XOMA Corporation (XOMA): PESTLE Analysis [Nov-2025 Updated]

You've seen XOMA Corporation's net income hit $25.6 million year-to-date through September 2025, which is defintely a strong signal for their royalty model. But honestly, that 29.90% revenue growth is now at the mercy of macro forces-specifically, the political pressure from the Inflation Reduction Act (IRA) and the $300 billion pharma patent cliff driving up royalty asset prices. We need to look beyond the balance sheet to the PESTLE factors to map out exactly where the near-term risks and opportunities lie for your investment.

Political Factors: Drug Pricing and Regulatory Headwinds

The biggest near-term risk for XOMA Corporation's royalty streams remains US drug pricing policy. Bipartisan pressure continues, driven by the Inflation Reduction Act (IRA), which introduces price negotiation for certain high-cost Medicare drugs. Plus, the looming threat of a Most Favored Nation (MFN) policy-capping Medicare drug prices at international lows-could directly impact the commercial value of their partnered assets. Geopolitical tensions also increase the supply chain disruption risk for those partners, which affects royalty reliability.

The US election cycle in late 2025 creates regulatory uncertainty around key agencies like the FDA and FTC. You need to assume regulatory oversight will tighten, not loosen, in the next 18 months. That's the reality of a high-margin industry.

Economic Factors: Robust Market Meets Inflation

The royalty finance market is still incredibly robust, showing an annualizing transaction volume of $5.42 billion for 2025. This means XOMA has plenty of deal flow. The potential for Federal Reserve interest rate cuts in late 2025 is a massive opportunity, as it will lower the cost of capital for XOMA's biotech partners, potentially accelerating their R&D timelines and commercial success.

However, the demand side is also getting expensive. Large pharma's looming $300 billion patent cliff is driving fierce competition for royalty acquisitions to fill pipelines, pushing up asset prices. Also, with US inflation projected near 2.8% for 2024-2025, your partners' R&D and operational expenses are rising, which can strain their ability to execute. Here's the quick math: lower interest rates help, but higher inflation hurts. It's a push-pull market.

Sociological Factors: Patient Demand and Public Scrutiny

The market is clearly focused on high-demand therapeutic areas like oncology, immunology, and the new GLP-1 cardio-metabolic drugs, which is where XOMA's portfolio should be concentrating. This focus drives higher potential returns. Investor sentiment remains positive, backed by XOMA's strong revenue growth at 29.90% year-to-date in 2025, which gives them a strong position in negotiations.

Still, public scrutiny over high US drug prices elevates the ESG (Environmental, Social, and Governance) risk profile for the entire biopharma sector. Growing patient demand for personalized or precision medicine is driving investment in targeted therapies, meaning your assets need to be in that space to capture premium value. You can't ignore the optics of access to care anymore.

Technological Factors: AI and Valuation Model Adaptation

The increased adoption of Artificial Intelligence (AI) in R&D is accelerating drug discovery for XOMA's partners, which is a net positive for their portfolio's speed-to-market. XOMA's asset-light model benefits significantly from partners using advanced data analytics to de-risk clinical trials earlier, reducing the chance of a late-stage failure. That's a key advantage of their business model.

The challenge is that royalty valuation models must adapt to the faster, but more volatile, development timelines driven by new technology. You also need to monitor the partners' ability to implement digital supply chain networks to manage the complex manufacturing and global distribution of these new therapies. Faster development doesn't mean easier commercialization.

Legal Factors: Governance and Patent Longevity

XOMA reincorporated from Delaware to Nevada in May 2025, which alters its state of corporate governance and could affect shareholder rights or tax treatment; you need to review the implications of this shift. Continued regulatory scrutiny on patent protection and exclusivity periods directly impacts the longevity and value of XOMA's royalty streams. A shorter patent life means a shorter income stream.

Litigation risk for product safety remains high in the US, potentially affecting commercialized royalty assets and requiring careful due diligence. Also, recent acquisitions, like HilleVax and LAVA Therapeutics in 2025, show a reliance on complex contingent value right (CVR) structures, which adds complexity to the legal and financial reporting. These CVRs are complicated instruments.

