Xilio Therapeutics, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2025. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the section entitled “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Overview We are a clinical-stage biotechnology company discovering and developing masked immuno-oncology, or I-O, therapies with the goal of significantly improving outcomes for people living with cancer. Leveraging our clinically-validated masking technology and capabilities, we are developing I-O therapies designed to selectively activate within the tumor microenvironment to achieve durable efficacy without the severe side effects associated with systemically active I-O agents. Our integrated biology and protein engineering approach enables us to design and develop highly potent, masked biologics that are activated, or unmasked, by tumor-specific proteases within the tumor microenvironment. We are currently advancing multiple programs in preclinical and clinical development, including: XTX501, a bispecific PD-1 / masked IL-2; multi-specific masked T cell engagers, or TCEs; and efarindodekin alfa, a masked IL-12. Our clinically-validated masking technology has enabled us to establish top-tier strategic partnerships, including with AbbVie Group Holdings Limited, or AbbVie, and Gilead Sciences, Inc., or Gilead. XTX501: bispecific PD-1 / masked IL-2 XTX501 is a novel bispecific PD-1 / masked IL-2 that has the potential to be a foundational backbone therapy for solid tumors, including in combination with other agents. XTX501 is designed to selectively stimulate PD-1 positive, antigen-experienced T cells and enhance their function while overcoming IL-2 receptor-mediated clearance, peripheral activity and tolerability issues associated with non-masked IL-2 agents. We received clearance from the U.S. Food and Drug Administration, or FDA, for our investigational new drug application, or IND, to proceed to a first-in-human, multi-center, open-label Phase 1/2 clinical trial for XTX501. We expect to initiate dosing in the Phase 1 portion of the trial in patients with metastatic non-small cell lung cancer, or NSCLC, and select advanced solid tumors in the second half of 2026, and we plan to report initial Phase 1 data in patients with metastatic NSCLC in the second half of 2027. Masked T Cell Engager Programs We are leveraging our proprietary, clinically-validated masking technology and modular TCE architectures to advance two wholly-owned masked TCE programs, as well as an additional masked TCE program in collaboration with AbbVie. Our masked TCEs are designed with a masked CD3 targeting domain and one or more tumor-associated antigen, or TAA, binding domains as part of the core molecule design. In addition, our modular architecture enables the incorporation of a co-stimulatory domain designed to further enhance potency and durability of T cell response, as well as the potential to mask the TAA binding domain(s) and/or mask the co-stimulatory signaling domain. Upon tumor-selective activation, our TCE molecules are designed to release a potent, short half-life TCE in the tumor microenvironment. We are advancing IND-enabling studies for a potential first-in-class masked TCE program targeting CLDN18.2 and a potential first-in-class multi-specific, masked TCE program targeting PSMA and STEAP1 with built-in co-stimulatory signaling. CLDN18.2 is a TAA expressed in gastrointestinal cancers (gastric, pancreatic and esophageal), and PSMA and STEAP1 are TAAs expressed in prostate cancer. We plan to submit INDs for our CLDN18.2 and PSMA+STEAP1 programs in the second half of 2027. Efarindodekin alfa: masked IL-12 We are evaluating efarindodekin alfa as a monotherapy in an ongoing Phase 2 clinical trial in patients with advanced solid tumors under our license agreement with Gilead and expect to deliver an option data package to Gilead in the first half of 2027. 27 Table of Contents Liquidity Overview To date, we have financed our operations primarily from proceeds raised through private placements of equity securities; sales of common stock in our initial public offering, or IPO, and through “at-the-market” offerings; the sale of prefunded warrants in our June 2025 and February 2026 follow-on offerings; the exercise of certain common stock warrants issued in connection with our June 2025 follow-on offering; development event payments under our co-funded clinical trial collaboration with F. Hoffmann-La Roche Ltd., or Roche; and upfront payments and milestone payments under our collaboration and license agreements with AbbVie and Gilead. All of our programs are in early clinical or preclinical development. As a result, we have not generated any revenue from product sales and do not expect to generate any revenue from product sales for at least the next several years, if at all. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates, if approved. Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve profitability. Even if we are able to generate revenue from product sales, we may not become profitable. Since inception, we have incurred significant operating losses, including net losses of $15.9 million and $29.1 million for the six months ended June 30, 2026 and 2025, respectively, and a net loss of $35.0 million for the year ended December 31, 2025. As of June 30, 2026, we had an accumulated deficit of $434.7 million. We expect to continue to incur significant expenses and operating losses for the foreseeable future, particularly to the extent we: • continue to advance our current research programs and conduct additional research programs; • advance our current product candidates and any future product candidates we may develop into preclinical and clinical development; • seek marketing approvals for product candidates that successfully complete clinical trials, if any; • obtain, expand, maintain, defend and enforce our intellectual property; • continue to discover, validate and develop additional product candidates; • continue to manufacture increasing quantities of our current or future product candidates for use in preclinical studies, clinical trials and for any potential commercialization; • acquire or in-license other product candidates, technologies or intellectual property; • hire additional personnel to support current or future programs; • establish a commercial and distribution infrastructure to commercialize products for which we may obtain marketing approval, if any; and • incur additional costs associated with current and future research, development and commercialization efforts and operations as a public company. As a result, we will need substantial additional capital to support our continuing operations and pursue our strategy. As of June 30, 2026, we had cash and cash equivalents of $136.0 million. In the second quarter of 2026, we achieved a $6.0 million development milestone related to the collaboration agreement with AbbVie, which we received in the third quarter of 2026. Based on our current operating plans, we anticipate that our existing cash and cash equivalents as of June 30, 2026, together with the $6.0 million development milestone achieved under the AbbVie collaboration in the second quarter of 2026, will be sufficient to enable us to fund our operating expenses and capital expenditure requirements into the first quarter of 2028. This estimate excludes up to $36.2 million in additional gross proceeds in the second half of 2026 if all outstanding Series C warrants are exercised at their current exercise price and any potential additional milestone payments, option-related fees or other contingent payments under our collaboration and license agreements with AbbVie and Gilead, including up to $31.0 million in near-term milestones and option extension fees that could be achieved under the AbbVie collaboration through the first half of 2027. In addition, we have based our estimates on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we anticipate. We expect our operating losses and negative operating cash flows to continue for the foreseeable future as we continue to advance our pipeline of novel, masked I-O molecules through preclinical and clinical development, maintain the infrastructure necessary to support these activities and continue to incur costs associated with operating as a public company. 28 Table of Contents Financial Operations Overview Revenue We have not generated any revenue from the sale of products since inception and do not expect to generate any revenue from the sale of products for at least the next several years, if at all. If our development efforts for our current or future product candidates are successful and result in regulatory approval, we may generate revenue in the future from product sales. For the foreseeable future, we expect substantially all of our revenue, if any, would be generated from our collaboration and license agreements with AbbVie and Gilead. For more information on our collaboration, license and option agreement with AbbVie and our license agreement with Gilead, please see Note 6 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Operating Expenses Research and Development Expenses Research and development expenses consist primarily of costs incurred for our discovery efforts, research activities and development and testing of our programs and product candidates. These expenses include: • personnel-related expenses, including salaries, bonuses, benefits and stock-based compensation expense for employees engaged in research and development functions; • costs incurred with third-party contract development and manufacturing organizations, or CDMOs, to acquire, develop and manufacture materials for both preclinical studies and current or future clinical trials; • costs of funding research performed by third parties that conduct research and development and preclinical activities on our behalf; • costs incurred with third-party contract research organizations, or CROs, and other third parties in connection with the conduct of our current or future clinical trials; • costs of sponsored research agreements and outside consultants, including their fees and related expenses; • costs incurred to maintain compliance with regulatory requirements; • fees for maintaining licenses and other amounts due under our third-party licensing agreements; • expenses incurred for the procurement of materials, laboratory supplies and non-capital equipment used in the research and development process; and • depreciation, amortization and other direct and allocated expenses, including rent, maintenance of facilities and other operating costs, incurred as a result of our research and development activities. We expense research and development costs as incurred. We recognize external development costs based on an evaluation of the progress to completion of specific deliverables using information provided to us by our vendors. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our condensed consolidated balance sheets as prepaid expenses or accrued research and development expenses. We record cost-sharing payments under our clinical trial collaboration with Roche as a reduction of research and development costs upon the achievement of each study development event specified in the clinical supply agreement. Non-refundable advance payments for goods or services to be received in the future for use in research and development activities are capitalized as assets, even when there is no alternative future use for the research and development. The capitalized amounts are expensed as the related goods are delivered or the services are performed. We use our personnel and infrastructure resources for our discovery efforts, including the advancement of our platform technology, developing programs and product candidates and managing external research efforts. A significant portion of our research and development costs have been, and will continue to be, external costs. We track these external costs, such as fees paid to CDMOs, CROs, preclinical study vendors and other third parties in connection with our manufacturing and manufacturing process development, clinical trials, preclinical studies and other research activities by program. Due to the number of ongoing programs and our ability to use 29 Table of Contents resources across several projects, personnel-related expenses and indirect or shared operating costs incurred for our research and development programs are not recorded or maintained on a program-by-program basis. Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will remain approximately the same or will continue to increase for the foreseeable future as we advance our programs and our current or future product candidates into and through the development phase. We expect our discovery research efforts and our related personnel costs to remain consistent with historical levels. In addition, as we progress our most advanced product candidates in clinical development, we may incur additional expenses related to milestone and royalty payments payable to third parties with whom we have entered into, or may enter into license, acquisition, option or other agreements to acquire the rights to future products and product candidates. In the event we are unable to raise sufficient additional capital to fund our operations in the future, we may need to implement cost reduction strategies that seek to maintain our ability to continue the development of our most advanced product candidates in clinical development while otherwise reducing our overall research and development expenses. At this time, we cannot reasonably estimate or know the nature, timing and projected costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, any of our product candidates or programs. This is due to the numerous risks and uncertainties associated with drug development, including the uncertainty of: • the scope, timing, costs and progress of preclinical and clinical development activities; • the number and scope of preclinical and clinical programs we decide to pursue; • our ability to implement and maintain cost reduction strategies, as well as the timing of such cost reductions; • our ability to maintain our current research and development programs; • our ability to establish an appropriate safety profile for our product candidates with IND-enabling studies; • our ability to hire and retain key research and development personnel; • the costs associated with the development of any additional product candidates we acquire or develop through collaborations, partnerships, licenses or similar transactions; • our successful enrollment in and completion of clinical trials; • our ability to successfully complete clinical trials with safety, potency and purity profiles that are satisfactory to the FDA or any comparable foreign regulatory authority; • our receipt of regulatory approvals from applicable regulatory authorities; • our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize, our product candidates; • our ability to commercialize products, if and when approved, whether alone or in collaboration with others; • the continued acceptable safety profiles of the product candidates following approval, if any; • our ability to establish and maintain agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing, if any of our product candidates are approved; • the terms and timing of any collaboration, license or other arrangement, including the terms and timing of any milestone payments thereunder, if any; • our ability to obtain and maintain patent, trade secret and other intellectual property protection and regulatory exclusivity for our product candidates if and when approved; and • general economic conditions, including inflation and the imposition of new or revised global trade tariffs. 30 Table of Contents A change in any of these variables with respect to the development of any of our product candidates would significantly change the costs, timing and viability associated with the development of that product candidate. We may never succeed in obtaining regulatory approval for any product candidate we may develop. General and Administrative Expenses General and administrative expenses consist primarily of personnel-related costs, including salaries, bonuses, benefits, recruiting and stock-based compensation, for personnel in our executive, finance, legal, business development, human resources and other administrative functions. General and administrative expenses also include legal fees relating to corporate matters; professional and consulting fees for accounting, auditing, tax, human resources and administrative consulting services; board of directors’ fees; insurance costs; and facility-related expenses, which include depreciation costs and other allocated expenses for rent, maintenance of facilities and other general administrative costs. These costs relate to the operation of the business and are in support of but separate from the research and development function