What changed in this filing

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Item 1A. Risk Factors

2023-08-14 compared with 2023-05-09 · 177 added, 118 removed, 1515 unchanged (16% of the section changed)

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Risks Related to Our Limited Operating History, Financial Position and Capital Requirements

Our recurring losses from operations and the early development stage of our lead product candidates raise substantial doubt regarding our ability to continue as a going concern.

If we are unable to raise substantial additional capital to finance our operations, we may be forced to delay, reduce or eliminate one or more of our research and development programs or other operations.

As of June 30, 2023, we had cash and cash equivalents of $75.4 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 end of the second quarter of 2024.

However, since our cash and cash equivalents as of June 30, 2023 are not expected to be sufficient to fund our operations for at least twelve months from the date of issuance of the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, there is substantial doubt about our ability to continue as a going concern.

In addition, our cash forecasts are based on assumptions that may prove to be wrong, and we could use our available capital resources earlier than we currently expect.

Changing circumstances could cause us to consume capital significantly faster than we currently anticipate, and we may exhaust our available capital sooner than planned.

We expect to continue to incur operating losses in connection with our ongoing research and development activities, particularly as we advance our product candidates through clinical trials, maintain the infrastructure necessary to support these activities and incur costs associated with operating as a public company.

Our revenue, if any, will be derived from sales of products that we do not expect to be commercially available for a number of years, if at all.

If we obtain marketing approval for any current or future product candidates that we develop, we expect to incur significant commercialization expenses related to product sales, marketing, distribution and manufacturing.

Some of these expenses may be incurred in advance of marketing approval and could be substantial.

Our future capital requirements, both short-term and long-term, will depend on many factors, including:

● our ability to implement and maintain cost reduction strategies, as well as the timing of such cost reductions;

● the scope, progress, results and costs of research and development for our current and future product candidates, including our ongoing and planned clinical trials for our clinical-stage product candidates;

● the scope, prioritization and number of our research and development programs;

● the scope, costs, timing and outcome of regulatory review of our product candidates;

● the costs of expanding manufacturing capacity through third-party manufacturers and 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;

● 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;

● our ability to maintain our clinical collaboration to further develop XTX101, our Fc-enhanced tumor-activated anti-CTLA-4, in combination with atezolizumab, including the cost-sharing arrangements of such collaboration;

● the impact of public health crises, including epidemics and pandemics such as the COVID-19 pandemic, on our business, operations, strategy, goals and anticipated milestones, as well as our response to such epidemics or pandemics;

● the costs of maintaining or expanding our operations and continuing to operate as a public company;

● our ability to continue as a going concern.

We will require additional capital to sustain our operations.

We currently do not have any committed external sources of funds and adequate additional capital may not be available to us on acceptable terms, or at all.

We expect to seek additional capital through one or more of the following:

equity or debt financings;

collaborations, partnerships or licensing transactions;

or other sources.

However, there can be no assurance that we will be able to complete any such transaction on acceptable terms or otherwise, and we may be unable to obtain additional capital.

In addition, our ability to raise additional capital may be adversely impacted by potential worsening economic conditions, both inside and outside the U.S., including without limitation heightened inflation, capital market volatility, interest rate and currency rate fluctuations, any potential economic slowdown or recession, the COVID-19 pandemic (including variants of COVID-19) and geopolitical events, including trade wars or civil or political unrest.

We can give no assurance that we will be able to secure additional capital to support our operations, or if such funds are available to us, that such additional funding will be sufficient to meet our needs.

As a result, we may need to implement cost reduction strategies, which could include delaying, limiting, reducing or eliminating certain costs related to our operations and research and development programs.

These factors raise substantial doubt about our ability to continue as a going concern, and our failure to raise capital, on attractive terms or at all, would have a material adverse effect on our business, results of operations and financial condition.

Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to product candidates or our technology.

Unless and until we can generate a substantial amount of product revenue, we expect to seek additional capital through a combination of public or private equity offerings, debt, collaborations, licensing arrangements or other sources.

Our issuance of additional securities, whether equity or debt, or the possibility of such issuance, may cause the market price of our common stock to decline, and our stockholders may not agree with our plans for additional capital or the terms of such capital.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholders’ ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing stockholders.

To the extent that we incur additional indebtedness, we would become obligated to make payments to repay the loan balance with interest.

The incurrence of any additional indebtedness would result in additional payment obligations.

