Where Does XOMA Corporation (NASDAQ:XOMA) Go Next?

Before we get started, take a look at this snippet pulled from an article we published back in April covering development stage biotechnology play XOMA Corporation (NASDAQ:XOMA):

"The strategy, or so it seems, now, is this: pull an antibody out of the proprietary technology, and trial it to get some preclinical proof of concept. Once this proof of concept is established, license it to an entity with deeper pockets, take an upfront capital injection, and then sit back and let the milestones hit."

When we said that, the company was suffering from a dip in market sentiment based on questions surrounding its ability to fund its pretty extensive pipeline through to commercialization and management's efforts to keep costs down as much as possible.Back then, XOMA was trading for a share price of around $6.50 a share.By the close of last week, the company went for $10.82, its highest ­level in almost 12 months and a 67% premium to the price at which we suggested it was worth a look. And what's driving the action? As we predicted, the company just struck a licensing deal for one of its early stage assets, and not just any licensing deal, a deal with healthcare behemoth Novartis AG (ADR) (NYSE:NVS).As a result of the agreement, the latter has picked up the global commercial rights to gevokizumab, a novel anti-IL-1 beta allosteric monoclonal antibody, and also a license to XOMA's intellectual property covering the use of IL-1 beta targeting antibodies in the treatment of cardiovascular disease. In return, XOMA has picked up a host of capital type injections, including a $31 million upfront payment, so-called 'significant' pre- and post-commercialization milestone payments plus tiered high-single to mid-double-digit royalties on net sales of gevokizumab. Further, the company will get low-single-digit royalties on canakinumab sales in cardiovascular indications rising to mid-single-digit royalties under certain circumstances.As a bonus, Novartis has agreed to settle XOMA’s €12 million debt to an entity called Les Laboratoires Servier and will also extend the maturity date on the company's debt to Novartis from September 2020 to September 2022.So why is this such a big deal? Well, the debt repayment amounts to almost half of the company's total outstanding debt and the $31 million basically trebles runway. Dilution, the risk of which is what held this company down during the early part of 2017, is now off the table. Further, with a big name like Novartis buying into your technology (the technology that underpins a large portion of XOMA's pipeline) it is far easier to attract other big names in similar deals for alternative assets based on the same tech.And that's without the potential recurring revenues and milestone payments that XOMA stands to receive from Novartis as the latter pushes gevokizumab and canakinumab along the respective development pathways and towards commercialization.So what is our forward thesis on this one?Well, when we covered this one back in April, we pointed out that (as illustrated by the above quote) XOMA's strategy is conducive to steady long-term and relatively risk absent growth. Sure, the company isn't going to generate billions of dollars on a single asset if it licenses said asset ahead of commercialization, but with a strong enough pipeline of development stage drugs and a roster of licensing agreements in place, there is plenty of room for revenue generation going forward. Not only that, but the diversification of asset types across a range of different indications and as supported by a range of different big-name entities in the biotechnology and healthcare sector removes any real asset specific risk from the equation.With this noted, we expect this Novartis deal to be just one of many that hit press during the coming few years and – by proxy – we expect that this recent one is just the start of a longer-term upside revaluation for XOMA.In other words, there's still plenty of time left to get into the stock, even with the recent action taken into account.Check out our previous coverage of this stock here. We will be updating our subscribers as soon as we know more. For the latest updates on XOMA, sign up below!Image courtesy of NIAID via FlickrDisclosure: We have no position in XOMA and have not been compensated for this article.