What changed in this filing

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Item 1. Financial Statements

2024-05-14 compared with 2023-11-09 · 226 added, 124 removed, 199 unchanged (64% of the section changed)

3 unchanged sentences

(In thousands, except share and per share data)

September 30,

Current assets

Cash and cash equivalents

License agreement receivable

Prepaid expenses and other current assets

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Accrued expenses

Deferred revenue

Operating lease liability, current portion

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Total current liabilities

Note payable, net of current portion

Deferred revenue, net of current portion

Operating lease liability, net of current portion

Other non-current liabilities

Total liabilities

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Common stock, $ 0.0001 par value;

200,000,000 shares authorized at September 30, 2023 and December 31, 2022;

27,542,000 shares issued and 27,528,926 shares outstanding at September 30, 2023;

200,000,000 shares authorized at March 31, 2024 and December 31, 2023;

34,473,486 shares issued and 34,472,646 shares outstanding at March 31, 2024;

27,613,263 shares issued and 27,607,646 shares outstanding at December 31, 2023

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(In thousands, except share and per share data)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Operating expenses

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General and administrative

Restructuring

Total operating expenses

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Balance at December 31, 2023

Issuance of common stock in connection with the Gilead stock purchase agreement, net of issuance costs

Vesting of restricted common stock

Exercise of stock options

Stock-based compensation expense

Balance at March 31, 2024

Issuance of common stock under employee stock purchase plan

Vesting of restricted common stock

Exercise of stock options

Stock-based compensation expense

Balance at June 30, 2023

Vesting of restricted common stock

Exercise of stock options

Stock-based compensation expense

Balance at September 30, 2023

Stockholders’

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Balance at March 31, 2023

Vesting of restricted common stock

Stock-based compensation expense

Balance at June 30, 2022

Vesting of restricted common stock

Stock-based compensation expense

Balance at September 30, 2022

The accompanying notes are an integral part of these condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities:

1 unchanged sentence

Depreciation and amortization

Non-cash interest expense

Non-cash interest (income) expense

Stock-based compensation expense

Loss on disposal of property and equipment

Changes in operating assets and liabilities:

License agreement receivable

Prepaid and other assets

2 unchanged sentences

Accrued expenses and other liabilities

Deferred revenue

Operating lease liability

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Payments of finance lease

Proceeds from issuance of common stock under employee stock purchase plan

Proceeds from exercise of stock options

Net cash used in financing activities

Proceeds from issuance of common stock under the Gilead stock purchase agreement, net of issuance costs

Net cash provided by (used in) financing activities

Decrease in cash, cash equivalents and restricted cash

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Capital expenditures included in accounts payable or accrued expenses

Reconciliation to amounts within the condensed consolidated balance sheets:

Reconciliation to amounts within the consolidated balance sheets:

Cash and cash equivalents

5 unchanged sentences

(Dollars in thousands, unless otherwise stated)

Description of Business and Liquidity and Going Concern

Description of Business, Liquidity and Going Concern

Description of Business

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Since its inception, the Company has devoted substantially all of its financial resources and efforts to research and development activities.

As of September 30, 2023, the Company had an accumulated deficit of $ 307.9 million and has 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.

As of March 31, 2024, the Company had an accumulated deficit of $ 342.7 million and has incurred significant operating losses, including net losses of $ 17.2 million and $ 22.6 million for the three months ended March 31, 2024 and 2023, respectively.

The Company expects its operating losses and negative operating cash flows to continue for the foreseeable future as it continues to advance its product candidates through clinical trials, maintains the infrastructure necessary to support these activities and continues to incur costs associated with operating as a public company.

The Company anticipates its existing cash and cash equivalents of $ 59.8 million as of September 30, 2023 will not be sufficient to enable the Company to fund its current operating plan and capital expenditure requirements for at least twelve months from the date of issuance of these condensed consolidated financial statements.

These factors raise substantial doubt about the Company’s ability to continue as a going concern.

As of March 31, 2024, the Company had cash and cash equivalents of $ 34.0 million.

Based on its current operating plans, the Company anticipates that its existing cash and cash equivalents as of March 31, 2024, together with the $ 30.0 million upfront payment received in April 2024 under the exclusive license agreement with Gilead Sciences, Inc.

(“Gilead”) and approximately $ 14.6 million in aggregate gross proceeds received in April 2024 from private placements with certain existing investors and Gilead, will be sufficient to fund the Company’s operating expenses and capital expenditure requirements into the second quarter of 2025.

However, the Company has based this estimate on assumptions that may prove to be wrong, and the Company could exhaust its available capital resources sooner than it anticipates.

In addition, since these amounts may not be sufficient to fund its operations for at least twelve months from the date of issuance of the condensed consolidated financial statements, there is substantial doubt about the Company’s ability to continue as a going concern.

To continue to fund the operations of the Company, 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;

collaborations, partnerships or licensing transactions;

additional equity or debt financings;

additional collaborations, partnerships or licensing transactions;

or other sources.