Environmental Factors: Asset-Light Advantage and Partner Compliance

Biopharma has an elevated ESG risk rating, specifically concerning product governance and access to care, which institutional investors are now prioritizing. The good news is XOMA's asset-light model mitigates direct operational environmental risk, as they aren't running manufacturing plants.

However, increasing investor focus on the sustainability of manufacturing and supply chain practices of partnered companies means XOMA must defintely monitor partners' waste disposal and carbon footprint reporting to satisfy those institutional investors. Partner compliance is key to XOMA's own ESG score. You are only as clean as your dirtiest partner.

Next Action: Finance: Draft a sensitivity analysis on the current royalty portfolio, modeling a 10% reduction in commercialized drug price (due to IRA/MFN risk) by the end of the quarter.

XOMA Corporation (XOMA) - PESTLE Analysis: Political factors

Bipartisan pressure continues on US drug pricing, driven by the Inflation Reduction Act (IRA).

You need to understand that the political appetite for lower drug prices isn't slowing down; it's intensifying and broadening. The Inflation Reduction Act (IRA) established the Medicare Drug Price Negotiation Program, forcing price talks for select high-cost drugs. This is a direct hit to the pharmaceutical industry's revenue base, and by extension, it pressures the royalty streams XOMA Corporation relies on.

The Centers for Medicare & Medicaid Services (CMS) concluded the first round of negotiations in late 2024, and the second round, covering 15 Part D drugs, was announced on January 17, 2025. Negotiated prices for these drugs will take effect on January 1, 2027. Furthermore, House Democrats introduced legislation on November 20, 2025, aimed at extending the IRA's negotiation program to include all Americans with private coverage and applying the inflation rebates to private health plans. This proposed expansion is estimated to save as much as $40 billion over the next decade alone. Here's the quick math: any reduction in the net price of a partnered drug, whether through Medicare negotiation or expanded inflation rebates, directly shrinks the royalty percentage XOMA receives.

Risk of a Most Favored Nation (MFN) policy capping Medicare drug prices at international lows.

A second, immediate pricing risk is the resurrection of a Most Favored Nation (MFN) policy, which seeks to cap U.S. drug prices at the lowest price paid by a set of developed foreign nations. President Trump signed an Executive Order on May 12, 2025, directing the Department of Health and Human Services (HHS) to compel manufacturers to align U.S. pricing with these international benchmarks, claiming a potential price reduction of 30% to 80%. This is a defintely a high-impact risk.

The administration has already announced five voluntary pricing agreements with major manufacturers, including Eli Lilly and Company and Novo Nordisk, to reduce prices on high-expenditure drugs like Ozempic and Wegovy. More concretely, on November 6, 2025, CMS announced a voluntary 'GENEROUS' payment model to implement MFN pricing in Medicaid, starting in 2026. While XOMA is a royalty aggregator and not the manufacturer, a price cut of that magnitude on a commercialized asset would severely diminish the value of its royalty interest.

Geopolitical tensions increase supply chain disruption risk for XOMA's partnered assets.

XOMA's revenue is derived from its partners' commercial activities, and those partners-like Pfizer and Johnson & Johnson, who are developing XOMA-partnered assets-are exposed to global supply chain shocks. The primary risk here is rising costs and potential drug shortages that limit sales volume, which would reduce XOMA's royalty receipts.

Specifically, the ongoing US-China trade tensions are driving up input costs. In July 2025, the US announced new tariffs on pharmaceutical imports, with the potential to rise as high as 200% over time. Tariffs already imposed on Active Pharmaceutical Ingredients (APIs) from China (a 25% duty) and India (a 20% duty) have resulted in reported API cost increases of 12-20% for some widely used molecules. Any cost increase for XOMA's partners is a drag on their profitability and commercial focus, which is bad for the royalty aggregator.

• US-China Tariffs: Up to 200% tariff warning on some pharmaceutical imports.
• API Cost Inflation: Reported 12-20% cost increase for key APIs due to tariffs.
• Impact on XOMA: Increased Cost of Goods Sold (COGS) for partners, potentially leading to lower sales volume from drug shortages or reduced marketing investment, impacting XOMA's royalty base.

US election cycle in late 2025 creates regulatory uncertainty around FDA and FTC oversight.

