•the ability of our publicly announced preliminary clinical trial data to support continued clinical development and regulatory approval for specific treatments;
•our ability to protect our intellectual property position;
•the rate and degree of market acceptance and clinical utility of our products;
•costs of compliance and our failure to comply with new and existing governmental regulations;
•the capabilities and strategy of our suppliers and vendors including key manufacturers of our clinical drug supplies;
•significant competition in our industry;
•costs of litigation and the failure to successfully defend lawsuits and other claims against us;
•the potential loss or retirement of key members of management;
•our failure to successfully execute our growth strategy including any delays in our planned future growth;
•our failure to maintain effective internal controls; and
•our ability to accurately estimate expenses, future revenues, capital requirements and needs for additional financing.
The factors, risks and uncertainties referred to above and others are more fully described under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and this Quarterly Report on Form 10-Q. Forward-looking statements should be regarded solely as our current plans, estimates and beliefs. We cannot guarantee future results, events, levels of activity, performance, or achievements. We do not undertake and specifically decline any obligation to update, republish or revise forward-looking statements to reflect future events or circumstances or to reflect the occurrences of unanticipated events.
Patents, licenses, and other intangible assets, net
17,919
18,663
Restricted cash
385
380
Marketable debt securities - long term
290,274
145,512
Marketable equity securities - long term
—
64,210
Right of use (ROU) asset
38,831
33,995
Other assets
498
648
Total assets
$
983,635
$
952,692
Liabilities and stockholders’ equity
Current liabilities
Accounts payable
$
18,770
$
13,914
Accrued expenses
25,407
23,564
Income tax payable
—
5,782
Lease liabilities
2,181
3,435
Deferred income
37,865
31,682
Debt
7,749
6,332
Total current liabilities
91,972
84,709
Lease liabilities, net of current portion
66,489
59,025
Deferred income, net of current portion
94,107
125,183
Debt, net of current portion
10,169
14,642
Total liabilities
262,737
283,559
Commitments and contingencies
Stockholders’ equity
Preferred stock, $0.01 par value: 10,000,000 authorized shares; -0- issued and outstanding shares at September 30, 2024 and December 31, 2023
—
—
Common stock, $0.01 par value: 200,000,000 authorized shares at September 30, 2024 and December 31, 2023; 69,963,447 issued and outstanding at September 30, 2024 and 60,998,191 issued and outstanding at December 31, 2023
701
611
Additional paid-in capital
1,364,846
1,131,266
Accumulated other comprehensive income
1,800
1,291
Accumulated deficit
(643,511)
(464,372)
Total stockholders’ equity attributable to Xencor, Inc.
The accompanying unaudited consolidated interim financial statements for Xencor, Inc. (the Company, Xencor, we or us) have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information. The consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) that the management of the Company believes are necessary for a fair presentation of the periods presented. The preparation of consolidated interim financial statements requires the use of management’s estimates and assumptions that affect reported amounts of assets and liabilities at the date of the consolidated interim financial statements and the reported revenues and expenditures during the reported periods. These interim financial results are not necessarily indicative of the results expected for the full fiscal year or for any subsequent interim period.
The accompanying unaudited consolidated interim financial statements and related notes should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 2023 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on February 29, 2024.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Xencor, Inc. and Gale Therapeutics Inc. (Gale), a variable interest entity (VIE) in which we are the primary beneficiary. Since we own less than 100% of Gale, the Company records net loss attributable to non-controlling interests in its consolidated statements of loss equal to the percentage of the economic or ownership interests retained in Gale by the non-controlling party.
In determining whether we are the primary beneficiary of a VIE, we apply a qualitative approach that determines whether we have (1) the power to direct the activities of the VIE that most significantly impact the entity's economic performance and (2) the obligation to absorb losses of, or the right to receive benefits from the VIE that could potentially be significant to the VIE. We continuously assess whether we are the primary beneficiary of Gale as changes to existing relationships or future transactions may result in us consolidating or deconsolidating Gale.
Use of Estimates
The preparation of consolidated interim financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, other comprehensive income (loss) and the related disclosures. On an ongoing basis, management evaluates its estimates, including estimates related to its accrued clinical trial and manufacturing development expenses, stock-based compensation expense, evaluation of intangible assets, investments, leases and other assets for evidence of impairment, fair value measurements, and contingencies. Significant estimates in these consolidated interim financial statements include estimates made for royalty revenue, accrued research and development expenses, stock-based compensation expenses, intangible assets, incremental borrowing rate for right-of-use asset and lease liability, estimated standalone selling price of performance obligations, estimated time for completing delivery of performance obligations under certain arrangements, the likelihood of recognizing variable consideration, the carrying value of equity instruments without a readily determinable fair value, and recoverability of deferred tax assets.
Reclassifications
Certain prior year amounts in the consolidated financial statements and the notes thereto have been reclassified to conform to the current period's presentation. These reclassifications did not affect the prior period's total assets, liabilities, stockholders' equity, net loss or cash flows. During the nine months ended September 30, 2024, we adopted a change in
presentation on our consolidated statements of loss to include loss from disposal of fixed assets in operating expenses. The prior period has been revised to reflect this change in the presentation.
Intangible Assets
The Company maintains definite-lived intangible assets related to certain capitalized costs of acquired licenses and third-party costs incurred in establishing and maintaining its intellectual property rights to its platform technologies and development candidates. These assets are amortized over their useful lives, which are estimated to be the remaining patent life or the contractual term of the license. The straight-line method is used to record amortization expense. The Company assesses its intangible assets for impairment if indicators are present or changes in circumstances suggest that impairment may exist. There was no impairment charge recorded for the three and nine months ended September 30, 2024 and 2023.
Our policy is to record transfers of assets between Level 1 and Level 2 at their fair values as of the end of each reporting period, consistent with the date of the determination of fair value. During the three and nine months ended September 30, 2024 and 2023, there were no transfers between Level 1 and Level 2.
3. Net Loss Per Common Share
Basic net loss per common share is computed by dividing the net loss attributable to Xencor by the weighted-average number of common shares outstanding during the period without consideration of common stock equivalents. Diluted net loss per common share is computed by dividing the net loss attributable to Xencor by the weighted-average number of common stock equivalents outstanding for the period. Potentially dilutive securities consisting of stock issuable pursuant to outstanding options and restricted stock units (RSUs), and stock issuable pursuant to the 2013 Employee Stock Purchase Plan (ESPP) are not included in the per common share calculation in periods when the inclusion of such shares would have an anti-dilutive effect.
Basic and diluted net loss per common share is computed as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
(in thousands, except share and per share data)
(in thousands, except share and per share data)
Numerator:
Net loss attributable to Xencor, Inc.
$
(45,143)
$
(24,269)
$
(179,139)
$
(106,986)
Denominator:
Weighted-average common shares outstanding used in computing basic and diluted net loss
64,022,547
60,621,534
62,310,045
60,387,163
Basic and diluted net loss per common share attributable to Xencor, Inc.
$
(0.71)
$
(0.40)
$
(2.87)
$
(1.77)
For each of the three and nine months ended September 30, 2024 and 2023, all outstanding potentially dilutive securities have been excluded from the calculation of diluted net loss per common share as the effect of including such securities would have been anti-dilutive.
4.Comprehensive Loss
Comprehensive loss is comprised of net loss and other comprehensive income. For each of the three and nine-month periods ended September 30, 2024 and 2023, the only component of other comprehensive income is net unrealized gain on marketable debt securities. There were no material reclassifications out of accumulated other comprehensive income (loss) during each of the three and nine-month periods ended September 30, 2024 and 2023.
The unrealized losses on available-for-sale investments and their related fair values as of September 30, 2024 and December 31, 2023 are as follows:
Less than 12 months
12 months or greater
September 30, 2024
Fair value
Unrealized losses
Fair value
Unrealized losses
(in thousands)
Government Securities
$
—
$
—
$
198,710
$
(132)
Less than 12 months
12 months or greater
December 31, 2023
Fair value
Unrealized losses
Fair value
Unrealized losses
(in thousands)
Corporate Securities
$
8,073
$
(1)
$
—
$
—
Government Securities
66,546
(76)
—
—
$
74,619
$
(77)
$
—
$
—
The unrealized losses from the available-for-sale securities are due to changes in the interest rate environment and not changes in the credit quality of the underlying securities in the portfolio.
The Company’s equity securities include securities with a readily determinable fair value and securities without a readily determinable fair value. Equity securities with a readily determinable fair value are carried at fair value with changes in fair value recognized each period and reported within other income (expense), net. For equity securities without a readily determinable fair value, the Company elects the measurement alternative to record these investments at their initial cost and evaluates such investments at each reporting period for evidence of impairment, or observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
The Company sold 443,909 shares of common stock of Astria Therapeutics, Inc. (Astria) in the second quarter of 2024, and sold the remaining 253,958shares of common stock of Astria in July 2024. The Company does not hold any shares of common stock of Astria as of September 30, 2024. The Company recorded realized gains of $0.1 million and $1.3 millionfor the three and nine months ended September 30, 2024, respectively. The Company held 697,867 shares of common stock as of September 30, 2023, which were classified as equity securities with a readily determinable fair value. The Company recorded unrealized losses of $0.6 million and $4.5 millionfor the three and nine months ended September 30, 2023, respectively.
The Company currently holds 1,885,533 shares of common stock of INmune Bio, Inc. (INmune). The 1,885,533 shares of INmune common stock are classified as equity securities with a readily determinable fair value. For the three and nine months ended September 30, 2024, the Company recorded unrealized losses of $6.5 million and $11.1 million, respectively. For the three and nine months ended September 30, 2023, the Company recorded an unrealized loss of $4.4 million and an unrealized gain of $0.8 million, respectively.
The Company currently holds 717,144 shares of common stock of Viridian Therapeutics, Inc. (Viridian). The shares of Viridian common stock are classified as equity securities with a readily determinable fair value. The Company recorded unrealized gains of$7.0 million and $0.7 million for the three and nine months ended September 30, 2024, respectively. The Company recorded unrealized losses of $6.1 millionand $9.9 million for the three and nine months ended September 30, 2023, respectively.
The Company holds an equity interest in Zenas BioPharma, Inc. (Zenas). The Company’s equity interests previously included preferred stock in Zenas when Zenas was a privately-held company. The preferred shares were received as an upfront payment and a milestone payment for licensing certain clinical and preclinical assets from the Company and did not have a readily determinable fair value. The Company elected the measurement alternative to carry the Zenas equity at cost minus impairment, plus or minus changes resulting from observable price changes in an orderly transaction for the identical or a similar investment of the same issuer. During the six months ended June 30, 2024, the Company recorded $20.4 million of impairment charge due to an impairment analysis using the measurement alternative for the valuation of a security without a readily determinable fair value.
On September 16, 2024, following the closing of Zenas' initial public offering, the Company's preferred stock in Zenas was automatically converted to 3,098,380 shares of common stock which were then classified as equity securities with a readily determinable fair value. The Company subsequently discontinued the use of the measurement alternative in valuing its equity interest in Zenas. As a result, the Company recorded an unrealized gain of $8.6 million for each of the three and nine months ended September 30, 2024.
Equity securities with a readily determinable fair value, which are categorized as Level 1 in the fair value hierarchy under ASC 820, and their fair values (in thousands) as of September 30, 2024 and December 31, 2023 are as follows:
Fair Value
Fair Value
September 30, 2024
December 31, 2023
Astria Common Stock
$
—
$
5,360
INmune Common Stock
10,163
21,231
Viridian Common Stock
16,315
15,619
Zenas Common Stock
52,425
—
$
78,903
$
42,210
Equity securities without a readily determinable fair value and their carrying values (in thousands) as of September 30, 2024 and December 31, 2023 are as follows:
Carrying Value
Carrying Value
September 30, 2024
December 31, 2023
Zenas Preferred Stock
$
—
$
64,210
Net gain (loss) recorded related to these equity securities are recorded under other income (expense). Below is a reconciliation of net gain (loss) recorded on equity securities during the three and nine months ended September 30, 2024 and 2023:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Net gain (loss) recorded on equity securities
$
9,254
$
(11,023)
$
(448)
$
(13,633)
Less: Net gain recorded on sale of equity securities
92
—
1,280
—
Unrealized gain (loss) recorded on equity securities held at the reporting date
$
9,162
$
(11,023)
$
(1,728)
$
(13,633)
6. Stock Based Compensation
In June 2023, our Board of Directors (the Board) and stockholders approved the 2023 Equity Incentive Plan (the 2023 Plan), which became effective as of June 14, 2023, and superseded the 2013 Equity Incentive Plan (the 2013 Plan). No additional awards may be granted under the 2013 Plan.
The 2023 Plan reserve consists of 3,000,000 shares and the remaining available shares from the 2013 Plan as of the effective date of the 2023 Plan. In addition, any shares of common stock covered by awards granted under the 2013 Plan that terminate on or after June 14, 2023 by expiration, forfeiture, cancellation, or other means without the issuance of such shares will be added to the 2023 Plan reserve. The 2023 Plan does not include a provision for an automatic increase in shares, also known as an evergreen provision.
As of September 30, 2024, the total number of shares of common stock available for issuance under the 2023 Plan is 18,617,423, which includes shares of common stock that were available for issuance under the 2013 Plan as of the
effective date of the 2023 Plan. As of September 30, 2024, a total of 2,510,949 options have been granted under the 2023 Plan.
In November 2013, the Board and our stockholders approved the ESPP, which became effective as of December 5, 2013. As of September 30, 2024, the total number of shares of common stock available for issuance under the ESPP is 987,344. Unless otherwise determined by the Board, beginning on January 1, 2014, and continuing until January 1, 2023, the total number of shares of common stock available for issuance under the ESPP automatically increased annually on January 1 by the lesser of (i) 1% of the total number of issued and outstanding shares of common stock as of December 31 of the immediately preceding year, or (ii) 621,814 shares of common stock. The automatic increase has expired, and the number of shares of common stock available for issuance under the ESPP was not increased on January 1, 2024. As of September 30, 2024, we have issued a total of 787,474 shares of common stock under the ESPP.
During the nine months ended September 30, 2024, the Company awarded 1,026,220 RSUs under the 2023 Plan to certain employees and non-employee directors. The standard vesting of these awards is generally in three equal annual installments and is contingent on an employee’s continued service to the Company. The fair value of these awards is determined based on the intrinsic value of the stock on the date of grant and will be recognized as stock-based compensation expense over the requisite service period. As of September 30, 2024, a total of 1,112,887 RSUs have been granted under the 2023 Plan.