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

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

In addition, if the Company’s efforts to secure sufficient additional capital in the near term are unsuccessful, the Company 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 its assets or proprietary technologies.

If the Company is not able to secure sufficient additional capital in the near term, the Company may in the future need to implement additional cost reduction strategies, which could include delaying, limiting, further reducing or eliminating both internal and external costs related to its operations and research and development programs.

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business.

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Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S.

GAAP have been

condensed or omitted from this report, as is permitted by such rules and regulations.

GAAP have been condensed or omitted from this report, as is permitted by such rules and regulations.

Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2023 and notes thereto, included in the Company’s Annual Report on Form 10-K filed with the U.S.

Securities and Exchange Commission (“SEC”) on March 2, 2023.

Securities and Exchange Commission (“SEC”) on April 1, 2024.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited financial statements.

In the opinion of the Company’s management, the unaudited interim condensed consolidated financial statements contain all adjustments which are necessary to present fairly the Company’s financial position as of September 30, 2023 and the results of its operations for the three and nine months ended September 30, 2023 and 2022 and cash flows for the nine months ended September 30, 2023 and 2022.

In the opinion of the Company’s management, the unaudited interim condensed consolidated financial statements contain all adjustments which are necessary to present fairly the Company’s financial position as of March 31, 2024 and the results of its operations for the three months ended March 31, 2024 and 2023 and cash flows for the three months ended March 31, 2024 and 2023.

Such adjustments are of a normal and recurring nature.

The results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results for the year ending December 31, 2023 or for any future period.

The results for the three months ended March 31, 2024 are not necessarily indicative of the results for the year ending December 31, 2024 or for any future period.

Principles of Consolidation

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The significant accounting policies used in preparation of the unaudited condensed consolidated financial statements are described in Note 2, “ Summary of Significant Accounting Policies ” of the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

There have been no material changes to the significant accounting policies previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, except as noted below.

Collaboration Agreements

The Company analyzes its collaboration agreements to assess whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities and therefore within the scope of ASC Topic 808, Collaborative Arrangements (“ASC 808”).

For arrangements within the scope of ASC 808 that contain multiple elements, the Company first determines which elements of the collaboration are deemed to be within the scope of ASC 808 and which elements of the collaboration are more reflective of a vendor-customer relationship and therefore within the scope of ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”).

For elements of collaboration arrangements that are accounted for pursuant to ASC 808, an appropriate recognition method is determined and applied consistently, either by analogy to authoritative accounting literature or by applying a reasonable and rational policy election.

For collaboration agreements where the Company is reimbursed for a portion of its research and development expenses or participates in the cost-sharing of such research and development expenses, such reimbursements and cost-sharing arrangements are reflected as a reduction of research and development expenses in the Company’s condensed consolidated statements of operations and comprehensive loss, as the Company does not consider performing research and development services for reimbursement to be a part of its ongoing major or central operations.

Except as described below, there have been no material changes to the significant accounting policies previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and judgments that may affect the reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the date of the financial statements and the related reporting of expenses during the reporting period.

Management considers many factors in selecting appropriate financial accounting policies and controls and in developing the estimates and assumptions that are used in the preparation of these consolidated financial statements.

Factors that may affect estimates include expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends.

The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates.

Significant estimates of accounting reflected in these consolidated financial statements include, but are not limited to, estimates related to revenue recognition, accrued expenses, the valuation of stock-based compensation, including stock options and restricted common stock, useful life of long-lived assets and income taxes.

Actual results could differ from those estimates.

Revenue Recognition

The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”).

The Company has entered into, and may in the future enter into, collaboration and licensing agreements that are within the scope of ASC 606, under which the Company has granted licenses to certain of the Company’s product

candidates and performs research, development and other services in connection with such arrangements.

The terms of these arrangements may include payment of one or more of the following:

non-refundable upfront fees;

reimbursement of research and development costs;

development, regulatory and sales-based milestone payments;

and royalties on annual net sales of licensed products.

Under ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services.

To determine the appropriate amount of revenue to be recognized for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps:

(i) identification of the contract with the customer;

(ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract;

(iii) measurement of the transaction price, including the constraint on variable consideration;

(iv) allocation of the transaction price to the performance obligations;

and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

● Performance Obligations .

The promised goods or services in the Company’s arrangements typically consist of a license, or option to license, rights to the Company’s intellectual property or research and development services.

The Company may provide options to additional items in such arrangements, which are accounted for as separate contracts when the customer elects to exercise such options, unless the option provides a material right to the customer.

Performance obligations are promised goods or services in a contract to transfer a distinct good or service to the customer and are considered distinct when (i) the customer can benefit from the good or service on its own or together with other readily available resources and (ii) the promised good or service is separately identifiable from other promises in the contract.

In assessing whether promised goods or services are distinct, the Company considers factors such as the stage of development of the underlying intellectual property, the capabilities of the customer to develop the intellectual property on its own or whether the required expertise is readily available and whether the goods or services are integral or dependent to other goods or services in the contract.

● Customer Options.

