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Item 2. Management’s Discussion and Analysis

2024-05-14 compared with 2023-11-09 · 103 added, 128 removed, 181 unchanged (56% 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 antibodies, 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 platform to build a pipeline of novel, tumor-activated I-O molecules that are designed to optimize the therapeutic index by localizing anti-tumor activity within the tumor microenvironment, including tumor-activated cytokines and antibodies (including bispecifics) and immune cell engagers (including tumor-activated cell engagers and tumor-activated effector-enhanced cell engagers).

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

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Our molecules are engineered to localize activity within the tumor microenvironment with minimal systemic effects, resulting in the potential to achieve enhanced anti-tumor activity and increasing the population of patients who may be eligible to receive our medicines.

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 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.

Our most advanced tumor-activated, clinical-stage product candidates are:

XTX101, an Fc-enhanced, anti-CTLA-4 monoclonal antibody, or mAb;

XTX301, an interleukin 12, or IL-12, therapy;

and XTX202, an interleukin 2, or IL-2, therapy.

To date, we have presented clinical data across these programs showing initial clinical validation for each of these molecules and our tumor-activated approach.

In addition to our clinical-stage product candidates, we are continuing to leverage our differentiated research platform and expertise in developing tumor-activated I-O therapies to advance preclinical development for tumor-activated bispecific molecules and immune cell engager molecules (including tumor-activated cell engagers and tumor-activated effector-enhanced cell engagers).

As a result of our strategic portfolio reprioritization announced in March 2024, we are focusing on rapidly advancing clinical development for XTX301 and XTX101 and advancing differentiated bispecific and cell-engager molecules in preclinical development, and we plan to explore strategic opportunities to continue to develop XTX202 in combination with other agents while discontinuing further investment in XTX202 as a monotherapy.

To date, we have financed our operations primarily from proceeds raised through private placements of preferred units and convertible preferred stock, a debt financing, our initial public offering, or IPO, of common stock in October 2021, private placements of our common stock and prefunded warrants, and an upfront payment under our exclusive license agreement with Gilead Sciences, Inc., or Gilead.

We have not generated any revenue from product sales and do not expect to generate any revenue from product sales for at least the next several years, if at all.

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

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

Since inception, we have 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, and a net loss of $76.4 million for the year ended December 31, 2023.

As of March 31, 2024, we had an accumulated deficit of $342.7 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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● obtain, expand, maintain, defend and enforce our intellectual property;

● hire additional clinical, regulatory, quality, manufacturing and general and administrative personnel;

● hire additional research, clinical, regulatory, quality, manufacturing and general and administrative personnel;

● establish a commercial and distribution infrastructure to commercialize products for which we may obtain marketing approval, if any;

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

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 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;

collaborations, partnerships or licensing transactions;

or other sources.

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

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

Based on our current operating plans, we anticipate that our existing cash and cash equivalents as of March 31, 2024, together with the $30.0 million upfront payment received in April 2024 under our license agreement with 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 enable us to fund our operating expenses and capital expenditure requirements into the second quarter of 2025.

Since these amounts may not 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.

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.

Recent Developments

Exclusive License Agreement and Stock Purchase Agreement with Gilead

In March 2024, we entered into an exclusive license agreement and a stock purchase agreement with Gilead.

Under the license agreement, our wholly-owned subsidiary, Xilio Development, Inc., or Xilio Development, granted Gilead an exclusive global license to develop and commercialize XTX301, our 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.

Under the stock purchase agreement, Gilead agreed to purchase up to $25.0 million in common stock or, at Gilead’s election, prefunded warrants, including approximately $13.5 million in our common stock in connection with entering into the license agreement and approximately $11.5 million in up to three additional private placements through March 2025.

We have received approximately $46.8 million to date under these agreements, including an upfront cash payment of $30.0 million received in April 2024 under the license agreement and $16.8 million in aggregate gross proceeds from the sale and issuance of common stock and prefunded warrants to Gilead under the stock purchase agreement.

We are eligible to

receive up to $600.7 million in additional contingent payments under these agreements, which include (i) up to approximately $8.2 million in proceeds from up to two 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 $25.7 million of the total additional contingent payments are related to the potential additional private placements and a near-term development milestone.

