XOMA Royalty Corp (XOMA)

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act, and the Private Securities Litigation Reform Act of 1995, which are subject to the “safe harbor” created by those sections. Forward-looking statements are based on current expectations, estimates and forecasts, as well as our management’s beliefs and assumptions and on information currently available to them, and are subject to risks and uncertainties that are difficult to predict. In some cases you can identify forward-looking statements by words such as “may,” “will,” “should,” “might,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “targets,” “forecasts,” “potential,” “intend” “goal,” “guidance,” “strategy,” “continue,” “design,” and similar words, expressions or the negative of such terms. Examples of forward-looking statements include, but are not limited to, statements regarding: the proposed merger with Ligand (the “Merger”), our ability to complete the proposed Merger in a timely manner or at all, including the satisfaction or waiver of various conditions to the consummation of the Merger, trend analyses and statements regarding future events, future financial performance, including future income related to VABYSMO and OJEMDA, anticipated growth, and industry prospects, our future operating expenses, our future losses, the success of our strategy as a royalty aggregator, the assumptions underlying our business model, the extent to which issued and pending patents may protect the products and processes in which we have an ownership or royalty interest and prevent the use of the covered subject matter by third parties, the potential of our existing product candidates to lead to the development of commercial products, our ability to receive potential milestone or royalty payments under license and collaboration agreements and the amount and timing of receipt of those payments, our ability to locate suitable assets to acquire, our ability to complete (on a timely basis or at all) and realize the benefits from acquisitions, uncertainties related to the acquisition of interest in development-stage and clinical-stage product candidates, fluctuations in and our ability to predict our operating results and cash flows, and the sufficiency of our capital resources. Forward-looking statements are based on assumptions that may not prove accurate. Actual results and outcomes, or the timing of actual results and outcomes, could differ materially from those anticipated due to certain risks, including risks inherent in the biotechnology industry and for our licensees engaged in the development of new products in a regulated market. Among other things: there can be no assurance that our revenues, income or expenses will meet any expectations or follow any trend(s); we may be unable to complete the proposed Merger in a timely manner or at all, including as a result of events that could give rise to the termination of the Merger Agreement; we may be unable to retain our key employees; litigation, arbitration or other disputes with third parties may not be resolved in our favor and have a material adverse effect on us; our product candidates subject to our out-license agreements are still being developed, and our licensees’ may require substantial funds to continue development which may not be available; we may not be successful in entering into out-license agreements for our product candidates; if our therapeutic product candidates do not receive regulatory approval, our third-party licensees will not be able to manufacture and market them; products or technologies of other companies may render some or all of our product candidates noncompetitive or obsolete; we do not know whether there will be, or will continue to be, a viable market for the products in which we have an ownership or royalty interest; even once approved, a product may be subject to additional testing or significant marketing restrictions, its approval may be withdrawn or it may be voluntarily taken off the market; we and our licensees are subject to various state and federal healthcare related laws and regulations that may impact the commercialization of our or our third-party licensee’s product candidates and could subject us or them to significant fines and penalties, and could be impacted by changes or disruptions at the FDA and other government agencies; we and our third-party licensees may be impacted by general macroeconomic and business conditions in key regions of the world, including inflationary pressures, general economic slowdown or a recession, high interest rates, changes in monetary policy, changes in trade policies, including tariffs or other trade restrictions or the threat of such actions, government shutdowns, instability in financial institutions and geopolitical instability (including conflicts in the Middle East and related volatility in commodity prices, including the price of oil). These and other risks and uncertainties are described in more detail in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2025, elsewhere in this Quarterly Report on Form 10-Q and in our other filings with the SEC.

Forward-looking statements are inherently uncertain and you should not place undue reliance on these statements, which speak only as of the date that they were made. These cautionary statements should be considered in connection with any written or oral forward-looking statements that we may issue in the future. Except as required by law,

55

Table of Contents

we do not undertake any obligation to revise or update publicly any forward-looking statements after completion of the filing of this Quarterly Report on Form 10-Q to reflect later events or circumstances, the occurrence of unanticipated events, or otherwise.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. While we believe that we have a reasonable basis for these statements, our information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

All references to “portfolio” in this Quarterly Report on Form 10-Q are to milestone and/or royalty rights associated with a basket of product candidates in development.

We use our trademarks, trade names, and services marks in this Quarterly Report as well as trademarks, trade names, and service marks that are the property of other organizations. Solely for convenience, trademarks and trade names referred to in this Quarterly Report appear without the ® and ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or that the applicable owner will not assert its rights, to these trademarks and trade names.