If an arrangement is determined to contain customer options that allow the customer to acquire additional goods or services, the goods and services underlying the customer options that are not determined to be material rights are not considered to be performance obligations at the outset of the arrangement, as they are contingent upon option exercise.

The Company evaluates the customer options for material rights, or options to acquire additional goods or services for free or at a discount.

If the customer options are determined to represent a material right, the material right is recognized as a separate performance obligation at the outset of the arrangement.

The Company allocates the transaction price to material rights based on the relative standalone selling price, which is determined based on the identified discount and the probability that the customer will exercise the option.

Amounts allocated to a material right are not recognized as revenue until, at the earliest, the option is exercised or the option expires.

● Transaction Price .

The Company estimates the transaction price based on the amount expected to be received for transferring the promised goods or services in the contract.

The consideration may include fixed consideration or variable consideration.

At the inception of each arrangement that includes variable consideration, the Company evaluates the amount of potential payments and the likelihood that the payments will be received.

The Company utilizes either the most likely amount method or expected value method to estimate the amount expected to be received based on which method best predicts the amount expected to be received.

The amount of variable consideration that is included in the transaction price may be constrained and is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period.

At the end of each subsequent reporting period, the Company reevaluates the probability of achievement of all variable consideration subject to constraint, and if necessary, adjusts its estimate of the overall transaction price.

Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues in the period of adjustment.

The Company allocates the transaction price to the identified performance obligations based on the estimated standalone selling price.

The Company must develop assumptions that require judgment to determine the standalone selling price for each performance obligation identified in the contract.

The Company utilizes key

assumptions to determine the standalone selling price, which may include other comparable transactions, pricing considered in negotiating the transaction and the estimated costs.

Variable consideration is allocated specifically to one or more performance obligations in a contract when the terms of the variable consideration relate to the satisfaction of the performance obligation and the resulting amounts allocated are consistent with the amounts the Company would expect to receive for the satisfaction of each performance obligation.

● Milestone Payments.

At the inception of each arrangement that includes development or regulatory milestone payments, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method.

If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price.

Milestone payments that are not within the Company’s control or the licensee’s control, such as regulatory approvals, are not considered probable of being achieved until those approvals are received.

The Company evaluates factors such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the particular milestone in making this assessment.

There is considerable judgment involved in determining whether it is probable that a significant revenue reversal would not occur.

For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

To date, the Company has not recognized any royalty revenue resulting from any of the Company’s collaboration or licensing arrangements.

● Recognition.

The consideration allocated to each performance obligation is recognized as revenue when control is transferred for the related goods or services.

For performance obligations that consist of licenses and other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress.

The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

The Company receives payments from its customers based on billing schedules established in each contract.

Non-refundable upfront payments are included in the estimation of the transaction price, allocated to the performance obligation(s) based upon relative standalone selling price and recognized for each performance obligation based upon the measure of progress (point in time or over time) for each performance obligation.

Payments received for goods and services not yet provided are recorded as deferred revenue.

Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional.

For a discussion of accounting for collaboration and license revenues, see Note 6, Collaboration and License Agreements .

Concentrations of Credit Risk

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The Company has not experienced any losses in its cash and cash equivalents and does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

Recent Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses that are regularly provided to the chief operating decision maker.

The guidance is effective for fiscal years beginning after December 15, 2023 and interim periods

within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The guidance is to be applied retrospectively to all prior periods presented in the financial statements.

Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption.

The Company is currently evaluating the potential impact of adopting this new guidance on its condensed consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures (“ASU 2023-09”), which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign).

ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes.

The guidance is effective for annual periods beginning after December 15, 2024.

Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance.

ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted.

This Company is currently evaluating the potential impact of adopting this new guidance on its condensed consolidated financial statements and related disclosures.

Property and Equipment, Net

Property and equipment, net consists of the following as of September 30, 2023 and December 31, 2022:

September 30,

Property and equipment, net consists of the following as of March 31, 2024 and December 31, 2023:

Laboratory equipment

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Property and equipment, net

The Company recognized depreciation and amortization expense related to property and equipment of $ 1.4 million and $ 1.3 million for the nine months ended September 30, 2023 and 2022, respectively.

Accrued Expenses

Accrued expenses consist of the following as of September 30, 2023 and December 31, 2022:

September 30,

The Company recognized depreciation and amortization expense related to property and equipment of $ 0.4 million and $ 0.5 million for the three months ended March 31, 2024 and 2023, respectively.

Accrued Expenses and Restructuring

Accrued expenses consist of the following as of March 31, 2024 and December 31, 2023:

External research and development

Personnel-related

Restructuring

Professional and consulting fees

Total accrued expenses

In March 2024, the Company’s board of directors approved a strategic portfolio reprioritization and workforce reduction.

As part of the workforce reduction, the Company recognized restructuring charges of $ 0.9 million during the three months ended March 31, 2024, primarily related to employee severance and benefits continuation.

The workforce reduction was completed in April 2024.

The Company did no t make any payments related to the restructuring during the three months ended March 31, 2024.

