What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-09 compared with 2022-05-12 · 91 added, 56 removed, 223 unchanged (40% of the section changed)

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and XTX301, an interleukin 12, or IL-12, therapy.

We are currently evaluating XTX101 and XTX202 in Phase 1 of our Phase 1/2 clinical trials, and we plan to submit an investigational new drug application, or IND, to the U.S.

Food and Drug Administration, or FDA, in the second half of 2022 for XTX301 for evaluation in patients with solid tumors.

We have determined to deprioritize preclinical development for our tumor-selective IL-15 product candidate, XTX401, in order to focus and prioritize research and development efforts across our pipeline.

We are currently evaluating XTX101 and XTX202 in Phase 1 clinical trials for patients with advanced solid tumors, and we plan to submit an investigational new drug application, or IND, to the U.S.

Food and Drug Administration, or FDA, in the fourth quarter of 2022 for XTX301 for evaluation in patients with advanced solid tumors.

In addition to our most advanced product candidates, we are continuing to leverage our GPS platform with the goal of expanding our pipeline and developing additional tumor-selective immunotherapies, including product candidates with a range of tumor targeting approaches.

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 initial public offering, or IPO, of common stock in October 2021.

Through March 31, 2022, we have received an aggregate of $350.9 million in net proceeds from such transactions, including aggregate net proceeds of $116.4 million from our IPO, 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 with Pacific Western Bank, or PacWest.

Through June 30, 2022, we have received an aggregate of $350.9 million in net proceeds from such transactions, including aggregate net proceeds of $116.4 million from our IPO, 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 with Pacific Western Bank, or PacWest.

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.

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Since inception, we have incurred significant operating losses.

Our net losses were $21.4 million and $16.7 million for the three months ended March 31, 2022 and 2021, respectively, and $75.8 million for the year ended December 31, 2021.

As of March 31, 2022, we had an accumulated deficit of $182.2 million.

Our net losses were $46.0 million and $39.8 million for the six months ended June 30, 2022 and 2021, respectively, and $75.8 million for the year ended December 31, 2021.

As of June 30, 2022, we had an accumulated deficit of $206.9 million.

We expect to incur significant expenses and operating losses for the foreseeable future.

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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 March 31, 2022, we had cash and cash equivalents of $177.0 million.

As of June 30, 2022, we had cash and cash equivalents of $159.4 million.

We believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements into the first half of 2024.

Note on the COVID-19 Pandemic

The ongoing COVID-19 pandemic is having widespread, rapidly-evolving, and unpredictable impacts on global societies, economies, financial markets, and business practices.

We are closely monitoring the impact of the pandemic, the identification of new variants of the COVID-19 virus and related developments, and our focus remains on promoting employee health and safety while continuing to advance the research and development of our product candidates.

Note on the Ongoing COVID-19 Pandemic

The ongoing COVID-19 pandemic continues to have widespread, rapidly-evolving, and unpredictable impacts on global societies, economies, financial markets, supply chains and business practices.

We are closely monitoring the impact of the pandemic, the identification of new variants and related developments, and our focus remains on promoting employee health and safety while continuing to advance the research and development of our product candidates.

However, the extent of the impact of the COVID-19 pandemic, including variants of the COVID-19 virus, on our business, operations, and clinical development timelines and plans remains uncertain and will depend on future developments that cannot be predicted with confidence at this time.

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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.

We also expect our discovery research efforts and our related personnel costs will continue to increase and, as a result, we expect our research and development expenses, including costs associated with equity-based compensation, will continue to 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, option or other 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.

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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.

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.

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Results of Operations

Comparison of the three months ended March 31, 2022 and 2021

The following tables summarize our results of operations for the three months ended March 31, 2022 and 2021 (in thousands):

Comparison of the three months ended June 30, 2022 and 2021

The following tables summarize our results of operations for the three months ended June 30, 2022 and 2021 (in thousands):

Three Months Ended

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Research and Development Expenses

The following tables summarize our research and development expenses for the three months ended March 31, 2022 and 2021 (in thousands):

The following tables summarize our research and development expenses for the three months ended June 30, 2022 and 2021 (in thousands):

Three Months Ended

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Total research and development expenses

Research and development expenses increased by $3.3 million from $11.6 million for the three months ended March 31, 2021 to $14.9 million for the three months ended March 31, 2022.