and our individual development programs. Costs to secure and defend our intellectual property are expensed as incurred and are classified as general and administrative expenses. We anticipate that our general and administrative expenses will remain consistent with historical levels as we maintain our infrastructure to support our research and development activities. We also expect to continue to incur significant expenses associated with operating as a public company, including increased costs for accounting, audit, legal, regulatory and tax-related services attributable to maintaining compliance with exchange listing standards and U.S. Securities and Exchange Commission, or SEC, requirements, directors’ and officers’ liability insurance costs and investor and public relations costs. We also expect to continue to incur additional expenses related to intellectual property as we file patent applications to protect intellectual property arising from our research and development activities. In the event we are unable to obtain sufficient additional capital in the future, we may need to implement cost reduction strategies that seek to reduce our general and administrative expenses while maintaining sufficient infrastructure to support our planned research and development activities and operations as a public company. Other Income (Expense), Net Change in Fair Value of Common Stock Warrant Liabilities The change in fair value of common stock warrant liabilities consists of the gain or loss recorded upon the revaluation at each reporting period of the common stock warrant liabilities in connection with the June 2025 follow-on offering. Other Income (Expense), Net Other income (expense), net consists primarily of interest income earned from our cash and cash equivalents, and for the three and six months ended June 30, 2025 also consists of the portion of the issuance costs we incurred in connection with the June 2025 follow-on offering, which were allocated to the common stock warrant liabilities. 31 Table of Contents Results of Operations Comparison of the three months ended June 30, 2026 and 2025 The following table summarizes our results of operations for the three months ended June 30, 2026 and 2025 (in thousands): Three Months Ended June 30, 2026 2025 Change Revenue Collaboration and license revenue $ 18,692 $ 8,084 $ 10,608 Total revenue 18,692 8,084 10,608 Operating expenses Research and development $ 14,559 $ 15,330 $ (771 ) General and administrative 7,624 7,120 504 Total operating expenses 22,183 22,450 (267 ) Loss from operations (3,491 ) (14,366 ) 10,875 Other income (expense), net Change in fair value of common stock warrant liabilities (3,940 ) (50 ) (3,890 ) Other income (expense), net 1,058 (1,428 ) 2,486 Total other income (expense), net (2,882 ) (1,478 ) (1,404 ) Net loss $ (6,373 ) $ (15,844 ) $ 9,471 Collaboration and License Revenue Collaboration and license revenue increased by $10.6 million from $8.1 million for the three months ended June 30, 2025 to $18.7 million for the three months ended June 30, 2026. The increase was due to an increase in collaboration and license revenue recognized under our collaboration and license agreements with AbbVie and Gilead. Research and Development Expenses The following table summarizes our research and development expenses for the three months ended June 30, 2026 and 2025 (in thousands): Three Months Ended June 30, 2026 2025 Change XTX501 $ 1,288 $ 1,595 $ (307 ) efarindodekin alfa 1,633 1,825 (192 ) vilastobart 1,351 4,103 (2,752 ) Other early programs and indirect research and development 4,724 3,006 1,718 Personnel-related 5,563 4,801 762 Total research and development expenses $ 14,559 $ 15,330 $ (771 ) Research and development expenses decreased by $0.8 million from $15.3 million for the three months ended June 30, 2025 to $14.6 million for the three months ended June 30, 2026. The changes in research and development expenses were primarily due to the following: • other early programs and indirect research and development costs increased by $1.7 million, primarily driven by an increase in external expenses related to preclinical research and development activities, including costs related to our masked TCE programs targeting CLDN18.2 and PSMA+STEAP1 and our AbbVie collaboration; 32 Table of Contents • personnel-related costs increased by $0.8 million, primarily driven by a $0.6 million increase in salaries, bonuses and benefits due to higher research and development headcount and a $0.2 million increase in stock-based compensation; • efarindodekin alfa costs decreased by $0.2 million, primarily driven by a decrease in clinical development activities related to our ongoing Phase 2 clinical trial; • XTX501 costs decreased by $0.3 million, primarily driven by a $0.3 million decrease in manufacturing activities related to IND-enabling studies and a $0.2 million decrease in preclinical development activities, partially offset by a $0.2 million increase in clinical trial startup activities related to our Phase 1/2 clinical trial for XTX501; and • vilastobart costs decreased by $2.8 million, primarily driven by a decrease in clinical development activities related to our Phase 1/2 clinical trial evaluating vilastobart in combination with atezolizumab. General and Administrative Expenses The following table summarizes our general and administrative expenses for the three months ended June 30, 2026 and 2025 (in thousands): Three Months Ended June 30, 2026 2025 Change Personnel-related $ 4,412 $ 4,131 $ 281 Professional and consulting fees 2,401 2,189 212 Facility-related and other general and administrative expenses 811 800 11 Total general and