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

March 2024 Private Placement

In March 2024, we entered into a securities purchase agreement with certain existing accredited investors, including Bain Capital Life Sciences and Rock Springs Capital, and issued and sold an aggregate of 1,953,125 shares of our common stock at a price of $0.64 per share and prefunded warrants to purchase up to an aggregate of 15,627,441 shares of our common stock at a purchase price of $0.6399 per prefunded warrant share, through a private investment in public equity financing.

The prefunded warrants have an exercise price of $0.0001 per share of common stock, are immediately exercisable and remain exercisable until exercised in full.

The private placement closed in April 2024, and we received aggregate gross proceeds of approximately $11.3 million, before deducting placement agent fees and expenses payable by us.

We expect to use the proceeds from the private placement to fund working capital and other general corporate purposes.

Financial Operations Overview

We have not generated any revenue since inception and do not expect to generate any revenue from the sale of products for at least the next several years, if at all.

If our development efforts for our current or future product candidates are successful and result in regulatory approval or if we enter into collaboration or license agreements with third parties, we may generate revenue in the future from product sales or payments from third-party collaborators or licensors.

We have not generated any revenue from the sale of products since inception and do not expect to generate any revenue from the sale of products for at least the next several years, if at all.

If our development efforts for our current or future product candidates are successful and result in regulatory approval, we may generate revenue in the future from product sales.

For the foreseeable future, we expect substantially all of our revenue, if any, would be generated from our license agreement with Gilead.

Operating Expenses

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● expenses incurred for the procurement of materials, laboratory supplies and non-capital equipment used in the research and development process;

● depreciation, amortization and other direct and allocated expenses, including rent, insurance, maintenance of facilities and other operating costs, incurred as a result of our research and development activities.

● depreciation, amortization and other direct and allocated expenses, including rent, maintenance of facilities and other operating costs, incurred as a result of our research and development activities.

We expense research and development costs as incurred.

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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.

Hoffmann-La Roche Ltd., or 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.

The capitalized amounts are expensed as the related goods are delivered or the services are performed.

We use our personnel and infrastructure resources for our discovery efforts, including the advancement of our GPS platform, developing programs and product candidates and managing external research efforts.

We use our personnel and infrastructure resources for our discovery efforts, including the advancement of our platform technology, developing programs and product candidates and managing external research efforts.

A significant portion of our research and development costs have been, and will continue to be, external costs.

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● general economic conditions, including inflation.

● 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.

A change in any of these variables with respect to the development of any of our product candidates would significantly change the costs, timing and viability associated with the development of that product candidate.

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We anticipate that our general and administrative expenses will remain consistent with historical levels as we maintain our infrastructure to support our research and development activities.

We expect to continue to incur significant expenses associated with operating as a public company, including costs for accounting, audit, legal, regulatory and tax-related services attributable to maintaining compliance with exchange listing standards and U.S.

We also expect to continue to incur significant expenses associated with operating as a public company, including increased costs for accounting, audit, legal, regulatory and tax-related services attributable to maintaining compliance with exchange listing standards and U.S.

Securities and Exchange Commission, or SEC, requirements, directors’ and officers’ liability insurance costs and investor and public relations costs.

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 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.

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

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.

Restructuring

In connection with the March 2024 strategic portfolio reprioritization and restructuring, we undertook efforts to reduce our expenses and streamline our operations, including a reduction in headcount of 15 employees, representing approximately 21% of our workforce immediately prior to the workforce reduction.

Restructuring expense consists of costs directly incurred as a result of restructuring initiatives, and includes employee severance payments, benefits continuation, outplacement services and related expenses.

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.

Other income, net consists primarily of interest income earned from our cash and cash equivalents, interest expense principally on the note payable under our former 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 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):

Comparison of the three months ended March 31, 2024 and 2023

The following table summarizes our results of operations for the three months ended March 31, 2024 and 2023 (in thousands):

Three Months Ended

September 30,

Operating expenses

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General and administrative

Restructuring

Total operating expenses

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Research and Development Expenses

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

The following table summarizes our research and development expenses for the three months ended March 31, 2024 and 2023 (in thousands):

Three Months Ended

September 30,

Other early programs and indirect research and development

Personnel-related (including stock-based compensation)

Personnel-related

Total research and development expenses

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.

Research and development expenses decreased by $5.7 million from $16.1 million for the three months ended March 31, 2023 to $10.4 million for the three months ended March 31, 2024.

