XOMA Royalty Corp (XOMA) FY 2023 MD&A

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

Overview

XOMA is a biotech royalty aggregator. We have a sizable portfolio of economic rights to future potential milestone and royalty payments associated with partnered commercial and pre-commercial therapeutic candidates. Our portfolio was built through the acquisition of rights to future milestones, royalties and commercial payments, since our royalty aggregator business model was implemented in 2017, combined with out-licensing our proprietary products and platforms from our legacy discovery and development business. Our royalty aggregator business is primarily focused on early to mid-stage clinical assets, primarily in Phase 1 and 2, with significant commercial sales potential that are licensed to large-cap partners. 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, have long duration of market exclusivity, and are expected to deliver a financial return to us in a short timeframe. We expect most of our future revenue to be based on payments we may receive for milestones and royalties associated with these programs.

The generation of future revenues related to licenses, milestone payments, and royalties is dependent on the achievement of milestones or product sales by our existing licensees. We generated a net loss of $40.8 million and net cash used in operating activities was $18.2 million for the year ended December 31, 2023, and we had an accumulated deficit of $1.2 billion as of December 31, 2023. We generated a net loss of $17.1 million and net cash used in operating activities was $12.9 million for the year ended December 31, 2022.

Significant Business Developments

Kinnate Acquisition

On February 16, 2024, we entered into an agreement to acquire Kinnate for a base cash purchase price of $2.3352 per share and an additional cash payment amount of up to $0.2527 per share upon the closing of the merger plus a non-transferable contingent value right per share, representing the right to receive 85% of the net proceeds, if any, from any out license or sale of the Kinnate programs effected within one year of closing of the merger and 100% of the net proceeds, if any, from any out license or sale of certain Kinnate programs entered into prior to the closing of the merger.  We expect this acquisition to provide additional cash to our balance sheet and potentially add several programs to our portfolio. This merger is expected to close in April 2024.

Blue Owl Loan Agreement

On December 15, 2023, our wholly owned subsidiary, XRL, entered into the Blue Owl Loan Agreement, pursuant to which we borrowed $130.0 million.  We received a net cash amount of $119.6 million after the payment of $4.1 million in fees and lender expenses and $6.3 million that was deposited into reserve accounts to pay interest, administrative fees and XRL’s operating expenses. We also incurred $0.6 million in direct issuance costs related to the Blue Owl Loan Agreement. The Blue Owl Loan is secured by, and is expected to be repaid based upon, commercial payments from Roche’s VABYSMO, pursuant to the Affitech CPPA (see Note 8 to the consolidated financial statements). The carrying value of the short and long-term portion of the initial term loan was $5.5 million and $118.5 million, respectively as of December 31, 2023.

In connection with the Blue Owl Loan Agreement, we issued warrants to certain funds associated with Blue Owl to purchase (i) up to 40,000 shares of our common stock at an exercise price of $35.00 per share; (ii) up to 40,000 shares of our common stock at an exercise price of $42.50 per share; and (iii) up to 40,000 shares of our common stock at an exercise price of $50.00 per share (collectively, the “Blue Owl Warrants”) (see Note 12 to the consolidated financial statements).

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Owen Hughes Appointed as Chief Executive Officer

On January 7, 2024, the Board appointed Owen Hughes as our Chief Executive Officer (principal executive officer) and Jack L. Wyszomierski as Chairman of the Board. Mr. Hughes previously served as our Executive Chairman and Interim Chief Executive Officer beginning on January 1, 2023. In connection with his appointment, Mr. Hughes will receive an annual base salary of $575,000 and will be eligible to receive an annual discretionary cash bonus with a target amount equal to 60% of his annual base salary upon the achievement of annual performance milestones to be established by the Board.