administrative expenses $ 7,624 $ 7,120 $ 504 General and administrative expenses increased by $0.5 million from $7.1 million for the three months ended June 30, 2025 to $7.6 million for the three months ended June 30, 2026. The changes in general and administrative expenses were primarily due to the following: • personnel-related costs increased by $0.3 million, primarily driven by an increase in salary, severance and recruiting costs, partially offset by a decrease in discretionary bonus costs; and • professional and consulting fees increased by $0.2 million, primarily driven by an increase in other professional costs. Change in Fair Value of Common Stock Warrant Liabilities The change in fair value of common stock warrant liabilities for the three months ended June 30, 2026 was due to a loss of $3.9 million resulting from the increase in the fair value of the common stock warrant liabilities between March 31, 2026 and June 30, 2026, which was primarily driven by an, increase in the price per share of our common stock. Other Income (Expense), Net Other income (expense), net, increased by $2.5 million from other expense of $1.4 million for the three months ended June 30, 2025 to other income of $1.1 million for the three months ended June 30, 2026. The increase in other income (expense), net was primarily due to an increase in interest income due to a higher average cash balance and the $2.3 million in issuance costs we incurred in connection with the June 2025 follow-on offering, which were allocated to the common stock warrant liabilities, for which there was no comparable cost for the three months ended June 30, 2026. 33 Table of Contents Comparison of the six months ended June 30, 2026 and 2025 The following table summarizes our results of operations for the six months ended June 30, 2026 and 2025 (in thousands): Six Months Ended June 30, 2026 2025 Change Revenue Collaboration and license revenue $ 31,340 $ 11,014 $ 20,326 Total revenue 31,340 11,014 20,326 Operating expenses Research and development $ 34,391 $ 23,596 $ 10,795 General and administrative 14,552 15,635 (1,083 ) Total operating expenses 48,943 39,231 9,712 Loss from operations (17,603 ) (28,217 ) 10,614 Other income (expense), net Change in fair value of common stock warrant liabilities (640 ) (50 ) (590 ) Other income (expense), net 2,341 (842 ) 3,183 Total other income (expense), net 1,701 (892 ) 2,593 Net loss $ (15,902 ) $ (29,109 ) $ 13,207 Collaboration and License Revenue Collaboration and license revenue increased by $20.3 million from $11.0 million for the six months ended June 30, 2025 to $31.3 million for the six months ended June 30, 2026. The increase was due to an increase in collaboration and license revenue recognized under our collaboration and license agreements with AbbVie and Gilead. Research and Development Expenses The following table summarizes our research and development expenses for the six months ended June 30, 2026 and 2025 (in thousands): Six Months Ended June 30, 2026 2025 Change XTX501 $ 7,432 $ 2,065 $ 5,367 efarindodekin alfa 3,034 2,803 231 vilastobart 2,434 3,910 (1,476 ) Other early programs and indirect research and development 9,938 5,433 4,505 Personnel-related 11,553 9,385 2,168 Total research and development expenses $ 34,391 $ 23,596 $ 10,795 Research and development expenses increased by $10.8 million from $23.6 million for the six months ended June 30, 2025 to $34.4 million for the six months ended June 30, 2026. The changes in research and development expenses were primarily due to the following: • XTX501 costs increased by $5.4 million, primarily driven by a $2.6 million increase in manufacturing activities related to IND-enabling studies, a $1.6 million increase related to clinical trial startup activities for our Phase 1/2 clinical trial for XTX501 and a $1.0 million increase in preclinical development activities; • other early programs and indirect research and development costs increased by $4.5 million, primarily driven by an increase in external expenses related to preclinical research and development activities, including costs related to our masked TCE programs targeting CLDN18.2 and PSMA+STEAP1 and our AbbVie collaboration; • personnel-related costs increased by $2.2 million, primarily driven by a $1.6 million increase in salaries, bonuses and benefits due to higher research and development headcount and a $0.6 million increase in stock-based compensation; 34 Table of Contents • efarindodekin alfa costs increased by $0.2 million, primarily driven by an increase in clinical development activities related to our ongoing Phase 2 clinical trial; and • vilastobart costs decreased by $1.5 million, primarily driven by a decrease in clinical development activities related to our Phase 1/2 clinical trial evaluating vilastobart in combination with atezolizumab. General and Administrative Expenses The following table summarizes our general and administrative expenses for the six months ended June 30, 2026 and 2025 (in thousands): Six Months Ended June 30, 2026 2025 Change Personnel-related $ 8,584 $ 8,574 $ 10 Professional and consulting fees 4,398 5,426 (1,028 ) Facility-related and other general and administrative expenses 1,570 1,635 (65 ) Total general and administrative expenses $ 14,552 $ 15,635 $ (1,083 ) General and administrative expenses decreased by $1.1 million from $15.6 million for the six months ended June 30, 2025 to $14.6 million for the six months ended June 30, 2026. The changes in general and administrative expenses were primarily due to a decrease of $1.0 million in legal fees and other professional costs. Change in Fair Value of Common Stock Warrant Liabilities