The Company extended vesting periods and expiration dates of equity awards for employees who retired in April 2024. There was a $3.1 million incremental expense as a result of the extension of the expiration dates, and there was a $1.2 million expense as a result of the extension of the vesting periods.
Total employee, director and non-employee stock-based compensation expense recognized for the three and nine months ended September 30, 2024 and 2023 are as follows (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
General and administrative
$
5,158
$
4,487
$
18,326
$
13,234
Research and development
7,180
8,409
22,623
25,824
$
12,338
$
12,896
$
40,949
$
39,058
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Stock options
$
6,760
$
6,314
$
24,578
$
20,139
ESPP
206
307
623
970
RSUs
5,372
6,275
15,748
17,949
$
12,338
$
12,896
$
40,949
$
39,058
The following table summarizes option activity under our stock plans and related information:
Number of Shares Subject to Outstanding Options
Weighted Average Exercise Price (Per Share)
Weighted Average Remaining Contractual Term (in years)
We calculate the intrinsic value as the difference between the exercise price of the options and the closing price of common stock of $20.11 per share as of September 30, 2024.
The weighted-average fair value of options granted during the nine-month periods ended September 30, 2024 and 2023 were $22.21 and $30.07 per share, respectively. There were 2,068,582 options granted during the nine-month period ended September 30, 2023. We estimated the fair value of each equity award, including stock options and shares issued under our ESPP, using the Black-Scholes option-pricing model based on the date of grant of such stock option or ESPP share issuance date, with the following weighted average assumptions for the three and nine months ended September 30, 2024 and 2023:
Options
Options
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Expected term (years)
5.8
6.1
6.4
6.1
Expected volatility
50.8
%
50.0
%
50.1
%
50.5
%
Risk-free interest rate
4.15
%
4.43
%
4.18
%
4.18
%
Expected dividend yield
—
%
—
%
—
%
—
%
ESPP
ESPP
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Expected term (years)
0.5 - 2.0
0.5 - 2.0
0.5 - 2.0
0.5 -2.0
Expected volatility
43.0% - 44.6%
38.2% - 55.7%
43.0% - 44.6%
38.2% - 55.7%
Risk-free interest rate
4.71% - 5.40%
0.13% - 5.39%
4.71% - 5.40%
0.13% - 5.39%
Expected dividend yield
—
%
—
%
—
%
—
%
As of September 30, 2024, the unamortized compensation expense related to unvested stock options was $50.4 million. The remaining unamortized compensation expense will be recognized over the next 2.5 years. As of September 30, 2024, the unamortized compensation expense under our ESPP was $1.0 million. The remaining unamortized expense will be recognized over the next 1.2 years.
The following table summarizes the RSU activity for the nine-month period ended September 30, 2024:
Restricted Stock Units
Weighted Average Grant Date Fair Value (Per unit)
Unvested RSUs at December 31, 2023
1,490,040
$
30.66
Granted
1,026,220
22.31
Vested
(595,399)
31.49
Forfeited
(167,097)
28.89
Unvested RSUs at September 30, 2024
1,753,764
$
25.57
As of September 30, 2024, the unamortized compensation expense related to unvested RSUs was $31.6 million. The remaining unamortized expense will be recognized over the next 1.9 years.
7. Leases
The Company leases office and laboratory space in Monrovia, California under a lease that expires in December 2025 with an option to renew for an additional five years at then market rates. The Company has assessed that it is unlikely to exercise the option to extend the lease term.
The Company did not recognize revenue related to the Genentech Agreement for the three and nine months ended September 30, 2024 or 2023. As of September 30, 2024, there is a $7.6 million payable related to cost-sharing development activities during the first half of 2024 for development studies being conducted under the Genentech Agreement. There is no deferred revenue as of September 30, 2024 related to this agreement.
Gilead Sciences, Inc.
In January 2020, the Company entered into a Technology License Agreement (the Gilead Agreement) with Gilead Sciences, Inc. (Gilead), in which the Company provided Gilead an exclusive license to its Cytotoxic Fc and Xtend Fc technologies for an initial identified antibody and options for up to three additional antibodies directed to the same molecular target. In the second quarter 2020, Gilead exercised its options for the three additional antibody compounds.
No revenue was recognized for the three and nine months ended September 30, 2024. For the three and nine months ended September 30, 2023, the Company recognized $6.0 million in revenue related to development milestones. There is no deferred revenue as of September 30, 2024 related to this agreement.
Janssen Biotech, Inc., a Johnson & Johnson company
J&J Agreement
In November 2020, the Company entered into a Collaboration and License Agreement (the J&J Agreement) with Janssen Biotech, Inc., a Johnson & Johnson company, pursuant to which the Company and J&J conducted research and development activities to discover novel CD28 bispecific antibodies for the treatment of prostate cancer. Xencor together with J&J conducted joint research activities to discover XmAb bispecific antibodies against CD28 and against an undisclosed prostate tumor-target with J&J maintaining exclusive worldwide rights to develop and commercialize licensed products identified from the research activities.
Under the J&J Agreement, the Company conducted research activities and applied its bispecific Fc technology to antibodies targeting prostate cancer provided by J&J. Upon completion of the research activities J&J had a candidate selection option to advance an identified candidate for development and commercialization. In November 2021, the Company completed its performance obligations under the research activities and delivered CD28 bispecific antibodies to J&J. In December 2021, J&J selected a bispecific CD28 candidate for further development. J&J will assume full responsibility for development and commercialization of the CD28 bispecific antibody candidate.
The Company did not recognize revenue for the three and nine months ended September 30, 2024, and the Company recognized $7.5 million of revenue for the three and nine months ended September 30, 2023 under the J&J Agreement. As of September 30, 2024, there is no deferred revenue related to this Agreement.
On October 1, 2021, the Company entered into a second Collaboration and License Agreement (the Second J&J Agreement) with J&J pursuant to which the Company granted J&J an exclusive worldwide license to develop, manufacture, and commercialize plamotamab, the Company’s CD20 x CD3 development candidate, and pursuant to which Xencor and J&J conducted research and development activities to discover novel CD28 bispecific antibodies. The parties conducted joint research activities for a two-year period to discover XmAb bispecific antibodies against CD28 and undisclosed B cell tumor-targets with J&J receiving exclusive worldwide rights, subject to certain Xencor opt-in rights, to develop, manufacture and commercialize pharmaceutical products that contain one or more of such discovered antibodies (CD28 Licensed Antibodies). The Agreement became effective on November 5, 2021.
The Company collaborated with J&J on clinical development of plamotamab and shared development costs with J&J paying 80% and the Company paying 20% of certain development costs. In June 2024, the Company was notified that J&J was terminating its rights to plamotamab, which termination became effective in June 2024.
The Company is generally responsible for conducting research activities under the Second J&J Agreement, and J&J is generally responsible for all development, manufacturing, and commercialization activities for CD28 Licensed Antibodies that are advanced. Revenue from the research activities was recognized over a period of time through the end of the research term that services were rendered as we determined that the input method was the appropriate approach to recognize income for such services.
There is a receivable of $2.3 million as of September 30, 2024, related to cost-sharing activities for the development of plamotamab under the Second J&J Agreement. No revenue was recognized for the three and nine months ended September 30, 2024, and the Company recognized $6.2 million and $33.6 million of revenue for the three and nine months ended September 30, 2023, respectively. There is no deferred revenue as of September 30, 2024 related to the Second J&J Agreement as obligations to perform research activities have expired.
