UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________to__________

Commission File No. 001-39801

XOMA Corporation

(Exact name of registrant as specified in its charter)


Delaware		52-2154066
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

2200 Powell Street, Suite 310
Emeryville, California		94608
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (510) 204-7200

Securities registered pursuant to Section 12(b) of the Act:


Title of each class:	Trading symbol(s):	Name of each exchange on which registered:
Common Stock, $0.0075 par value	XOMA	The Nasdaq Global Market
8.625% Series A Cumulative Perpetual Preferred Stock, par value $0.05	XOMAP	The Nasdaq Global Market
Depositary Shares (each representing 1/1000^th interest in a share of 8.375% Series B Cumulative Perpetual Preferred Stock, par value $0.05)	XOMAO	The Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 3, 2023, the registrant had 11,472,808 shares of common stock, $0.0075 par value per share, outstanding.

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XOMA CORPORATION

FORM 10-Q

TABLE OF CONTENTS


		Page
Glossary of Terms and Abbreviations		1

PART I	FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements	4

	Condensed Consolidated Balance Sheets as of June 30, 2023 (unaudited) and December 31, 2022	4

	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2023 and 2022 (unaudited)	5

	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2023 and 2022 (unaudited)	6

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022 (unaudited)	7

	Notes to Condensed Consolidated Financial Statements (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46

Item 4.	Controls and Procedures	46

PART II	OTHER INFORMATION	46

Item 1.	Legal Proceedings	46

Item 1A.	Risk Factors	46

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	77

Item 3.	Defaults Upon Senior Securities	77

Item 4.	Mine Safety Disclosure	77

Item 5.	Other Information	77

Item 6.	Exhibits	78

Signatures		80

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GLOSSARY OF TERMS AND ABBREVIATIONS


Abbreviations		Definition
2010 Plan		the Company's 2010 Long Term Incentive and Stock Award Plan, as amended
2018 Common Stock ATM Agreement		At The Market Issuance Sales Agreement with HCW dated December 18, 2018
2021 Series B Preferred Stock ATM Agreement		At The Market Issuance Sales Agreement with B. Riley dated August 5, 2021
‘40 Act		Investment Company Act of 1940
AAA		Assignment and Assumption Agreement
ACA		The Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010
Affimed		Affimed N.V.
Affitech		Affitech Research AS
Affitech CPPA		the Company's Commercial Payment Purchase Agreement with Affitech dated October 6, 2021
Agenus		Agenus, Inc. and certain affiliates
Agenus RPA		the Company's Royalty Purchase Agreement with Agenus dated September 20, 2018
Anti-TGFβ Antibody License Agreement		the Company's License Agreement with Novartis dated September 30, 2015
April 2022 Letter Agreement		the Letter Agreement to Officer Employment Agreement dated August 7, 2017, between XOMA Corporation and Thomas Burns dated April 1, 2022
Aptevo		Aptevo Therapeutics Inc.
Aptevo CPPA		the Company’s Payment Interest Purchase Agreement with Aptevo dated March 29, 2023, referred to herein as “Aptevo Commercial Payment Purchase Agreement” or “Aptevo CPPA”
Aronora		Aronora, Inc.
Aronora RPA		the Company's Royalty Purchase Agreement with Aronora dated April 7, 2019
AstraZeneca		AstraZeneca plc
ASC		Accounting Standards Codification
ASC 326		ASC Topic 326, Financial Instruments – Credit Losses
ASC 450		ASC Topic 450, Contingencies
ASC 606		ASC Topic 606, Revenue from Contracts with Customers
ASC 730		ASC Topic 730, Research and Development
ASC 805		ASC Topic 805, Business Combinations
ASC 815		ASC Topic 815, Derivatives and Hedging
ASC 842		ASC Topic 842, Leases
ASU		Accounting Standards Update
Bayer		Bayer Pharma AG
Bioasis		Bioasis Technologies, Inc. and certain affiliates
Bioasis RPA		the Company's Royalty Purchase Agreement with Bioasis dated February 25, 2019
BLA		Biologic License Application
Black-Scholes Model		Black-Scholes Option Pricing Model
B. Riley		B. Riley Securities, Inc.
BVF		Biotechnology Value Fund, L.P.
CCPA		California Consumer Privacy Act of 2018, collectively the Act and its regulations
CARES		Coronavirus Aid, Relief, and Economic Security
cGMP		current Good Manufacturing Practice
Chiesi		Chiesi Farmaceutici S.p.A.
Chiron		Chiron Corporation
Chiron Collaboration Agreement		the Company's Collaboration Agreement with Chiron dated February 27, 2004, as amended in May 2005, July 2008 and September 2015