The change in fair value of common stock warrant liabilities for the six months ended June 30, 2026 was due to a loss of $0.6 million resulting from the increase in the fair value of the common stock warrant liabilities between December 31, 2025 and June 30, 2026, which was primarily driven by an increase in the price per share of our common stock. Other Income (Expense), Net Other income (expense), net, increased by $3.2 million from other expense of $0.8 million for the six months ended June 30, 2025 to other income of $2.3 million for the six months ended June 30, 2026. The increase in other income (expense), net was primarily due to an increase in interest income due to a higher average cash balance, partially offset by the $2.3 million in issuance costs we incurred in connection with the June 2025 follow-on offering, which were allocated to the common stock warrant liabilities, for which there was no comparable cost for the three months ended June 30, 2026. Liquidity and Capital Resources Sources of Liquidity Since our inception, we have incurred significant operating losses and negative cash flows from operations. We have not yet commercialized any of our product candidates, which are in preclinical or early clinical development, and we do not expect to generate revenue from sales of any products for several years, if at all. To date, we have financed our operations primarily from proceeds raised through private placements of equity securities; sales of common stock in our IPO and through “at-the-market” offerings; the sale of prefunded warrants in our June 2025 and February 2026 follow-on offerings; the exercise of certain common stock warrants issued in connection with our June 2025 follow-on offering; development event payments under our co-funded clinical trial collaboration with Roche for vilastobart; and upfront and milestone payments under our collaboration and license agreements with AbbVie and Gilead. All of our programs are in early clinical or preclinical development. As a result, we have not generated any revenue from product sales and do not expect to generate any revenue from product sales for at least the next several years, if at all. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates, if approved. Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve profitability. Even if we are able to generate revenue from product sales, we may not become profitable. 35 Table of Contents At-the-Market Offering Program In March 2025, we filed a universal shelf registration statement on Form S-3 with the SEC to register for sale up to $250.0 million of our common stock, preferred stock, debt securities, units and warrants, which we may issue and sell from time to time in one or more offerings, which became effective on May 8, 2025 (333-285703). In March 2025, we entered into a sales agreement with Leerink Partners, LLC, under which we could initially issue and sell shares of our common stock from time to time at an aggregate offering price of up to $50.0 million. In February 2026, we filed a prospectus supplement to our prospectus dated May 8, 2025 (333-285793) to reduce the amount of common stock we may offer and sell under the sales agreement to an aggregate offering price of up to $9.5 million. In May 2026, we filed a universal shelf registration statement on Form S-3 with the SEC to register for sale up to $250.0 million of our common stock, preferred stock, debt securities, units and warrants, which we may issue and sell from time to time in one or more offerings, which became effective on May 29, 2026 (333-295785), or the 2026 Form S-3. In May 2026, we filed a prospectus supplement to our prospectus in the 2026 Form S-3 to cover the offering, issuance and sale by us of up to a maximum of $14.5 million of our common stock that may be issued and sold from time to time under our sales agreement with Leerink. During the three months ended June 30, 2026, we issued and sold 592,300 shares of our common stock pursuant to the sales agreement with Leerink at a weighted average price of $7.76 per share for aggregate gross proceeds of $4.6 million, before deducting underwriting discounts and commissions and any offering expenses. Cash Flows The following table provides information regarding our cash flows for each period presented (in thousands): Six Months Ended June 30, 2026 2025 Net cash (used in) provided by: Operating activities $ (41,105 ) $ 14,501 Investing activities (575 ) (423 ) Financing activities 40,201 52,194 Net (decrease) increase in cash, cash equivalents and restricted cash $ (1,479 ) $ 66,272 Operating Activities Our cash flows from operating activities are greatly influenced by our use of cash for operating expenses and working capital requirements to support our business. We have historically experienced negative cash flows from operating activities as we invested in research and development of our product candidates, including preclinical studies, clinical trials, manufacturing and manufacturing process development. The cash used in operating activities resulted primarily from our net losses adjusted for non-cash charges, which are generally due to stock-based compensation, depreciation and amortization, as well as changes in components of operating assets and liabilities, which are generally due to increased expenses and timing of vendor payments. During the six months ended June 30, 2026, net cash used in operating activities of $41.1 million was primarily driven by net changes in operating assets and liabilities of $30.3 million and our net loss of $15.9 million, partially offset by $3.8 million of stock-based compensation expense, the $0.6 million loss recorded on the change in fair value of our common stock warrant liabilities and $0.6 million of depreciation and amortization expense. During the six months ended June 30, 2025, net cash provided by operating activities of $14.5 million was primarily driven by net changes in operating assets and liabilities of $37.5 million, which includes the $49.1 million recorded as deferred revenue in connection with our collaboration, license and option agreement and stock purchase agreement with AbbVie, and net non-cash expenses of $6.1 million, partially offset by our net loss of $29.1 million. Investing Activities During the six months ended June 30, 2026 and 2025, net cash used in investing activities consisted of purchases of property and equipment. 