Stock Repurchase Program

In January 2024, our Board authorized our first stock repurchase program, which permits us to purchase up to $50.0 million of our common stock through January 2027. Under the program, we have discretion in determining the conditions under which shares may be purchased from time to time, including through transactions in the open market, in privately negotiated transactions, under plans compliant with Rule 10b5-1 under the Exchange Act, as part of accelerated share repurchases or by other means in accordance with applicable laws. The manner, number, price, structure, and timing of the repurchases, if any, will be determined at our sole discretion and repurchases, if any, depend on a variety of factors, including legal requirements, price and economic and market conditions, royalty and milestone acquisition opportunities, and other factors. The repurchase authorization does not obligate us to acquire any particular amount of our common stock. The Board may suspend, modify, or terminate the stock repurchase program at any time without prior notice. As of March 4, 2024, we have purchased 660 shares of common stock pursuant to this stock repurchase program.

Portfolio Updates – Royalty and Commercial Payment Purchase Agreements

Talphera Commercial Payment Purchase Agreement

In January 2024, we acquired an economic interest in DSUVIA from Talphera, for $8.0 million. DSUVIA was approved in 2018 by the FDA for use in adults in certified medically supervised healthcare settings. In April 2023, Talphera divested DSUVIA to Alora Pharmaceuticals for an upfront payment, a 15% royalty on commercial net sales, a 75% royalty on net sales to the DoD, and up to $116.5 million in milestone payments. Under the terms of the agreement, we are entitled to receive 100% of all royalties and milestones related to DSUVIA sales until we receive $20.0 million. Once we receive $20.0 million, the 75% royalties generated from DoD purchases and the remaining $116.5 million in potential milestone payments due from Alora will be shared equally between us and Talphera. We will fully retain the 15% royalty associated with DSUVIA commercial sales.

LadRx Agreements

In June 2023, we entered into the LadRx AAA pursuant to the which we acquired from LadRx all of its rights, title and interests related to arimoclomol under the Zevra RPA. We also entered into the LadRx RPA, pursuant to which we acquired the right to receive all of the future royalties, regulatory and commercial milestone payments as well as other related payments due to LadRx from ImmunityBio related to aldoxorubicin under the ImmunityBio License Agreement. The purchased rights related to arimoclomol include potential regulatory and commercial milestone payments of up to $52.5 million (net of certain payment obligations of up to $9.5 million based on a portion of the regulatory and commercial milestone payments) and potential royalty payments in low single-digit percentages of aggregate net sales associated with arimoclomol. The purchased payments related to aldoxorubicin include potential regulatory and commercial milestone payments of up to $342.7 million and royalty payments on aggregate net sales of aldoxorubicin in the low to mid-teens for sales of orphan indications and mid to high single-digit percentages for sales of other licensed products. Upon closing of the LadRx Agreements, we paid LadRx an upfront payment of $5.0 million.

In January 2024, Zevra announced the FDA accepted its NDA resubmission for arimoclomol, and pursuant to the LadRx RPA, we paid LadRx a $1.0 million milestone payment in January 2024. We may pay up to an additional $1.0 million commercial milestone related to arimoclomol and an additional $4.0 million regulatory milestone related to aldoxorubicin.

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Viracta Royalty Purchase Agreement

In October 2023, we earned a $5.0 million milestone payment related to the FDA’s acceptance of Day One Biopharmaceuticals’ NDA for tovorafenib as a monotherapy in relapsed or progressive pediatric low-grade glioma.

Affitech Commercial Payment Purchase Agreement

Pursuant to our Affitech CPPA, we are eligible to receive commercial payments from Roche consisting of 0.5% of net sales of VABYSMO for a ten-year period following the first commercial sale in each applicable jurisdiction. In 2022, VABYSMO was approved by the FDA and the EMA for the treatment of wet, or neovascular, age-related macular degeneration and diabetic macular edema. In October 2023, the FDA approved VABYSMO for the treatment of retinal vein occlusion.

Payments are due from Roche within 60 days of December 31 and June 30 of each year.  In 2023 and 2022, we received commercial payments totaling $7.3 million and $0.5 million, respectively, and in February 2024, we received $7.4 million. Based on net sales of VABYSMO in 2023, we paid Affitech sales milestones totaling $6.0 million in March 2024, and we may pay up to an additional $6.0 million in milestones based on the achievement of certain sales thresholds in future periods.