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Company		XOMA Corporation, including subsidiaries
CPPA		Commercial Payment Purchase Agreement
CPRA		California Privacy Rights Act
EC		European Commission
EMA		European Medicines Agency
ESPP		2015 Employee Stock Purchase Plan, as amended
EU		European Union
FCPA		U.S. Foreign Corrupt Practices Act of 1977, as amended
FDA		U.S. Food and Drug Administration
FDIC		Federal Deposit Insurance Corporation
GAAP		Generally accepted accounting principles
G&A		General and administrative
GDPR		General Data Protection Regulation
Gevokizumab License Agreement		the Company's License Agreement with Novartis dated August 24, 2017
HCRP		Healthcare Royalty Partners II, L.P.
HCW		H.C. Wainwright & Co., LLC
HIPAA		Federal Health Insurance Portability and Accountability Act of 1996
ICE®		Innate cell engager
ImmunityBio		ImmunityBio, Inc. (formerly NantCell, Inc.)
ImmunityBio License Agreement		Out-license agreement to ImmunityBio from LadRx dated July 27, 2017, related to the development and commercialization of Aldoxorubicin, as amended on September 27, 2018
IP		Intellectual Property
Janssen		Janssen Biotech, Inc.
Kuros		Kuros Biosciences AG, Kuros US LLC and Kuros Royalty Fund (US) LLC, collectively
Kuros RPA		the Company's Royalty Purchase Agreement with Kuros dated July 14, 2021
LadRx		LadRx Corporation (formerly CytRx Corporation)
LadRx Agreements		LadRx AAA and LadRx RPA
LadRx AAA		the Company’s Assignment and Assumption Agreement with LadRx dated June 21, 2023
LadRx RPA		the Company’s Royalty Purchase Agreement with LadRx dated June 21, 2023
Medexus		Medexus Pharmaceuticals, Inc.
Merck		Merck Sharp & Dohme Corp
Merck KGaA		Ares Trading SA
Merck KGaA License Agreement		In-license agreement from Merck KGaA to ObsEva related to ebopiprant dated June 10, 2015 and subsequently amended on July 8, 2016 (assumed by the Company as part of the ObsEva IP Acquisition Agreement)
NDA		New Drug Application
NIH		National Institutes of Health
NOL		net operating loss
Novartis		Novartis Pharma AG, Novartis International Pharmaceutical Ltd., Novartis Institutes for Biomedical Research, Inc. and/or Novartis Vaccines and Diagnostics, Inc.
November 2022 Letter Agreement		November 1, 2022 amendment to the April 2022 Letter Agreement
ObsEva		ObsEva SA
ObsEva IP Acquisition Agreement		Company's IP Acquisition Agreement with ObsEva dated November 21, 2022
Ology Bioservices		Ology Bioservices Inc. (formerly Nanotherapeutics Inc., now a wholly owned subsidiary of National Resilience, Inc.)

