
- IV: 94.87% (extreme volatility)
- Leverage: 26.16% (moderate)
- Delta: -0.350 (moderate sensitivity)
- Theta: -0.0336 (rapid time decay)
- Gamma: 0.0951 (high sensitivity to price swings)
- Turnover: 600 shares
- Payoff at 5% downside (24.90): $0.10 per contract. This put offers aggressive leverage for a 5% price drop, with high gamma amplifying gains if the selloff accelerates.

• XOMA20260116P25 (Put, $25 strike, 1/16 expiration):
- IV: 55.93% (reasonable)
- Leverage: 20.92% (moderate)
- Delta: -0.357 (moderate sensitivity)
- Theta: -0.0117 (slower decay)
- Gamma: 0.0801 (solid sensitivity)
- Turnover: 750 shares
- Payoff at 5% downside (24.90): $0.10 per contract. This longer-dated put balances time decay with liquidity, ideal for a controlled bearish bet.

Action: Aggressive short-sellers should prioritize XOMA20251219P25 for immediate volatility capture, while XOMA20260116P25 suits a measured approach. Both contracts benefit from XOMA’s technical breakdown and sector-wide AI-driven underperformance.

Backtest XOMA Royalty Stock Performance
The backtest of XOMA's performance after a -25% intraday plunge from 2022 to the present reveals positive short-to-medium-term gains. The 3-Day win rate is 52.16%, the 10-Day win rate is 53.68%, and the 30-Day win rate is 57.79%, indicating a higher probability of positive returns in the immediate aftermath of the plunge. The maximum return during the backtest period was 7.86%, which occurred on day 57, suggesting that while there is volatility, XOMA can exhibit strong recovery rallies.

XOMA at Critical Juncture: Watch for $25.25 Breakdown or AI-Driven Sector Rotation
XOMA’s 24.7% intraday plunge signals a pivotal moment for the stock. With technical indicators and options data confirming bearish momentum, the stock faces critical support at $25.25 (200D MA) and $21.28 (long-term support). A breakdown below $25.25 could trigger deeper declines, while a rebound above $28.40 might hint at short-term stabilization. Meanwhile, sector leader Amgen (AMGN) is up 0.5%, underscoring the premium on AI readiness. Investors should monitor the 200D MA as a key inflection point—break below $25.25 to trigger deeper declines. Takeaway: Short XOMA against the 200D MA breakdown or pivot to AI-adopting peers like AMGN for defensive exposure.