The increase in research and development expenses was primarily due to the following:

● $2.8 million increase in expenses incurred to advance our XTX301 program, primarily driven by an increase of approximately $1.5 million in manufacturing activities and approximately $1.3 million related to preclinical development activities;

Research and development expenses decreased by $1.5 million from $17.7 million for the three months ended June 30, 2021 to $16.2 million for the three months ended June 30, 2022.

The decrease in research and development expenses was primarily due to decreases of approximately $6.0 million in manufacturing expenses, due to a greater amount of manufacturing activities for XTX202 occurring in the comparable prior year period and a decrease of approximately $2.0 million due to a reduction in preclinical development activities for XTX202.

The decrease in research and development expenses was partially offset by the following:

● $ 3.7 million increase in expenses incurred in connection with XTX301, primarily driven by an increase of approximately $ 2.8 million in manufacturing activities and an increase of approximately $ 0.7 million in preclinical development activities;

● $ 1.4 million increase in personnel-related costs, primarily driven by higher research and development headcount and the corresponding increase of approximately $ 1.0 million in salaries, bonuses and benefits, and an increase of approximately $ 0.3 million in equity-based compensation;

● $ 0.6 million increase in expenses incurred in connection with XTX101, primarily driven by an increase in manufacturing activities and clinical development activities related to our Phase 1 trial for XTX101, partially offset by a decrease in preclinical development activities ;

● $ 0.5 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;

● $1.4 million increase in personnel-related costs, primarily driven by higher research and development headcount and related increases of approximately $1.1 million in salaries, bonuses and benefits, and an approximately $0.5 million increase in equity-based compensation.

These increases were partially offset by the following:

● $2.0 million decrease in expenses incurred to advance our XTX202 program, primarily driven by a decrease of approximately $1.5 million due to the timing of manufacturing activities in the comparable period and approximately $1.0 million in preclinical development activities, partially offset by an increase of approximately $0.7 million in clinical development activities;

● $0.5 million decrease in expenses incurred to advance our XTX101 program, primarily driven by a decrease of approximately $0.9 million in preclinical development activities and approximately $0.2 million in manufacturing activities, partially offset by an increase of approximately $0.8 million in clinical development activities.

● $0.4 million increase in clinical development activities related to our Phase 1 clinical trial for XTX202.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for the three months ended March 31, 2022 and 2021 (in thousands):

The following table summarizes our general and administrative expenses for the three months ended June 30, 2022 and 2021 (in thousands):

Three Months Ended

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Total general and administrative expenses

General and administrative expenses increased $1.4 million from $4.9 million for the three months ended March 31, 2021 to $6.3 million for the three months ended March 31, 2022.

General and administrative expenses increased by $3.0 million from $5.3 million for the three months ended June 30, 2021 to $8.3 million for the three months ended June 30, 2022.

The increase in general and administrative expenses was primarily due to the following:

● $1.2 million increase in personnel-related costs, primarily driven by higher general and administrative headcount and related increases of approximately $0.6 million in salaries, bonuses and benefits, and an approximately $0.8 million increase in equity-based compensation;

● $2.8 million increase in personnel-related costs, primarily driven by higher general and administrative headcount and the corresponding increase of approximately $1.2 million in salaries, bonuses and benefits, and an increase of approximately $1.4 million in equity-based compensation, which includes approximately $0.6 million in non-recurring compensation expense resulting from the modification of previously issued stock options;

● $1.0 million increase in facility-related and other general and administrative expenses, primarily driven by increases in costs incurred as a result of becoming a publicly traded company, including directors’ and officers’ liability insurance and other corporate related costs associated with increased overall corporate headcount.

These increases were partially offset by a $0.5 million decrease in professional and consulting fees, primarily driven by a decrease in general and administrative consulting costs.

Other Income (Expense), Net

Other income (expense), net, remained consistent at $0.1 million during the three months ended March 31, 2022 compared to the same period in the prior year.

These increases were partially offset by a $0.8 million decrease in professional and consulting fees.

Other Expense, Net

Other expense, net, decreased by $0.1 million from $0.2 million for the three months ended June 30, 2021 to $0.1 million for the three months ended June 30, 2022.