All employee severance and benefits continuation payments are expected to be completed by the end of the third quarter of 2024.

The following table summarizes the accrued restructuring liability activity for the Company’s workforce reduction for the three months ended March 31, 2024:

Severance and

Related Benefits

Accrued restructuring liability as of December 31, 2023

Restructuring charges

Accrued restructuring liability as of March 31, 2024

Loan and Security Agreement

In November 2019, the Company’s wholly owned subsidiary, Xilio Development, Inc.

(“Borrower”), entered into a loan and security agreement (as amended and restated in May 2023, the “Loan Agreement”) with Pacific Western Bank (“PacWest”), with the Company as a guarantor.

Under the Loan Agreement, in November 2019, the Borrower borrowed $ 10.0 million under a term loan.

Interest on amounts outstanding under the Loan Agreement accrues at a variable annual rate equal to the greater of (i) the prime rate plus 0.25 % or (ii) 4.75 %.

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

The Borrower was required to make interest-only payments on any outstanding balances through December 31, 2022.

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

The Loan Agreement contains customary representations, warranties and covenants and also includes customary terms covering events of default, including payment defaults, breaches of covenants, a change of control provision and occurrence of a material adverse effect.

As security for its obligations under the Loan Agreement, the Borrower granted PacWest a first priority security interest on substantially all of the Borrower’s assets, excluding intellectual property, subject to certain exceptions.

Upon the occurrence and continuation of an event of default, a default interest rate of an additional 5 % per annum may be applied to the outstanding loan balance, and the administrative agent, collateral agent, and lender may declare all outstanding obligations immediately due and payable and exercise all of their rights and remedies as set forth in the Loan Agreement and under applicable law.

As of September 30, 2023, the Company and Borrower were in compliance with all covenants under the Loan Agreement.

The Borrower has the following minimum aggregate future loan principal payments under the Loan Agreement as of September 30, 2023:

2023 (remaining three months)

Total future principal payments

unamortized discount

Total note payable

The Company recognized $ 0.6 million and $ 0.5 million of interest expense related to the Loan Agreement for the nine months ended September 30, 2023 and 2022, respectively, which is reflected in other income, net on the condensed consolidated statements of operations and comprehensive loss.

Collaboration Agreements

(“Xilio Development”), entered into a loan and security agreement (as amended and restated in May 2023, the “Loan Agreement”) with Pacific Western Bank (“PacWest”), with the Company as a guarantor.

Under the Loan Agreement, in November 2019, Xilio Development borrowed $ 10.0 million under a term loan.

Interest on amounts outstanding under the Loan Agreement accrued at a variable annual rate equal to the greater of (i) the prime rate plus 0.25 % or (ii) 4.75 %.

In the first quarter of 2024, Xilio Development repaid all amounts outstanding under the Loan Agreement, and PacWest released all security interests in Xilio Development’s and its affiliates’ assets.

The Company recognized $ 0.1 million and $ 0.2 million of interest expense related to the Loan Agreement for the three months ended March 31, 2024 and 2023, respectively, which is reflected in other income, net on the condensed consolidated statements of operations and comprehensive loss.

Collaboration and License Agreements

License Agreement with Gilead Sciences, Inc.

In March 2024, Xilio Development entered into a license agreement with Gilead, pursuant to which it granted Gilead an exclusive global license to develop and commercialize XTX301, the Company’s tumor-activated IL-12 product candidate, and specified other molecules directed to IL-12.

Xilio Development is responsible for conducting clinical development for XTX301 in the ongoing Phase 1 clinical trial through an initial planned Phase 2 dose expansion clinical trial.

Following the delivery by Xilio Development of a specified clinical data package for XTX301 related to the Phase 1 clinical trial and planned Phase 2 clinical trial, Gilead can elect to transition responsibilities for the development and commercialization of XTX301 to Gilead, subject to the terms of the license agreement and payment by Gilead of a $ 75.0 million transition fee.

In connection with the execution of the license agreement, in March 2024, the Company also entered into a stock purchase agreement with Gilead.

Under the stock purchase agreement, Gilead agreed to purchase up to an aggregate of $ 25.0 million in the Company’s common stock (or at Gilead’s election, prefunded warrants in lieu of shares of common stock) in an initial private placement in connection with the execution of the license agreement and in up to three additional private placements through March 2025 at a predetermined mechanism for the purchase price per share, at all times subject to Gilead not being deemed the beneficial owner of greater than 19.9 % of the Company’s common stock upon the closing of the applicable private placement.

In March 2024, the Company initially issued and sold 6,860,223 shares of common stock to Gilead at a purchase price of $ 1.97 per share and received approximately $ 13.5 million in aggregate gross proceeds.

Upon execution of the agreements, the Company was entitled to receive approximately $ 43.5 million in upfront payments, including an upfront cash payment of $ 30.0 million under the license agreement and an initial equity investment by Gilead of approximately $ 13.5 million under the stock purchase agreement.

Upon execution of the agreements, the Company was also eligible to receive up to $ 604.0 million in additional contingent payments, which include (i) approximately $ 11.5 million in proceeds from up to three additional private placements, (ii) the $ 75.0 million transition fee and (iii) up to $ 517.5 million in specified development, regulatory and sales-based milestones.

Prior to the potential transition fee, up to $ 29.0 million of the total additional contingent payments are related to the potential additional private placements and a near-

term development milestone.

In addition, the Company is eligible to receive tiered royalties ranging from high single digits to mid-teens on annual global net product sales.

The Company considered the ASC 606 criteria for combining contracts and determined the license agreement and the stock purchase agreement should be combined into a single contract because they were negotiated and entered into in contemplation of one another.

The Company concluded the initial private placement and the additional private placements do not represent freestanding financial instruments as such instruments are not legally detachable due to contractual transfer restrictions.

The Company accounted for the common stock issued to Gilead in the initial private placement based on the fair market value of the common stock on the date of issuance.

The fair market value of the common stock issued to Gilead in the initial private placement was $ 4.4 million, based on the closing price of the Company’s common stock on the date of issuance, resulting in a $ 9.1 million premium.

The Company determined that the premium paid by Gilead for the common stock purchased in the initial private placement should be attributed to the transaction price of the license agreement.

The Company determined that the license agreement represents a contract with a customer within the scope of ASC 606 and identified two promises under the license agreement:

(i) the exclusive licenses granted to Gilead related to the Company’s IL-12 program and (ii) the provision by Xilio Development and its affiliates of development services related to ongoing and planned clinical trials for XTX301 through an initial planned Phase 2 clinical trial.

The Company determined that the exclusive license and development services were not capable of being distinct on the basis that the development services to be provided by Xilio Development are specialized in nature, specifically with respect to its specialized expertise related to XTX301, the IL-12 program and the Company’s proprietary platform for tumor-activated biologics.

Accordingly, the Company concluded that there is a single identified combined performance obligation consisting of the exclusive license and the development services.

For the purposes of ASC 606, the transaction price of the license agreement at the outset of the arrangement was determined to be $ 39.1 million, which consisted of the upfront cash payment of $ 30.0 million under the license agreement and the $ 9.1 million premium on the sale of common stock to Gilead in the initial private placement, which was allocated to the single combined performance obligation.

The Company used the most likely amount method to estimate variable consideration.

All contingent payments have been fully constrained at contract inception, as the achievement of the milestones underlying such contingent payments is uncertain and highly susceptible to factors outside of the Company’s control.

Accordingly, all such contingent payments were excluded from the transaction price.

The Company anticipates that it will reevaluate the transaction price at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur and may adjust the transaction price as necessary.

Sales-based royalties, including milestone payments based on the level of sales, were also excluded from the transaction price, as the license is deemed to be the predominant item to which the royalties relate.

The Company plans to recognize such revenue at the later of (i) when the related sales occur or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

Revenue associated with the combined performance obligation will be recognized as services are provided as control is transferred over time.

The Company measures progress based on the amount of costs incurred relative to the total costs expected to fulfill the combined performance obligation.

In management’s judgment, this input method is the best measure of progress towards satisfying the combined performance obligation and reflects a faithful depiction of the transfer of goods and services.

Under the terms of the license agreement, the $ 30.0 million upfront payment was paid by Gilead in April 2024.

Accordingly, as of March 31, 2024, the Company recorded a receivable from Gilead for such amount.

As of March 31, 2024, no revenue has been recognized under the license agreement or the stock purchase agreement.

The Company recorded deferred revenue of $ 39.1 million for the transaction price as of March 31, 2024, of which $ 21.7 million was recorded as a current liability on the Company’s condensed consolidated balance sheets as of March 31, 2024.

Clinical Trial Collaboration with F.

Hoffmann-La Roche Ltd.

In July 2023, the Company and F.

Hoffmann-La Roche Ltd.

(“Roche”) entered into a clinical trial collaboration (the “Roche Clinical Collaboration”) pursuant to a clinical supply agreement to evaluate XTX101 in combination with atezolizumab (Tecentriq®) in a Phase 1/2 clinical trial consisting of a Phase 1 dose escalation portion assessing the combination in patients with advanced solid tumors and a Phase 2 portion assessing the combination in patients with microsatellite stable colorectal cancer.

(“Roche”) entered into a clinical trial collaboration (the “Roche Clinical Collaboration”) pursuant to a clinical supply agreement to evaluate XTX101 in combination with atezolizumab (Tecentriq®) in a Phase 1/2 clinical trial consisting of a Phase 1 dose escalation portion assessing the combination in patients with advanced solid tumors and a planned Phase 2 portion assessing the combination in patients with microsatellite stable colorectal cancer.

Under the clinical supply agreement, the Company is eligible to receive specified cost-sharing payments from Roche, and each company will supply its respective anti-cancer agent to support the Phase 1/2 clinical trial.

The Company will sponsor and conduct the Phase 1/2 clinical trial and retains global development and commercialization rights to XTX101.

The Company is responsible for sponsoring and conducting the Phase 1/2 clinical trial and retains global development and commercialization rights to XTX101.

The Company concluded that the cost-sharing payments from the Roche Clinical Collaboration are not in the scope of ASC 606 because the Company does not consider performing research and development services for reimbursement to be part of its ongoing major or central operations.

Therefore, the Company applied a reasonable, rational, and consistently applied accounting policy election to record the cost-sharing payments from the Roche Clinical Collaboration as a reduction of research and development expenses in the condensed consolidated statements of operations and comprehensive loss for the period in which a study development event is achieved.

During the three and nine months ended September 30, 2023, the Company recognized a reduction of research and development expenses of $ 2.0 million.

As of September 30, 2023, $ 2.0 million of earned but unpaid cost-sharing payments were included in prepaid expenses and other current assets of the Company’s condensed consolidated balance sheets.

During the three months ended March 31, 2024, the Company recognized a reduction of research and development expenses of $ 2.0 million.

As of March 31, 2024, $ 2.0 million of earned but unpaid cost-sharing payments were included in prepaid expenses and other current assets of the Company’s condensed consolidated balance sheets.

Commitments and Contingencies

4 unchanged sentences

The Company is obligated to pay its portion of real estate taxes and costs related to the premises, including costs of operations, maintenance, repair, replacement, and management of the leased premises, which it began paying simultaneous with the rent commencement date in March 2020.

As of September 30, 2023 and December 31, 2022, the Company had a letter of credit for the benefit of its landlord in the amount of $ 1.6 million, collateralized by a money market account, which is recorded as restricted cash on the condensed consolidated balance sheets.

As of March 31, 2024 and December 31, 2023, the Company had a letter of credit for the benefit of its landlord in the amount of $ 1.6 million, collateralized by a money market account, which is recorded as restricted cash on the condensed consolidated balance sheets.

Preferred Stock and Common Stock

Undesignated Preferred Stock

As of September 30, 2023 and December 31, 2022, the Company’s certificate of incorporation, as amended, authorized the Company to issue up to 5,000,000 shares of undesignated preferred stock at $ 0.0001 par value per share.

As of September 30, 2023 and December 31, 2022, there were no shares of preferred stock issued or outstanding.

As of September 30, 2023 and December 31, 2022, the Company is authorized to issue up to 200,000,000 shares of common stock, $ 0.0001 par value per share under its certificate of incorporation, as amended.

As of March 31, 2024 and December 31, 2023, the Company’s certificate of incorporation, as amended, authorized the Company to issue up to 5,000,000 shares of undesignated preferred stock at $ 0.0001 par value per share.

As of March 31, 2024 and December 31, 2023, there were no shares of preferred stock issued or outstanding.

As of March 31, 2024 and December 31, 2023, the Company is authorized to issue up to 200,000,000 shares of common stock, $ 0.0001 par value per share under its certificate of incorporation, as amended.

Shares Reserved for Future Issuance

As of September 30, 2023 and December 31, 2022, the Company had reserved shares of common stock for future issuance under the 2020 Stock Incentive Plan (as amended, the “2020 Plan”), the 2021 Stock Incentive Plan (the “2021 Plan”), the 2022 Inducement Stock Incentive Plan (the “2022 Inducement Plan”) and the 2021 Employee Stock Purchase Plan (the “2021 ESPP”) as follows:

September 30,

Shares of common stock reserved for exercise of a warrant

Shares of common stock reserved for exercise of outstanding stock options under the 2020 Plan, 2021 Plan and 2022 Inducement Plan

Shares of common stock reserved for future awards under the 2021 Plan

Shares of common stock reserved for future awards under the 2022 Inducement Plan

Shares of common stock reserved for purchase under the 2021 ESPP

The Company has reserved for future issuances the following shares of common stock as of March 31, 2024 and December 31, 2023:

Stock options

Employee stock purchase plan

Total shares reserved for future issuance

2 unchanged sentences

2020 Stock Incentive Plan

Under the 2020 Plan, the Company was authorized to issue shares of common stock to the Company’s employees, officers, directors, consultants and advisors in the form of options, restricted stock awards or other stock-based awards.

Under the 2020 Stock Incentive Plan (as amended, the “2020 Plan”), the Company was authorized to issue shares of common stock to the Company’s employees, officers, directors, consultants and advisors in the form of options, restricted stock awards or other stock-based awards.

2021 Stock Incentive Plan

In 2021, the Company’s board of directors and stockholders adopted the 2021 Plan, which became effective immediately prior to the IPO in October 2021.

In September 2021, the Company’s board of directors and stockholders adopted the 2021 Stock Incentive Plan (the “2021 Plan”), which became effective immediately prior to the IPO in October 2021.

Upon effectiveness of the 2021 Plan, the Company ceased granting awards under the 2020 Plan.

The 2021 Plan provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock units and other stock-based awards.

The number of shares of the Company’s common stock initially reserved for issuance under the 2021 Plan was the sum of (1) 2,654,828 ;

plus (2) the number of shares (up to 3,967,038 shares) as is equal to the sum of (x) the number of shares of the Company’s common stock reserved for issuance under the 2020 Plan that remained available for grant under the 2020 Plan immediately prior to the effectiveness of the 2021 Plan and (y) the number of shares of the Company’s common stock subject to outstanding awards whether granted under the 2020 Plan or outside of the 2020 Plan which awards expire, terminate or are otherwise surrendered, canceled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right and that, prior to the effectiveness of the 2021 Plan, would have become available for issuance under the 2020 Plan;

plus (3) an annual increase, to be added on the first day of each fiscal year, beginning with the fiscal year,

commencing on January 1, 2022 and continuing until, and including, January 1, 2031, equal to the lesser of (i) 5 % of the number of shares of the Company’s common stock outstanding on the first day of such fiscal year and (ii) the number of shares of common stock determined by the Company’s board of directors.

The Company initially reserved 6,579,016 shares of common stock under the 2021 Plan.

The 2021 Plan provides that the number of shares reserved and available for issuance under the 2021 Plan will be cumulatively increased on January 1 of each calendar year by 5 % of the number of shares of common stock outstanding on such date or such lesser amount determined by the Company’s board of directors.

On January 1, 2024, the number of shares reserved for issuance under the 2021 Plan automatically increased by 1,380,663 shares.

As of September 30, 2023, there were 1,412,759 shares available for future issuance under the 2021 Plan.

As of March 31, 2024, there were 2,550,749 shares available for future issuance under the 2021 Plan.

2022 Inducement Plan

In 2022, the Company’s board of directors adopted the 2022 Inducement Plan pursuant to Nasdaq Rule 5635(c)(4).

In 2022, the Company’s board of directors adopted the 2022 Inducement Stock Incentive Plan pursuant to Nasdaq Rule 5635(c)(4) (the “2022 Inducement Plan”).

In accordance with Rule 5635(c)(4), stock-based incentive awards under the 2022 Inducement Plan may only be made to a newly hired employee who has not previously been a member of the Company’s board of directors, or an employee who is being rehired following a bona fide period of non-employment by the Company as a material inducement to the employee’s entering into employment with the Company.

An aggregate of 275,000 shares of the Company’s common stock has been reserved for issuance under the 2022 Inducement Plan.

The exercise price of stock options granted under the 2022 Inducement Plan will not be less than the fair market value of a share of the Company’s common stock on the grant date.

Other terms of awards, including vesting requirements, are determined by the Company’s board of directors and are subject to the provisions of the 2022 Inducement Plan.

As of September 30, 2023, there were 220,000 shares available for future issuance under the 2022 Inducement Plan.

As of March 31, 2024, there were 220,000 shares available for future issuance under the 2022 Inducement Plan.

2021 Employee Stock Purchase Plan

In 2021, the Company’s board of directors and stockholders adopted the 2021 ESPP, which became effective immediately prior to the IPO in October 2021.

In 2021, the Company’s board of directors and stockholders adopted the 2021 Employee Stock Purchase Plan (the “2021 ESPP”), which became effective immediately prior to the IPO in October 2021.

The Company initially reserved 292,031 shares of common stock for issuance under the 2021 ESPP.

In addition, the 2021 ESPP provides that the number of shares of common stock reserved for issuance under the 2021 ESPP will be cumulatively increased on January 1 of each calendar year by the lesser of (i) 584,062 shares of common stock, (ii) 1 % of the number of shares of the Company’s common stock outstanding on such date, and (iii) a number of shares of common stock as determined by the Company’s board of directors.

On January 1, 2023, the number of shares reserved for issuance under the 2021 ESPP was increased by 274,716 shares.

Offering periods under the 2021 ESPP commence on each June 1 and December 1, and end on the following November 30 and May 31, respectively.

During the nine months ended September 30, 2023, 68,929 shares were purchased under the 2021 ESPP.

During the nine months ended September 30, 2022, no shares were purchased under the 2021 ESPP.

As of September 30, 2023, there were 772,507 shares available for future issuance under the 2021 ESPP.

The 2021 ESPP provides that the number of shares of common stock reserved for issuance under the 2021 ESPP will be cumulatively increased on January 1 of each calendar year by 1 % of the number of shares of the Company’s common stock outstanding on such date or such lesser amount determined by the Company’s board of directors (up to a maximum increase of 584,062 shares of common stock per year).

1, 2024, the number of shares reserved for issuance under the 2021 ESPP was increased by 276,132 shares.

The Company did not issue shares under the 2021 ESPP during the three months ended March 31, 2024 and 2023, respectively.

As of March 31, 2024, there were 977,376 shares available for future issuance under the 2021 ESPP.

Stock-Based Compensation Expense

During the three and nine months ended September 30, 2023 and 2022, the Company recorded compensation expense related to stock options, restricted common stock and ESPP share purchases for employees and non-employees, which was allocated as follows in the condensed consolidated statements of operations and comprehensive loss:

Three Months Ended September 30,

Nine Months Ended September 30,

During the three months ended March 31, 2024 and 2023, the Company recorded compensation expense related to stock options, restricted stock units and restricted common stock for employees and non-employees and share purchases under the 2021 ESPP for employees, which was allocated as follows in the condensed consolidated statements of operations and comprehensive loss:

Three Months Ended March 31,

Research and development expense

8 unchanged sentences

Cancelled/forfeited

Outstanding as of September 30, 2023

Exercisable as of September 30, 2023

Outstanding as of March 31, 2024

Exercisable as of March 31, 2024

(1) The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock as of the end of the period.

Using the Black-Scholes option pricing model, the weighted average fair value of options granted to employees and directors during the nine months ended September 30, 2023 and 2022 was $ 2.02 and $ 5.88 , respectively.

The following assumptions were used in determining the fair value of options granted during the nine months ended September 30, 2023 and 2022:

Nine Months Ended September 30,

Using the Black-Scholes option pricing model, the weighted average fair value of options granted to employees and directors during the three months ended March 31, 2024 and 2023 was $ 0.41 and $ 1.95 , respectively.

The following assumptions were used in determining the fair value of options granted during the three months ended March 31, 2024 and 2023:

Three Months Ended March 31,

Risk-free interest rate

2 unchanged sentences

Expected volatility

81.69 - 87.32

80.75 – 87.64

As of September 30, 2023, the Company had unrecognized stock-based compensation expense of $ 14.3 million related to stock options issued to employees and directors, which is expected to be recognized over a weighted-average period of 2.3 years.

Restricted Stock

A summary of the Company’s restricted stock activity and related information is as follows:

As of March 31, 2024, the Company had unrecognized stock-based compensation expense of $ 10.6 million related to stock options issued to employees and directors, which is expected to be recognized over a weighted-average period of 2.0 years.

Restricted Stock Units

In January 2024, the Company awarded 481,500 restricted stock units to certain employees of the Company.

The restricted stock units vest in four equal annual installments beginning on the first anniversary of the grant date.

The restricted stock units are generally forfeited if the individual’s service relationship with the Company or any subsidiary terminates prior to vesting.

A summary of the Company’s restricted stock unit activity and related information is as follows:

of Restricted

Unvested as of December 31, 2023

Canceled/Forfeited

Unvested as of September 30, 2023

Unvested as of March 31, 2024

For the three months ended March 31, 2024, the Company recognized less than $ 0.1 million of stock-based compensation expense related to these awards.

As of March 31, 2024, the Company had unrecognized stock-based compensation expense of $ 0.2 million related to these restricted stock units, which is expected to be recognized over 3.8 years.

Restricted Common Stock

A summary of the Company’s restricted common stock activity and related information is as follows:

of Restricted

Unvested as of December 31, 2023

Unvested as of March 31, 2024

In June 2020, the Company granted 552,546 shares of common stock underlying restricted stock awards, and the Company has not subsequently granted any additional restricted stock awards.

The aggregate fair value of the restricted stock awards that vested during the nine months ended September 30, 2023 and 2022 was $ 0.1 million and $ 0.3 million, respectively.

As of September 30, 2023, total unrecognized stock-based compensation expense related to unvested restricted stock awards was $ 0.1 million, which is expected to be recognized over a weighted-average period of 0.4 years.

The aggregate fair value of the restricted stock awards that vested during the three months ended March 31, 2024 and 2023 was less than $ 0.1 million.

Net Loss Per Share

The following table sets forth the outstanding shares of common stock equivalents, presented based on amounts outstanding at each period end, that were excluded from the calculation of diluted net loss per share attributable to common stockholders during each period because including them would have been anti-dilutive:

Nine Months Ended

September 30,

Three Months Ended

Unvested restricted common stock

Unvested restricted stock units

Outstanding stock options

1 unchanged sentence

Total common stock equivalents

Subsequent Events

Private Placement

On March 28, 2024, the Company entered into a securities purchase agreement with certain existing accredited investors pursuant to which the Company issued and sold an aggregate of 1,953,125 shares of its common stock at a purchase price of $ 0.64 per share and, in lieu of shares of the Company’s common stock, prefunded warrants to purchase up to an aggregate of 15,627,441 shares of its common stock at a purchase price of $ 0.6399 per prefunded warrant, through a private placement.

The private placement closed on April 2, 2024.

The Company received aggregate gross proceeds of approximately $ 11.3 million from the private placement, before deducting placement agent fees and expenses payable by the Company.

Gilead Additional Equity Investment

On April 3, 2024, pursuant to the terms of the Company’s stock purchase agreement with Gilead, the Company exercised its right to the first of up to three additional private placements with Gilead and issued and sold 485,250 shares of its common stock at a purchase price of $ 0.76 per share and prefunded warrants to purchase up to an aggregate of 3,882,450 shares of its common stock at a purchase price of $ 0.7599 per prefunded warrant.

The Company received aggregate gross proceeds of approximately $ 3.3 million from the additional private placement with Gilead.

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 1. Financial Statements