Aptevo Commercial Payment Purchase Agreement

In March 2023, we entered into the Aptevo CPPA, pursuant to which we acquired the full commercial payment stream and a portion of the milestone rights to IXINITY, which is marketed by Medexus for the control and prevention of bleeding episodes and postoperative management in people with Hemophilia B. We are eligible to receive a mid-single digit percentage payment stream on all IXINITY sales from January 1, 2023 until the first quarter of 2035, and also expect to be entitled to receive milestone payments. Under the terms of the Aptevo CPPA, in 2023 we paid Aptevo a $9.6 million upfront payment plus a $50,000 one-time payment when the first commercial payment exceeded $0.5 million. In 2023, we received $1.7 million in commercial payments pursuant to this agreement.

ObsEva IP Acquisition Agreement

In October 2023, Organon notified us of its intent to terminate the Organon License Agreement effective as of January 21, 2024, which we assumed pursuant to the ObsEva IP Acquisition Agreement dated November 21, 2022. We were not entitled to any milestone payments with respect to any milestone achieved by Organon following the termination date. We evaluated the related intangible asset balance for impairment in the fourth quarter of 2023 and recorded an impairment charge of $14.2 million as of December 31, 2023 (see note 4 to the consolidated financial statements).

Bioasis Royalty Purchase Agreement

In June 2023, Bioasis announced the suspension of all of its operations and the termination of the research collaboration and license agreement between Bioasis and Chiesi. We do not expect to receive any milestone, royalty or other payments under the Biosis RPA or Second Bioasis RPA and accordingly, we recorded an impairment charge of $1.6 million in the second quarter of 2023.

Portfolio Updates - License and Collaboration Agreements

In April 2023, we earned a $0.5 million milestone payment from Janssen, upon dosing of the first patient in a Phase 3 clinical trial evaluating one of Janssen’s biologic assets. In addition, during 2023, we also earned $1.0 million in milestone payments for five additional milestones related to IND filings, pursuant to our agreement with Janssen.

Critical Accounting Estimates

The preparation of financial statements in accordance with GAAP requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of

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contingent assets and liabilities. We routinely evaluate our estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form our basis for making judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that are not readily apparent from other sources. Actual results may differ from those estimates under different assumptions and conditions.

Critical accounting estimates are those estimates that involve a significant level of judgment and/or estimation uncertainty and could have or are reasonably likely to have a material impact on our financial condition or results of operations. We believe the following critical accounting policies and estimates describe the more significant judgments and estimates used in the preparation of our consolidated financial statements.

Purchase of Rights to Future Milestones, Royalties and Commercial Payments

We have purchased rights to receive a portion of certain future developmental, regulatory and commercial sales milestone payments, royalties and option fees on sales of products currently in clinical development or recently commercialized. We acquire such rights from various entities and record the amount paid for these rights as long-term royalty receivables. We have accounted for the purchased rights as a financial asset in accordance with ASC 310 (see Note 5 to the consolidated financial statements).

Receivables

We account for milestone and royalty rights related to developmental pipeline or recently commercialized products on a non-accrual basis using the cost recovery method. Except for VABYSMO and IXINITY, our other developmental pipeline products are non-commercialized, non-approved products that require FDA or other regulatory approval, and thus have uncertain cash flows. VABYSMO received FDA approval in January 2022, was approved by Japan’s Ministry of Health, Labour, and Welfare in March 2022, and was approved by the EU’s EC in September 2022. In October 2023, the FDA approved VABYSMO for the treatment of retinal vein occlusion. As of December 31, 2023, these recently commercialized products have not yet established a reliable sales pattern under the respective royalty term. The carrying balances of receivables for VABYSMO and IXINITY are classified as current receivables based on whether payments to be received in the near term are presumed to become probable and reasonably estimable. Under the cost recovery method, any milestone, royalty, or other 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 will be recognized as revenue.