The decrease in other expense, net was primarily due to an increase in interest income earned from higher average cash balances as a result of the net proceeds received from our IPO.

Comparison of the six months ended June 30, 2022 and 2021

The following tables summarize our results of operations for the six months ended June 30, 2022 and 2021 (in thousands):

Six Months Ended

Operating expenses

Research and development

General and administrative

Total operating expenses

Loss from operations

Other expense, net

Total other expense, net

Research and Development Expenses

The following tables summarize our research and development expenses for the six months ended June 30, 2022 and 2021 (in thousands):

Six Months Ended

Other early programs and indirect research and development

Personnel-related (including equity-based compensation)

Total research and development expenses

Research and development expenses increased by $1.8 million from $29.4 million for the six months ended June 30, 2021 to $31.2 million for the six months ended June 30, 2022.

The increase in research and development expenses was primarily due to the following:

● $ 6.5 million increase in expenses incurred in connection with XTX301, primarily driven by an increase of approximately $ 4.4 million in manufacturing activities and an increase of approximately $ 2.0 million related to preclinical development activities;

● $ 2.9 million increase in personnel-related costs, primarily driven by higher research and development headcount and the corresponding increase of approximately $ 2.1 million in salaries, bonuses and benefits, and an increase of approximately $ 0.7 million in equity-based compensation;

● $ 2.0 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;

● $1.1 million increase in clinical development activities related to our Phase 1 clinical trial for XTX202.

These increases were partially offset by a decrease of approximately $7.6 million in manufacturing expenses due to a greater amount of manufacturing activities for XTX202 occurring in the comparable prior year period and a decrease of approximately $3.0 million due to a reduction in preclinical development activities for XTX202.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for the six months ended June 30, 2022 and 2021 (in thousands):

Six Months Ended

Personnel-related (including equity-based compensation)

Professional and consulting fees

Facility-related and other general and administrative expenses

Total general and administrative expenses

General and administrative expenses increased by $4.4 million from $10.2 million for the six months ended June 30, 2021 to $14.6 million for the six months ended June 30, 2022.

The increase in general and administrative expenses was primarily due to the following:

● $4.0 million increase in personnel-related costs, primarily driven by higher general and administrative headcount and the corresponding increase of approximately $1.9 million in salaries, bonuses and benefits, and an increase of approximately $2.2 million in equity-based compensation, which includes approximately $0.6 million in non-recurring compensation expense resulting from the modification of previously issued stock options;

● $1.7 million increase in facility-related and other general and administrative expenses, primarily driven by increases in costs incurred as a result of becoming a publicly traded company, including directors’ and officers’ liability insurance and other corporate related costs associated with increased overall corporate headcount.

These increases were partially offset by a $1.3 million decrease in professional and consulting fees.

Other Expense, Net

Other expense, net, decreased by $0.1 million from $0.3 million for the six months ended June 30, 2021 to $0.2 million for the six months ended June 30, 2022.

The decrease in other expense, net was primarily due to an increase in interest income earned from higher average cash balances as a result of the net proceeds received from our IPO.

Liquidity and Capital Resources

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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 March 31, 2022, we had cash and cash equivalents of $177.0 million.

As of June 30, 2022, we had cash and cash equivalents of $159.4 million.

The following table provides information regarding our cash flows for each period presented (in thousands):

Three Months Ended

Six Months Ended

Net cash provided by (used in):

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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 three months ended March 31, 2022, net cash used in operating activities of $20.8 million was primarily due to our net loss of $21.4 million and changes in operating assets and liabilities of $2.0 million, partially offset by net non-cash expenses of $2.5 million.

During the three months ended March 31, 2021, net cash used in operating activities of $22.7 million was primarily due to our net loss of $16.7 million and changes in operating assets and liabilities of $7.3 million, partially offset by net non-cash expenses of $1.2 million.

During the six months ended June 30, 2022, net cash used in operating activities of $37.6 million was primarily due to our net loss of $46.0 million, partially offset by changes in operating assets and liabilities of $2.6 million and net non-cash expenses of $5.7 million.

During the six months ended June 30, 2021, net cash used in operating activities of $42.9 million was primarily due to our net loss of $39.8 million and changes in operating assets and liabilities of $5.7 million, partially offset by net non-cash expenses of $2.7 million.