Under our loan and security agreement with Pacific Western Bank, or PacWest, we are required to comply with certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to declare dividends, limitations on our ability to sell or dispose any part of our business or property and other operating restrictions that could adversely impact our ability to conduct our business, and

any agreements governing any other indebtedness that we may incur could require us to comply with additional covenants.

If we raise funds through collaborations and licensing arrangements with third parties, we may have to relinquish valuable rights, partially or fully, to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms unfavorable to us.

In addition, securing additional capital would require a substantial amount of time and attention from our management and may divert a disproportionate amount of their attention away from day-to-day activities, which may adversely affect our management’s ability to oversee the development of our product candidates.

We have incurred significant operating losses since our inception and expect to incur significant losses for the foreseeable future.

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If our product candidates are not successfully developed and approved, we may never generate any revenue.

Our net losses were $22.6 million and $21.4 million for the three months ended March 31, 2023 and 2022, respectively, and $88.2 million for the year ended December 31, 2022.

As of March 31, 2023, we had an accumulated deficit of $271.8 million.

To date, we have funded our operations primarily through proceeds from the sale of preferred units and convertible preferred stock, a debt financing and our initial public offering, or IPO.

Our net losses were $42.0 million and $46.0 million for the six months ended June 30, 2023 and 2022, respectively, and $88.2 million for the year ended December 31, 2022.

As of June 30, 2023, we had an accumulated deficit of $291.1 million.

To date, we have funded our operations primarily through proceeds from our initial public offering, or IPO, the sale of preferred units and convertible preferred stock and a debt financing.

We have devoted substantially all of our financial resources and efforts to research and development.

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We have not generated any revenue from product sales to date.

We expect to continue to incur significant expenses and operating losses over the next several years.

Our operating expenses and net losses may fluctuate significantly from quarter to quarter and year to year.

We anticipate that our expenses will increase significantly in connection with our ongoing activities, particularly as we:

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;

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A decline in the value of our company could also cause our stockholders to lose all or part of their investment.

We will need to obtain substantial additional capital to finance our operations and complete the development and any commercialization of any current or future product candidates.

If we are unable to raise this capital, we may be forced to delay, reduce or eliminate one or more of our research and development programs or other operations.

We expect to incur increasing expenses and operating losses over the next several years in connection with our ongoing research and development activities, particularly as we pursue clinical development of our product candidates, expand research efforts and preclinical activities associated with our other existing programs and discovery platform and continue to implement the additional infrastructure necessary to support our operations as a public reporting company.

Our revenue, if any, will be derived from sales of products that we do not expect to be commercially available for a number of years, if at all.

Some of these expenses may be incurred in advance of marketing approval and could be substantial.

As of March 31, 2023, we had cash and cash equivalents of $93.3 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 end of the second quarter of 2024.

Our existing cash and cash equivalents will not be sufficient to complete development of any current or future product candidate.

Accordingly, we will be required to obtain further funding through public or private equity offerings, debt, collaborations, licensing arrangements or other sources.

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

Our failure to raise capital, on attractive terms or at all, would have a negative effect on our financial condition and our ability to develop and commercialize our current and any future product candidates, and otherwise pursue our business strategy and we may be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.

In addition, our cash forecasts are based on assumptions that may prove to be wrong, and we could use our available capital resources earlier than we currently expect.

Changing circumstances could cause us to consume capital significantly faster than we currently anticipate, and we may need to seek additional capital sooner than planned.

In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.

Our future capital requirements, both short-term and long-term, will depend on many factors, including:

● the scope, prioritization and number of our research and development programs;

● 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;

● 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;

● our ability to seek, establish and maintain a collaboration to further develop XTX101, our Fc-enhanced, tumor-activated anti-CTLA-4 mAb, with a collaborator, including the financial terms and any cost-sharing arrangements of any such collaboration;

● the impacts of the COVID-19 pandemic;

● the costs of continuing to expand our operations and operating as a public company.

We currently do not have any committed external sources of funds and adequate additional capital may not be available to us on acceptable terms, or at all.

Raising additional capital may cause dilution to our stockholders, restrict our operations, or require us to relinquish rights to product candidates or our technology.

To the extent that we incur additional indebtedness, we would become obligated to make payments to repay the loan balance with interest.

The incurrence of any additional indebtedness would result in additional payment obligations.

Our limited operating history may make it difficult for an investor to evaluate the success of our business to date and to assess our future viability.

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XTX101 (anti-CTLA-4), XTX202 (IL-2), and XTX301 (IL-12).

We are currently evaluating XTX101 in an ongoing Phase 1 clinical trial and XTX202 in an ongoing Phase 1/2 clinical trial.

In addition, in the first quarter of 2023, we opened clinical trial sites and are actively screening patients for enrollment in our Phase 1 clinical trial for XTX301.

We are currently evaluating XTX101 and XTX301 in ongoing Phase 1 clinical trials and XTX202 in an ongoing Phase 1/2 clinical trial.

We also have a portfolio of programs that are in even earlier stages of preclinical development and may never advance to clinical-stage development.

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In the event that the FDA requires us to complete additional preclinical studies, or we are required to satisfy other FDA requests prior to commencing clinical trials, the start of our clinical trials may be delayed.

Even after we receive and incorporate guidance from these regulatory authorities, the FDA or other regulatory authorities could disagree that we have satisfied their requirements to commence any clinical trial or change their position on the acceptability of our trial design or the clinical endpoints selected, which may require us to complete additional preclinical studies or clinical trials or impose stricter approval conditions than we

currently expect.

There are equivalent processes and risks applicable to clinical trial applications in other countries, including countries in the EU.

There are equivalent processes and risks applicable to clinical trial applications in other countries, including countries in the European Union, or EU.

To date, we have only had limited interactions with the FDA regarding our clinical development plans.

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However, there is no guarantee these preclinical results will be replicated in clinical trials.

Similarly, there can be no assurance that interim or preliminary clinical data or results, including without limitation the preliminary intra-tumoral pharmacodynamic data reported for two patients treated with XTX202, will be predictive of future clinical data or results.

Similarly, there can be no assurance that interim or preliminary clinical data or results, including without limitation the preliminary Phase 1 data reported for XTX101, including the partial response observed in one patient treated with XTX101, or the preliminary intra-tumoral pharmacodynamic data reported for four patients treated with XTX202, will be predictive of future clinical data or results.

Many companies in the biopharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in early-stage development and we cannot be certain that we will not face similar setbacks.

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From time to time, we may publish interim top-line or preliminary data from our clinical trials.

Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available.

For example, in May 2023, we reported preliminary Phase 1 data from our clinical trial for XTX101, which data included a partial response observed in one patient treated with XTX101.

Preliminary and interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available.

Preliminary or “top-line” data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data previously published.

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● collaborators or licensors have significant discretion in determining the efforts and resources that they will apply to these arrangements;

● collaborators or licensors may not pursue development and commercialization of our product candidates or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the such third party’s strategic focus or available funding or external factors such as an acquisition that diverts resources or creates competing priorities;

● collaborators or licensors may not pursue development and commercialization of our product candidates or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in such third party’s strategic focus or available funding or external factors such as an acquisition that diverts resources or creates competing priorities;

● collaborators or licensors may delay programs, preclinical studies or clinical trials, provide insufficient funding for programs, preclinical studies or clinical trials, stop a preclinical study or clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;

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For some of the product candidates we may develop, we may decide to collaborate with other pharmaceutical and biotechnology companies for the development and potential commercialization of those product candidates.

For example, we plan to continue to explore strategic opportunities to advance XTX101 with a partner beyond the current Phase 1 clinical trial.

We face significant competition in seeking appropriate collaborators.

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A natural disaster, epidemic or pandemic, including the recent COVID-19 pandemic, trade war, political unrest, economic conditions, changes in legislation, including the passage of the People’s Republic of China Biosecurity law, which became effective on April 15, 2021, and subsequent legislation that China may adopt in the future, or other events in China could disrupt the business or operations of CROs, collaborators, manufacturers or other third parties with whom we conduct business now or in the future.

our needs could impair our ability to operate our business on a day-to-day basis and impede, delay, limit or prevent the research, development or commercialization of our current and future products or product candidates.

Any disruption in China that significantly impacts such third parties, including services provided by CROs for our research and development programs, or our manufacturers’ ability to produce raw materials in adequate quantities to meet our needs could impair our ability to operate our business on a day-to-day basis and impede, delay, limit or prevent the

research, development or commercialization of our current and future products or product candidates.

In addition, for any activities conducted in China, we are exposed to the possibility of product supply disruption and increased costs in the event of changes in the policies of the U.S.

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However, the FDA may not be able to continue its current pace and review timelines could be extended, including where a pre-approval inspection or an inspection of clinical sites is required.

Moreover, on January 30, 2023, the Biden administration announced that it will end the public health emergency declarations related to COVID-19 on May 11, 2023.