Contingent Payments

We may be obligated to make contingent payments related to certain product development milestones, fees upon exercise of options related to future licensed 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 during each reporting period. Any changes in the estimated fair value are recorded in the consolidated statements 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.

Allowance for Current Expected Credit Losses

We review our allowance for current expected credit losses for impairment on a quarterly basis based on updates from our partners, press releases and public information on clinical trials. If we determine an impairment is necessary, the impairment recorded will be based on an estimate of discounted future cash flows, which will rely on assumptions including probability of technical success and discount rate. Changes to these assumptions could have a material impact on our financial statements. In June 2023, Bioasis announced the suspension of all its operations and the termination of the research collaboration and license agreement between Bioasis and Chiesi and, as a result, we recorded an impairment charge of $1.6 million (see Note 5 to the consolidated financial statements).

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Intangible Assets

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Our intangible assets consist of IP acquired in the ObsEva IP Acquisition Agreement in 2022. We review our intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amount of an asset group to the future net undiscounted cash flows that the assets are expected to generate. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset group exceeds the fair value of the asset group. In October 2023, Organon notified us of its intent to terminate the Organon License Agreement effective as of January 21, 2024, which we assumed pursuant to the ObsEva IP Acquisition Agreement. As such, in the fourth quarter of 2023 we recorded an impairment charge of $14.2 million (see Note 4 to the consolidated financial statements).

Stock-Based Compensation

Stock-based compensation expense for stock options and other stock awards is estimated at the grant date based on the award’s fair value-based measurement. The valuation of stock-based compensation awards is determined on the date of grant using the Black-Scholes Model. This model requires highly complex and subjective inputs, such as the expected term of the option and expected volatility. These inputs are subjective and generally require significant analysis and judgment to develop. Our current estimate of volatility is based on the historical volatility of our stock price. To the extent volatility in our stock price increases in the future, our estimates of the fair value of options granted in the future could increase, thereby increasing stock-based compensation expense recognized in future periods. To establish an estimate of expected term, we consider the vesting period and contractual period of the award and our historical experience of stock option exercises, post-vesting cancellations and volatility. The risk-free rate is based on the yield available on U.S. Treasury zero-coupon issues. Forfeitures are recognized as they occur.

The grant date fair values of PSUs with market conditions are determined using the Monte Carlo valuation model. This model requires highly complex and subjective inputs, such as probability estimates. We record compensation expense for PSUs based on graded expense attribution over the requisite service periods.

We review our valuation assumptions quarterly and update our valuation assumptions used to value stock-based awards granted in future periods utilizing then-current data. In future periods, as additional empirical evidence regarding input estimates becomes available, we may change or refine our approach of deriving these input estimates. These changes could impact our fair value-based measurement of stock options granted in the future. Changes in the fair value-based measurement of stock awards could materially impact our operating results.

Results of Operations

Revenues

Total revenues for the years ended December 31, 2023 and 2022, were as follows (in thousands):

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Revenue from Contracts with Customers

Revenue from contracts with customers includes upfront fees, annual license fees and milestone payments related to the out-licensing of our legacy product candidates and technologies. Revenue from contracts with customers for the year ended December 31, 2023 primarily included milestone payments of $1.5 million and $1.0 million pursuant to the license agreements with Janssen and an undisclosed licensee, respectively. Revenue from contracts with customers for the

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year ended December 31, 2022 primarily included milestone payments of $2.0 million pursuant to our Rezolute License Agreement, $0.8 million pursuant to the Takeda Collaboration Agreement, $0.8 million pursuant to our license agreement with an undisclosed licensee  and $0.5 million pursuant to our Sonnet Collaboration Agreement.

Revenue Recognized under Units-of-Revenue Method

Revenue recognized under the units-of-revenue method includes the amortization of unearned revenue from the sale of royalty interests to HCRP in 2016. The increase for the year ended December 31, 2023 compared with the year ended December 31, 2022 was due to increased sales of products underlying the agreements with HCRP.

