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Turnstone Biologics was set up to develop a pioneering class of drugs back in 2014. But a decade later, it was hanging by a thread, having slashed most of its pipeline. Following several rounds of layoffs, the cash-strapped biotech’s acquisition is its saving grace. How did it all go down, and what’s in it for Turnstone’s buyer, XOMA Royalty? Turnstone Biologics: from aspirations of being a cancer therapeutics leader to layoffs and pipeline cuts When Turnstone Biologics was founded, its team had high hopes for the California-based biotech to “lead the fight against solid tumors.” At first, it was keen on developing oncolytic viruses, which are engineered to attack and kill cancer cells. This was around the time that pharma giants took a shining to adding oncolytic viruses to their rosters. So, Turnstone caught the eye of biopharmas, such as AbbVie and Takeda. It landed a $90 million deal with AbbVie in 2017 and a $120 million one with Takeda in 2019. However, both deals were terminated in 2021 and 2022, with Takeda returning its oncolytic virus candidate RIVAL-01. This spurred layoffs in 2022. Soon enough, Turnstone expanded its focus. It purchased the California-based startup Myst Therapeutics to get a hold of the latter’s tumor-infiltrating lymphocyte (TIL) therapy pipeline, becoming a contender in a space that included fellow American biotechs Iovance Biotherapeutics – which bagged regulatory approval for its skin cancer TIL Amtagvi last year – and Obsidian Therapeutics. Turnstone’s pipeline seemed ambitious at first, with its new lead TIL candidate TIDAL-01 entering the clinic to address a range of cancers in 2022. Different from CAR-T therapies, TILs are typically extracted from a patient's tumor and expanded outside the body before being infused back into the patient. These cells are naturally able to recognize markers on cancer cells to then attack them. While its big pharma partnerships ended, Turnstone’s faith in TIL therapies led to it going public for $80 million in 2022. This was at a time when biotech initial public offerings (IPOs) were on a low, as stock prices dropped severely during an economic downturn across the industry, after the sector’s heyday in 2021. Then in August last year, the biotech revealed encouraging initial phase 1 results for TIDAL-01. It had a 25% overall response rate (ORR) and 50% disease control rate (DCR) in the first four patients with advanced colorectal cancer who were given the therapy. Moreover, a complete response was achieved in heavily pre-treated late-line patient, with progression-free survival extending beyond one year. However, this was also when Turnstone narrowed TIDAL-01's focus to treat only colorectal cancer, head and neck squamous cell carcinoma, and uveal melanoma in the clinic, ditching cutaneous melanoma and breast cancer indications. It then cut 60% of its workforce to “align resources towards manufacturing and clinical development,” according to Sammy Farah, Turnstone’s president and chief executive officer (CEO). Then, things got even worse. The biotech let go of its only remaining candidate, TIDAL-01, and axed more jobs, blaming manufacturing costs in February. It also announced that it was open for an acquisition. XOMA Royalty pays Turnstone to wind down operations So, in late June, XOMA Royalty swooped in to buy the cancer therapeutics company that was once worth $80 million for around $7.9 million. It offered $0.34 per share in cash to Turnstone in exchange for the rest of the latter’s cash reserves, which was around $21.8 million in March, as well as its TIL pipeline, including the discontinued clinical candidate TIDAL-01. As XOMA deemed the company as acquisition-worthy, it received a fee to acquire and wind down the company's remaining operations and return capital to Turnstone's shareholders, explained Brad Sitko, chief investment officer of XOMA Royalty. “We have dubbed this process Liquidation as a Service (LaaS), creating a ‘win-win’ scenario for our shareholders and their shareholders. This ‘fee’ provides additional capital on our balance sheet to acquire more royalties, repurchase XOMA shares, and run our business. Turnstone’s investors have a liquidity event where we unlocked value, and they are able to receive cash for their shares quickly, without the long and expensive process of winding down a business,” said Sitko to Labiotech. This is XOMA's second buyout in 2025. In a $30 million royalty deal, it bought the milestones and royalties of the drug mezagitamab from the Swedish drug developer BioInvent in May. The phase 3 anti-CD38 monoclonal antibody was licensed by Takeda from BioInvent to further develop it for treating primary immune thrombocytopenia, a bleeding disorder. Just in April, the Swedish biotech received a $1 million milestone payment from Takeda for the drug. Now, the milestones worth up to $16.25 million will be earned by the royalty aggregator XOMA Royalty. “XOMA knows mezagitamab quite well given that we already own part of the royalty, and believe Takeda has confidence in this phase 3 drug and the future market potential based on their recent research and development (R&D) day. We were pleased to provide capital to BioInvent through a royalty monetization, so they could invest in their oncology pipeline,” said Sitko. “The opportunity to acquire more of the mezagitamab royalty presented itself, and XOMA was excited to be able to provide capital to BioInvent in exchange for upsizing our royalty.” The antibody drug was born from BioInvent’s n-CoDeR antibody library containing more than 30 billion human antibody genes stored within phage viruses in test tubes. It kicked off phase 3 trials last year after it had snagged fast track and orphan drug designations from the U.S. Food and Drug Administration (FDA). Royalty deals on the move in the biopharma sector: XOMA inks deals over the years In the biopharma industry, royalty aggregators essentially acquire the rights for future royalty and milestones from companies by offering cash up front. By buying the rights of these drug candidates, they obtain a stake in potential revenues. “Royalty deals are an important alternative to selling shares, and therefore another tool in the chief financial officer’s (CFO’s) tool chest when figuring out ways to fund a clinical program to a critical inflection point,” said Sitko. Sitko believes that the biotech industry is “more focused than ever” on capturing shareholder value, “meaning generating value on a ‘per share’ basis.” But XOMA operates a bit differently from other royalty aggregators, according to Sitko. They provide money to biotechs in exchange for at-risk, future payments from partnered programs. “A biotech company partners with a pharma, and the biotech receives an upfront payment as well as a promise of milestones and royalties if the program is successful. XOMA Royalty provides non-dilutive, non-recourse capital today in exchange for those future milestones and royalties. We are the only royalty aggregator who has done this at all phases of clinical development – phase 1, phase 2, phase 3, and commercial,” said Sitko. Late last year, XOMA bought New York-based drug developer Pulmokine for $20 million, picking up the kinase inhibitor seralutinib along the way. The candidate, which is in phase trials, is being tested to treat pulmonary arterial hypertension, a type of high blood pressure that affects the blood vessels that carry blood from the heart to the lungs, called the pulmonary arteries. If seralutinib does well in the clinic and beyond, XOMA stands to make up to $25 million in milestone payments. What do royalty deals bring to the table? While royalty deals are not unique, they are not typical in the biopharma sector, especially since equity deals and partnerships have been the cornerstone of the industry. But the 2020s have seen a spike in this type of funding. One of the most notable royalty funding deals was Blackstone Life Sciences’ $2 billion collaboration with Massachusetts-based Alnylam Pharmaceuticals to advance RNA medicines in 2020, at a time when the COVID-19 crisis was at its peak. “Royalty deals are increasing in biopharma as companies are looking at more creative ways to raise capital in challenging equity markets. Royalty monetization can often be cheaper than the cost of equity dilution and more flexible than debt, which needs to be repaid and can be onerous,” said Sitko. “Royalty deals are typically non-recourse, which allows biotech companies to run their business how they see fit – unencumbered and with freedom to operate.” And in the past year, several biopharmas have resorted to signing royalty deals with the likes of Royalty Pharma and HealthCare Royalty. Royalty Pharma, in particular, bankrolled a few pipelines of late. It plans to spend up to $2 billion on Revolution Medicines for a portion of Revolution’s profits if its lead cancer drug enters the market. Similarly, it inked a $125 million deal with blood cancer therapeutics company Geron for the cancer drug Rytelo’s royalties. And, it forged a $350 million royalty agreement with New York-based Syndax Pharmaceuticals for the latter’s FDA-approved monoclonal antibody Niktimvo back in November. Will big pharma collaborations be cast aside? Until royalty aggregators came into the picture, big pharmas were the ones seizing licensing opportunities – but in a different manner, as the biotechs licensing out their technologies were entitled to milestone payments. So, does this threaten biopharma licensing collaborations? Apparently not, according to a financial advisor in a report by BioSpace. George Shuster Jr., partner at American law firm WilmerHale, explained in the article that big pharma “has been happy to take a backseat and allow other companies to take a risk in the short term,” allowing for more therapies to get ahead in development. This takes the pressure off multinational pharmas to invest in several therapeutic candidates. However, as royalty deals typically arise at a time of market unpredictability – allowing startups and young biotechs creating novel technologies to rake in money upfront – whether this trend will last is not certain. But it looks like they won’t be disappearing from the scene anytime soon, and the growing portfolios of royalty aggregators like XOMA Royalty are proof of this.