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Organon		Organon International GmbH
Organon License Agreement		Out-license agreement to Organon from ObsEva dated July 26, 2021, related to the development and commercialization of ebopiprant (assumed by the Company as part of the ObsEva IP Acquisition Agreement)
Palo		Palobiofarma, S.L.
Palo RPA		the Company's Royalty Purchase Agreement with Palo dated September 26, 2019
Pfizer		Pfizer, Inc.
PSU		Performance stock unit
R&D		Research and development
Regeneron		Regeneron Pharmaceuticals, Inc.
Amended Retention Plan		October 25, 2022 amendment to the Retention Plan
Retention Plan		Retention and Severance Plan dated March 31, 2022
Rezolute		Rezolute, Inc., formerly Antria Bio, Inc.
Rezolute License Agreement		the Company's License Agreement with Rezolute dated December 6, 2017, as amended in March 2018, January 2019 and March 2020
RPA		Royalty Purchase Agreement
Roche		F. Hoffmann-La Roche AG
SEC		U.S. Securities and Exchange Commission
Second Bioasis RPA		the Company's Royalty Purchase Agreement with Bioasis dated November 2, 2020
Series A Preferred Stock		the 8.625% Series A cumulative, perpetual preferred stock issued in December 2020
Series B Preferred Stock		the 8.375% Series B cumulative, perpetual preferred stock issued in April 2021
Series A and Series B Preferred Stock		Series A Preferred Stock and Series B Preferred Stock, collectively
Series B Depositary Shares		the depositary shares, each representing 1/1000th interest in a share of Series B Preferred Stock
Sonnet		Sonnet BioTherapeutics, Inc., formerly Oncobiologics, Inc.
Sonnet Collaboration Agreement		the Company's Collaboration Agreement with Sonnet dated July 23, 2012, as amended in May 2019
SOX		Sarbanes-Oxley Act of 2002
SVB		Silicon Valley Bank
Takeda		Takeda Pharmaceutical Company Limited
Takeda Collaboration Agreement		the Company's Collaboration Agreement with Takeda dated November 1, 2006, as amended in February 2007 and February 2009
TGFβ		transforming growth factor beta
VABYSMO®		faricimab-svoa
Viracta		Viracta Therapeutics, Inc.
Viracta RPA		the Company's Royalty Purchase Agreement with Viracta dated March 22, 2021
XOMA		XOMA Corporation, a Delaware corporation, including subsidiaries
Zevra		Zevra Therapeutics, Inc. (formerly KemPharm Denmark A/S)
Zevra APA		Asset Purchase Agreement dated May 13, 2011 between LadRx and Orphazyme ApS, and assigned to Zevra as of June 1, 2022, related to the sale of arimoclomol from LadRx to Zevra (assumed by the Company as part of LadRx AAA)

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PART I - FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

XOMA CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)


	June 30,		December 31,
	2023		2022
	(unaudited)		(Note 1)
ASSETS
Current assets:
Cash and cash equivalents	$	31,445	$	57,826
Short-term equity securities		320		335
Trade and other receivables, net		901		1
Short-term royalty and commercial payment receivables		4,958		2,366
Prepaid expenses and other current assets		799		725
Total current assets		38,423		61,253
Property and equipment, net		5		7
Operating lease right-of-use assets		17		29
Long-term royalty and commercial payment receivables		72,232		63,683
Intangible assets, net		14,701		15,150
Other assets - long term		283		260
Total assets	$	125,661	$	140,382

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	740	$	524
Accrued and other liabilities		1,933		2,918
Contingent consideration under RPAs, AAAs and CPPAs		1,000		75
Operating lease liabilities		17		34
Unearned revenue recognized under units-of-revenue method		2,029		1,899
Preferred stock dividend accrual		1,368		1,368
Total current liabilities		7,087		6,818
Unearned revenue recognized under units-of-revenue method – long-term		8,450		9,550
Total liabilities		15,537		16,368

Commitments and Contingencies (Note 9)

Stockholders’ equity:
Preferred Stock, $0.05 par value, 1,000,000 shares authorized:
8.625% Series A cumulative, perpetual preferred stock, 984,000 shares issued and outstanding at June 30, 2023 and December 31, 2022		49		49
8.375% Series B cumulative, perpetual preferred stock, 1,600 shares issued and outstanding at June 30, 2023 and December 31, 2022		—		—
Convertible preferred stock, 5,003 shares issued and outstanding at June 30, 2023 and December 31, 2022		—		—
Common stock, $0.0075 par value, 277,333,332 shares authorized, 11,472,808 and 11,454,025 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively		86		86
Additional paid-in capital		1,307,594		1,306,271
Accumulated deficit		(1,197,605)		(1,182,392)
Total stockholders’ equity		110,124		124,014
Total liabilities and stockholders’ equity	$	125,661	$	140,382

The accompanying notes are an integral part of these condensed consolidated financial statements.