The political shift following the late 2024 election has created a new regulatory landscape in 2025, particularly at the Food and Drug Administration (FDA) and the Federal Trade Commission (FTC). XOMA's business model depends heavily on the successful, timely development and commercialization of its partners' pipeline assets, like PF-08046052 and JNJ-89853413.

New leadership at the FDA and HHS, including the expected nomination of a new FDA Commissioner, could lead to shifts in priorities, potentially affecting drug exclusivity rules or the speed of the regulatory review process. For a royalty aggregator, delays in a partner's Phase 3 trial readout, like Rezolute Bio's ersodetug trial or Gossamer Bio's seralutunib trial, directly impact the timing of milestone payments and future royalties. Plus, a new FTC leadership, with a potentially less aggressive stance on antitrust, is expected to create a more favorable M&A climate. This is actually an opportunity for XOMA, whose strategy is built on disciplined capital deployment and acquisitions like the Turnstone Biologics and LAVA Therapeutics deals completed in 2025. What this estimate hides is the risk that a more lenient FTC could also enable consolidation among XOMA's partners, which can sometimes slow down development or lead to pipeline reprioritization.

XOMA Corporation (XOMA) - PESTLE Analysis: Economic factors

Royalty finance market remains robust, with $\mathbf{\$5.42}$ billion in annualizing transaction volume for 2025.

The royalty finance market, which is XOMA Corporation's core business, is showing exceptional strength, providing a clear tailwind for its model. For the 2025 fiscal year, the aggregate transaction volume is annualizing at approximately $\mathbf{\$5.42}$ billion. This volume is trending slightly ahead of the $\mathbf{\$5.07}$ billion recorded in 2024, demonstrating that royalty monetization has matured into a strategic tool for biopharma, not just a last resort. This is good news: a robust market means more competition among royalty buyers and a more liquid asset class for XOMA's partners.

The average transaction size remains substantial, sitting at $\mathbf{\$225.94}$ million year-to-date in 2025. This confirms that even in a healthier equity environment, companies are choosing non-dilutive financing to fund late-stage trials or product launches. This market strength provides XOMA with a deep pool of potential royalty assets to acquire or finance.

Potential for Federal Reserve interest rate cuts in late 2025, lowering capital costs for biotech partners.

The Federal Reserve's monetary policy is a critical near-term factor. The Fed has already initiated rate cuts in 2025, with a high probability of further easing in the latter half of the year. Specifically, the market has priced in a high likelihood-over $\mathbf{87\%}$ in one late-summer 2025 projection-of a September rate cut, and SIFMA economists expect at least one additional cut by year-end 2025. This dovish shift is defintely a positive for the biotech sector.

Lower interest rates translate directly to a lower cost of capital for XOMA's biotech partners. When traditional debt financing becomes cheaper, it allows companies to preserve cash and invest more aggressively in R&D or commercialization. This can increase the value and predictability of the royalty streams XOMA holds or targets. Conversely, if the Fed reverses course due to sticky inflation, the cost of capital will rise, potentially forcing more companies into royalty monetization out of necessity, which could improve XOMA's negotiating leverage.

Large pharma's looming $\mathbf{\$300}$ billion patent cliff drives high demand for royalty acquisitions to fill pipelines.

The pharmaceutical industry is facing its most significant patent cliff in history between 2025 and 2030, with revenue at risk estimated to be between $\mathbf{\$230}$ billion in the US market and up to $\mathbf{\$400}$ billion globally. The $\mathbf{\$300}$ billion figure represents the massive revenue hole Big Pharma must fill. This impending loss of exclusivity on nearly 200 blockbuster drugs, including Merck's Keytruda, is the single biggest driver of M&A and royalty demand.

This situation creates a massive opportunity for XOMA. Large pharmaceutical companies need to acquire late-stage or commercial assets-the exact kind that generate royalties-to replenish their pipelines quickly. This has fueled a wave of deals, with biopharma M&A totaling over $\mathbf{\$48}$ billion in the first half of 2025 alone. XOMA benefits in two ways:

• Increased Royalty Value: A royalty asset becomes more valuable when a major pharmaceutical company acquires the underlying drug, as it brings greater commercialization power.
• Acquisition Target: XOMA's partners, who own the assets, become more attractive M&A targets, which can trigger milestone payments or accelerate royalty payments.

US inflation projected near $\mathbf{2.9\%}$ for 2024-2025, raising R&D and operational expenses.

While inflation has moderated, it is not gone. Key inflation metrics are projected to remain above the Federal Reserve's $\mathbf{2\%}$ target through 2025. For example, the year-over-year Personal Consumption Expenditures (PCE) inflation, the Fed's preferred measure, is projected near $\mathbf{2.9\%}$ for Q4 2025. This persistent inflation directly impacts biotech's bottom line by increasing operational expenses.

Higher inflation raises the cost of essential inputs for R&D, including specialized lab equipment, raw materials, and, crucially, labor costs for highly skilled scientists. This pressure forces biotech companies to prioritize cash conservation and focus on late-stage products that offer a quicker return. This dynamic makes non-dilutive financing options, like royalty monetization, more appealing for companies looking to fund their most promising programs without taking on expensive debt or diluting shareholders in a challenging equity market. It's a cost-push factor that funnels more clients toward XOMA's financing solutions.

XOMA Corporation (XOMA) - PESTLE Analysis: Social factors

Sociological

The social environment for XOMA Corporation, operating as a biotech royalty aggregator, is defined by shifting public health priorities, intense scrutiny on drug pricing, and a growing demand for specialized treatments. Your business model insulates you from direct research and development (R&D) costs, but your revenue stream is still tied to the commercial success and social acceptance of your partners' therapies.

Strong market focus on high-demand therapeutic areas like oncology, immunology, and GLP-1 cardio-metabolic drugs.

XOMA's strategy to acquire royalty rights is heavily concentrated in areas of high unmet medical need, which aligns with major social and investment trends. While you don't develop the drugs, your portfolio's value is directly linked to the success of assets in these high-demand fields. For instance, your commercial and late-stage assets directly target oncology and immunology, reflecting the social pressure to find new treatments for these pervasive diseases.

Your portfolio includes assets that address these key areas:

• Oncology: Assets like OJEMDA™ (tovorafenib) and Cetrelimab address various cancers, which remains the single largest therapeutic area for R&D spending globally.
• Immunology: Commercial assets such as VABYSMO® (faricimab-svoa) and Phase 3 assets like Rilvegostomig (AZD2936) focus on immune-mediated diseases, a market with significant patient volume and premium pricing power.
• Cardio-Metabolic: Though not a direct GLP-1 asset, your portfolio includes therapies for related conditions like pulmonary arterial hypertension (PAH) with Seralutinib, which are part of the broader, socially critical cardio-metabolic space.

Public scrutiny over high US drug prices elevates the ESG (Environmental, Social, and Governance) risk profile for biopharma.

The social license to operate for the entire biopharma sector is being challenged by high US drug prices, and this risk is material to your business model. The Inflation Reduction Act (IRA) of 2022, which allows the Secretary of Health and Human Services (HHS) to negotiate the price of certain high-expenditure, single-source drugs, creates a direct headwind for the future value of your acquired royalty streams. This legislative pressure is a direct response to public outcry over affordability.

This social concern translates into a measurable risk for XOMA Corporation:

• Your current ESG Risk Rating, as of July 2025, is 38.25, which places the company in the High Risk category for sustainability performance.
• The risk is amplified because a portion of your revenue comes from commercial products that could eventually be subject to price negotiation or increased rebate pressure, especially those with high sales volume like VABYSMO®.

Investor sentiment is positive, with XOMA's revenue growth at $\mathbf{29.90\%}$ year-to-date in 2025.

Investor sentiment is strong, driven by a significant turnaround in financial performance. Your strategic acquisitions and the commercial success of partnered products have generated substantial growth, demonstrating the effectiveness of the royalty aggregation model in the current environment. This positive sentiment is a key social factor, as it drives capital availability and valuation for future deals.

Here's the quick math on your recent performance, which underpins this positive sentiment:

The actual year-to-date revenue growth is a massive 93.94%, based on the reported $38.4 million in total income and revenue through September 30, 2025, compared to $19.8 million for the same period in 2024. That's a huge jump, and it's why investors are looking at your model so favorably.

Growing patient demand for personalized or precision medicine drives investment in targeted therapies.

The social shift toward personalized medicine-treatments tailored to a patient's genetic or molecular profile-is a major tailwind. Your portfolio is well-positioned for this trend because royalty aggregation naturally favors high-value, targeted therapies that address smaller, more specific patient populations (specialty and rare diseases). These assets often command higher prices, which translates to more valuable royalty streams.

Your portfolio reflects this precision focus through assets like:

• OJEMDA™ (tovorafenib): A pan-RAF inhibitor for pediatric low-grade glioma (pLGG), a highly targeted, rare cancer in children.
• MIPLYFFA™ (arimoclomol): Approved for Niemann-Pick Type C (NPC) disease, a rare and debilitating neurological disorder.
• ersodetug (RZ358): In Phase 3 for congenital hyperinsulinism (cHI), another rare, highly specific metabolic disorder.

These targeted therapies, while serving smaller patient groups, offer a higher probability of regulatory success and stronger pricing power, which is defintely a good thing for your royalty economics.

XOMA Corporation (XOMA) - PESTLE Analysis: Technological factors

The core technological factor for XOMA Corporation, a royalty aggregator, is not its own internal research and development, but the advanced capabilities of its partners. The rapid adoption of Artificial Intelligence (AI) and digital tools across the biopharma industry acts as a powerful, non-dilutive accelerator for XOMA's royalty assets, but it also introduces volatility into valuation models.

Increased adoption of Artificial Intelligence (AI) in R&D is accelerating drug discovery for partners.

You need to recognize that the speed of your partners' pipelines directly impacts your future royalty stream. AI is fundamentally changing the discovery phase. For the broader pharmaceutical sector, AI is projected to generate between $350 billion and $410 billion in annual value by the end of 2025, driven by R&D efficiencies. This isn't just theory; AI can reduce drug discovery costs by up to 40% and slash the exploratory timeline from five years to as little as 12-18 months. That means your partners get to a value inflection point faster. The global AI in drug discovery market itself is valued at approximately $6.93 billion in 2025, showing the scale of investment.

Here's the quick math: faster development means earlier market entry, which accelerates the start date for your royalty cash flows. This is a defintely positive trend for your portfolio.

XOMA's portfolio benefits from partners using advanced data analytics to de-risk clinical trials earlier.

The biggest risk in biotech is clinical failure, and advanced data analytics are mitigating this for your partners. AI-driven platforms are optimizing patient matching and trial protocols, which can cut clinical trial costs by up to 70% per trial and reduce timelines by up to 80%. This de-risking is critical for XOMA, whose portfolio includes early-stage partnered assets like the bispecific antibodies acquired through the LAVA Therapeutics transaction, which are partnered with Johnson & Johnson and Pfizer. These major pharmaceutical companies are heavily invested in AI to accelerate their clinical programs.

The financial impact of this is seen most clearly at the Phase 2 readout, which is a key value inflection point for investors. The use of AI makes the data from these early trials cleaner and more predictive, increasing the confidence in a successful Phase 3 trial.

• AI reduces clinical trial costs by up to 70%.
• Positive Phase 2 results are the most significant value inflection point.
• XOMA's partners are leveraging these tools to accelerate clinical readouts.

Need for digital supply chain networks to manage complex manufacturing and global distribution of new therapies.

As your partners bring more complex, often temperature-sensitive, biologic and gene therapies to market, the supply chain becomes a major risk factor. A digital supply chain (Pharma Supply Chain 2.0) is no longer optional. A survey found that 85% of biopharma executives plan to invest in data, AI, and digital tools in 2025 specifically to build supply chain resiliency. Furthermore, 90% of these executives are investing in smart manufacturing.

This investment is necessary to manage the cold chain logistics required for many modern therapies. Partners are implementing cloud-based 'control tower' dashboards and IoT-enabled smart sensors to track temperature and location in real-time. If a partner's supply chain fails, it can lead to product loss, regulatory issues, and a direct hit to the sales from which your royalties are derived. This is a commercial risk you must monitor closely.

Royalty valuation models must adapt to the faster, but more volatile, development timelines driven by new tech.

