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 our final prospectus for our initial public offering, or IPO, filed pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, or the Securities Act, with the Securities and Exchange commission, or SEC, on October 22, 2021, or the Prospectus. 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. You should carefully read the section entitled “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Overview We are a biotechnology company focused on harnessing the immune system to achieve deep and durable clinical responses to improve the lives of patients with cancer. We have built our geographically precise solutions, or GPS, platform to rapidly engineer novel molecules, including cytokines and other biologics, that are designed to optimize their therapeutic index by geographically localizing their activity inside tumors. Current immuno-oncology therapies have curative potential for patients with cancer; however, their potential is significantly curtailed by systemic toxicity that results from activity of the therapeutic molecule outside the tumor microenvironment, or TME. Our molecules are engineered to localize activity within the TME with minimal systemic effects, resulting in the potential to achieve enhanced anti-tumor activity. We are advancing a number of geographically precise, or tumor-selective, agents through various stages of development. Our most advanced product candidates are XTX101, an anti-cytotoxic T-lymphocyte-associated protein 4, or anti-CTLA-4, monoclonal antibody and XTX202, an interleukin 2 therapy. In June 2021, the U.S. Food and Drug Administration, or FDA, cleared our investigational new drug application, or IND, for XTX101, and in September 2021, we initiated our Phase 1/2 clinical trial to evaluate XTX101 in patients with advanced solid tumors. In addition, in October 2021, the FDA cleared our IND for XTX202. We anticipate initiating a Phase 1/2 clinical trial to evaluate XTX202 in multiple solid tumor types in the first quarter of 2022. We are also advancing our tumor-selective IL-12 product candidate, XTX301, with the goal of submitting an IND in the second half of 2022, and we are currently pursuing preclinical studies for our tumor-selective IL-15 product candidate, XTX401. We also plan to continue to leverage our GPS platform to expand our pipeline and seek to develop additional product candidates, including product candidates with a range of tumor targeting approaches. Since inception, we have devoted substantially all of our financial resources and efforts to performing research and development activities. We have financed our operations primarily from proceeds raised through private placements of preferred units and convertible preferred stock, a debt financing and our initial public offering, or IPO, of common stock. As of September 30, 2021, we had received an aggregate of $224.5 million in net proceeds from the sale and issuance of preferred units and convertible preferred stock and $10.0 million in net proceeds from a debt financing. On October 26, 2021, we completed our IPO and issued and sold an aggregate of 7,353,000 shares of our common stock at a public offering price of $16.00 per share, and on November 1, 2021, we issued and sold an additional 766,106 shares of common stock at a public offering price of $16.00 per share pursuant to the exercise by the underwriters of their option to purchase additional shares. We received aggregate net proceeds of approximately $116.3 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. 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. All of our programs are in early clinical or preclinical development. 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. Since inception, we have incurred significant operating losses, including net losses of $17.3 million and $55.2 million for the years ended December 31, 2019 and 2020, respectively, and a net loss of $56.1 million for the nine months ended September 30, 2021. As of September 30, 2021, 24 Table of Contents we had an accumulated deficit of $141.2 million. We expect to incur significant expenses and operating losses for the foreseeable future. We anticipate that our expenses will continue to increase significantly in connection with our ongoing activities, particularly as 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 any product candidates that successfully complete clinical trials; ● obtain, expand, maintain, defend and enforce our intellectual property; ● hire additional research, clinical, regulatory, quality, manufacturing and general and administrative personnel; ● establish a commercial and distribution infrastructure to commercialize any products for which we may obtain marketing approval; ● 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; 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 funding to support our continuing operations and pursue our strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings and other sources of funding, such as collaborations, licensing arrangements or other strategic transactions. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on acceptable terms, or at all. Our failure to raise capital or enter into such agreements as and when needed could have a material adverse effect on our business, results of operations and financial condition. 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. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations. As of September 30, 2021, we had cash and cash equivalents of $99.8 million. We believe that our existing cash and cash equivalents, together with the net proceeds from our IPO, will enable us to fund our operating expenses and capital expenditure requirements into 2024. Impact of COVID-19 on Our Business The worldwide COVID-19 pandemic has affected and may affect in the future our ability to initiate and complete preclinical studies, delay the initiation and completion of our current and planned clinical trials, disrupt regulatory activities or have other adverse effects on our business, results of operations, financial condition and prospects. In addition, the pandemic has caused substantial disruption in the global supply chain and the financial markets and may adversely impact economies worldwide, both of which could adversely affect our business, operations and ability to raise funds to support our operations. 25 Table of Contents We are following, and plan to continue to follow, recommendations from federal, state and local governments regarding workplace policies, practices and procedures. In response to the direction from state and local governmental authorities, we have restricted access to our facility to those individuals who must perform critical research, translational medicine, laboratory and other support activities that must be completed on site, limited the number of such people that can be present at our facility at any one time and required that most of our employees work remotely. In addition, we and the third-party manufacturers, contract research organizations, or CROs, and academic collaborators that we engage have faced in the past and may face in the future disruptions that could affect our ability to initiate and complete preclinical studies or clinical trials, including disruptions in procuring items that are essential for our research and development activities, such as, for example, raw materials used in the manufacture of our product candidates, laboratory supplies for our preclinical studies and clinical trials, or animals that are used for preclinical testing, in each case, for which there may be shortages because of ongoing efforts to address the COVID-19 pandemic. We cannot be certain what the overall impact of the COVID-19 pandemic will be on our business, and it has the potential to adversely affect our business, financial condition, results of operations and prospects. Financial Operations Overview Revenue We have not generated any revenue 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 or if we enter into collaboration or license agreements with third parties, we may generate revenue in the future from product sales or payments from third-party collaborators or licensors. 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 equity-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 and planned 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 clinical research organizations, or CROs, and other third parties in connection with the conduct of our current and future clinical trials; ● costs of sponsored research agreements and outside consultants, including their fees, equity-based compensation and related expenses; ● costs incurred to maintain compliance with regulatory requirements; ● fees for maintaining license 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 26 Table of Contents ● depreciation, amortization and other direct and allocated expenses, including rent, insurance, 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 financial statements as prepaid expenses or accrued external research and development expenses. Nonrefundable 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, 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 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. The following table reflects our research and development expense, including direct program-specific expense summarized by program, personnel-related expenses and indirect or shared operating costs recognized during each period presented (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, ​ 2021 2020 2021 2020 XTX202 ​ $ 1,262 ​ $ 2,903 ​ $ 13,524 ​ $ 4,091 XTX101 ​ ​ 1,427 ​ ​ 3,882 ​ ​ 5,340 ​ ​ 9,769 Other early programs and indirect research and development ​ ​ 3,804 ​ ​ 2,531 ​ ​ 9,966 ​ ​ 6,816 Personnel-related (including equity-based compensation) ​ ​ 3,977 ​ ​ 2,144 ​ ​ 11,006 ​ ​ 5,567 Total research and development expenses ​ $ 10,470 ​ $ 11,460 ​ $ 39,836 ​ $ 26,243 ​ 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 continue to increase for the foreseeable future as we advance our programs and product candidates into and through clinical development, and as we continue to develop additional product candidates. We also expect our discovery research efforts and our related personnel costs will increase and, as a result, we expect our research and development expenses, including costs associated with equity-based compensation, will increase above historical levels. In addition, 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 and option agreements to acquire the rights to future products and product candidates. 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 maintain our current research and development programs and to establish new ones; ● our ability to establish an appropriate safety profile for our product candidates with IND-enabling studies; 27 Table of Contents ● our ability to hire and retain key research and development personnel; ● the costs associated with the development of any additional product candidates we develop or acquire through collaborations; ● the effects of COVID-19 on our research and development employees, contractors and those who may participate in our clinical trials; ● 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; ● if approved, the continued acceptable safety profiles of the product candidates following approval; ● our ability to establish and maintain agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing, if 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; and ● 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. 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, benefits and equity-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 fees for accounting, auditing, tax, human resources and administrative consulting services; insurance costs; and facility-related expenses, which include depreciation costs and other allocated expenses for rent, maintenance of facilities, recruiting 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 increase in the future as we increase our headcount and infrastructure to support the expected growth in our research and development activities. We also expect to incur increased expenses associated with operating as a public company, including increased costs of accounting, audit, legal, regulatory and tax-related services attributable to maintaining compliance with exchange listing standards and Securities and Exchange Commission, or SEC, requirements, director and officer insurance costs and investor and public relations costs. 28 Table of Contents We also expect to incur additional intellectual property-related expenses as we file patent applications to protect intellectual property arising from our research and development activities. Other Income (Expense), Net Other income (expense), net consists primarily of gains or losses associated with changes in the fair value of contingent liabilities associated with the consummation of specified transactions, including our IPO, interest expense principally on the note payable under our debt arrangement with Pacific Western Bank, or PacWest, and interest income earned from our cash and cash equivalents. Upon completion of our IPO in October 2021, our contingent liabilities with PacWest and our other contingent derivative liability became due and payable. These fees were paid during the fourth quarter of 2021 and as a result, no further gains or losses will be recognized related to those contingent liabilities. Income Taxes Since our inception, we have not recorded any U.S. federal or state income tax benefits for the net losses we have incurred in each year or for our earned research and development tax credits, due to our uncertainty of realizing a benefit from those items. As of December 31, 2020, we had federal and state net operating loss, or NOL, carryforwards of approximately $78.0 million and $69.6 million, respectively, which may be available to offset future taxable income. As of December 31, 2020, federal NOLs of $73.2 million have an indefinite carryforward period. The remaining $4.8 million in federal NOL carryforwards and our state NOL carryforward will expire beginning in 2035. As of December 31, 2020, we also had federal and state research and development carryforwards of approximately $1.5 million and $0.8 million, respectively, which may be available to offset any future income tax and which will begin to expire in 2037. These loss and credit carryforwards are subject to review and possible adjustment by the appropriate taxing authorities. Utilization of our NOL carryforwards and research and development credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that have occurred previously or that could occur in the future in accordance with Section 382 of the Internal Revenue Code of 1986, or Section 382, as well as similar state provisions. These ownership changes may limit the amount of NOL and research and development credit carryforwards that can be utilized annually to offset future taxable income and taxes, respectively. In general, an ownership change as defined by Section 382 results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50% over a three-year period. Since our formation, we have raised capital through the issuance of units and capital stock on several occasions. These financings may have resulted in a change of control as defined by Section 382. We have not yet completed a detailed study of our inception to date ownership change activity. In addition, we have not yet conducted a study of our research and development credit carry forwards. Such a study may result in an adjustment to our research and development credit carryforwards; however, until a study is completed and any adjustment is known, no amount is being presented as an uncertain tax position. A full valuation allowance has been provided against our research and development credits, and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no impact to the balance sheet or statement of operations and comprehensive loss if an adjustment were required. Income taxes are determined at the applicable tax rates adjusted for non-deductible expenses, research and development tax credits and other permanent differences. Our income tax provision may be significantly affected by changes to our estimates. 29 Table of Contents Results of Operations Comparison of the Three Months Ended September 30, 2021 and 2020 The following tables summarize our results of operations for the three months ended September 30, 2021 and 2020 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ ​ September 30, ​ ​ ​ ​ 2021 2020 Change Operating expenses ​ ​ ​ ​ ​ ​ Research and development ​ $ 10,470 ​ $ 11,460 ​ $ (990) General and administrative ​ 5,491 ​ 3,163 ​ 2,328 Total operating expenses ​ 15,961 ​ 14,623 ​ 1,338 Loss from operations ​ (15,961) ​ (14,623) ​ (1,338) Other income (expense), net ​ ​ ​ Other expense, net ​ (290) ​ (196) ​ (94) Total other income (expense), net ​ (290) ​ (196) ​ (94) Net loss ​ $ (16,251) ​ $ (14,819) ​ $ (1,432) ​ Research and Development Expenses The following tables summarize our research and development expenses for the three months ended September 30, 2021 and 2020 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ ​ September 30, ​ ​ ​ ​ 2021 2020 Change XTX202 ​ $ 1,262 ​ $ 2,903 ​ $ (1,641) XTX101 ​ ​ 1,427 ​ ​ 3,882 ​ ​ (2,455) Other early programs and indirect research and development ​ ​ 3,804 ​ ​ 2,531 ​ ​ 1,273 Personnel-related (including equity-based compensation) ​ ​ 3,977 ​ ​ 2,144 ​ ​ 1,833 Total research and development expenses ​ $ 10,470 ​ $ 11,460 ​ $ (990) ​ Research and development expenses decreased by $1.0 million from $11.5 million for the three months ended September 30, 2020 to $10.5 million for the three months ended September 30, 2021. The decrease in