(Note 1) The condensed consolidated balance sheet as of December 31, 2022, has been derived from the audited consolidated financial statements as of that date included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

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XOMA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)

(in thousands, except per share amounts)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Revenues:
Revenue from contracts with customers	$	1,125	$	525	$	1,125	$	3,275
Revenue recognized under units-of-revenue method		533		458		970		815
Total revenues		1,658		983		2,095		4,090

Operating expenses:
Research and development		39		40		93		96
General and administrative		5,777		5,710		11,973		10,826
Royalty purchase agreement asset impairment		1,575		—		1,575		—
Arbitration settlement costs (Note 3)		—		—		4,132		—
Amortization of intangible assets		224		—		449		—
Total operating expenses		7,615		5,750		18,222		10,922

Loss from operations		(5,957)		(4,767)		(16,127)		(6,832)
Other income (expense), net		557		97		914		(118)
Net loss and comprehensive loss	$	(5,400)	$	(4,670)	$	(15,213)	$	(6,950)
Less: accumulated dividends on Series A and Series B preferred stock		(1,368)		(1,368)		(2,736)		(2,736)
Net loss and comprehensive loss attributable to common stockholders, basic and diluted	$	(6,768)	$	(6,038)	$	(17,949)	$	(9,686)
Basic and diluted net loss per share attributable to common stockholders	$	(0.59)	$	(0.53)	$	(1.57)	$	(0.85)
Weighted average shares used in computing basic and diluted net loss per share attributable to common stockholders		11,466		11,421		11,463		11,376

The accompanying notes are an integral part of these condensed consolidated financial statements.

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XOMA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)

(in thousands)


	Series A			Series B			Convertible						Additional				Total
	Preferred Stock			Preferred Stock			Preferred Stock			Common Stock			Paid-In		Accumulated		Stockholders’
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Capital		Deficit		Equity
Balance, December 31, 2022	984	$	49	2	$	—	5	$	—	11,454	$	86	$	1,306,271		(1,182,392)	$	124,014
Issuance of common stock related to 401(k) contribution	—		—	—		—	—		—	7		—		123		—		123
Stock-based compensation expense	—		—	—		—	—		—	—		—		1,570		—		1,570
Preferred stock dividends	—		—	—		—	—		—	—		—		(1,368)		—		(1,368)
Net loss and comprehensive loss	—		—	—		—	—		—	—		—		—		(9,813)		(9,813)
Balance, March 31, 2023	984	$	49	2	$	—	5	$	—	11,461	$	86	$	1,306,596	$	(1,192,205)	$	114,526
Exercise of stock options	—		—	—		—	—		—	8		—		153		—		153
Issuance of common stock related to ESPP	—		—	—		—	—		—	3		—		50		—		50
Stock-based compensation expense	—		—	—		—	—		—	—		—		2,163		—		2,163
Preferred stock dividends	—		—	—		—	—		—	—		—		(1,368)		—		(1,368)
Net loss and comprehensive loss	—		—	—		—	—		—	—		—		—		(5,400)		(5,400)
Balance, June 30, 2023	984	$	49	2	$	—	5	$	—	11,472	$	86	$	1,307,594	$	(1,197,605)	$	110,124


	Series A			Series B			Convertible						Additional				Total
	Preferred Stock			Preferred Stock			Preferred Stock			Common Stock			Paid-In		Accumulated		Stockholders’
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Capital		Deficit		Equity
Balance, December 31, 2021	984	$	49	2	$	—	5	$	—	11,315	$	85	$	1,307,030	$	(1,165,288)	$	141,876
Exercise of stock options	—		—	—		—	—		—	91		1		632		—		633
Issuance of common stock related to 401(k) contribution	—		—	—		—	—		—	4		—		85		—		85
Stock-based compensation expense	—		—	—		—	—		—	—		—		978		—		978
Preferred stock dividends	—		—	—		—	—		—	—		—		(1,368)		—		(1,368)
Net loss and comprehensive loss	—		—	—		—	—		—	—		—		—		(2,280)		(2,280)
Balance, March 31, 2022	984	$	49	2	$	—	5	$	—	11,410	$	86	$	1,307,357	$	(1,167,568)	$	139,924
Exercise of stock options	—		—	—		—	—		—	11		—		189		—		189
Issuance of common stock related to ESPP	—		—	—		—	—		—	3		—		45		—		45
Stock-based compensation expense	—		—	—		—	—		—	—		—		836		—		836
Preferred stock dividends	—		—	—		—	—		—	—		—		(1,368)		—		(1,368)
Net loss and comprehensive loss	—		—	—		—	—		—	—		—		—		(4,670)		(4,670)
Balance, June 30, 2022	984	$	49	2	$	—	5	$	—	11,424	$	86	$	1,307,059	$	(1,172,238)	$	134,956

The accompanying notes are an integral part of these condensed consolidated financial statements.