The speed of AI-driven development creates a challenge for traditional valuation methods like Risk-Adjusted Net Present Value (rNPV). The core inputs of the rNPV model-Probability of Success (PoS) and development timelines-are being compressed and made more volatile. A faster timeline reduces the time to peak sales and increases the present value of future royalties, which is a clear benefit.

However, the binary risk of drug development remains. Negative clinical news causes a sharp drop in valuation: a Phase 3 failure destroys approximately 22% of a company's value, while a Phase 2 failure destroys 16%. The valuation is shifting from a steady, linear de-risking process to one with sharper, more frequent inflection points. This means your acquisitions team needs to be even more precise in assessing a partner's underlying technology platform.

Finance: draft a sensitivity analysis for all Phase 2 and Phase 3 assets in the portfolio, modeling a 12-month acceleration in their timeline to see the potential upside in net present value by the end of Q4 2025.

XOMA Corporation (XOMA) - PESTLE Analysis: Legal factors

XOMA reincorporated from Delaware to Nevada in May 2025, altering its state of corporate governance.

You need to understand the fundamental shift in corporate governance that took place in May 2025, when XOMA Royalty Corporation formally reincorporated from Delaware to Nevada. This change, effective May 30, 2025, is a direct response to a growing trend, sometimes called 'DEXIT,' where companies seek a more favorable legal environment for directors and officers.

The move to Nevada provides a clearer, more predictable application of the Business Judgment Rule (BJR), which offers greater protection for company leadership against shareholder litigation. Plus, Nevada law eliminates the annual Delaware franchise tax, which XOMA cited as a factor in its rationale. This is a simple cost-benefit calculation that reduces administrative and litigation overhead.

• Eliminates Delaware franchise tax, saving administrative costs.
• Anticipates potential cost savings in Director and Officer (D&O) insurance premiums.
• Offers a legal framework designed to reduce opportunistic shareholder litigation.

Continued regulatory scrutiny on patent protection and exclusivity periods impacts the longevity of royalty streams.

As a royalty aggregator, XOMA's core valuation hinges on the duration of its intellectual property (IP) rights, but the political environment is making that duration less certain. The Inflation Reduction Act (IRA), for instance, has created a major legal distinction that directly affects the value of new royalty assets.

Specifically, small-molecule drugs are subject to Medicare price negotiation after only 9 years of market pricing, while large-molecule biologics get 13 years. This legal disparity incentivizes partners to focus on biologics, and it forces XOMA to model a significantly shorter exclusivity period for small-molecule royalty streams, which can materially and adversely impact future cash flow forecasts. The ongoing legislative debate, such as the proposed EPIC Act in March 2025 to equalize this to 13 years, shows the volatility of the legal landscape.

Here's the quick math on the IRA's impact:

Litigation risk for product safety remains high in the US, potentially affecting commercialized royalty assets.

Even though XOMA does not manufacture the drugs, it owns the royalty stream, meaning any major product safety litigation against its partners can severely disrupt or eliminate that revenue. Litigation risk is a latent headline risk that you must monitor closely.

A January 2025 case study highlighted this risk for one of the commercialized royalty assets, VABYSMO (faricimab-svoa), which is used to treat age-related macular degeneration. The study warned that the injections may increase the risk of inflammation and blindness, which opens the door to potential product liability claims against the manufacturer. For XOMA, a successful product liability suit against a partner could lead to a massive sales drop, regulatory withdrawal, or a settlement that drains the partner's resources, directly impairing the royalty asset's value. In the first nine months of 2025, XOMA received $30.3 million in royalties and commercial payments, so any threat to a commercialized asset is a threat to the current cash base.

Acquisitions, like HilleVax and LAVA Therapeutics in 2025, require complex contingent value right (CVR) structures.

XOMA's strategy of acquiring entire companies like HilleVax and LAVA Therapeutics in August 2025, rather than just slicing off IP rights, introduces a new layer of legal and financial complexity: the Contingent Value Right (CVR). These CVRs are non-transferable rights that promise future cash payments to the acquired company's former shareholders based on specific post-acquisition events.

This deal structure is defintely a creative way to limit upfront cash payments, but it creates a long-term legal obligation and potential liability that is highly dependent on future events. For instance, the LAVA Therapeutics acquisition was updated in November 2025 with an initial cash amount of $1.04 per share, plus a CVR that grants the holders a right to 75% of the net proceeds from LAVA's partnered pipeline. The HilleVax CVR is even more complex, tied to cost savings and asset sales.