R&D Expenses

R&D expense was $0.1 million for the year ended December 31, 2023, which was consistent with $0.2 million for the year ended December 31, 2022. We expect our R&D expenses to increase in 2024 related to our acquisition of Kinnate.

G&A Expenses

G&A expenses include salaries and related personnel costs, professional fees, and facilities costs. For the year ended December 31, 2023, G&A expenses were $25.6 million compared with $23.2 million for the year ended December 31, 2022. The increase of $2.4 million was primarily due to a $5.5 million increase in stock-based compensation, partially offset by a $2.1 million decrease in consulting and legal expenses and a $0.9 million decrease in salaries and related expenses. We expect G&A expenses to increase in 2024 due to the appointment of Mr. Hughes as our full-time Chief Executive Officer in January 2024.  We expect G&A expenses to further increase due to an anticipated increase in activity related to our evaluation of potential royalty acquisitions.

Impairment Charges

Impairment charges of $15.8 million for the year ended December 31, 2023 consisted of the impairment recorded related to our Bioasis RPAs of $1.6 million in the second quarter of 2023 and the impairment of our ObsEva intangible asset of $14.2 million in the fourth quarter of 2023.

Arbitration Settlement Costs

Arbitration settlement costs of $4.1 million for the year ended December 31, 2023 consisted of the costs incurred related to the settlement of an arbitration proceeding with one of our licensees in the first quarter of 2023.

Other Income (Expense)

Interest Expense

The accretion of debt discount and debt issuance costs is included in interest expense. Interest expense is shown below for the years ended December 31, 2023 and 2022 (in thousands):

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For the periods presented, we had no debt outstanding or interest expense incurred until we executed the Blue Owl Loan Agreement on December 15, 2023.  The $0.6 million interest expense reported for the year ended December

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31, 2023, represents interest incurred on the Blue Owl Loan since its inception. Interest expense is expected to increase in future years so long as the Blue Owl Loan remains outstanding.

Other Income (Expense), Net

The following table shows our activity in other income (expense), net for the years ended December 31, 2023 and 2022 (in thousands):

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Investment income increased by $1.0 million for the year ended December 31, 2023 compared with the year ended December 31, 2022 due to higher market interest rates. For the years ended December 31, 2023 and 2022, the change in fair value of equity securities was due to the change in market price of shares of Rezolute’s common stock.  For the year ended December 31, 2023, the change in fair value of contingent consideration was due to the reduction in the fair value of the $75,000 contingent consideration to zero related to the Bioasis RPA (see Note 5 to the consolidated financial statements).

Provision for Income Taxes

We recorded no income tax provision for the year ended December 31, 2023 and an income tax benefit of $15,000 for the year ended December 31, 2022. We continue to maintain a full valuation allowance against our remaining net deferred tax assets. We had a total of $5.9 million of gross unrecognized tax benefits, none of which would impact our effective tax rate to the extent that we continue to maintain a full valuation allowance against our deferred tax assets. We do not expect our unrecognized tax benefits to change significantly over the next twelve months.

Liquidity and Capital Resources

The following table summarizes our unrestricted cash and cash equivalents, our working capital and our cash flow activities as of and for each of the periods presented (in thousands):

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Net cash used in operating activities for the year ended December 31, 2023 was $18.2 million and primarily included our operating expenses of $46.6 million partially offset by non-cash expenses of $26.2 million, which primarily

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included stock-based compensation of $9.1 million and impairment charges of $15.8 million, a $1.5 million milestone payment received from Janssen and a $1.0 million milestone payment received from an undisclosed licensee. Net cash used in operating activities for the year ended December 31, 2022 was $12.9 million and primarily included our operating expenses of $23.4 million, partially offset by non-cash expenses of $4.4 million, which primarily included stock-based compensation of $3.6 million, partially offset by a $2.0 million milestone payment received from Rezolute, a $0.8 million milestone payment received from Takeda and a $0.8 million milestone payment received from an undisclosed licensee.

Net cash used in investing activities for the year ended December 31, 2023 was $0.7 million, and primarily included a $9.6 million payment to Aptevo for the acquisition of payment rights pursuant to the Aptevo CPPA in March 2023 and a $5.0 million payment to LadRx for the acquisition of payment rights pursuant to the LadRx Agreements in June 2023, partially offset by $7.3 million in commercial payments from sales of VABYSMO, $1.7 million in commercial payments from sales attributable to IXINITY and $5.0 million in milestone payments pursuant to the Viracta RPA. Net cash used in investing activities for the year ended December 31, 2022 was $20.2 million, and primarily included $15.2 million paid for the IP acquired pursuant to the ObsEva IP Acquisition Agreement in November 2022 and $8.0 million of regulatory milestone payments pursuant to the Affitech CPPA, partially offset by a $2.5 million milestone payment received from Kuros in July 2022 and a $0.5 million commercial payment received from Roche in August 2022.

Net cash provided by financing activities for the year ended December 31, 2023 was $120.6 million and primarily included net proceeds of $125.7 million after the payment of $4.3 million of debt issuance costs and fees paid related to the Blue Owl Loan, partially offset by a payment of dividends of $5.5 million on our Series A and Series B Preferred Stock. Net cash used in financing activities for the year ended December 31, 2022 was $4.5 million and primarily included dividends on our Series A and Series B Preferred Stock of $5.5 million, partially offset by the receipt of net cash provided from the exercise of stock options after related tax payments of $1.0 million.

Capital Resources

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We have incurred significant operating losses since our inception and as of December 31, 2023, we had an accumulated deficit of $1.2 billion. As of December 31, 2023, we had $153.3 million in unrestricted cash and cash equivalents and $6.3 in restricted cash. Based on our current cash balance and our planned discretionary spending, such as royalty acquisitions, we believe that our current financial resources are sufficient to fund our planned operations, commitments, and contractual obligations for a period of at least one year following the filing date of this report.

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We have primarily financed our operations and acquisitions through debt facilities, the issuance of our common stock, Series A and Series B Preferred Stock, and amounts received as milestone payments under our license agreements. In December 2023, XRL entered into the Blue Owl Loan Agreement (see further details below in “Long-Term Debt”). We intend to use the net cash received from the Blue Owl Loan, together with our existing capital resources, to fund our ongoing company operations, to repurchase common stock and for working capital and other general corporate purposes.

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The generation of future revenues related to licenses, milestone payments, and royalties is dependent on the achievement of milestones or product sales by our existing licensees. Milestone payments earned in the years ended December 31, 2022 and 2023 are not indicative of anticipated milestone payments in future periods. We may seek additional capital through our 2018 Common Stock ATM Agreement or our 2021 Series B Preferred Stock ATM Agreement (see Note 12 to the consolidated financial statements), or through other public or private debt or equity transactions. Our ability to raise additional capital in the equity and debt markets, should we choose to do so, is dependent on a number of factors, including, but not limited to, the market demand for our common and preferred stock, which are subject to a number of development and business risks and uncertainties, our creditworthiness and whether were are able to raise such additional capital at a price or on terms that are favorable to us, if at all. If we are unable to raise additional funds when we need them, our business and operations may be adversely affected.

Material Cash Requirements

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Our material cash requirements in the short and long term consist of the following:

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Operating expenditures: Our primary uses of cash and our operating expenses include employee and related costs, consultant fees to support our administrative and business development efforts, legal and accounting fees, insurance

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costs and costs associated with our investor relations and IT services. Our planned spending includes increased personnel-related costs associated with the appointment of Mr. Hughes to Chief Executive Officer in a full-time capacity.

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To support our royalty aggregator business model, we engage third parties to assist in the evaluation of potential acquisitions of milestone payments and royalty streams. Additional operating expenses, including consulting and legal costs, may increase in 2024 in response to an anticipated increase in the volume of acquisition targets evaluated or completed.