36 Table of Contents Financing Activities During the six months ended June 30, 2026, net cash provided by financing activities of $40.2 million primarily consisted of proceeds from the sale of prefunded warrants through a follow-on offering and proceeds from the sale and issuance of common stock through our ATM program. During the six months ended June 30, 2025, net cash provided by financing activities of $52.2 million consisted of proceeds from the sale of prefunded warrants and common stock warrants through our June 2025 follow-on offering, proceeds from the sale and issuance of common stock to AbbVie in a private placement and proceeds from the sale and issuance of common stock through our ATM program. Capital Requirements We expect our future capital requirements to increase substantially over time in connection with our ongoing research and development activities, particularly as we advance our current and planned clinical development of our product candidates and maintain the research efforts and preclinical activities associated with our other existing programs and discovery platform. In addition, we expect to continue to incur additional costs associated with operating as a public company. As a result, we expect to incur substantial operating losses and negative operating cash flows for the foreseeable future. Inflation generally affects us by increasing our cost of labor and certain services. We do not believe that inflation had a material effect on our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. However, the United States has recently experienced historically high levels of inflation. If the inflation rate continues to increase it may affect our expenses, such as employee compensation and research and development charges due to, for example, increases in the costs of labor and supplies. Additionally, the biotechnology industry is subject to a competitive wage environment that may also increase our operating costs in the future. As of June 30, 2026, we had cash and cash equivalents of $136.0 million. In the second quarter of 2026, we achieved a $6.0 million development milestone related to the collaboration agreement with AbbVie, which we received in the third quarter of 2026. Based on our current operating plans, we anticipate that our existing cash and cash equivalents as of June 30, 2026, together with the $6.0 million development milestone achieved under our AbbVie collaboration in the second quarter of 2026, will be sufficient to enable us to fund our operating expenses and capital expenditure requirements into the first quarter of 2028. This estimate excludes up to $36.2 million in additional gross proceeds in the second half of 2026 if all outstanding Series C warrants are exercised at their current exercise price and any potential additional milestone payments, option-related fees or other contingent payments under our collaboration and license agreements with AbbVie and Gilead, including up to $31.0 million in near-term milestones and option extension fees that could be achieved under the AbbVie collaboration through the first half of 2027. In addition, we have based our estimates on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we anticipate. In addition, we expect our operating losses and negative operating cash flows to continue for the foreseeable future as we continue to advance our pipeline of novel, masked I-O molecules through preclinical and clinical development, maintain the infrastructure necessary to support these activities and continue to incur costs associated with operating as a public company. Because of the numerous risks and uncertainties associated with product development, and because the extent to which we may enter into additional collaborations with third parties for the development of our product candidates is unknown, we may incorrectly estimate the timing and amounts of increased capital outlays and operating expenses associated with advancing the research and development of our product candidates. Our future capital requirements, both short-term and long-term, will depend on many factors, including, but not limited to: • the scope, progress, results and costs of research and development for our current and future product candidates, including our current and planned clinical trials for our clinical-stage product candidates, efarindodekin alfa and XTX501, and ongoing preclinical development for our current and future product candidates; • our ability to maintain our collaboration and license agreements with AbbVie and Gilead; 37 Table of Contents • the timing and amount of milestones, option-related fees and other contingent payments under our collaboration, license and option agreement with AbbVie for masked immunotherapies and our license agreement with Gilead for efarindodekin alfa, as well as the scope, costs and timing of our development obligations under these agreements; • the potential