On January 31, 2023, the FDA indicated that it would soon issue a Federal Register notice describing how the termination of the public health emergency will impact the agency’s COVID-19 related guidance.

In response to the COVID-19 pandemic, the FDA issued numerous guidance documents and took other actions to facilitate research and development of new drug products.

The public health emergency declarations related to COVID-19 ended on May 11, 2023.

As a result, the FDA ended some COVID-19-related policies, allowed others to continue for a specified time period and plans to retain certain COVID-19-related policies with changes.

At this point, it is unclear how, if at all, these developments will impact our efforts to develop and commercialize our product candidates.

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The marketing approval process outside the United States generally includes all of the risks associated with obtaining FDA approval.

We may not obtain approvals from regulatory authorities outside the United States on a timely basis, if at all.

Approval by the FDA does not ensure approval by regulatory authorities in other countries

or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA.

We may not obtain approvals from regulatory authorities outside the United

States on a timely basis, if at all.

Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA.

We may file for marketing approvals but not receive necessary approvals to commercialize our products in any market.

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economic weakness, including inflation, or political instability in particular foreign economies and markets;

compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;

foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other

obligations incident to doing business in another country;

compliance with tax, employment, immigration and labor laws for employees living or traveling

foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country;

and workforce uncertainty in countries where labor unrest is more common than in the United States.

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Accordingly, if we receive marketing approval for one or more of our product candidates, we will continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production, product surveillance and quality control.

If we fail to comply with these requirements, we could have the marketing approvals for our products withdrawn by regulatory authorities and our ability to market any products could be limited, which could adversely affect our ability to achieve or sustain profitability.

If we fail to comply with these requirements, we

could have the marketing approvals for our products withdrawn by regulatory authorities and our ability to market any products could be limited, which could adversely affect our ability to achieve or sustain profitability.

We must also comply with requirements concerning advertising and promotion for any of our product candidates for which we obtain marketing approval.

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Non-compliance with EU requirements regarding safety monitoring or pharmacovigilance, and with requirements related to the development of products for the pediatric population, can also result in significant financial penalties.

Similarly, failure to comply with the EU’s requirements regarding the protection of personal information can also lead to significant penalties and sanctions.

regulated in the EU notably under Directive 2001/83EC, as amended, and are also subject to EU Member State laws.

Similarly, failure to comply with the EU’s requirements regarding the protection of personal information can also lead to significant

penalties and sanctions.

Further, the marketing and promotion of authorized drugs, including industry-sponsored continuing medical education and advertising directed toward the prescribers of drugs and/or the general public, are strictly regulated in the EU notably under Directive 2001/83EC, as amended, and are also subject to EU Member State laws.

Direct-to-consumer advertising of prescription medicines is prohibited across the EU.

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PRIME enables an applicant to request parallel EMA scientific advice and health technology assessment advice to facilitate timely market access.

Even if we receive PRIME designation for any of our product candidates, the designation may not result in a materially faster development process, review or approval compared to conventional EMA procedures.

Even if we receive PRIME designation for any of our product candidates, the designation may not result in a materially faster development process, review or approval compared to

conventional EMA procedures.

Further, obtaining PRIME designation does not assure or increase the likelihood of EMA’s grant of a marketing authorization.

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Among other things, the IRA contains many provisions aimed at reducing this financial burden on individuals by reducing the co-insurance and co-payment costs, expanding eligibility for lower income subsidy plans, and price caps on annual out-of-pocket expenses, each of which could have potential pricing and reporting implications.

Accordingly, while it is currently unclear how the IRA will be effected, we cannot predict with certainty what impact any federal or state health reforms will have on us, but such changes could impose new or more stringent regulatory requirements on our activities or result in reduced reimbursement for our products, any of which could adversely affect our business, results of operations and financial condition.

We expect that current or future litigation involving provisions of the IRA will have unpredictable and uncertain results on the implementation and impact of the IRA on biotechnology industry generally, as well as our business and current or future products.

For example, in June 2023, Merck & Co., or Merck, filed a lawsuit against HHS and CMS asserting that, among other things, the IRA’s Drug Price Negotiation Program for Medicare constitutes an uncompensated taking in violation of the Fifth Amendment of the Constitution.

Subsequently, other parties have filed lawsuits in various courts with similar constitutional claims against HHS and CMS.

Accordingly, while it is currently unclear how the IRA will be affected, we cannot predict with certainty what impact any federal or state health reforms will have on us, but such changes could impose new or more stringent regulatory requirements on our activities or result in reduced reimbursement for our products, any of which could adversely affect our business, results of operations and financial condition.

At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

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Healthcare providers, third-party payors and others will play a primary role in the recommendation and prescription of any products for which we obtain marketing approval.

Our current and future arrangements with healthcare providers and third-party payors will expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we research as well as market, sell and

distribute any products for which we obtain marketing approval.

Our current and future arrangements with healthcare providers and

third-party payors will expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we research as well as market, sell and distribute any products for which we obtain marketing approval.

Potentially applicable U.S.

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The provision of benefits or advantages to physicians to induce or encourage the prescription, recommendation, endorsement, purchase, supply, order or use of medicinal products is prohibited in the EU.

Payments made to physicians in certain EU Member States must be publicly disclosed.

Moreover, agreements with physicians often must be the subject of prior notification and approval by the physician’s employer, his or her competent professional organization and/or the

regulatory authorities of the individual EU Member States.

Payments made to physicians

in certain EU Member States must be publicly disclosed.

Moreover, agreements with physicians often must be the subject of prior notification and approval by the physician’s employer, his or her competent professional organization and/or the regulatory authorities of the individual EU Member States.

These requirements are provided in the national laws, industry codes or professional codes of conduct applicable in the EU Member States.

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In addition to the risks associated with enforcement activities and potential contractual liabilities, our ongoing efforts to comply with evolving laws and regulations at the federal and state level may be costly and require ongoing modifications to our policies, procedures and systems.

In 2018, California passed into law the California Consumer Privacy Act, or the CCPA, which took effect on January 1, 2020 and imposed many requirements on businesses that process the personal information of California residents.

There are a broad variety of data protection laws that are applicable to our activities, and a wide range of enforcement agencies at both the state and federal levels that can review companies for privacy and data security concerns based on general consumer protection laws.

The Federal Trade Commission, or FTC, and state attorneys general all are aggressive in reviewing privacy and data security protections for consumers.

In addition, new laws have been enacted or are

considered at both the federal and state levels.

As a result, we will need to seek to ensure our business practices comply with evolving rules and guidance at the federal and state level related to privacy and data security in order to mitigate our risk for any potential enforcement action, which may be costly.

In addition, if we are subject to an enforcement action and settlement order, we may by require to adhere to very specific privacy and data security practices or pay fines and adhere to specified compliance requirements, all of which could be costly and adversely impact our business.

For example, the FTC has been particularly focused on the unpermitted processing of health and genetic data through its recent enforcement actions and is expanding the types of privacy violations that it interprets to be “unfair” under Section 5 of the FTC Act, as well as the types of activities it views to trigger the Health Breach Notification Rule, which the FTC also has the authority to enforce, and is in the process of developing rules related to commercial surveillance and data security.

Similarly, in 2018, California passed into law the California Consumer Privacy Act, or the CCPA, which took effect on January 1, 2020 and imposed many requirements on businesses that process the personal information of California residents.

Many of the CCPA’s requirements are similar to those found in the General Data Protection Regulation, or the GDPR, including requiring businesses to provide notice to data subjects regarding the information collected about them and how such information is used and shared, and providing data subjects the right to request access to such personal information and, in certain cases, request the erasure of such personal information.

The CCPA also affords California residents the right to

opt-out of “sales” of their personal information.

The CCPA also affords California residents the right to opt-out of “sales” of their personal information.

The CCPA contains significant penalties for companies that violate its requirements.

In November 2020, California voters passed a ballot initiative for the California Privacy Rights Act, or the CPRA, which went into effect on January 1, 2023 and significantly expanded the CCPA to incorporate additional GDPR-like provisions including requiring that the use, retention, and sharing of personal information of California residents be reasonably necessary and proportionate to the purposes of collection or processing, granting additional protections for sensitive personal information, and requiring greater disclosures related to notice to residents regarding retention of information.

The CPRA also created a new enforcement agency – the California Privacy Protection Agency – whose sole responsibility is to enforce the CPRA, which will further increase compliance risk.

The provisions in the CPRA may apply to some of our business activities.

In addition, other states, including Virginia, Colorado, Utah, and Connecticut have also passed state privacy laws.

Virginia’s privacy law also went into effect on January 1, 2023, and the laws in the other three states will go into effect later in the year.

Other states will be considering these laws in the future, and Congress has also been debating passing a federal privacy law.

These laws may impact our business activities, including our identification of research subjects, relationships with business partners and ultimately the marketing and distribution of our products.

In addition, the California Privacy Rights Act, or the CPRA, went into effect on January 1, 2023 and significantly expanded the CCPA to incorporate additional GDPR-like provisions including requiring that the use, retention, and sharing of personal information of California residents be reasonably necessary and proportionate to the purposes of collection or processing, granting additional protections for sensitive personal information, and requiring greater disclosures related to notice to residents regarding retention of information.

The CPRA also created the California Privacy Protection Agency, a new enforcement agency whose sole responsibility is to enforce the CPRA.

In addition to California, at least 11 other states have passed comprehensive privacy laws similar to the CCPA and CPRA.

These laws are either in effect or will go into effect sometime before the end of 2026.

Like the CCPA and CPRA, these laws create obligations related to the processing of personal information, as well as special obligations for the processing of “sensitive” data (which includes health data in some cases).

Some of the provisions of these laws may apply to our business activities.

There are also states that are strongly considering or have already passed comprehensive privacy laws during the 2023 legislative sessions that will go into effect in 2024 and beyond, including New York and New Jersey.

Similar to the laws in the U.S., there are significant privacy and data security laws that apply in Europe and other countries.

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Additionally, in October 2022, President Biden signed an executive order to implement the EU-U.S.

Data Privacy Framework, which would serve as a replacement to the EU-US Privacy Shield.

The EC initiated the process to adopt an adequacy decision for the EU-US Data Privacy Framework in December 2022.

It is unclear if and when the framework will be finalized and whether it will be challenged in court.

The uncertainty around this issue may further impact our business operations in the EU.

Data Privacy Framework, which would serve as a replacement to the EU-U.S.

Privacy Shield.

The EU initiated the process to adopt an adequacy decision for the EU-U.S.

Data Privacy Framework in December 2022 and the European Commission adopted the adequacy decision on July 10, 2023.

The adequacy decision will permit U.S.

companies who self-certify to the EU-U.S.

Data Privacy Framework to rely on it as a valid data transfer mechanism for data transfers from the EU to the U.S.

However, some privacy advocacy groups have already suggested that they will be challenging the EU-U.S.

Data Privacy Framework.

If these challenges are successful, they may not only impact the EU-U.S.

Data Privacy Framework, but also further limit the viability of the standard contractual clauses and other data transfer mechanisms.

The uncertainty around this issue has the potential to impact our business at the international level.

Following the withdrawal of the U.K.

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exporters to go through more procedures before exporting goods to such entities.

It is unknown whether and to what extent

new tariffs, export controls, or other new laws or regulations will be adopted, or the effect that any such actions would have on us or our industry, and it is unclear whether the Biden administration will work to reverse these measures or pursue similar policy initiatives.

It is unknown whether and to what extent new tariffs, export controls, or other new laws or regulations will be adopted, or the effect that any such actions would have on us or our industry, and it is unclear whether the Biden administration will work to reverse these measures or pursue similar policy initiatives.

While we have not started commercialization of drug candidates, any unfavorable government policies on international trade, such as export controls, capital controls or tariffs, may affect the demand for our drug products, the competitive position of our product candidates, and import or export of raw materials and finished product candidate used in our preclinical studies and clinical trials, particularly with respect to our manufactured product candidates that we import from China, including pursuant to our manufacturing arrangements and license agreement with WuXi Biologics.

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Even with appropriate policies and procedures, it is not always possible to identify and deter misconduct, and the precautions we take to detect and prevent such activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from government investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations.

If any such actions are instituted against us, and we are not successful in defending

ourselves or asserting our rights, those actions could have a significant impact on our business, financial condition, results of operations and prospects, including the imposition of significant fines or other sanctions.

If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, financial condition, results of operations and prospects, including the imposition of significant fines or other sanctions.

Risks Related to Our Business Operations, Employee Matters and Managing Growth

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Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.

Additionally, the United States is experiencing a workforce shortage, which in turn has created a competitive wage environment, which is likely to further exacerbate the foregoing risks and may impact our ability to retain our executive officers or other key employees.

Additionally, the United States is experiencing a workforce shortage, which

in turn has created a competitive wage environment, which is likely to further exacerbate the foregoing risks and may impact our ability to retain our executive officers or other key employees.

If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited and could adversely affect our business, prospects, financial condition and results of operations.

Subject to the results of current or future clinical trials, we expect to grow our organization, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

As of April 30, 2023, we had 89 full-time employees.