The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with the audited consolidated financial statements and related notes thereto included as part of our Annual Report on Form 10-K for the year ended December 31, 2025.

Overview

XOMA is a royalty aggregator. We have a sizable portfolio of economic rights to future potential milestone and royalty payments associated with over 120 commercial and pre-commercial therapeutic candidates. In 2017, we transformed our business model to become a royalty aggregator. We subsequently advanced our portfolio by building upon our existing out-licensing agreements for proprietary products and platforms through the acquisition of rights to future milestones, royalties and commercial payments. Currently, our portfolio is anchored by royalty streams and milestone payments derived from seven commercial-stage assets. In the first quarter of 2026, we received $16.1 million in commercial payments. Our royalty aggregator business is primarily focused on early to mid-stage clinical assets, primarily in Phase 1 and 2 development, which we believe have significant commercial sales potential and that are licensed to well-funded sponsors or developers with established expertise in developing and commercializing drugs. We also acquire milestone and royalty revenue streams on late-stage clinical assets and commercial assets that are designed to address unmet markets or have a therapeutic advantage over other treatment options, and have long duration of market exclusivity. We expect most of our future revenue and income to be based on payments we may receive for milestones and royalties associated with these assets as well as the periodic recognition of income under the EIR method.

The generation of future revenues and income related to licenses, milestone payments, and royalties is dependent on the achievement of milestones or product sales by our existing partners and licensees. We generated a net income of $4.5 million for the three months ended March 31, 2026, net cash provided by operating activities was $6.1 million for the three months ended March 31, 2026, and we had an accumulated deficit of $1.2 billion as of March 31, 2026. We generated a net income of $31.7 million, and net cash provided by operating activities was $2.9 million for the year ended December 31, 2025, and we had an accumulated deficit of $1.2 billion as of December 31, 2025.

Ligand Merger Agreement

On April 27, 2026, we entered into a definitive agreement with Ligand under which Ligand will acquire us for $39.00 per share of common stock in cash, for a total equity value of approximately $739.0 million, plus one non-transferable CVR per share entitling the holder to receive a portion of 75% of the net proceeds, if any, that may result from ongoing litigation initiated by us against Janssen. The transaction was approved by the boards of directors of both companies; furthermore, XOMA’s officers, directors and certain funds affiliated with BVF Partners Parent, which

56

Table of Contents

collectively beneficially own approximately 47% of outstanding shares (assuming the conversion of XOMA’s Series X Convertible Stock), entered into voting agreements in support of the acquisition. XOMA’s outstanding shares of Series A Preferred Stock and Series B Preferred Stock are expected to be redeemed in connection with the transaction. The merger is anticipated to close in the third quarter of 2026, subject to customary closing conditions and approval by our stockholders, among other conditions.

Recent Business Developments

Completed Acquisitions

Generation Bio Acquisition

In February 2026, we acquired Generation Bio through a tender offer for $4.2913 in cash per share of Generation Bio common stock and one non-transferable CVR per share of Generation Bio common stock, resulting in total purchase consideration of $34.4 million.

​

Under the Generation Bio CVR Agreement, CVR holders are entitled to a portion of net proceeds from any product-level financing or from the sale, transfer, license, or other disposition of Generation Bio IP occurring within five years after the merger closing, with payments over a ten-year period ranging from 70% to 30% of the net proceeds. CVR holders are also entitled to a share of net proceeds from the Moderna Collaboration and License Agreement, ranging from 90% to 50% of the net proceeds in years one through ten following the merger closing. CVR holders

[Excerpt truncated for page length; source filing is linked above.]

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

XOMA is a royalty aggregator. We have a sizable portfolio of economic rights to future potential milestone and royalty payments associated with over 120 commercial and pre-commercial therapeutic candidates. In 2017, we transformed our business model to become a royalty aggregator. We subsequently advanced our portfolio by building upon our existing out-licensing agreements for proprietary products and platforms through the acquisition of rights to future milestones, royalties and commercial payments. Currently, our portfolio is anchored royalty streams and milestone payments derived from seven commercial-stage assets. In 2025, we received $33.6 million in commercial payments and $16.9 million from milestone payments and other fees, for total cash receipts of $50.5 million. Our royalty aggregator business is primarily focused on early to mid-stage clinical assets, primarily in Phase 1 and 2 development, which we believe have significant commercial sales potential and that are licensed to well-funded sponsors or developers with established expertise in developing and commercializing drugs. We also acquire milestone and royalty revenue streams on late-stage clinical assets and commercial assets that are designed to address unmet markets or have a therapeutic advantage over other treatment options, and have long duration of market exclusivity. We expect most of our future revenue and income to be based on payments we may receive for milestones and royalties associated with these assets as well as the periodic recognition of income under the EIR method.