Here is a breakdown of the CVR mechanics for the August 2025 deals:

These CVRs add uncertainty to the final acquisition cost and require constant legal and financial monitoring to ensure compliance with the specific, multi-layered payment triggers.

XOMA Corporation (XOMA) - PESTLE Analysis: Environmental factors

Biopharma has an elevated ESG risk rating, specifically concerning product governance and access to care.

The biopharma sector, as a whole, carries an elevated environmental, social, and governance (ESG) risk profile, but the primary concern for investors often centers on the 'S' and 'G' pillars-specifically product governance and access to care. For example, while the Social pillar is generally considered the most impactful on a company's MSCI ESG score, the Environmental pillar has shown the most significant forward movement in the sector. This means that while social issues are a high-weighted risk, environmental performance is where companies are making the most measurable progress. Transparency is defintely the name of the game now.

In 2025, the Environmental pillar saw the most notable progress over the past three years in the Biotechnologies & Pharmaceuticals sector, gaining 10 points since 2022 in one assessment. This progress is driven by a massive increase in capital allocation; major pharmaceutical companies are spending an estimated $5.2 billion yearly on environmental programs, which is a 300% increase from 2020 levels.

Increasing investor focus on the sustainability of manufacturing and supply chain practices of partnered companies.

Investor scrutiny is shifting from a company's direct operations to its entire value chain, particularly the manufacturing and supply chain practices of its partners. Since XOMA Corporation is a royalty aggregator, its financial performance is tied to the commercial success of its partners' products, which means their environmental risks become XOMA's indirect risks. The industry is responding with concrete sustainability targets.

For instance, companies that adopted sustainable practices in 2025 reduced their carbon emissions by an average of 30% to 40%. This is not just about goodwill; it's about compliance and operational efficiency. The European Union's Corporate Sustainability Reporting Directive (CSRD), which is taking effect, mandates that large companies report extensively on ESG impacts, including all scopes of emissions, starting in 2025. This regulatory pressure funnels down to every contract manufacturer and supply chain partner.

• 85% of biopharma executives are investing in AI/digital tools for regulatory compliance in 2025.
• Over 80% of companies have invested in IoT sensors to monitor energy use.
• Companies are cutting water usage by up to 40% through advanced recycling systems.

XOMA's asset-light model mitigates direct operational environmental risk, but partner compliance is key.

XOMA's business model as a biotech royalty aggregator is inherently asset-light, meaning it does not own or operate the manufacturing plants, laboratories, or complex logistics networks that generate the biopharma industry's most significant environmental footprints. This structure significantly mitigates XOMA's direct exposure to environmental liabilities like chemical waste disposal or high energy consumption. Honestly, they don't make the drugs, so they don't have the direct cleanup bill.

In its March 2025 filing, XOMA stated its belief that there are no significant compliance issues with environmental laws that have adversely affected its business, and it does not anticipate material capital expenditures from environmental regulation at this time. However, the risk shifts entirely to partner compliance. XOMA's portfolio includes partnered assets with major pharmaceutical firms like Johnson & Johnson and Pfizer, whose manufacturing and supply chain practices are now the critical environmental variable.

The company must definitely monitor partners' waste disposal and carbon footprint reporting to satisfy institutional investors.

The indirect environmental risk from XOMA's partnered assets is a material concern for institutional investors who increasingly use ESG performance as a screening criterion. The company's monitoring strategy must move beyond simple contractual compliance to active oversight of key environmental metrics. This is the new due diligence.

The primary environmental risks for XOMA's partners stem from manufacturing, which includes chemical waste, high water usage, and greenhouse gas (GHG) emissions. The following table outlines the critical environmental factors XOMA must indirectly manage through its partner agreements to maintain investor confidence and mitigate future financial risk:

The action is clear: XOMA needs to formalize a partner ESG audit framework that targets these specific environmental metrics, demanding auditable data on waste and carbon footprint to satisfy the sophisticated reporting needs of its capital providers. Finance: draft a partner ESG disclosure requirement addendum by end of Q1 2026.