Subject to the results of current or future clinical trials, we expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of clinical development, regulatory and medical affairs, and, if any of our product candidates receive marketing approval, sales, marketing and distribution.

Subject to the results of current or future clinical trials and our ability to raise sufficient additional capital to support our growth strategy, we expect to grow our organization in the future, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

As of July 31, 2023, we had 84 full-time employees.

Subject to the results of current or future clinical trials and our ability to raise sufficient additional capital to support our growth strategy, we expect to experience future growth in the number of our employees and the scope of our operations, particularly in the areas of clinical development, regulatory and medical affairs, and, if any of our product candidates receive marketing approval, sales, marketing and distribution.

Our management may need to divert a disproportionate amount of its attention away from our day-to-day activities to devote time to managing these growth activities.

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The expansion of our operations could also lead to significant costs and could divert our management and business development resources.

Our inability to effectively manage the expansion of our operations could result in weaknesses in our infrastructure or give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining

In addition, growth in our number of employees or scope of our operations could require significant capital expenditures and may divert financial resources from other projects, such as the development of additional product candidates.

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We also may face increased risks of a security breach or disruption due to our reliance on internet technology and the number of our employees who are working remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities.

The costs to us to mitigate network security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and while we have implemented security measures to protect our data security and information technology systems, our efforts to address these problems may not be successful, and these problems could result in unexpected interruptions, delays, cessation of service, negative publicity and other harm to our business and our competitive position.

these problems could result in unexpected interruptions, delays, cessation of service, negative publicity and other harm to our business and our competitive position.

If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our product development programs.

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These transactions may not be successful and may require significant time and attention of management.

In addition, the integration of any business

that we may acquire in the future may disrupt our existing business and may be a complex, risky and costly endeavor for which we may never realize any or all potential benefits of the acquisition.

In addition, the integration of any business that we may acquire in the future may disrupt our existing business and may be a complex, risky and costly endeavor for which we may never realize any or all potential benefits of the acquisition.

Accordingly, although there can be no assurance that we will undertake or successfully complete any additional transactions of the nature described above, any additional transactions that we do complete could have a material adverse effect on our business, results of operations, financial condition and prospects.

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In addition, a recession, depression, inflation or other sustained adverse market event resulting from the COVID-19 pandemic, directly or indirectly, could materially and adversely affect our business and the value of our common stock.

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.

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.

Our operations or those of the third parties upon whom we depend might be affected by the occurrence of a catastrophic event, such as a terrorist attack, war or other armed conflict, geopolitical tensions or trade wars, pandemic or natural disaster.

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Long-term disruptions in the infrastructure caused by these types of events, such as natural disasters, which are increasing in frequency due to the impacts of climate change, the outbreak of wars or other armed conflicts (such as Russia’s invasion of Ukraine), the escalation of hostilities, geopolitical tensions or trade wars, acts of terrorism or “acts of God,” particularly involving geographies in which we or third parties on whom we depend have offices, manufacturing or clinical trial sites, could adversely affect our businesses.

Although we carry business interruption insurance policies and typically have provisions in our contracts that protect us

in certain events, our coverage might not include or be adequate to compensate us for all losses that may occur.

Although we carry business interruption insurance policies and typically have provisions in our contracts that protect us in certain events, our coverage might not include or be adequate to compensate us for all losses that may occur.

Any catastrophic event affecting us, our CMOs, our CROs, regulatory agencies or other parties with which we are engaged could have a material adverse effect on our operations and financial performance.

Risks Related to Ownership of Our Common Stock and Our Status as a Public Company

An active trading market for our common stock may not continue to be developed or sustained.

Our common stock began trading on the Nasdaq Global Select Market on October 22, 2021.

Given the limited trading history of our common stock, there is a risk that an active trading market for our shares may not continue to develop or be sustained.

If an active market for our common stock does not continue to develop or is not sustained, it may be difficult for our stockholders to sell their shares without depressing the market price for the shares, or at all.

An active trading market for our common stock may never develop or be sustained.

Although our common stock is listed on the Nasdaq Global Select Market, an active trading market for our shares may never develop or be sustained.

As a result, it may be difficult for our stockholders to sell their shares without depressing the market price for the shares, or at all.

The price of our common stock could be subject to volatility related or unrelated to our operations and purchasers of our common stock could suffer a decline in value.

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In addition, market volatility, high levels of inflation and interest rate fluctuations may increase our cost of financing or restrict our access to potential sources of future capital.