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XOMA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)


	Six Months Ended June 30,
	2023		2022
Cash flows from operating activities:
Net loss	$	(15,213)	$	(6,950)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		3,733		1,815
Royalty purchase agreement asset impairment		1,575		—
Change in fair value of contingent consideration under RPAs, AAAs, and CPPAs		(75)		—
Common stock contribution to 401(k)		123		85
Amortization of intangible assets		449		—
Depreciation		2		3
Non-cash lease expense		97		84
Change in fair value of equity securities		15		251
Changes in assets and liabilities:
Trade and other receivables, net		(900)		204
Prepaid expenses and other assets		(97)		(398)
Accounts payable and accrued liabilities		(769)		582
Income taxes payable		—		(91)
Operating lease liabilities		(102)		(96)
Unearned revenue recognized under units-of-revenue method		(970)		(815)
Net cash used in operating activities		(12,132)		(5,326)

Cash flows from investing activities:
Payments of consideration under RPAs, AAAs and CPPAs		(14,650)		(5,000)
Receipts under RPAs, AAAs and CPPAs		2,934		—
Net cash used in investing activities		(11,716)		(5,000)

Cash flows from financing activities:
Payment of preferred stock dividends		(2,736)		(2,736)
Proceeds from exercise of options and other share-based compensation		208		1,905
Taxes paid related to net share settlement of equity awards		(5)		(1,038)
Net cash used in financing activities		(2,533)		(1,869)

Net decrease in cash, cash equivalents and restricted cash		(26,381)		(12,195)
Cash, cash equivalents and restricted cash at the beginning of the period		57,826		95,377
Cash, cash equivalents and restricted cash at the end of the period	$	31,445	$	83,182

Supplemental Cash Flow Information:
Cash paid for taxes	$	—	$	95
Right-of-use assets obtained in exchange for operating lease liabilities	$	85	$	—
Non-cash investing and financing activities:
Preferred stock dividend accrual	$	1,368	$	1,368
Estimated fair value of contingent consideration under the LadRx Agreements	$	1,000	$	—

The accompanying notes are an integral part of these condensed consolidated financial statements.

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XOMA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Description of Business

XOMA, a Delaware corporation, is a biotech royalty aggregator with a sizable portfolio of economic rights to future potential milestone and royalty payments associated with partnered commercial and pre-commercial therapeutic candidates. The Company’s portfolio was built through the acquisition of rights to future milestones and royalties that the Company has made since the royalty aggregator business model was implemented in 2017 combined with out-licensing its proprietary products and platforms from its legacy discovery and development business. The Company’s drug royalty aggregator business is primarily focused on early to mid-stage clinical assets in Phase 1 and 2 with significant commercial sales potential that are licensed to large-cap partners. The Company expects that most of its future revenue will be based on payments the Company may receive for milestones and royalties related to these programs.

Liquidity and Financial Condition

The Company has incurred significant operating losses and negative cash flows from operations since its inception. As of June 30, 2023, the Company had cash and cash equivalents of $31.4 million.

Based on the Company’s current cash balance and its ability to control discretionary spending, such as milestone and royalty acquisitions, the Company has evaluated and concluded its financial condition is sufficient to fund its planned operations and commitments and contractual obligations for a period of at least one year following the date that these condensed consolidated financial statements are issued.

2. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions among consolidated entities were eliminated upon consolidation. The unaudited condensed consolidated financial statements were prepared in accordance with GAAP in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. As permitted under those rules certain footnotes or other financial information can be condensed or omitted. These condensed consolidated financial statements and related disclosures have been prepared with the assumption that users of the interim financial information have read or have access to the audited consolidated financial statements for the preceding fiscal year. Accordingly, these statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 9, 2023.

These condensed consolidated financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal and recurring adjustments that are necessary for a fair statement of the Company’s consolidated financial information. The interim results of operations are not necessarily indicative of the results that may be expected for the full year.