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In June 2023 we entered into a lease for our headquarters in Emeryville, California. The lease commenced in November 2023 and has a term of 65 months. As of December 31, 2023, we expect to incur incremental undiscounted costs of $0.5 million associated with our building lease.

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Long-Term Debt: Under the Blue Owl Loan Agreement, the outstanding principal balance will bear interest at an annual rate of 9.875%.  XRL is expected to make payments of interest under the Blue Owl Loan Agreement semi-annually, beginning in March 2024 using the royalties received on worldwide net sales of VABYSMO, pursuant to the Affitech CPPA. On each interest payment date, any shortfall in interest payment will be paid from the interest reserve, any uncured shortfall in interest payment that exceeds the interest reserve will increase the outstanding principal amount of the loan, and any royalty payments in excess of accrued interest on the loan will be used to repay the principal of the loan until the balance is fully repaid. As of December 31, 2023, XRL held restricted cash of $6.3 million in reserve accounts that may only be used to pay interest and administrative fees and XRL’s operating expenses pursuant to the Blue Owl Loan Agreement. As of December 31, 2023, the current and non-current portion of the initial term loan was $5.5 million and $118.5 million, respectively, and $0.2 million and $6.1 million of the restricted cash is classified as current and non-current, respectively.

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RPAs, AAAs and CPPAs: A significant component of our business model is to acquire rights to potential future milestone payments and royalty payment streams. We expect to continue deploying capital toward these acquisitions in the near and long term.

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We have potential contingent consideration of $7.0 million recorded on our consolidated balance sheets as of December 31, 2023, which consists of $6.0 million for sales milestones due under our agreement with Affitech and $1.0 million for a milestone payment due under our agreement with LadRx. We have up to an additional $6.0 million and $5.0 million in milestone payments that may become due under the Affitech CPPA and LadRx Agreement, respectively.

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In addition, we have potential sales-based milestone payments that may become due under our agreements with Aronora and Kuros. All of these milestones and royalty payments represent a portion of the funds we may receive in the future pursuant to these agreements, and therefore we expect these payments to be fully funded by the related royalty or commercial payment receipts.

Collaborative Agreements, Royalties and Milestone Payments: We may need to make potential future milestone payments and pay legal fees to third parties as part of our licensing and development programs. Payments under these agreements become due and payable only upon the achievement of certain developmental, regulatory and commercial milestones by our licensees. Because it is uncertain if and when these milestones will be achieved, such contingencies, aggregating up to $6.3 million (assuming one product per contract meets all milestone events) have not been recorded on our consolidated balance sheet as of December 31, 2023. We are unable to determine precisely when and if our payment obligations under the agreements will become due as these obligations are based on milestone events, the achievement of which is subject to a significant number of risks and uncertainties. We expect all payments due to be funded by a portion of the related milestone or royalty revenue we receive or we expect these payments to be reimbursed by our licensees.

Dividends: Holders of our Series A Preferred Stock are entitled to receive, when and as declared by our Board, cumulative cash dividends at the rate of 8.625% of the $25.00 liquidation preference per year (equivalent to $2.15625 per share of Series A Preferred Stock per year). Holders of Series B Depositary Shares are entitled to receive, when and as declared by our Board, cumulative cash dividends at the rate of 8.375% of the $25,000 liquidation preference per share of Series B Preferred Stock ($25.00 per depositary share) per year, which is equivalent to $2,093.75 per year per share of

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Series B Preferred Stock ($2.09375 per year per depositary share). Dividends on the Series A and Series B Preferred Stock are payable in arrears on or about the 15th day of January, April, July and October of each year. Since original issuance, all dividends have been paid as scheduled. We expect to continue making these dividend payments as scheduled using our existing capital resources.

Recent Accounting Pronouncements

See Note 2 to the consolidated financial statements for information regarding new accounting pronouncements.