Investing Activities

During each of the three months ended March 31, 2022 and 2021, net cash used in investing activities of $0.2 million was primarily due to purchases of property and equipment.

During the six months ended June 30, 2022 and 2021, net cash used in investing activities of $1.0 million and $0.6 million, respectively, was primarily due to purchases of property and equipment.

Financing Activities

During the three months ended March 31, 2022, net cash used in financing activities of less than $0.1 million consisted of payments on our finance lease for certain lab equipment partially offset by proceeds received from the exercise of stock options.

During the three months ended March 31, 2021, net cash provided by financing activities of $144.9 million consisted primarily of proceeds from the sale and issuance of our Series B and Series C convertible preferred stock.

During the six months ended June 30, 2022, net cash used in financing activities of less than $0.1 million consisted of payments on our finance lease for certain lab equipment, partially offset by proceeds received from the exercise of stock options.

During the six months ended June 30, 2021, net cash provided by financing activities of $144.5 million consisted primarily of proceeds from the sale and issuance of our Series B and Series C convertible preferred stock.

Loan and Security Agreement

In November 2019, we entered into a loan and security agreement with PacWest, as amended by a first amendment, dated March 12, 2021, and a second amendment, dated May 10, 2021, 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 made equal monthly payments of principal plus interest and were required to do so until the scheduled loan maturity date of November 2023.

In addition, under the initial loan agreement, as amended, we were obligated to pay a one-time $0.5 million fee to PacWest upon the occurrence of specified liquidation events, including an initial public offering.

In September 2021, we entered into a third amendment to our loan and security agreement, or the third amendment, 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 third amendment we have the ability to request one or more additional term loans in an aggregate principal amount of $10.0 million prior to December 31, 2022.

As a result of the third 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 by the third amendment, we paid a one-time fee of $0.8 million to PacWest in October 2021 upon the closing of the IPO.

As a result of the third 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, which is approximately one year from the date of the third amendment to our loan and security agreement.

In May 2022, we entered into a fourth amendment to our loan and security agreement primarily to modify certain financial statement and electronic delivery requirements consistent with our operations as a public company.

In November 2019, we entered into a loan and security agreement with PacWest, as amended, under which we borrowed $10.0 million under a term loan, which amount remains outstanding.

We have the ability to request one or more additional term loans in an aggregate principal amount of $10.0 million prior to December 31, 2022.

Borrowings under the loan and security agreement are collateralized by substantially all of our assets, excluding intellectual property.

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%.

As of June 30, 2022, the interest rate on the term loan is 5.0%.

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 term loan matures on June 30, 2024.

In addition, under the loan and security agreement, as amended, we paid a one-time success fee of $0.8 million to PacWest in October 2021 upon the closing of the IPO.

Additionally, we are 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 March 31, 2022 (in thousands):

We have the following minimum aggregate future loan payments under the loan and security agreement, as amended, at June 30, 2022 (in thousands):

Total future principal payments

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Capital Requirements

We expect our expenses to increase substantially in connection with our ongoing research and development activities, particularly as we advance our 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.

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 expand 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.

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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 United States is experiencing a workforce shortage, which in turn has created a competitive wage environment that may increase our operating costs in the future.

As of March 31, 2022, we had cash and cash equivalents of $177.0 million.

Additionally, the United States is experiencing a workforce shortage, which in turn has created a competitive wage environment that may also increase our operating costs in the future.

As of June 30, 2022, we had cash and cash equivalents of $159.4 million.

We believe that our existing cash and cash equivalents will be sufficient to enable us to fund our operating expenses and capital expenditure requirements into the first half of 2024.

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Adequate additional capital may not be available to us on acceptable terms, or at all.

Market volatility resulting from the COVID-19 pandemic, adverse changes in international policies and political relations, regional or global conflicts, or other factors could also adversely impact our ability to access capital as and when needed.

Market volatility resulting from the COVID-19 pandemic, adverse changes in international policies and political relations, regional or global conflicts, uncertainty around global economic conditions, 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.

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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 are also a “smaller reporting company,” as defined in the Exchange Act of 1934, or the Exchange Act.

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 emerging growth company, in which case we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis