What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-09 compared with 2023-08-14 · 87 added, 81 removed, 222 unchanged (43% of the section changed)

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We are a clinical-stage biotechnology company discovering and developing tumor-activated immuno-oncology, or I-O, therapies with the goal of significantly improving outcomes for people living with cancer without the systemic side effects of current I-O treatments.

We are leveraging our proprietary geographically precise solutions, or GPS, platform to build a pipeline of novel, tumor-activated molecules, including cytokines and other biologics, which are designed to optimize their therapeutic index by localizing anti-tumor activity within the tumor microenvironment.

We are leveraging our proprietary geographically precise solutions, or GPS, platform to build a pipeline of novel, tumor-activated molecules, including antibodies, cytokines and other biologics, which are designed to optimize their therapeutic index by localizing anti-tumor activity within the tumor microenvironment.

Current I-O therapies have curative potential for patients with cancer;

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Our most advanced tumor-activated, clinical-stage product candidates are XTX101, an Fc-enhanced, anti-CTLA-4 monoclonal antibody, or mAb, XTX202, an interleukin 2, or IL-2, therapy, and XTX301, an interleukin 12, or IL-12, therapy.

In addition to our clinical-stage product candidates, we are continuing to leverage our GPS platform and expertise in developing tumor-activated I-O therapies as we seek to expand our pipeline of discovery-stage programs and develop additional tumor-activated immunotherapies, including product candidates with a range of tumor targeting approaches.

In addition to our clinical-stage product candidates, we are continuing to leverage our GPS platform and expertise in developing tumor-activated I-O therapies to develop additional tumor-activated 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.

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Even if we are able to generate revenue from product sales, we may not become profitable.

Since inception, we have incurred significant operating losses, including net losses of $42.0 million and $46.0 million for the six months ended June 30, 2023 and 2022, respectively.

Liquidity and Going Concern Overview

Since inception, we have incurred significant operating losses, including net losses of $58.7 million and $65.8 million for the nine months ended September 30, 2023 and 2022, respectively.

Our net loss for the year ended December 31, 2022 was $88.2 million.

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

As of September 30, 2023, we had an accumulated deficit of $307.9 million.

We expect to continue to incur significant expenses and operating losses for the foreseeable future, particularly to the extent we:

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As a result, we will need substantial additional capital to support our continuing operations and pursue our strategy.

As of June 30, 2023, we had cash and cash equivalents of $75.4 million.

As of September 30, 2023, we had cash and cash equivalents of $59.8 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, we have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we anticipate.

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.

To continue to fund our operations, our management has developed plans, which primarily consist of raising additional capital through one or more of the following:

Since our cash and cash equivalents as of September 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.

To continue to fund our operations, our management has developed plans, which in the near term primarily consist of raising additional capital through one or more of the following:

equity or debt financings;

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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.

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.

For more information, refer to “—Liquidity and Capital Resources” below and Note 1 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

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 sufficient additional capital.

If we are not able to secure sufficient additional capital in the near term, we will need to implement cost reduction strategies, which could include delaying, limiting, reducing or eliminating both internal and external costs related to our operations and research and development programs.

In addition, if our efforts to secure sufficient additional capital in the near term are unsuccessful, we may in the future need to seek to engage in one or more other strategic alternatives, including without limitation, the sale or divestiture of some or all of our assets or proprietary technologies.

For more information, refer to “—Liquidity and Capital Resources—Capital Requirements and Going Concern” below and Note 1 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Financial Operations Overview

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Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our condensed consolidated balance sheets as prepaid expenses or accrued research and development expenses.

We record cost-sharing payments under our clinical trial collaboration with F.

Hoffmann-La Roche Ltd., which we refer to as the Roche clinical collaboration, as a reduction of research and development costs upon the achievement of each study development event specified in the clinical supply agreement.

Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are capitalized as assets, even when there is no alternative future use for the research and development.

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In addition, as we progress our most advanced product candidates in clinical development, we may incur additional expenses related to milestone and royalty payments payable to third parties with whom we have entered into, or may enter into, license, acquisition, option or other agreements to acquire the rights to future products and product candidates.

In the event we are unable to raise additional capital to fund our operations, we may be required to adopt cost reduction strategies that seek to maintain our ability to continue the development of our most advanced product candidates in clinical development while otherwise reducing our overall research and development expenses.

In the event we are unable to raise sufficient additional capital in the near term to fund our operations, we will be required to adopt cost reduction strategies that seek to maintain our ability to continue the development of our most advanced product candidates in clinical development while otherwise reducing our overall research and development expenses.

At this time, we cannot reasonably estimate or know the nature, timing and projected costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, any of our product candidates or programs.

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General and administrative expenses also include legal fees relating to corporate matters;

professional and consulting fees for accounting, auditing, tax, human resources and administrative

consulting services;

professional and consulting fees for accounting, auditing, tax, human resources and administrative consulting services;

board of directors’ fees;

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We also expect to continue to incur additional intellectual property-related expenses as we file patent applications to protect intellectual property arising from our research and development activities.

In the event we are unable to raise additional capital, we may implement cost reduction strategies that seek to reduce our general and administrative expenses while maintaining sufficient infrastructure to support our planned research and development activities and operations as a public company.

Other Income (Expense), Net

Other income (expense), net consists primarily of interest income earned from our cash and cash equivalents, interest expense principally on the note payable under our debt arrangement with Pacific Western Bank, or PacWest, and amortization of the debt discount related to debt issuance costs.

In the event we are unable to obtain sufficient additional capital in the near term, we will need to implement cost reduction strategies that seek to reduce our general and administrative expenses while maintaining sufficient infrastructure to support our planned research and development activities and operations as a public company.

Other Income, Net

Other income, net consists primarily of interest income earned from our cash and cash equivalents, interest expense principally on the note payable under our debt arrangement with Pacific Western Bank, or PacWest, and amortization of the debt discount related to debt issuance costs.

Results of Operations

Comparison of the three months ended June 30, 2023 and 2022

The following table summarizes our results of operations for the three months ended June 30, 2023 and 2022 (in thousands):

Comparison of the three months ended September 30, 2023 and 2022

The following table summarizes our results of operations for the three months ended September 30, 2023 and 2022 (in thousands):

Three Months Ended

September 30,

Operating expenses

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Loss from operations

Other income (expense), net

Total other income (expense), net

Other income, net

Total other income, net

Research and Development Expenses

The following table summarizes our research and development expenses for the three months ended June 30, 2023 and 2022 (in thousands):

The following table summarizes our research and development expenses for the three months ended September 30, 2023 and 2022 (in thousands):

Three Months Ended

September 30,

Other early programs and indirect research and development

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Total research and development expenses

Research and development expenses decreased by $3.0 million from $16.2 million for the three months ended June 30, 2022 to $13.2 million for the three months ended June 30, 2023.

Research and development expenses decreased by $2.0 million from $13.0 million for the three months ended September 30, 2022 to $11.1 million for the three months ended September 30, 2023.

The changes in research and development expenses were primarily due to the following:

● XTX101 costs decreased by $2.0 million, primarily driven by a $1.7 million decrease due to the timing of manufacturing activities in the comparable period and a $0.3 million decrease in clinical development activities related to our ongoing Phase 1 clinical trial;

● XTX202 costs increased by $1.8 million, primarily driven by an increase in clinical development activities related to our ongoing Phase 1/2 clinical trial;

● XTX101 costs decreased by $2.4 million from $1.4 million for the three months ended September 30, 2022 to $(1.0) million for the three months ended September 30, 2023, primarily driven by a $2.0 million cost-sharing payment that we earned under our Roche clinical collaboration during the three months ended September 30, 2023 and recorded as a reduction in research and development expenses and a $0.2 million decrease due to the timing of manufacturing activities in the comparable period;

● XTX202 costs increased by $1.3 million, primarily driven by a $1.8 million increase in clinical development activities related to our ongoing Phase 1/2 clinical trial, partially offset by a $0.4 million decrease due to the timing of manufacturing activities in the comparable period;

● XTX301 costs decreased by $1.2 million, primarily driven by a $1.2 million decrease due to the timing of manufacturing activities in the comparable period and a $0.2 million decrease in preclinical activities, partially offset by a $0.3 million increase in clinical development activities related to our Phase 1 clinical trial;

● other early programs and indirect research and development expenses increased by $0.9 million, primarily driven by an increase in external expenses related to preclinical research and development activities;

● personnel-related costs were relatively unchanged, primarily driven by consistent research and development headcount.

● personnel-related costs decreased by $0.6 million, primarily driven by a decrease in salaries, bonuses and benefits due to lower research and development headcount.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for the three months ended June 30, 2023 and 2022 (in thousands):

The following table summarizes our general and administrative expenses for the three months ended September 30, 2023 and 2022 (in thousands):

Three Months Ended

September 30,

Personnel-related (including stock-based compensation)

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Total general and administrative expenses

General and administrative expenses decreased by $1.4 million from $8.3 million for the three months ended June 30, 2022 to $6.9 million for the three months ended June 30, 2023.

General and administrative expenses decreased by $0.9 million from $7.2 million for the three months ended September 30, 2022 to $6.3 million for the three months ended September 30, 2023.

The changes in general and administrative expenses were primarily due to the following:

● personnel-related costs decreased by $1.2 million, primarily driven by a $0.8 million decrease in stock-based compensation, as the prior year period included $0.6 million in non-recurring compensation expense resulting from the modification of previously issued stock options, and a $0.4 million decrease in salaries, bonuses and benefits;

● professional and consulting fees increased by $0.2 million, primarily driven by a $0.4 million increase in legal fees partially offset by a $0.2 million decrease in consulting fees;

● professional and consulting fees decreased by $0.7 million, primarily driven by a decrease in consulting fees;

● facility-related and other general and administrative expenses decreased by $0.1 million, primarily driven by lower costs related to directors’ and officers’ liability insurance and a reduction in other general and administrative expenses.

Other Income (Expense), Net

Other income (expense), net, was other income of $0.8 million for the three months ended June 30, 2023 and other expense of $0.1 million for the three months ended June 30, 2022.

The change in other income (expense), net was primarily due to an increase in interest income earned on our cash and cash equivalents due to higher interest rates.

Comparison of the six months ended June 30, 2023 and 2022

The following table summarizes our results of operations for the six months ended June 30, 2023 and 2022 (in thousands):

Six Months Ended

Other Income, Net

Other income, net, increased by $0.2 million from $0.4 million for the three months ended September 30, 2022 to $0.6 million for the three months ended September 30, 2023.

The increase in other income, net was primarily due to an increase in interest income earned on our cash and cash equivalents due to higher interest rates and lower interest expense on our note payable as a result of the commencement of the repayment of principal beginning in January 2023.

Comparison of the nine months ended September 30, 2023 and 2022

The following table summarizes our results of operations for the nine months ended September 30, 2023 and 2022 (in thousands):

Nine Months Ended

September 30,

Operating expenses

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Loss from operations

Other income (expense), net

Total other income (expense), net

Other income, net

Total other income, net

Research and Development Expenses

The following table summarizes our research and development expenses for the six months ended June 30, 2023 and 2022 (in thousands):

Six Months Ended

The following table summarizes our research and development expenses for the nine months ended September 30, 2023 and 2022 (in thousands):

Nine Months Ended

September 30,

Other early programs and indirect research and development

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Total research and development expenses

Research and development expenses decreased by $1.8 million from $31.2 million for the six months ended June 30, 2022 to $29.3 million for the six months ended June 30, 2023.

Research and development expenses decreased by $3.8 million from $44.2 million for the nine months ended September 30, 2022 to $40.4 million for the nine months ended September 30, 2023.

The changes in research and development expenses were primarily due to the following:

● XTX101 costs decreased by $2.6 million, primarily driven by a $1.9 million decrease due to the timing of manufacturing activities in the comparable period and a $0.6 million decrease in clinical development activities related to our ongoing Phase 1 clinical trial;

● XTX202 costs increased by $1.9 million, primarily driven by a $2.6 million increase in clinical development activities related to our ongoing Phase 1/2 clinical trial, partially offset by a $0.5 million decrease in manufacturing activities;

● XTX301 costs decreased by $3.0 million, primarily driven by a $2.3 million decrease in preclinical activities and a $1.9 million decrease due to the timing of manufacturing activities in the comparable period, partially offset by a $1.5 million increase in clinical development activities related to our Phase 1 clinical trial;

● XTX101 costs decreased by $4.9 million, primarily driven by a $2.1 million decrease due to the timing of manufacturing activities in the comparable period, a $2.0 million cost-sharing payment that we earned under our Roche clinical collaboration during the nine months ended September 30, 2023 and recorded as a reduction in research and development expenses and a $0.6 million decrease in clinical development activities related to our ongoing Phase 1 clinical trial;

● XTX202 costs increased by $3.2 million, primarily driven by a $4.4 million increase in clinical development activities related to our ongoing Phase 1/2 clinical trial, partially offset by a $1.0 million decrease due to the timing of manufacturing activities in the comparable period and a $0.2 million decrease in preclinical activities;

● XTX301 costs decreased by $4.2 million, primarily driven by a $3.1 million decrease due to the timing of manufacturing activities in the comparable period, a $2.5 million decrease in preclinical activities and a $0.3 million decrease in regulatory activities, partially offset by a $1.7 million increase in clinical development activities related to our Phase 1 clinical trial;

● other early programs and indirect research and development expenses increased by $1.5 million, primarily driven by an increase in external expenses related to preclinical research and development activities;

● personnel-related costs increased by $1.1 million, primarily driven by an increase in salaries, bonuses and benefits due to higher research and development headcount.

● personnel-related costs increased by $0.6 million, primarily driven by an increase in salaries, bonuses and benefits due to consistent research and development headcount combined with an increase in average compensation.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for the six months ended June 30, 2023 and 2022 (in thousands):

Six Months Ended

The following table summarizes our general and administrative expenses for the nine months ended September 30, 2023 and 2022 (in thousands):

Nine Months Ended

September 30,

Personnel-related (including stock-based compensation)

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Total general and administrative expenses

General and administrative expenses decreased by $0.3 million from $14.6 million for the six months ended June 30, 2022 to $14.3 million for the six months ended June 30, 2023.

General and administrative expenses decreased by $1.2 million from $21.8 million for the nine months ended September 30, 2022 to $20.6 million for the nine months ended September 30, 2023.

The changes in general and administrative expenses were primarily due to the following:

● personnel-related costs decreased by $0.6 million, primarily driven by a $1.0 million decrease in stock-based compensation, as the prior year period included $0.6 million in non-recurring compensation expense resulting from the modification of previously issued stock options, partially offset by a $0.4 million increase in salaries, bonuses and benefits due to higher general and administrative headcount;

● professional and consulting fees increased by $0.9 million, primarily driven by a $0.6 million increase in legal fees and a $0.3 million increase in accounting and other professional fees;

● facility-related and other general and administrative expenses decreased by $0.6 million, primarily driven by lower costs related to directors’ and officers’ liability insurance and a reduction in other general and administrative expenses.

Other Income (Expense), Net

Other income (expense), net, was other income of $1.6 million for the six months ended June 30, 2023 and other expense of $0.2 million for the six months ended June 30, 2022.

The change in other income (expense), net was primarily due to an increase in interest income earned on our cash and cash equivalents due to higher interest rates.

Other Income, Net

Other income, net, increased by $2.0 million from $0.2 million for the nine months ended September 30, 2022 to $2.3 million for the nine months ended September 30, 2023.

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.

Through June 30, 2023, we have received an aggregate of $350.9 million in net proceeds from such transactions, including $116.4 million in net proceeds from our IPO, $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 PacWest.

As of June 30, 2023, we had cash and cash equivalents of $75.4 million.

Through September 30, 2023, we have received an aggregate of $350.9 million in net proceeds from such transactions, including $116.4 million in net proceeds from our IPO, $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 PacWest.

As of September 30, 2023, we had cash and cash equivalents of $59.8 million.

In November 2022, we filed a universal shelf registration statement on Form S-3 with the SEC, or Form S-3, to register for sale up to $250,000,000 of our common stock, preferred stock, debt securities, units and warrants, which we may issue and sell from time to time in one or more offerings, which became effective on November 18, 2022 (333-268264).

In November 2022, we also entered into a sales agreement, or the Sales Agreement, with Cowen and Company LLC, under which we may issue and sell shares of our common stock, from time to time, having an aggregate offering price of up to $75.0 million, subject to the terms and conditions of the Sales Agreement.

Through the filing date of this Quarterly Report

on Form 10-Q, we have not issued or sold any shares of our common stock pursuant to the Sales Agreement.

Through the filing date of this Quarterly Report on Form 10-Q, we have not issued or sold any shares of our common stock pursuant to the Sales Agreement.

Issuances or sales of common stock pursuant to the Sales Agreement, if any, would be made under the Form S-3 and the corresponding prospectus related to the issuance and sale of shares of our common stock pursuant to the Sales Agreement.

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

Six Months Ended

Nine Months Ended

September 30,

Net cash 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 stock-based compensation, depreciation and amortization, as well as changes in components of operating assets and liabilities, which are generally due to increased expenses and timing of vendor payments.

During the six months ended June 30, 2023, net cash used in operating activities of $41.8 million was primarily driven by our net loss of $42.0 million and changes in operating assets and liabilities of $4.5 million, partially offset by net non-cash expenses of $4.7 million.

During the six months ended June 30, 2022, net cash used in operating activities of $37.6 million was primarily driven by 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 nine months ended September 30, 2023, net cash used in operating activities of $55.2 million was primarily driven by our net loss of $58.7 million and changes in operating assets and liabilities of $3.5 million, partially offset by net non-cash expenses of $7.0 million.

During the nine months ended September 30, 2022, net cash used in operating activities of $57.5 million was primarily driven by our net loss of $65.8 million, partially offset by changes in operating assets and liabilities of $0.1 million and net non-cash expenses of $8.1 million.

Investing Activities

During the six months ended June 30, 2023 and 2022, net cash used in investing activities of $0.5 million and $1.0 million, respectively, consisted of purchases of property and equipment.

During the nine months ended September 30, 2023 and 2022, net cash used in investing activities of $0.5 million and $1.4 million, respectively, consisted of purchases of property and equipment.

Financing Activities

During the six months ended June 30, 2023, net cash used in financing activities of $2.7 million consisted of repayments of debt principal and payments on our finance lease for certain lab equipment, partially offset by proceeds from the issuance of common stock under our employee stock purchase plan.

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 nine months ended September 30, 2023, net cash used in financing activities of $4.9 million consisted of repayments of debt principal and payments on our finance lease for certain lab equipment, partially offset by proceeds from the issuance of common stock under our employee stock purchase plan and the exercise of stock options.

During the nine months ended September 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.

Loan and Security Agreement

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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, 2023, the interest rate on the term loan was 8.50%.

As of September 30, 2023, the interest rate on the term loan was 8.75%.

We made interest-only payments on the outstanding balance through December 31, 2022.

We commenced making equal monthly payments of principal plus interest in January 2023, and we will be required to make such payments until the term loan matures on June 30, 2024.

As of June 30, 2023, the outstanding principal balance under the loan agreement was $7.2 million.

As of September 30, 2023, the outstanding principal balance under the loan agreement was $5.0 million.

The loan agreement contains customary representations, warranties and covenants and also includes customary events of default, including payment defaults, breaches of covenants, a change of control and occurrence of a material adverse effect.

Capital Requirements and Going Concern

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.

We expect our future capital requirements to increase substantially over time in connection with our ongoing research and development activities, particularly as we advance our current and planned clinical development of our product candidates and maintain the research efforts and preclinical activities associated with our other existing programs and discovery platform.

In addition, we expect to continue to incur additional costs associated with operating as a public company.

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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, 2023, we had cash and cash equivalents of $75.4 million.

As of September 30, 2023, we had cash and cash equivalents of $59.8 million.

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

However, we have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect.

In addition, since our cash and cash equivalents as of June 30, 2023 are not expected to be sufficient to fund our operating expenses and capital expenditures 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, since our cash and cash equivalents as of September 30, 2023 are not expected to be sufficient to fund our operating expenses and capital expenditures 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.

We will require substantial additional capital to fund our operations as we continue to advance our product candidates through clinical trials and maintain the infrastructure necessary to support these activities.

To continue to fund our operations, our management has developed plans, which primarily consist of raising additional capital through one or more of the following:

To continue to fund our operations, our management has developed plans, which in the near term primarily consist of raising additional capital through one or more of the following:

equity or debt financings;

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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.

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

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 sufficient additional capital.

If we are not able to secure sufficient additional capital in the near term, we will need to implement cost reduction strategies, which could include delaying, reducing or eliminating both internal and external costs related to our operations and research and development programs.

The accompanying condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business for the foreseeable future.

The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

Because of the numerous risks and uncertainties associated with product development, and because the extent to which we may enter into collaborations with third parties for the development of our product candidates is unknown, we may incorrectly estimate the timing and amounts of increased capital outlays and operating expenses associated with advancing

the research and development of our product candidates.

Our funding requirements and timing and amount of our operating expenditures will depend on many factors, including, but not limited to:

● the scope, progress, results and costs of research and development for our current and future product candidates, including our current and planned clinical trials for our clinical-stage cytokine product candidates, XTX202 and XTX301, and ongoing preclinical development for our current and future product candidates;

● the scope, progress, results and costs of research and development for our current and future product candidates, including our current and planned clinical trials for our clinical-stage product candidates, XTX101, XTX202 and XTX301, and ongoing preclinical development for our current and future product candidates;

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

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● 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.

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

● whether we are able to overcome the substantial doubt about our ability to continue as a going concern.

Identifying potential product candidates and conducting preclinical studies and clinical trials is a time consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory approval and achieve product sales.

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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 domestic and international fiscal, monetary and other policies and political

relations, regional or global conflicts, uncertainty around global economic conditions, instability in the financial markets, or other factors could also adversely impact our ability to access capital.

Market volatility resulting from the COVID-19 pandemic, adverse changes in domestic and international fiscal, monetary and other policies and political relations, regional or global conflicts, uncertainty around global economic conditions, instability in the financial markets, or other factors could also adversely impact our ability to access capital.

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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If we raise additional capital through collaborations, partnerships, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our intellectual property, future revenue streams, research programs or product candidates or products, and we may be required to grant licenses on terms that may not be favorable to us.

If we are unable to raise additional capital, we may have to significantly delay, reduce or eliminate some or all of our product development or grant rights to develop and market product candidates or products that we would have otherwise preferred to develop and market ourselves.

Critical Accounting Policies and Use of Estimates

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Changes in estimates are reflected in reported results for the period in which they become known.

Actual results may differ materially from these estimates under different assumptions or conditions.

Actual results may differ materially from these estimates under different assumptions

or conditions.

There have been no changes to our critical accounting policies appearing in our Annual Report filed on Form 10-K for the year ended December 31, 2022.

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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