research and development expenses was primarily due to the following: ● $2.5 million decrease in expenses incurred to advance our XTX101 program, primarily resulting from a $2.9 million decrease in manufacturing and a $0.7 million decrease in preclinical development activities partially offset by a $0.7 million increase in clinical activities and a $0.4 million increase in other program related expenses; ● $1.6 million decrease in expenses incurred to advance our XTX202 program, driven primarily by a $2.1 million decrease in manufacturing partially offset by a $0.3 million increase in costs associated with clinical development activities; ● $1.8 million increase in personnel-related costs, including a $0.2 million increase in equity-based compensation, primarily due to increases in salaries, bonus and benefits associated with increased research and development headcount as well as higher average compensation; and ● $1.3 million increase in other early programs and indirect research and development expenses, primarily driven by an increase in external expenses related to preclinical research and development activities. 30 Table of Contents General and Administrative Expenses General and administrative expenses increased $2.3 million from $3.2 million for the three months ended September 30, 2020 to $5.5 million for the three months ended September 30, 2021. The increase in general and administrative expenses was primarily due to the following: ● $1.1 million increase in personnel-related costs, including a $0.2 million increase in equity-based compensation, and a $0.6 million increase in salaries, bonuses and benefits primarily due to increased general and administrative headcount; and ● $1.1 million increase in professional fees, driven primarily by an increase in legal, accounting and other professional services related to ongoing business activities, including certain activities related to becoming a public company. Other Income (Expense), Net Other income (expense), net, increased by $0.1 million during the three months ended September 30, 2021 compared to the same period in the prior year primarily as a result of an increase in the value of the contingent liabilities associated with the probability of the consummation of our IPO. Comparison of the Nine Months Ended September 30, 2021 and 2020 The following tables summarize our results of operations for the nine months ended September 30, 2021 and 2020 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended ​ ​ ​ ​ September 30, ​ ​ ​ ​ 2021 2020 Change Operating expenses ​ ​ ​ ​ ​ ​ Research and development ​ $ 39,836 ​ $ 26,243 ​ $ 13,593 General and administrative ​ 15,652 ​ 7,725 ​ 7,927 Total operating expenses ​ 55,488 ​ 33,968 ​ 21,520 Loss from operations ​ (55,488) ​ (33,968) ​ (21,520) Other income (expense), net ​ ​ ​ Other expense, net ​ (611) ​ (479) ​ (132) Total other income (expense), net ​ (611) ​ (479) ​ (132) Net loss ​ $ (56,099) ​ $ (34,447) ​ $ (21,652) ​ Research and Development Expenses The following tables summarize our research and development expenses for the nine months ended September 30, 2021 and 2020 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended ​ ​ ​ ​ September 30, ​ ​ ​ ​ 2021 2020 Change XTX202 ​ $ 13,524 ​ $ 4,091 ​ $ 9,433 XTX101 ​ ​ 5,340 ​ ​ 9,769 ​ ​ (4,429) Other early programs and indirect research and development ​ ​ 9,966 ​ ​ 6,816 ​ ​ 3,150 Personnel-related (including equity-based compensation) ​ ​ 11,006 ​ ​ 5,567 ​ ​ 5,439 Total research and development expenses ​ $ 39,836 ​ $ 26,243 ​ $ 13,593 ​ 31 Table of Contents Research and development expenses increased by $13.6 million from $26.2 million for the nine months ended September 30, 2020 to $39.8 million for the nine months ended September 30, 2021. The increase in research and development expenses was primarily due to the following: ● $9.4 million increase in expenses incurred to advance our XTX202 program, primarily resulting from a $5.9 million increase in manufacturing, a $2.6 million increase in preclinical development activities and a $0.7 million increase in clinical development activities; ● $5.4 million increase in personnel-related costs, including a $0.6 million increase in equity-based compensation, primarily due to increases in salaries, bonus and benefits associated with increased research and development headcount as well as higher average compensation; ● $3.2 million increase in other early programs and indirect research and development expenses, primarily driven by an increase in external expenses related to preclinical research and development activities; and ● $4.4 million decrease in expenses incurred to advance our XTX101 program, driven primarily by a $5.5 million decrease in manufacturing, partially offset by a $1.1 million increase in costs associated with clinical and preclinical research and development activities. General and Administrative Expenses General and administrative expenses increased $7.9 million from $7.7 million for the nine months ended September 30, 2020 to $15.7 million for the nine months ended September 30, 2021. The increase in general and administrative expenses was primarily due to the following: ● $3.7 million increase in personnel-related costs, including a $1.3 million increase in equity-based compensation, and a $1.7 million increase in salaries, bonuses and benefits primarily due to increased general and administrative headcount; and ● $3.5 million increase in professional fees, driven primarily by an increase in accounting and other professional services related to ongoing business activities. Other Income (Expense), Net Other income (expense), net, increased by $0.1 million during the nine months ended September 30, 2021 compared to the same period in the prior year primarily as a result of an increase in the value of the contingent liabilities associated with the probability of the consummation of our IPO. 