Use of Estimates

The preparation of financial statements in conformity with GAAP in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures. On an ongoing basis, management evaluates its estimates including, but not limited to, those related to revenue recognition, revenue recognized under the units-of-revenue method, royalty and commercial payment receivables,

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intangible assets, legal contingencies, contingent consideration and stock-based compensation. The Company bases its estimates on historical experience and on various other market-specific and other relevant assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results may differ significantly from these estimates, such as the Company’s amortization of the payments received from HCRP. Under the contracts with HCRP, the amortization for the reporting period is calculated based on the payments expected to be made by the licensees to HCRP over the term of the arrangement. Any changes to the estimated payments by the licensees to HCRP can result in a material adjustment to revenue previously reported.

Cash and Cash Equivalents

Cash consists of bank deposits held in business checking and interest-bearing deposit accounts. As of June 30, 2023, the Company had a cash balance of $1.3 million and cash equivalent balances of $30.1 million, defined as highly liquid financial instruments that are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. As of December 31, 2022, the Company had a cash balance of $27.5 million and cash equivalent balances of $30.3 million.

Revenue Recognition

The Company recognizes 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. The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services.

To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation based on relative fair values, when (or as) the performance obligation is satisfied.

The Company recognizes revenue from its license and collaboration arrangements and royalties. The terms of the arrangements generally include payment to the Company of one or more of the following: non-refundable, upfront license fees, development, regulatory and commercial milestone payments, and royalties on net sales of licensed products.

License of intellectual property

If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue from non-refundable, upfront fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses that are bundled with other promises, such as transfer of related materials, process and know-how, the Company utilizes 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 the Company’s license agreements, the nature of the combined performance obligation is the granting of licenses to the customers as the other promises are not separately identifiable in the context of the arrangement. Since the Company grants the license to a customer as it exists at the point of transfer and is not involved in any future development or commercialization of the products related to the license, the nature of the license is a right to use the Company’s intellectual property as transferred. As such, the Company recognizes revenue related to the combined performance obligation upon completion of the delivery of the related materials, process and know-how (i.e., at a point in time).

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Milestone payments

At the inception of each arrangement that includes development and regulatory milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price. ASC 606 suggests two alternatives to use when estimating the amount of variable consideration: the expected value method and the most likely amount method. Under the expected value method, an entity considers the sum of probability-weighted amounts in a range of possible consideration amounts. Under the most likely amount method, an entity considers the single most likely amount in a range of possible consideration amounts. The Company uses the most likely amount method for development and regulatory milestone payments.

If it is probable that a significant cumulative revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis. The Company recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability or achievement of each such milestone and any related constraint, and if necessary, adjusts its estimates of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenue and earnings in the period of adjustment.

Royalties

For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

Upfront payments and fees are recorded as deferred revenue upon receipt or when due and may require deferral of revenue recognition to a future period until the Company performs its obligations under these arrangements. Amounts payable to the Company are recorded as accounts receivable when the Company’s right to consideration is unconditional. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less.

Sale of Future Revenue Streams

The Company has sold its rights to receive certain milestones and royalties on product sales. In the circumstance where the Company has sold its rights to future milestones and royalties under a license agreement and also maintains limited continuing involvement in the arrangement (but not significant continuing involvement in the generation of the cash flows that are due to the purchaser), the Company defers recognition of the proceeds it receives for the sale of milestone or royalty streams and recognizes 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 the purchaser over the term of such arrangements requires management to use subjective estimates and assumptions. Changes to the Company’s estimate of the payments expected to be made to the purchaser over the term of such arrangements could have a material effect on the amount of revenues recognized in any particular period.

Stock-Based Compensation

The Company recognizes compensation expense for all stock-based payment awards made to the Company’s employees, consultants and directors that are expected to vest based on estimated fair values. The valuation of stock option awards is determined at the date of grant using the Black-Scholes Model. The Black-Scholes Model requires inputs such

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as the expected term of the option, expected volatility and risk-free interest rate. To establish an estimate of expected term, the Company considers the vesting period and contractual period of the award and its historical experience of stock option exercises, post-vesting cancellations and volatility. The estimate of expected volatility is based on the Company’s historical volatility. The risk-free rate is based on the yield available on United States Treasury zero-coupon issues corresponding to the expected term of the award. The Company records forfeitures when they occur. The Company records compensation expense for service-based awards on a straight-line basis over the requisite service period, which is generally the vesting period of the award, or to the date on which retirement eligibility is achieved, if shorter.

The grant date fair value of PSUs with market conditions are determined using the Monte Carlo valuation model. The Company records compensation expenses for PSUs based on graded expense attribution over the requisite service periods.