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

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

● XTX101 costs decreased by $1.2 million from $0.7 million for the three months ended March 31, 2023 to $(0.5) million for the three months ended March 31, 2024, primarily driven by a $2.0 million cost-sharing payment that we earned under our Roche clinical collaboration during the three months ended March 31, 2024 and recorded as a reduction in research and development expenses, partially offset by a $0.7 million increase in clinical development activities related to our Phase 1 clinical trial;

● XTX202 costs increased by $1.4 million, primarily driven by an increase in clinical development activities related to our Phase 1/2 clinical trial;

● XTX301 costs decreased by $1.9 million, primarily driven by a $2.0 million decrease in manufacturing activities relating to the initial supply of clinical trial material in the comparable period and a $0.1 million decrease in preclinical activities, partially offset by a $0.1 million increase in clinical development activities related to our Phase 1 clinical trial;

● other early programs and indirect research and development expenses decreased by $3.0 million, primarily driven by a decrease in external expenses related to preclinical research and development activities;

● personnel-related costs decreased by $1.0 million, primarily driven by a $0.9 million decrease in salaries, bonuses and benefits due to lower research and development headcount and a $0.1 million decrease in stock-based compensation.

General and Administrative Expenses

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

The following table summarizes our general and administrative expenses for the three months ended March 31, 2024 and 2023 (in thousands):

Three Months Ended

September 30,

Personnel-related (including stock-based compensation)

Professional and consulting fees

Facility-related and other general and administrative expenses

Total general and administrative expenses

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:

● 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, 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

Research and development

General and administrative

Total operating expenses

Loss from operations

Other income, net

Total other income, net

Research and Development Expenses

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

Personnel-related (including stock-based compensation)

Total research and development expenses

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 $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 $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 nine months ended September 30, 2023 and 2022 (in thousands):

Nine Months Ended

September 30,

Personnel-related (including stock-based compensation)

Personnel-related

Professional and consulting fees

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Total general and administrative expenses

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.

General and administrative expenses decreased by $1.3 million from $7.4 million for the three months ended March 31, 2023 to $6.1 million for the three months ended March 31, 2024.

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;

● personnel-related costs decreased by $0.7 million, primarily driven by a $0.6 million decrease in salaries, bonuses and benefits due to lower general and administrative headcount and a $0.2 million decrease in recruiting costs, partially offset by a $0.1 million increase in stock-based compensation;

● professional and consulting fees decreased by $0.4 million, primarily driven by a $0.7 million decrease in consulting and other professional related fees, partially offset by a $0.3 million increase in legal fees primarily related to the Gilead license and stock purchase agreements;

● facility-related and other general and administrative expenses decreased by $0.2 million, primarily driven by lower costs related to directors’ and officers’ liability insurance and a reduction in other general and administrative expenses .

Restructuring

We recognized $0.9 million in restructuring expenses for the three months ended March 31, 2024.

The restructuring expenses were associated with our strategic portfolio reprioritization and workforce reduction announced in March 2024 and consisted of employee severance and benefits continuation costs related to the workforce reduction.

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.

Other income, net, decreased by $0.6 million from $0.9 million for the three months ended March 31, 2023 to $0.3 million for the three months ended March 31, 2024.

The decrease in other income, net was primarily due to a decrease in interest income earned on our cash and cash equivalents due to a lower average cash balance and lower interest expense on our note payable as a result of the repayment of the remaining principal under our loan agreement with PacWest in March 2024.

Liquidity and Capital Resources

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We have not yet commercialized any of our product candidates, which are in preclinical or early clinical development, and we do not expect to generate revenue from sales of any products for several years, if at all.

To date, we have financed our operations primarily from proceeds raised through private placements of preferred units and convertible preferred stock, a debt financing and our IPO.

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.

To date, we have financed our operations primarily from proceeds raised through private placements of preferred units, convertible preferred stock, common stock and prefunded warrants, a debt financing, our IPO and a license agreement.

Through March 31, 2024, we have received an aggregate of $378.9 million in gross proceeds from such transactions, including $225.5 million in gross proceeds from the sale and issuance of preferred units and convertible preferred stock, $10.0 million in gross proceeds from our debt financing with PacWest, $129.9 million in gross proceeds from our IPO, and $13.5 million in gross proceeds from the sale and issuance of common stock to Gilead in a private placement.