MorphoSys AG/Incyte Corporation
In June 2010, the Company entered into a Collaboration and License Agreement (the MorphoSys Agreement) with MorphoSys AG (MorphoSys), which was subsequently amended. Under the MorphoSys Agreement, we granted MorphoSys an exclusive worldwide license to the Company’s patents and know-how to research, develop and commercialize the XmAb5574 product candidate (subsequently renamed MOR208 and tafasitamab) with the right to sublicense under certain conditions. In February 2024, Incyte Corporation assumed all of MorphoSys' right, title and interest in the MorphoSys Agreement and acquired exclusive global development and commercialization rights to tafasitamab. If certain developmental, regulatory and sales milestones are achieved, the Company is eligible to receive future milestone payments and royalties.
On November 3, 2023, the Company entered into the Monjuvi Royalty Sale Agreement with OMERS, pursuant to which OMERS acquired the rights to certain royalties earned after July 1, 2023 associated with the existing license relating to Monjuvi.
The Company recognized $2.1 million and $6.5 million of non-cash royalty revenue during the three and nine months ended September 30, 2024, respectively. The Company recognized $2.7 million and $6.6 million of royalty revenue during the three and nine months ended September 30, 2023, respectively. As of September 30, 2024, there is a receivable of $2.1 million related to estimated royalties due under the arrangement. As of September 30, 2024, there is no deferred revenue related to this agreement.
Omeros Corporation
In August 2020, the Company entered into a Technology License Agreement (the Omeros Agreement) with Omeros Corporation (Omeros), in which the Company provided Omeros a non-exclusive license to its Xtend Fc technology, an exclusive license to apply its Xtend technology to an initial identified antibody and options to apply its Xtend technology to three additional antibodies.
No revenue was recognized for the three and nine months ended September 30, 2024. For the three and nine months ended September 30, 2023, the Company recognized $5.0 million of milestone revenue related to a development milestone. As of September 30, 2024, there is no deferred revenue related to this Agreement.
On December 22, 2023, the Company entered into a Technology License Agreement with Shanghai Mabgeek Biotech Co., Ltd. (Mabgeek), and the Company and Mabgeek entered into Amendment No. 1 on June 21, 2024 (collectively, the Mabgeek Agreement). Under the Mabgeek Agreement, the Company received an upfront payment of $1.5 million and up to $11.9 million of milestones. In addition, the Company is eligible to receive royalties on the net sales of approved products in the low single digits.
The Company evaluated the Mabgeek Agreement and determined that the single performance obligation was access to a non-exclusive license to certain patents of the Company which were transferred to Mabgeek in June 2024.
No revenue was recognized for the three months ended September 30, 2024. The Company recognized $1.5 million of license revenue related to the Mabgeek Agreement for the nine months ended September 30, 2024. There is no deferred revenue as of September 30, 2024 related to this agreement.
Vega Therapeutics, Inc.
In October 2021, the Company entered into a Technology License Agreement (the Vega Agreement) with Vega Therapeutics, Inc. (Vega), in which the Company provided Vega a non-exclusive license to its Xtend Fc technology. In March 2024, Vega notified the Company that it initiated a Phase 1 study, and the Company recorded milestone revenue of $0.5 million.
The Company recognized $0.5 million of revenue for the nine months ended September 30, 2024. Norevenue was recognized for the three months ended September 30, 2024 or the three and nine months ended September 30, 2023.
Vir Biotechnology, Inc.
In 2019, the Company entered into a Patent License Agreement (the Vir Agreement) with Vir Biotechnology, Inc. (Vir) pursuant to which the Company provided a non-exclusive license to its Xtend technology for up to two targets.
In March 2020, the Company entered into a second Patent License Agreement (the Second Vir Agreement) with Vir pursuant to which the Company provided a non-exclusive license to its Xtend technology to extend the half-life of novel antibodies Vir developed as potential treatments for patients with COVID-19, including sotrovimab. Under the terms of the Second Vir Agreement, Vir is responsible for all research, development, regulatory and commercial activities for the antibodies, and the Company is eligible to receive royalties on the net sales of approved products in the mid-single digit percentage range. Vir and its marketing partner, GSK, began recording sales for sotrovimab beginning in June 2021.
The Company recognized nominal amounts of revenue for the three months ended September 30, 2024 and 2023. The Company recognized $0.1 million and $1.5 million of revenue for the nine months ended September 30, 2024 and 2023, respectively. As of September 30, 2024, there is no receivable related to estimated royalty due under this agreement, and there is no deferred revenue related to this agreement.
Zenas BioPharma, Inc.
In November 2020, the Company entered into a License Agreement (the Zenas Agreement) with Zenas, pursuant to which the Company received an equity interest in Zenas in exchange for the exclusive, worldwide rights to develop and commercialize drug candidates from the Company. The equity in Zenas was recorded at the fair value as of the date of the Zenas Agreement and was reviewed each reporting period for impairment or other evidence of change in value.
In November 2021, the Company entered into a second License Agreement (the Second Zenas Agreement) with Zenas, pursuant to which the Company received additional equity in Zenas in exchange for the exclusive worldwide rights to develop and commercialize the Company’s obexelimab (XmAb5871) drug candidate. Under the license, the Company is eligible to receive development, regulatory and sales milestones in connection with the development of obexelimab and royalties on net sales of approved products. The original equity received for the second license was a warrant to acquire additional shares of Zenas. The warrant was exchanged for additional preferred stock in Zenas in November 2022.
The warrant in Zenas was recorded at its fair value as of the date of the Second Zenas Agreement and was reviewed each reporting period for impairment or other evidence of change in value. The preferred shares received in
exchange for the warrant were recorded at their fair value at the date of the exchange and were reviewed each reporting period for impairment or other evidence of change in value.
In 2023, Zenas initiated a Phase 3 clinical study with obexelimab and also dosed a second patient in the study. The Company received a development milestone in the form of additional preferred stock in Zenas with a fair value of $10.0 million.
On September 16, 2024, following the closing of Zenas' initial public offering, the Company's preferred stock ownership automatically converted to 3,098,380 shares of common stock of Zenas, which is classified as equity securities with a readily determinable fair value. As a result, the Company discontinued the use of the measurement alternative to record its equity interest in Zenas.
The Company did not recognize any revenue for the three and nine months ended September 30, 2024, or the three months ended September 30, 2023. The Company recognized $10.0 million of milestone revenue for the nine months ended September 30, 2023, and there is no deferred revenue related to this agreement.
Third-Party Licensee
In May 2024, the Company entered into a Patent License Agreement (Third-Party Licensee Agreement) with a third-party licensee. The Company completed delivery of the performance obligation under the agreement, and the Company received a payment of $7.0 million in August 2024.
No revenue was recognized for the three months ended September 30, 2024, and the Company recognized $7.0 million of license revenue for the nine months ended September 30, 2024. There is a no receivable as of September 30, 2024., and there is no deferred revenue related to this agreement.
Gale Therapeutics Inc.
In the fourth quarter of 2023, the Company formed a subsidiary, Gale Therapeutics Inc. (Gale), to develop novel drug candidates with its Fc technologies. In December 2023, the Company entered into a Technology License Agreement (Gale License Agreement) with Gale in which Gale received an exclusive worldwide, royalty-bearing, non-transferable license to preclinical assets in exchange for royalties on future sales and an option for future drug candidates that Gale will develop. Concurrently, the Company entered into a Service Agreement (Gale Services Agreement) to provide research and development services and administrative support for Gale. In exchange for $7.5 million of funding, the Company acquired a majority stake in Gale. Total charges of $2.7 million and $10.7 million under the Gale Services Agreement for the three and nine months ended September 30, 2024, respectively, were eliminated in consolidation. In July 2024 and September 2024, the Company entered into a preferred stock purchase agreement to purchase additional shares in Gale for $3.0 million each, for a total of $6.0 million.
The revenues recorded for the three and nine months ended September 30, 2024 and 2023 were earned principally from the following licensees (in millions):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Alexion
$
8.6
$
31.8
$
24.9
$
53.4
Gilead
—
6.0
—
6.0
Janssen
—
13.7
—
41.1
Mabgeek
—
—
1.5
—
MorphoSys/Incyte
2.1
2.7
6.5
6.6
Omeros
—
5.0
—
5.0
Vega
—
—
0.5
—
Vir
—
—
0.1
1.5
Zenas
—
—
—
10.0
Third Party Licensee
—
—
7.0
—
Total
$
10.7
$
59.2
$
40.5
$
123.6
The table below summarizes the disaggregation of revenue recorded for the three and nine months ended September 30, 2024 and 2023 (in millions):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Research collaboration
$
—
$
(1.3)
$
—
$
21.1
License
—
—
8.5
—
Milestone
—
46.0
0.5
61.0
Royalties
—
14.5
0.1
41.5
Non-cash royalties
10.7
—
31.4
—
Total
$
10.7
$
59.2
$
40.5
$
123.6
Remaining Performance Obligations and Deferred Revenue
The Company does not have any remaining performance obligations as of September 30, 2024. As of September 30, 2023, the Company had deferred revenue of $9.2 million for conducting research activities pursuant to the Second J&J Agreement. All deferred revenue as of September 30, 2023 was classified as current liabilities as the Company’s obligations to perform services are due on demand when requested by J&J under the Second J&J Agreement.
10. Income taxes
The Company recorded $0.1 million of income tax expense for the nine months ended September 30, 2024. There is no provision for income tax for the three months ended September 30, 2024 or three and nine months ended September 30, 2023. As of September 30, 2024, the Company’s deferred income tax assets, consisting primarily of net operating loss and tax credit carryforwards, have been fully offset by a valuation allowance.
The Company evaluated the arrangement and determined that the proceeds from the sale of future royalties should be recorded as deferred income on the balance sheets as none of the criteria for classification as debt were met in accordance with ASC 470 Debt. The Company records the non-cash royalty revenue under the “units-of-revenue” method in the consolidated statements of loss. For the three and nine months ended September 30, 2024, the Company recognized $8.6 million and $24.9 million of non-cash royalty revenue, respectively. There is $132.0 million in deferred income as of September 30, 2024.
Monjuvi Royalty Sale Agreement
The Company evaluated the arrangement and determined that the proceeds from the sale of future royalties should be classified as debt pursuant to ASC 470 Debt. At June 30, 2024, the Company reassessed the estimate of total future royalty payments and updated the estimated effective interest rate to 17.5%. The Company continues to reassess the estimate of total future royalty payment and prospectively adjusts the imputed interest rate and related amortization if the estimate is materially different. For the three and nine months ended September 30, 2024, the Company recognized $2.1 million and $6.5 million of non-cash royalty revenue, respectively, and $0.8 million and $2.7 millionof non-cash interest expense, respectively.
The following table shows the activity within debt for the nine months ended September 30, 2024 (in thousands):
September 30, 2024
Beginning balance of debt related to sale of future royalties
$
20,974
Royalties owed to OMERS
834
Royalties paid to OMERS
(6,572)
Non-cash interest expense recognized
2,682
Ending balance of debt related to sale of future royalties
XmAb819（ENPP3 x CD3）：XmAb819旨在激活免疫系统，激活T细胞，从而针对表达ENPP3的肿瘤细胞进行高效的目标杀伤作用，ENPP3是肾癌高度表达的抗原。Xencor的XmAb 2+1多价格式用于XmAb819，相较于低水平表达ENPP3的正常细胞，实现对表达ENPP3的肿瘤细胞更强的选择性。我们目前正在进行一项第1期研究，评估XmAb819对晚期透明细胞肾癌患者的疗效。
XmAb808（B7-H3 x CD28）：XmAb808是一种肿瘤选择性、共刺激性的CD28双特异性抗体，它结合了广泛表达的肿瘤抗原B7-H3，并采用了XmAb 2+1的构型。T细胞需要共刺激才能实现完全激活，而针对性的CD28双特异性抗体在与肿瘤细胞结合时，可能为T细胞提供有条件的共刺激。我们正在进行一项一期研究，评估XmAb808与pembrolizumab联合治疗对爱文思控股的实体瘤患者的疗效。
XmAb541（CLDN6 x CD3）：XmAb541是一种双特异性T细胞结合剂，靶向Claudin-6（CLDN6），这是一种与卵巢癌和其他实体瘤相关的肿瘤抗原，以及CD3。XmAb541中使用的XmAb 2+1多价格式使其对CLDN6的选择性高于类似的Claudin家族成员，如CLDN9、CLDN3和CLDN4。我们目前正在进行一期研究，以评估XmAb541在卵巢癌患者及其他表达CLDN6的肿瘤类型中的应用。第一位患者于2024年4月接受了剂量治疗。到2025年，我们计划推进正在进行的一期剂量递增研究，朝着目标剂量水平发展。
Vudalimab （PD-1 x CTLA-4）:Vudalimab是一种双特异性抗体，靶向PD-1和CTLA-4这两个免疫检查点受体，以选择性激活肿瘤微环境，正在开发用于转移性去势抵抗性前列腺癌（mCRPC）患者和局部晚期或转移性非小细胞肺癌患者。在一项纳入了多种实体肿瘤类型且经过重度预处理患者的1期研究中，数据显示vudalimab通常耐受性良好且临床活动性令人鼓舞。我们正在进行两项针对已经超越当前标准期权的mCRPC患者的2期研究，作为单药治疗或与化疗联合使用，我们预计将在2025年上半年发布这些研究的数据。我们还在进行一项1b/2期研究，评估vudalimab与化疗联合应用作为局部晚期或转移性非小细胞肺癌患者的初始治疗，我们计划在2025年上半年评估该联合治疗的安全性。
与合作伙伴先前共同开发的额外临床阶段候选药物
Efbalropendekin alfa（IL15/IL15Rα-Fc 细胞因子）： Efbalropendekin alfa（XmAb306/RG6323）是一种降低效能的IL15/IL15Rα-Fc融合蛋白，融入了我们的Xtend延长半衰期 科技，并且我们以前与罗氏集团成员基因泰克合作共同开发了该项目。基因泰克正在进行一项第1期研究，评估efbalropendekin在与Cevostamab（FcRH5 x CD3双特异抗体）联合治疗复发/难治性多发性骨髓瘤患者的疗效。在2023年第四季度，我们与基因泰克达成协议，将当前的开发成本及利润分成安排转变为基于特许权和里程碑付款的安排。根据与基因泰克修订协议的条款，自2024年6月1日起，基因泰克负责所有临床、监管和商业活动。我们有资格获得最高6.00亿美元的里程碑款项，并根据批准销售额从低两位数到中两位数的范围获得分阶段的特许权。
XmAb药物候选者用于治疗自体免疫和炎症疾病及计划中的临床研究
2024年9月，我们宣布了新的临床发展计划，包括plamotamab和新的XmAb药物候选进行评估，用于治疗自身免疫和炎症性疾病患者。我们认为，plamotamab和XmAb657可以满足需要的患者，涵盖一系列可能对靶向b细胞减少（例如类风湿性关节炎、多发性硬化症、爱文思控股全身性红斑狼疮、抗中性粒细胞胞浆抗体（ANCA）相关性血管炎、特发性炎性肌病、重症肌无力、神经脊髓视网膜脑脊液谱系障碍、大疱性类天疱疮、干燥综合征及系统性硬化症等自身免疫疾病患者。我们相信，XmAb942及潜在从XmAb TL1A x IL-23项目中产生的药物候选将能满足患者对治疗炎症性肠病（IBD）的迫切需求，如克罗恩病和溃疡性结肠炎，这是两种最常见的IBD形式。
Plamotamab（CD20 x CD3）： Plamotamab是一种双特异性T细胞结合剂，靶向CD20，这是一种在B细胞上发现的靶受体，以及CD3。来自一期研究扩展部分的结果显示，静脉注射的plamotamab单药治疗耐受良好，并在重度预处理的晚期淋巴瘤患者中显示出令人鼓舞的临床活性，剂量为推荐的二期静脉注射剂量。在2023年，我们完成了该一期研究中皮下剂量递增队列的患者招募。我们与强生共同开发plamotamab，并在2024年6月重新获得开发和商业化该候选药物的全球独家权利。
XmAb657 (CD19 x CD3): We have leveraged our XmAb protein engineering platforms to create XmAb657, a potent, potentially long-acting CD19 x CD3 bispecific antibody, utilizing the XmAb 2+1 bispecific antibody format and Xtend Fc technology. In non-human primate studies, a single dose of XmAb657 deeply reduced B cells by over 99.98% in the peripheral compartment, bone marrow and lymph nodes, which was sustained for at least 28 days. Half-life was estimated to be 15 days, which indicates a potential for durable B-cell depletion in clinical studies. XmAb657 was well tolerated preclinically, with no clinical signs of cytokine release syndrome. We plan to initiate a first-in-human study during the second half of 2025.
XmAb942 (Xtend TL1A): XmAb924 is a monospecific anti-TL1A antibody, utilizing Xencor’s Xtend Fc domain and proprietary Fc silencing technology, with potentially class-leading potency, and is under development for patients with IBD. The two most common forms of IBD are Crohn’s disease and ulcerative colitis. In October 2024, preclinical data were presented during United European Gastroenterology (UEG) Week. Half-life preclinically was 23 days, potentially supporting an 8- to 12-week dosing regimen in humans. In the fourth quarter of 2024, we initiated dosing of healthy volunteers in the first-in-human study of XmAb942, and we continue to expect initial data from the ongoing study during the first half of 2025.
XmAb TL1A x IL-23: An expertly engineered XmAb TL1A x IL-23p19 bispecific antibody could potentially provide dual targeting of important inflammatory pathways for autoimmune and inflammatory disease, while avoiding the complexities of dosing and formulary access for two separate TL1A and IL23 targeted drugs. We anticipate initiating first-in-human studies during 2026.
Advancements Expanding XmAb Bispecific Platforms
We conduct further research into the function and application of antibody components in order to expand the scope of our XmAb technology platforms and identify additional XmAb drug candidates.
We use the modularity of our XmAb bispecific Fc technology to build antibody-based therapeutics in a variety of formats, such as T cell engaging bispecific antibodies of a mixed valency format, the XmAb 2+1 bispecific antibody. XmAb 2+1 bispecific antibodies may preferentially kill tumor cells with high target expression, which may be especially beneficial in designing antibodies that target solid tumors. This selectivity potentially empowers T cell engaging bispecifics (e.g., CD3, CD28) to address an expanded set of tumor antigens. Five clinical-stage programs utilize our XmAb 2+1 format: XmAb819, XmAb808, XmAb541, xaluritamig and ASP2138.
Additionally, we have engineered CD28 bispecific antibodies to provide conditional CD28 co-stimulation of T cells, activating them when bound to tumor cells. Targeted CD28 bispecific antibodies may provide conditional co-stimulation of T cells, for example, to T cells recognizing neoantigens or in concert with CD3 T-cell engaging bispecific antibodies. In addition to our first clinical-stage CD28 program, XmAb808, our CD28 platform is the subject of two collaborations with J&J. JNJ-9401 and JNJ-1493 are clinical-stage XmAb bispecific antibodies that J&J is developing in prostate cancer and B-cell malignancies, respectively, and both entered clinical development during the fourth quarter of 2023.
In the first quarter of 2024, we amended the MorphoSys Agreement, which included releasing us from certain exclusivity obligations relating to CD19, and we advanced XmAb657 (CD19 x CD3) into preclinical development.
Progress Across Partnerships
A key part of our business strategy is to leverage our protein engineering capabilities, XmAb Fc domains and drug candidates with partnerships, collaborations and licenses. Through these arrangements we generate revenues in the form of upfront payments, milestone payments and royalties. For partnerships for our drug candidates, we aim to retain a major economic interest in the form of keeping major geographic commercial rights; profit-sharing; co-development options; and the right to conduct studies with drug candidates developed in the collaboration. The types of arrangements that we have entered into with partners include product licenses, novel bispecific antibody collaborations, technology licensing agreements and strategic collaborations.
Product licenses are arrangements in which we have internally developed drug candidates and, based on a strategic review, licensed partial or full rights to third parties to continue development and potential commercialization. We seek partners that can provide infrastructure and resources to successfully develop our drug candidates, have a track record of successfully developing and commercializing medicines, or have a portfolio of development-stage candidates and commercialized medicines that could potentially be developed in rational combinations with our drug candidates.
The FDA approved Monjuvi® (tafasitamab-cxix) under accelerated approval in July 2020. Monjuvi is a CD19-directed cytolytic antibody indicated in combination with lenalidomide for the treatment of adult patients with relapsed or refractory diffuse large B-cell lymphoma (DLBCL) not otherwise specified, including DLBCL arising from low grade lymphoma, and who are not eligible for autologous stem cell transplant (ASCT). This indication is approved under accelerated approval based on overall response rate. Continued approval for this indication may be contingent upon verification and description of clinical benefit in a confirmatory trial(s). In August 2021, the European Commission granted conditional marketing authorization for Minjuvi® (tafasitamab) in combination with lenalidomide, followed by tafasitamab monotherapy, for the treatment of adult patients with relapsed or refractory diffuse large B-cell lymphoma (DLBCL) who are not eligible for autologous stem cell transplantation (ASCT). In August 2024, Incyte announced positive topline results from the pivotal study of tafasitamab in relapsed or refractory follicular lymphoma (FL); based on these results Incyte expects to file a supplemental Biologics License Application for tafasitamab in combination with lenalidomide and rituximab in FL by the end of the 2024. Tafasitamab was created and initially developed by us. Tafasitamab is marketed by Incyte Corporation under the brand name Monjuvi in the U.S. and under the brand name Minjuvi in Europe and Canada. Incyte has exclusive commercialization rights to tafasitamab outside the U.S. Monjuvi® and Minjuvi® are registered trademarks of Incyte. In February 2024, Incyte acquired exclusive global development and commercialization rights to tafasitamab from MorphoSys AG. We earned $2.1 million in estimated non-cash royalties from Incyte for the three months ended September 30, 2024.
Novel Bispecific Antibody Collaborations
Novel bispecific antibody collaborations are arrangements in which our partner seeks to create a bispecific antibody using one or more of our XmAb bispecific technologies. Our partners provide an antibody or a tumor-associated antigen, and we conduct limited research and development to create potential bispecific antibody candidates for further development and commercialization by our partners.
Xaluritamig is a STEAP1 x CD3 2+1 XmAb bispecific T-cell engager that our partner Amgen is advancing for the treatment of patients with prostate cancer. The XmAb 2+1 multivalent format enables higher binding capability for STEAP1 expressing cells. Results from a Phase 1 study evaluating xaluritamig in patients with mCRPC were presented at the European Society for Medical Oncology (ESMO) Congress in September 2024. With a median follow-up time of 27.9 months, the median overall survival (OS) was 17.7 months across all cohorts. A PSA90 rate of 45.1% was also observed in high-dose cohorts, and PSA90 response was associated with survival (p = 0.0044), which Amgen believes could potentially serve as an early indicator for benefit in these patients. Amgen has indicated that a Phase 3 study in patients with post-taxane mCRPC will be initiated in the fourth quarter of 2024. Multiple Phase 1 studies evaluating xaluritamig as a monotherapy or in combination are enrolling patients with earlier prostate cancer.
Technology License Agreements
We enter into technology licensing agreements in which we license access to one or more of our XmAb Fc domains on a restricted basis, typically to an XmAb Cytotoxic Fc Domain and/or the Xtend Fc Domain. Our partners are responsible for all research, development, and commercialization activities of the drug candidates. The plug-and-play nature of XmAb technologies allows us to license access to our platforms with limited or no internal research and development activities.
Alexion’s Ultomiris® uses Xtend Fc technology for longer half-life. Ultomiris has received marketing authorizations in global markets for the treatment of patients with paroxysmal nocturnal hemoglobinuria (PNH), for certain patients with atypical hemolytic uremic syndrome (aHUS), for certain patients with generalized myasthenia gravis (gMG) and for certain patients with neuromyelitis optica spectrum disorder (NMOSD). Ultomiris was approved in the U.S. for the treatment of adult patients with anti-aquaporin-4 antibody-positive NMOSD in March 2024. Alexion is also evaluating Ultomiris in a broad development program across additional hematology, nephrology and neurology indications. We earned a total of $8.6 million in estimated non-cash royalties from Alexion for the three months ended September 30, 2024.
Refer to Part I, Item 1, Note 9, Collaboration and Licensing Agreements of the Notes to Financial Statements included in this Quarterly Report on Form 10-Q for a description of the key terms of our arrangements.
Discontinued Programs
XmAb564 (IL2-Fc Cytokine): XmAb564 is a monovalent interleukin-2 Fc (IL2-Fc) fusion protein engineered to selectively activate and expand regulatory T cells (Tregs) for the potential treatment of patients with autoimmune diseases. In the first half of 2024, we concluded a Phase 1b study that was evaluating the safety and tolerability of multiple ascending doses of XmAb564, administered subcutaneously in patients, and we have paused further development.
XmAb662 (IL12-Fc Cytokine): XmAb662 is a potency-reduced interleukin-12 Fc (IL12-Fc) fusion protein engineered to increase anti-tumor activity and immunogenicity in the tumor microenvironment by promoting high levels of interferon gamma secretion from T cells and NK cells. In the first half of 2024, we concluded a Phase 1 study that was evaluating XmAb662 in patients with advanced solid tumors, and we have paused further development.
We have over 1,600 issued and pending patents worldwide to protect our XmAb technology platform and XmAb drug candidates.
Since we commenced active operations in 1998, we have devoted substantially all our resources to staffing our Company, business planning, raising capital, developing our technology platforms, identifying potential product candidates, undertaking preclinical and IND-enabling studies, and conducting clinical trials. We have no internally developed products approved for commercial sale and have not generated any revenues from our own product sales, and we continue to incur significant research and development expenses and other expenses related to our ongoing operations. To date, we have funded our operations primarily through the sale of stock and from payments generated from our product development partnerships and licensing arrangements.
As of September 30, 2024, we had an accumulated deficit of $643.5 million. Substantially all of the operating losses that we have incurred resulted from expenses incurred in connection with our product candidate development programs, our research activities and general and administrative costs associated with our operations.
Comparison of the Three Months Ended September 30, 2024 and 2023
The following table summarizes our results of operations for the three months ended September 30, 2024 and 2023 (in millions):
Three Months Ended September 30,
2024
2023
Change
Revenues:
Research collaboration
$
—
$
(1.3)
$
1.3
Milestone
—
46.0
(46.0)
Royalties
10.7
14.5
(3.8)
Total revenues
10.7
59.2
(48.5)
Operating expenses:
Research and development
58.2
64.9
(6.7)
General and administrative
14.8
12.5
2.3
Total operating expenses
73.0
77.4
(4.4)
Other income (expense), net
16.0
(6.0)
22.0
Net loss
(46.3)
(24.2)
(22.1)
Net loss attributable to non-controlling interest
(1.2)
—
(1.2)
Net loss attributable to Xencor, Inc.
$
(45.1)
$
(24.2)
$
(20.9)
Revenues
Revenues for the three months ended September 30, 2024 are primarily from non-cash royalty revenue from Alexion and Incyte. Revenues for the three months ended September 30, 2023 are primarily from royalty and milestone revenue from Alexion, and milestone revenue from Janssen, Gilead and Omeros. Based on updated information regarding our measure of progress in completing research activities, we effected a change in estimate under ASC 606 which resulted in adjusted research revenue for the three months ended September 30, 2023.
The following tables summarize our research and development expenses for the three months ended September 30, 2024 and 2023 (in millions):
Three Months Ended September 30,
2024
2023
Change
Product programs:
Vudalimab (PD-1 x CTLA-4)
$
12.7
$
10.1
$
2.6
XmAb819 (ENPP3 x CD3)
7.9
4.0
3.9
XmAb808 (B7-H3 x CD28)
5.8
4.0
1.8
XmAb541 (CLDN6 x CD3)
3.9
5.0
(1.1)
Plamotamab (CD20 x CD3)*
6.4
3.5
2.9
XmAb942 (Xtend TL1A)
9.2
—
9.2
XmAb657 (CD19 x CD3)
2.2
—
2.2
Efbalropendekin alfa (IL15/IL15Ra-Fc)*
(0.1)
5.3
(5.4)
Other, research and early stage programs
8.1
15.3
(7.2)
Wind down costs of terminated programs (1)
2.1
17.7
(15.6)
Total research and development expenses
$
58.2
$
64.9
$
(6.7)
*Includes net reimbursements to and from our partners pursuant to agreements that include cost-sharing arrangements.
(1)Research and development expenses include wind down costs of terminated programs including the vibecotamab, tidutamab, XmAb841, XmAb104, XmAb662, and XmAb564 programs.
Three Months Ended September 30,
2024
2023
Change
External research and development expenses
$
29.1
$
33.2
$
(4.1)
Internal research and development expenses
21.9
23.3
(1.4)
Stock based compensation
7.2
8.4
(1.2)
Total research and development expenses
$
58.2
$
64.9
$
(6.7)
Research and development expenses decreased by $6.7 million for the three months ended September 30, 2024 over the same period in 2023 primarily due to decreased spending on the wind down costs of terminated programs, partially offset by increased spending on our programs such as XmAb942, XmAb819, and plamotamab.
General and Administrative Expenses
The following table summarizes our general and administrative expenses for the three months ended September 30, 2024 and 2023 (in millions):
General and administrative expenses increased by $2.3 million for the three months ended September 30, 2024 over the same period in 2023 primarily due to increased spending on staffing and professional fees.
Other Income (Expense), Net
Other income, net was $16.0 million for the three months ended September 30, 2024, which consists of unrealized and realized gains recognized from the change in fair value and the sale of our equity investments and interest income earned on investments. Other expense, net was $6.0 million for the three months ended September 30, 2023, which consists primarily of unrealized loss on equity investments in excess of interest income earned on investments.
Comparison of the Nine Months Ended September 30, 2024 and 2023
The following table summarizes our results of operations for the nine months ended September 30, 2024 and 2023 (in millions):
Nine Months Ended September 30,
2024
2023
Change
Revenues:
Research collaboration
$
—
$
21.1
$
(21.1)
License
8.5
—
8.5
Milestone
0.5
61.0
(60.5)
Royalties
31.5
41.5
(10.0)
Total revenues
40.5
123.6
(83.1)
Operating expenses:
Research and development
176.6
190.6
(14.0)
General and administrative
46.3
38.1
8.2
Total operating expenses
222.9
228.7
(5.8)
Other income (expense), net
0.1
(1.9)
2.0
Loss before income tax expense
(182.3)
(107.0)
(75.3)
Income tax expense
0.1
—
0.1
Net loss
(182.4)
(107.0)
(75.4)
Net loss attributable to non-controlling interest
(3.3)
—
(3.3)
Net loss attributable to Xencor, Inc.
$
(179.1)
$
(107.0)
$
(72.1)
Revenues
Revenues for the nine months ended September 30, 2024 are primarily licensing revenue from Mabgeek and a third-party licensee as well as non-cash royalty revenue from Alexion and MorphoSys/Incyte. Revenues for the nine months ended September 30, 2023 are primarily from research revenue from our second collaboration with Janssen, royalty and milestone revenue from Alexion, and milestone revenue from Janssen, Omeros, Gilead and Zenas.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in the quantitative or qualitative aspects of our market risk profile. For additional information regarding the Company’s exposure to certain market risks, see “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” included in the Form 10-K for the fiscal year ended December 31, 2023.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
As required by Rule 13a-15(b) and Rule 15d-15(b) of the Exchange Act, our management, with the supervision of our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(b) and 15d-15(e)) as of September 30, 2024. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in this Quarterly Report on Form 10-Q has been appropriately recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, to allow timely decisions regarding required disclosure. Based on this evaluation our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2024.
Remediation of a Previously Reported Material Weakness
We previously reported a material weakness in our internal control over financial reporting related to the Company's design and operating deficiencies in the impairment analysis of our investment in an equity security without a readily determinable fair value, as described in "Item 4. Controls and Procedures" of our Form 10-Q for the quarter ended March 31, 2024. That material weakness has been remediated as of September 30, 2024.
Changes in Internal Control
There have been no other changes in our internal control over financial reporting that occurred during the nine months ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
The disclosure in Note 8, Commitments and Contingencies, of the Notes to Financial Statements included in this Quarterly Report on Form 10-Q includes a discussion of our legal proceedings and is incorporated herein by reference.
Item 1A. Risk Factors
You should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, which could materially affect our business, financial position, or future results of operations. See also “Special Note Regarding Forward-Looking Statements” included in this Quarterly Report on Form 10-Q. In addition to the risks set forth in our Annual Report on Form 10-K for the year ended December 31, 2023, additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business.
Risks Related to our Intellectual Property
Our products could infringe patents and other property rights of others, which may result in costly litigation and, if we are not successful, could cause us to pay substantial damages or limit our ability to commercialize our products, which could have a material adverse effect on our business.
Our commercial success depends upon our ability, and the ability of our collaborators, to develop, manufacture, market and sell our product candidates and use our proprietary technologies without infringing the patents and other proprietary rights of third parties. There is considerable intellectual property litigation in the biotechnology and pharmaceutical industries. For example, we are aware of issued patents owned by Merus N.V. (Merus) that may relate to and claim components of our bispecific antibody product candidates and partnered bispecific product candidates, including plamotamab, vudalimab and XmAb819, will putatively expire in 2033. In August 2024, Merus filed suit against us in the United States District Court of the District of Delaware alleging that we have infringed three of its patents. We maintain that our development of these candidates currently falls into the “safe harbor” of non-infringement under 35 U.S.C. §271(e)(1). This protection, however, would not be available upon commercialization nor can we give assurances on how the Court would rule on this issue. We also believe we have strong defenses to Merus’s claims, including defenses of invalidity and/or non-infringement for the Merus patents, but there is no guarantee that we will prevail. If we are found to infringe the Merus patents, we may be ordered by a court to cease commercializing the applicable product candidates, which could materially harm our business. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed the Merus patents.
In addition, as the biopharmaceutical industry expands and more patents are issued, the risk increases that there may be patents issued to third parties that relate to our products and technology of which we are not aware or that we must challenge to continue our operations as currently contemplated. Our products may infringe or may be alleged to infringe these patents. Because some patent applications in the United States may be maintained in secrecy until the patents are issued, because patent applications in the United States and many foreign jurisdictions are typically not published until eighteen months after filing and because publications in the scientific literature often lag behind actual discoveries, we cannot be certain that others have not filed patents that may cover our technologies, our product candidates or their use. Additionally, pending patent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our technologies, our products or the use of our products. We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our products and technology. Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future.
In order to defend against a claim of patent infringement, we would need to demonstrate that our products or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid, and we may not be able to do this. Proving invalidity is difficult. For example, in the United States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. This burden is a high one, and there is no assurance that a court would find these claims to be invalid or not infringed. Even if we are successful in these proceedings, we may incur substantial costs and divert management’s time and attention in pursuing these proceedings, which could have a material adverse effect on us.
Any such claims are likely to be expensive to defend, and some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources.
If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue developing and marketing our products and technology. We may also elect to enter into such a license in order to settle litigation or in order to resolve disputes prior to litigation. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us and could require us to make substantial royalty payments. We could also be forced, including by court order, to cease commercializing the infringing technology or product. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business.
Item 5. Other Information
During the fiscal quarter ended September 30, 2024, none of our directors or officers (as defined in Section 16 of the Securities Exchange Act of 1934, as amended) adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement,” as defined in Item 408(a) of Regulation S-K.
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^ Certain identified information has been omitted pursuant to Item 601(b)(10) of Regulation S-K because such information is both (i) not material and (ii) information that the Registrant treats as private or confidential. The Registrant hereby undertakes to furnish supplemental copies of the unredacted exhibit upon request by the SEC.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.