Equity Securities

The Company entered into a license agreement with Rezolute in December 2017, in which it received shares of common stock from Rezolute (Note 4). Equity investments in Rezolute are classified in the condensed consolidated balance sheets as equity securities. The equity securities are measured at fair value, with changes in fair value recorded in the other income (expense), net line item of the condensed consolidated statement of operations and comprehensive loss at each reporting period. The Company remeasures its equity investments at each reporting period until such time that the investment is sold or disposed of. If the Company sells an investment, any realized gains and losses on the sale of the securities will be recognized in the condensed consolidated statement of operations and comprehensive loss in the period of sale.

Purchase of Rights to Future Milestones, Royalties and Commercial Payments

The Company has purchased rights to receive a portion of certain future developmental, regulatory and commercial sales milestones, royalties and option fees on sales of products currently in clinical development or recently commercialized. The Company acquired such rights from various entities and recorded the amount paid for these rights as long-term royalty receivables (Note 5). In addition, the Company may be obligated to make contingent payments related to certain product development milestones, fees upon exercise of options related to future license products and sales-based milestones. The contingent payments are evaluated to determine if they are freestanding instruments or embedded derivatives. 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, and subject to remeasurement to fair value each reporting period. Any changes in the estimated fair value are recorded in the condensed consolidated statement of operations and comprehensive loss. Contingent consideration payments that do not fall within the scope of ASC 815 are recognized when the amount is probable and estimable according to ASC 450.

The Company accounts for milestone and royalty rights related to developmental pipeline or recently commercialized products on a non-accrual basis using the cost recovery method. These developmental pipeline products are non-commercialized, non-approved products that require FDA or other regulatory approval, and thus have uncertain cash flows. The recently commercialized products do not have an established reliable sales pattern, and thus have uncertain cash flows. The Company is not yet able to reliably forecast future cash flows given their stages of development and commercialization. The related receivable balance is classified as noncurrent or current based on whether payments are probable and reasonably estimable to be received in the near term. Under the cost recovery method, any milestone or royalty payment received is recorded as a direct reduction of the recorded receivable balance. When the recorded receivable balance has been fully collected, any additional amounts collected are recognized as revenue.

Allowance for Current Expected Credit Losses

The Company evaluates the long-term royalty and commercial payment receivables on a collective, i.e., pool, basis if they share similar risk characteristics. The Company would evaluate a royalty and commercial payment receivable individually if its risk characteristics are not similar to other royalty and commercial payment receivables. The Company reviews public information on clinical trials, press releases and updates from its partners regularly to identify any impairment indicators or changes in expected recoverability of the long-term royalty and commercial payment receivable

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asset. At each reporting date, if the Company determines expected future cash flows discounted to the current period are less than the carrying value of the asset, the Company will record impairment. The impairment will be recognized as an allowance expense that increases the long-term royalty and commercial payment receivable asset’s cumulative allowance, which reduces the net carrying value of the long-term royalty and commercial payment receivable asset. In a subsequent period, if there is an increase in expected future cash flows, or if the actual cash flows are greater than previously expected, the Company will reduce the previously established cumulative allowance. Amounts not expected to be collected are written off against the allowance at the time that such a determination is made.

Asset Acquisitions

As a first step, for each acquisition, the Company determines if it is an acquisition of a business or an asset acquisition under ASC 805. Acquisitions of assets or a group of assets that do not meet the definition of a business are accounted for as asset acquisitions under ASC 805-50, using the cost accumulation method, whereby the cost of the acquisition, including certain transaction costs, is allocated to the assets acquired on the basis of relative fair values (Note 4).

Contingent payments are evaluated whether they are freestanding instruments or embedded derivatives. If the contingent payments fall within the scope of ASC 815, the contingent payments are measured at fair value at the acquisition date, and subject to remeasurement to fair value each reporting period. The estimated fair value at the acquisition date is included in the cost of the acquired assets. Any subsequent changes in the estimated fair value are recorded in the condensed consolidated statement of operations and comprehensive loss. Contingent consideration payments that do not fall within the scope of ASC 815 are recognized when the amount is probable and estimable according to ASC 450.

Cash payments related to acquired assets are reflected as an investing cash flow in the Company’s condensed consolidated statement of cash flows.