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

In April 2024, we received approximately $44.6 million in aggregate gross proceeds related to the $30.0 million upfront payment under our license agreement with Gilead and approximately $14.6 million in aggregate gross proceeds from the sale and issuance of common stock and prefunded warrants to certain existing investors in a private placement and to Gilead in an additional private placement.

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).

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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 extent to which we use the Sales Agreement as a source of funding will depend on a number of factors, including the prevailing market price of our common stock, general market conditions, the extent to which we are able to secure funds from other sources, and whether we are then subject to limitations on our ability to use Form S-3 to sell more than one-third of the aggregate market value of our public float in the trailing 12-month period.

Accordingly, we may not be able to sell shares under the Sales Agreement at prices or in amounts that we deem acceptable, and there can be no assurance that we will sell any shares of common stock pursuant to the Sales Agreement.

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

Nine Months Ended

September 30,

Net cash used in:

Three Months Ended

Net cash provided by (used in):

Operating activities

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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 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.

During the three months ended March 31, 2024, net cash used in operating activities of $10.5 million was primarily driven by our net loss of $17.2 million, partially offset by changes in operating assets and liabilities of $4.4 million and net non-cash expenses of $2.3 million.

During three months ended March 31, 2023, net cash used in operating activities of $25.3 million was primarily driven by our net loss of $22.6 million and changes in operating assets and liabilities of $4.9 million, partially offset by net non-cash expenses of $2.3 million.

Investing Activities

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.

We had no cash flows related to investing activities during the three months ended March 31, 2024.

During the three months ended March 31, 2023, net cash used in investing activities of $0.2 million consisted of purchases of property and equipment.

Financing Activities

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.

During the three months ended March 31, 2024, net cash provided by financing activities of $1.0 million consisted of proceeds from the sale and issuance of common stock to Gilead in the initial private placement, partially offset by repayments of debt principal under our loan agreement with PacWest and payments on our finance lease for certain lab equipment.

During three months ended March 31, 2023, net cash used in financing activities of $1.7 million consisted of repayments of debt principal under our loan agreement with PacWest and payments on our finance lease for certain lab equipment.

Loan and Security Agreement

In November 2019, our wholly owned subsidiary, Xilio Development, Inc., entered into a loan and security agreement with PacWest, as amended and restated in May 2023, with us as a guarantor, which we refer to as the loan agreement.

In November 2019, Xilio Development entered into a loan and security agreement with PacWest, as amended and restated in May 2023, with us as a guarantor, or the loan agreement.

Under the loan agreement, in November 2019, we borrowed $10.0 million under a term loan.

Borrowings under the loan agreement are collateralized by substantially all of the assets of Xilio Development, Inc., excluding intellectual property.

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

As of 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 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.

Borrowings under the loan agreement were collateralized by substantially all of the assets of Xilio Development, excluding intellectual property.

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

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 were required to make such payments until the term loan matured on June 30, 2024.

In the first quarter of 2024, we repaid all amounts outstanding under the loan agreement, and PacWest released all security interests in our and our subsidiaries’ assets.

Capital Requirements and Going Concern

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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 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 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 in the near term primarily consist of raising additional capital through one or more of the following:

equity or debt financings;

partnerships or licensing transactions;

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

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.

In addition, since these amounts may not 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.

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

additional equity or debt financings;

additional collaborations partnerships or licensing transactions;

or other sources.

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

If we are not able to secure sufficient additional capital in the near term, we 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 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.

Because of the numerous risks and uncertainties associated with product development, and because the extent to which we may enter into additional 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:

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

● the timing and amount of milestones, equity investments and other contingent payments under our partnership with Gilead for XTX301;

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

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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 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, current or future pandemics, or other factors could also adversely impact our ability to access capital as and when needed.

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

Additional debt and preferred equity, if available, may also involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends and may require that we issue warrants, which could potentially dilute the ownership interest of our existing stockholders.

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.

Critical Accounting Policies and Use of Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.

Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.

The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements during the reporting periods.

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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.

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.

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

Except as described in Note 2, Summary of Significant Accounting Policies, to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, there have been no changes to our critical accounting policies appearing in our Annual Report on Form 10-K for the year ended December 31, 2023.

Emerging Growth Company and Smaller Reporting Company Status

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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