The generation of future revenues and income related to licenses, milestone payments, and royalties is dependent on the achievement of milestones or product sales by the sponsors, marketers, and licensees. We generated a net income of $31.7 million and net cash provided by operating activities was $2.9 million for the year ended December 31, 2025. We generated a net loss of $13.8 million and net cash used in operating activities was $13.7 million for the year ended December 31, 2024. We had an accumulated deficit of $1.2 billion as of December 31, 2025.

Recent Business Developments

Completed Acquisitions

Mural Acquisition

In December 2025, we acquired Mural for $2.035 per ordinary share and RSU, for a total purchase price of approximately $37.6 million. The transaction included the acquisition of short-term financial assets, such as cash and prepaid expenses. Because the fair value of these net assets exceeded the purchase price, we recognized a $3.2 million bargain purchase gain in other income (expense), net for the year ended December 31, 2025.

LAVA Acquisition

In November 2025, we acquired LAVA through a tender offer for $1.04 in cash per LAVA ordinary share and one non-transferable CVR per share, resulting in total purchase consideration of $39.0 million. As a part of the acquisition, we acquired IP assets related to LAVA’s existing partnered programs with J&J and Pfizer, as well as LAVA-1266, a clinical program for acute myeloid leukemia and myelodysplastic syndrome. We have no plans to develop LAVA-1266, which is instead targeted for divestiture through sale or licensing. The value of the acquired IP assets was reduced by the excess of the fair value of the net assets acquired over the initial consideration based on the relative fair value of each IP. We are entitled to 25% of the net proceeds related to sales or licenses of these programs.

71

Table of Contents

Under the LAVA CVR Agreement, CVR holders are entitled to 75% of the net proceeds from ongoing and future collaborations related to the partnered programs over a 10-year period, 75% of the net proceeds from the disposition of LAVA-1266, 100% of the amount by which LAVA’s closing net cash exceeds the amount of closing net cash as determined by the LAVA Merger Agreement, minus any permitted deductions, as well as 100% of the tax reserve in the amount of approximately $6.3 million minus any permitted tax reserve matter expenses. In March 2026, we distributed $2.1 million to the LAVA CVR holders representing the excess net cash received in the transaction.

HilleVax Acquisition

In September 2025, we acquired HilleVax through a tender offer for $1.95 in cash per share of HilleVax common stock, plus one non-transferable CVR per share of HilleVax common stock, totaling approximately $105.3 million in purchase consideration. As part of the merger, we acquired IP assets related to HIL-216, a pre-clinical vaccine candidate, and assumed existing lease and sublease agreements. We have no plans to develop HIL-216, which is instead targeted for divestiture through sale or licensing. Under the HilleVax CVR Agreement, CVR holders are entitled to 90% of the net proceeds from the disposition of HIL-216 if sold within two years of the merger, 100% of the remaining unused funds in the related expense fund at the end of the two-year period, any adjustment of HilleVax’s closing net cash, 100% of security deposit receipts associated with the Boston Lease, and 100% of lease payment obligations saved or the amount received from any subtenant associated with the Boston Lease if subleased within twelve months and 90% if subleased after twelve months. As a result of the acquisition, we recognized a $17.9 million bargain purchase gain included in other income (expense), net for the year ended December 31, 2025.

​

Turnstone Acquisition

In August 2025, we acquired Turnstone through a tender offer for $0.34 in cash per share of Turnstone common stock and one non-transferable CVR per share of Turnstone common stock, resulting in total purchase consideration of approximately $9.6 million. As part of the merger, we acquired certain short-term financial assets, primarily consisting of cash, receivables, prepaid expenses, and other current assets. Under the Turnstone CVR Agreement, CVR holders are entitled to 100% of the net proceeds from specified Turnstone tax receivables and a lease security deposit. As a result of the acquisition, we recognized a $1.8 million bargain purchase gain included in other income (expense), net for the year ended December 31, 2025.

Other Business Developments

Generation Bio Acquisition

In February 2026, we acquired Generation Bio through a tender offer for a base price of $4.2913 in cash per Generation Bio’s ordinary share and one non-transferrable CVR per share.

Repare Acquisition and XenoTherapeutics Arranger Letter

In November 2025, the Repare Acquisition Agreement was executed, pursuant to which we acted as structuring agent in connection with the acquisition of Repare’s issued and outstanding common shares by Xeno. Xeno agreed to pay us an arranger fee of $3.0 million following the closing of the Repare acquisition for the services we rendered, which fee was received in January 2026. BVF, a related party of the Company, owned approximately 24.0% of Repare before its acquisition by Xeno. The Repare acquisition closed on January 28, 2026.