receipt of up to $36.2 million in additional gross proceeds in the second half of 2026 if all of the outstanding Series C common stock warrants issued in connection with our June 2025 follow-on offering are exercised at their current exercise price of $10.50 per warrant; • our ability to secure additional capital in the future; • the scope, prioritization and number of our research and development programs; • the costs of securing manufacturing materials for use in preclinical studies, clinical trials and, for any product candidates for which we receive regulatory approval, if any, commercial supply; • the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property and proprietary rights and defending any intellectual property-related claims; • the extent to which we may acquire or in-license other products, product candidates, technologies or intellectual property, as well as the terms of any such arrangements; • the scope, costs, timing and outcome of regulatory review of our product candidates; • the costs and timing of future commercialization activities for any of our product candidates for which we receive regulatory approval; • the amount and timing of revenue, if any, received from commercial sales of any product candidates for which we receive regulatory approval; • general economic conditions, including inflation and the imposition of new or revised global trade tariffs; and • the costs of maintaining our operations and continuing to operate as a public company. Identifying potential product candidates and conducting preclinical studies and clinical trials is a time consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for several years, if ever. Accordingly, we will need to obtain substantial additional capital to achieve our business objectives. Our expectation with respect to our ability to fund our currently planned operations is based on estimates that are subject to various risks and uncertainties. Our operating plan may change as a result of many factors currently unknown to management and there can be no assurance that our current operating plan will be achieved in the time frame anticipated by us, and we may exhaust our available capital resources sooner than we expect. Adequate additional capital may not be available to us on acceptable terms, or at all. Market volatility resulting from adverse changes in domestic and international fiscal, monetary and other policies and political relations, regional or global conflicts, uncertainty around global economic conditions, instability in the financial markets, current or future pandemics or other factors could also adversely impact our ability to access capital as and when needed. To the extent that we raise additional capital through the sale of equity or securities convertible into or exchangeable for equity, the ownership interest of our existing stockholders may be diluted, and the terms of such securities may include liquidation or other preferences that adversely affect the rights of our existing stockholders. Additional debt and preferred equity, if available, may also involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends and may require that we issue additional warrants, which could potentially dilute the ownership interest of our existing stockholders. Contractual Obligations During the six months ended June 30, 2026, there have been no material changes to our contractual obligations as reported in our Annual Report on Form 10-K for the year ended December 31, 2025. 38 Table of Contents Critical Accounting Policies and Use of Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements, as well as the reported revenue and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions. Except as described in Note 2, Summary of Significant Accounting Policies, to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, there have been no changes to our critical accounting policies appearing in our Annual Report on Form 10-K for the year ended December 31, 2025. Emerging Growth Company and Smaller Reporting Company Status As an emerging growth company, or EGC, under the Jumpstart Our Business Startups Act of 2012, or JOBS Act, we may delay the adoption of certain accounting standards until such time as those standards apply to private companies. Other exemptions and reduced reporting requirements under the JOBS Act for EGCs include presentation of only two years of audited financial statements in a registration statement for an IPO, an exemption from the requirement to provide an auditor’s report on internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, an exemption from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation, and less extensive disclosure about our executive compensation arrangements. In addition, the JOBS Act provides that an EGC can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an EGC to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we can adopt the new or revised standard at the time private companies adopt the new or revised standard and may do so until such time that we either (1) irrevocably elect to “opt out” of such extended transition period or (2) no longer qualify as an emerging growth company. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. We expect to remain classified as an EGC until December 31, 2026. We are also a “smaller reporting company,” as defined in the Securities Exchange Act of 1934, as amended, or the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an EGC, in which case we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Item 3. Quantitative and Qualitative Disclosures About Market Risk We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.