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 preferred units and convertible preferred stock, a debt financing and our IPO. As of September 30, 2021, we have received an aggregate of $224.5 million in net proceeds from the sale and issuance of preferred units and convertible preferred stock and $10.0 million in net proceeds from our debt financing. On October 26, 2021, we completed our IPO and issued and sold an aggregate of 7,353,000 shares of our common stock at a public offering price of $16.00 per share, and on November 1, 2021, we issued and sold an additional 766,106 shares of common stock at a public offering price of $16.00 per share pursuant to the exercise by the underwriters of their option to purchase additional shares. We received aggregate net proceeds of approximately $116.3 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. 32 Table of Contents As of September 30, 2021, we had cash and cash equivalents of $99.8 million. Cash Flows The following table provides information regarding our cash flows for each period presented (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended ​ ​ September 30, ​ 2021 2020 Net cash provided by (used in): ​ ​ ​ ​ Operating activities ​ $ (63,589) ​ $ (23,386) Investing activities ​ (722) ​ (2,080) Financing activities ​ 144,842 ​ 9,904 Net increase (decrease) in cash, cash equivalents and restricted cash ​ $ 80,531 ​ $ (15,562) ​ 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, clinical 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 equity-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 nine months ended September 30, 2021, net cash used in operating activities of $63.6 million was primarily due to our net loss of $56.1 million and changes in operating assets and liabilities of $11.8 million, partially offset by net non-cash expenses of $4.3 million. During the nine months ended September 30, 2020, net cash used in operating activities of $23.4 million was primarily due to our net loss of $34.4 million, partially offset by both changes in operating assets and liabilities of $9.0 million and net non-cash expenses of $2.1 million. Investing Activities During the nine months ended September 30, 2021 and 2020, net cash used in investing activities of $0.7 million and $2.1 million, respectively, was primarily due to purchases of property and equipment. Financing Activities During the nine months ended September 30, 2021, net cash provided by financing activities of $144.8 million consisted primarily of proceeds from the sale and issuance of shares of our Series B and Series C convertible preferred stock. During the nine months ended September 30, 2020, net cash provided by financing activities of $9.9 million consisted primarily of proceeds from the sale and issuance of our Series B preferred units. Loan and Security Agreement In November 2019, we entered into a loan and security agreement with PacWest, under which we borrowed $10.0 million. Borrowings under the loan and security agreement are collateralized by substantially all of our assets, excluding intellectual property with interest on the term loan balance accruing at a variable annual rate equal to the greater of (i) the prime rate, as defined in the loan and security agreement, plus 0.25% or (ii) 5.00%. Interest-only payments on the term loan balance were required to be paid on a monthly basis through May 21, 2021. Subsequent to the interest-only period, we have made equal monthly payments of principal plus interest and were required to do so until the scheduled loan maturity date of 33 Table of Contents November 2023. In September 2021, we entered into an amendment to our loan and security agreement, pursuant to which we borrowed $10.0 million under a new term loan and used the proceeds of such new term loan to repay the outstanding balance on the prior term loan. In addition, as a result of the amendment, prior to December 31, 2022, we have the ability to request one or more additional term loans in an aggregate principal amount of $10.0 million. As a result of the amendment, interest on amounts outstanding accrues at a variable annual rate equal to the greater of (i) the prime rate plus 0.25% or (ii) 4.75%, and we are required to make interest-only payments on any outstanding balances through December 31, 2022. Subsequent to the interest-only period, we will be required to make equal monthly payments of principal plus interest until the loan matures on June 30, 2024. In addition, under the loan and security agreement, as amended, the one-time fee we were obligated to pay to PacWest upon the occurrence of specified liquidation events, including an initial public offering, was increased from $0.5 million to an amount between $0.8 million and $1.0 million depending on the timing and occurrence of specified events, including upon the closing of the IPO. We paid the one-time fee of $0.8 million to PacWest in October 2021 upon the closing of the IPO. As a result of the amendment, we are also obligated to pay PacWest a fee of 1.0% of the aggregate principal amounts then outstanding if any term loans are repaid prior to September 17, 2022. The loan and security agreement, as amended, contains customary representations, warranties and covenants and also include customary events of default, including payment defaults, breaches of covenants, a change of control and occurrence of a material adverse effect. We have the following minimum aggregate future loan payments under the loan and security agreement, as amended, at September 30, 2021 (in thousands): ​ ​ ​ ​ ​ ​ Minimum Loan ​ ​ Payments 2021 ​ $ — 2022 ​ — 2023 ​ ​ 6,667 2024 ​ 3,333 Total future principal payments ​ 10,000 Less: unamortized discount ​ (420) Total notes payable ​ $ 9,580 ​ Funding Requirements We expect our expenses to increase substantially in connection with our ongoing research and development activities, particularly as we advance the current and planned clinical development of our product candidates and expand the research efforts and preclinical activities associated with our other existing programs and discovery platform. In addition, we expect 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. As of September 30, 2021, we had cash and cash equivalents of $99.8 million. We believe that our existing cash and cash equivalents, together with the net proceeds from our IPO, will enable us to fund our operating expenses and capital expenditure requirements into 2024. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with product development, and because the extent to which we may enter into 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 completing the research and development of our product candidates. Our funding requirements and timing and amount of our operating expenditures 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 most advanced product candidates, XTX101 and XTX202, and ongoing preclinical development for our current and future product candidates; ● the scope, prioritization and number of our research and development programs; 34 Table of Contents ● the scope, costs, timing and outcome of regulatory review of our product candidates; ● the costs of securing manufacturing materials for use in preclinical studies, clinical trials and, for any product candidates for which we receive regulatory approval, use as commercial supply; ● our ability to seek, establish and maintain a collaboration to develop XTX101 with a collaborator, including the financial terms and any cost-sharing arrangements of any such collaboration; ● 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; ● 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 impacts of the COVID-19 pandemic; and ● the costs of continuing to expand our operations and operating 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 funds to achieve our business objectives. Our expectation with respect to our ability to fund current planned operations is based on estimates that are subject to 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 the current operating plan will be achieved in the time frame anticipated by us, and we may need to seek additional funds sooner than planned. Adequate additional funds may not be available to us on acceptable terms, or at all. Market volatility resulting from the COVID-19 pandemic 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 convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of such securities may include liquidation or other preferences that adversely affect the rights of our stockholders. Additional debt financing and preferred equity financing, if available, may 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 the issuance of warrants, which could potentially dilute the ownership interest of our stockholders. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may have to significantly delay, reduce or eliminate some or all of our product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. 35 Table of Contents Contractual Obligations There have been no material changes to our contractual obligations and commitments from those described in the Prospectus with the exception of the timing of future repayments of our note payable under our loan and security agreement, as amended, described above under “—Loan and Security Agreement.” For additional information, see Note 7 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. 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 consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these 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 at the date of the consolidated financial statements, as well as the reported 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 from these estimates under different assumptions or conditions. We define our critical accounting policies as those accounting principles generally accepted in the United States of America that are most critical to the judgments and estimates used in the preparation of our condensed consolidated financial statements. While our significant accounting policies are described in more detail in Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements included in the Prospectus, we believe that our most critical accounting policies are those relating to research and development expenses and related accruals and equity-based compensation. There have been no significant changes to our critical accounting policies from those described in the Prospectus. 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 may remain classified as an EGC until the end of the fiscal year in which the fifth anniversary of our IPO occurs, although if the market value of our common stock that is held by non-affiliates exceeds $700 million as of any June 30 before that time or if we have annual gross revenues of $1.07 billion or more in any fiscal year, we would cease to be an emerging growth company as of December 31 of the applicable year. We also would cease to be an EGC if we issue more than $1 billion of non-convertible debt over a three-year period. 36 Table of Contents We are also a “smaller reporting company,” meaning that the market value of our shares held by non-affiliates is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our shares held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our shares held by non-affiliates is less than $700 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Recent Accounting Pronouncements For a description of recent accounting pronouncements, see “Summary of significant accounting policies – Recently adopted accounting pronouncements” in Note 2 of our consolidated financial statements included in the Prospectus and Note 2 of the notes to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. Item 3. Quantitative and Qualitative Disclosures About Market Risk We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, or the Exchange Act, and are not required to provide the information under this item.