ESSA Acquisition and XenoTherapeutics Arranger Letter

In October 2025, we acted as structuring agent in connection with the acquisition of ESSA’s issued and outstanding common shares by Xeno. As part of the ESSA Acquisition Agreement, we agreed, among other things, to provide bridge financing to Xeno. To facilitate the closing of the acquisition, we extended a short-term loan of $5.9 million to Xeno, which was repaid in October 2025. Additionally, Xeno paid us an arranger fee of $3.0 million following the closing of the ESSA acquisition for the services we rendered in October 2025, which fee was received in October 2025. BVF, a related party of the Company, owned approximately 24.7% of ESSA before its acquisition by Xeno.

72

Table of Contents

2025 Common Stock ATM Agreement

On October 3, 2025, we entered into a new ATM Agreement with Leerink under which we may offer and sell from time to time at our sole discretion shares of our common stock through Leerink as our sales agent, in an aggregate amount not to exceed $75.0 million. Leerink may sell the shares by any method permitted by law deemed to be an “at the market” offering as defined in Rule 415 of the Securities Act and will use its commercially reasonable efforts consistent with its normal trading and sales practices to sell the shares up to the amount specified. We will pay Leerink a commission of up to 3% of the gross proceeds of any shares of common stock sold under the 2025 Common Stock ATM Agreement. From October 3, 2025 through December 31, 2025, we sold 8,966 shares of our common stock under the 2025 Common Stock ATM Agreement for net proceeds of approximately $0.3 million, and paid approximately $10,000 in commissions.

2025 Series B Preferred Stock ATM Agreement

On October 3, 2025, we also entered into a new ATM agreement with HCW under which we may offer and sell from time to time at our sole discretion depositary shares, each representing 1/1000th of a share of our Series B Preferred Stock, through HCW as our sales agent, in an aggregate amount not to exceed $50.0 million. HCW may sell the depositary shares by any method permitted by law deemed to be an “at the market” offering as defined in Rule 415 of the Securities Act and will use its commercially reasonable efforts consistent with its normal trading and sales practices to sell the depositary shares up to the amount specified. We will pay HCW a commission of up to 3% of the gross proceeds of any depositary shares sold under the 2025 Series B Preferred Stock ATM Agreement. From October 3, 2025 through December 31, 2025, we sold 160,500 shares of our Series B Depository Shares under the 2025 Series B Preferred Stock ATM Agreement for net proceeds of approximately $4.0 million, and paid approximately $0.1 million in commissions with $0.1 million of fees waived.

Common Stock Buyback

In December 2025, we repurchased 539,131 shares of our common stock from one of our stockholders, for aggregate consideration of $13.6 million.

Portfolio Updates

Rezolute License Agreement

In May 2025, Rezolute dosed the last patient in its first Phase 3 trial of ersodetug (RZ358), and we earned a $5.0 million milestone payment pursuant to our Rezolute License Agreement. In December 2025, Rezolute announced the Phase 3 clinical study for ersodetug did not meet its primary and key secondary endpoints. In February 2026, Rezolute announced that it is undertaking extensive analysis of the trial results and other endpoints. Rezolute expects to meet with the FDA prior to the end of the first quarter of 2026 under its Breakthrough Therapy Designation to determine next steps for the program.

BioInvent License Agreement

In 2003, BioInvent granted us a non-exclusive license to BioInvent's product patents and know-how in exchange for future milestones and royalty payments from us under the BioInvent License Agreement. In 2006, we collaborated with Takeda to discover and develop antibodies, leading to the joint development of mezagitamab (TAK-079), which leveraged BioInvent's patents and know-how under the BioInvent License Agreement.

In May 2025, we entered into the BioInvent Agreement to acquire all of BioInvent's remaining rights to milestone payments and royalties owed by us under the BioInvent License Agreement. We paid BioInvent $20.0 million at closing and will be obligated to make an additional $10.0 million contingent payment upon FDA approval of mezagitamab.

73

Table of Contents

Kinnate Acquisition

As of April 2, 2025, we completed the sale of all five pipeline assets that were acquired in the acquisition of Kinnate in April 2024. We are eligible to receive up to $270.0 million in upfront and milestone payments, as well as future royalty payments at rates ranging from the low single digits to mid-teens on commercial sales. Pursuant to the terms of Kinnate Merger Agreement, holders of the Kinnate CVR

[Excerpt truncated for page length; the complete text is on the linked full-MD&A page.]