For example, the prime rate has recently exceeded the interest rate floor of 4.75% under our loan and security agreement with PacWest, which has increased the amount of cash needed to service our outstanding indebtedness.

For example, the prime rate has recently exceeded the interest rate

floor of 4.75% under our loan and security agreement with PacWest, which has increased the amount of cash needed to service our outstanding indebtedness.

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

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Our principal stockholders and management own a significant percentage of our common stock and exert significant control over matters subject to stockholder approval.

As of April 30, 2023, our executive officers, directors, holders of 5% or more of our common stock and their respective affiliates beneficially owned shares in the aggregate representing a majority of our outstanding common stock.

As of July 31, 2023, our executive officers, directors, holders of 5% or more of our common stock and their respective affiliates beneficially owned shares in the aggregate representing a majority of our outstanding common stock.

As a result of their share ownership, these stockholders, if they act together, would have the ability to influence our management and policies and would be able to significantly affect the outcome of matters requiring stockholder approval such as elections of directors, amendments of our organizational documents or approvals of any merger, sale of assets or other major corporate transaction.

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We also would cease to be an EGC if we issue more than $1.0 billion of non-convertible debt over a three-year period.

as we remain an EGC, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not EGCs.

For so long as we remain an EGC, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not EGCs.

These exemptions include:

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We may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies.

We have incurred and will continue to incur increased costs as a result of operating as a public company, and our management has devoted and will continue to be required to devote substantial time to new compliance initiatives and corporate governance practices.

As a public company, we have incurred and will continue to incur significant legal, accounting and other expenses that we did not incur as a private company.

The Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, Nasdaq listing requirements, and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices.

We have incurred and will continue to incur substantial costs as a result of operating as a public company, and our management has devoted and will continue to be required to devote substantial time to new compliance initiatives and corporate governance practices.

As a public company, we have incurred and will continue to incur substantial legal, accounting and other expenses.

The Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection

Act, Nasdaq listing requirements, and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices.

Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives.

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An independent assessment of the effectiveness of our internal control over financial reporting could detect problems that our management’s assessment might not.

Undetected material weaknesses in our internal control over financial reporting could lead to financial statement restatements and require us to incur the expense of remediation, which could have a negative effect on the trading price of our common stock and adversely affect our results of operations and financial condition.

Undetected material weaknesses in our internal control over financial reporting could lead to financial statement restatements and require us to

incur the expense of remediation, which could have a negative effect on the trading price of our common stock and adversely affect our results of operations and financial condition.

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

As a public company, we are subject to certain reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act.

management, recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.

Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to management, recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.

We believe that any disclosure controls and procedures or internal control over financial reporting, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

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Accordingly, both state and federal courts have jurisdiction to entertain such claims.

To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America shall, to the fullest extent permitted by law, be the sole and exclusive forum for the resolution of any claims arising under the Securities Act.

be the sole and exclusive forum for the resolution of any claims arising under the Securities Act.

While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions.

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If a court were to find the either exclusive forum provision contained in our restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur further significant additional costs associated with resolving such action in other jurisdictions, all of which could materially adversely affect our business, financial condition and operating results.

EXHIBIT INDEX

Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No.

001-40925), filed with the Securities and Exchange Commission on October 26, 2021)

Second Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No.

001-40925), filed with the Securities and Exchange Commission on April 3, 2023)

Amended and Restated Non-Employee Director Compensation Policy

Amended and Restated Loan and Security Agreement, dated as of May 5, 2023, by and between Xilio Development, Inc.

and Pacific Western Bank (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q (File No.

001-40925), filed with the Securities and Exchange Commission on May 9, 2023)

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C.

Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

Inline XBRL Taxonomy Extension Schema Document

Inline XBRL Taxonomy Extension Calculation Linkbase Document

Inline XBRL Taxonomy Extension Definition Linkbase Document

Inline XBRL Taxonomy Extension Label Linkbase Document

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101)

Filed herewith.

Indicates management contract or compensatory plan or arrangement.

The certifications attached as Exhibit 32.1 are being furnished solely to accompany this Quarterly Report on Form 10-Q and will not be deemed to be “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section.

Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference into such filing.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

XILIO THERAPEUTICS, INC.

August 14, 2023

/s/ René Russo

René Russo, Pharm.D.

Chief Executive Officer

(Principal Executive Officer)

August 14, 2023

/s/ Kevin Brennan

Kevin Brennan

Senior Vice President, Finance and Accounting

(Principal Financial and Accounting Officer)

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 1A. Risk Factors