Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is meant to provide material information relevant to an assessment of the financial condition and results of operations of our company, including an evaluation of the amounts and uncertainties of cash flows from operations and from outside resources, so as to allow investors to better view our company from management’s perspective. You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K.
Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the section entitled “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. You should carefully read the section entitled “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements.
Overview
We are a clinical-stage biotechnology company discovering and developing tumor-activated, or masked, 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 platform to advance 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 masked antibodies, bispecifics, cytokines and immune cell engagers. Current I-O therapies have curative potential for patients with cancer. However, their potential is significantly curtailed by systemic toxicity that results from activity of the therapeutic molecule outside the tumor microenvironment. 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. To date, we have presented data across our clinical-stage programs showing clinical validation for our tumor-activation platform. Our most advanced clinical-stage product candidates are vilastobart (XTX101), an Fc-enhanced, tumor-activated, anti-CTLA-4 monoclonal antibody, or mAb, and XTX301, a tumor-activated, engineered interleukin 12, or IL-12, therapy. In addition to our clinical-stage product candidates, we are leveraging our proprietary tumor-activation platform to advance multiple preclinical programs for a masked PD-1/IL-2 bispecific and masked T cell engager molecules.
Recent Developments
Collaboration, License and Option Agreement with AbbVie Group Holdings Limited
On February 10, 2025, our wholly owned subsidiary Xilio Development, Inc., or Xilio Development, entered into a collaboration, license and option agreement with AbbVie Group Holdings Limited, or AbbVie, for up to four programs leveraging our proprietary tumor-activation technology and platform, consisting of (i) an exclusive option for (a) an initial program to discover, develop and commercialize masked T cell engager molecules for an agreed upon initial target and backup target, which we refer to as the initial option program, and (b) subject to the terms of the agreement, up to two additional programs to discover, develop, and commercialize masked T cell engager molecules for an initial target and backup target determined at the time of program initiation, each of which we refer to as an additional option program and (ii) an exclusive license for a program to develop and commercialize a masked antibody-based immunotherapy, which we refer to as the collaboration program. We refer to the initial option program and the additional option programs, collectively, as the option programs.
Under the agreement, we granted AbbVie an option to obtain an exclusive global license to exploit products discovered and developed under the initial option program. During the three-year period following the effective date of the agreement, AbbVie has the right to initiate up to two additional option programs by (a) selecting an initial target and backup target for each such additional option program (excluding the target known as PSMA) and any other target for which we have
117
Table of Contents
completed specified activities prior to lead selection) and (b) paying us an additional program nomination fee for each additional option program. In addition, on an option program-by-option program basis, prior to the initiation of specified activities related to lead optimization and selection for the initial target for such option program, AbbVie has a one-time right to substitute the initial target with the backup target agreed upon by the parties at the time of option program initiation, subject to the payment by AbbVie of a one-time substitution fee with respect to such substituted target and the other terms of the agreement.
For the initial option program, AbbVie’s option right is exercisable beginning on the effective date of the agreement, and for each additional option program, AbbVie’s option right is exercisable following delivery of written notice of nomination of such additional option program. For each option program, prior to option exercise, we will be responsible for conducting preclinical discovery and development up to the completion of investigational new drug application enabling studies, subject to AbbVie paying us option extension fees upon completion of specified stages of preclinical discovery and development. Unless AbbVie elects to extend preclinical development through the next stage and pays the applicable option extension fee, AbbVie’s option right terminates within a specified time period following completion of each stage of preclinical development. Upon exercising its option for an option program, AbbVie will be responsible for any remaining preclinical development, if applicable, and all clinical development, regulatory and commercialization activities with respect to licensed products under the applicable option program.
In connection with the collaboration program, we granted AbbVie an exclusive global license to exploit products discovered and developed under the collaboration program. We are responsible for conducting all preclinical development through lead generation, and AbbVie is responsible for all further development and commercialization activities for any licensed products generated under the collaboration program.
Under the agreement, we received $52.0 million in total upfront payments, consisting of a cash payment of $42.0 million and an equity investment of $10.0 million in our common stock at a purchase price of $2.30 per share. In addition, we will be eligible to receive up to approximately $2.1 billion in additional contingent payments, consisting of (i) up to $305.0 million in aggregate program nomination fees, preclinical development option extension fees and option fees for the option programs and (ii) up to $1.8 billion in aggregate development, regulatory and sales-based milestones for all option programs and the collaboration program. In addition, we are eligible to receive tiered royalties ranging in the mid to high single digits on annual global net product sales.
Stock Purchase Agreement and Investor Rights Agreement with AbbVie Inc.
In connection with the execution of the agreement, on February 10, 2025, we entered into a stock purchase agreement with AbbVie Inc. pursuant to which we issued and sold 4,347,826 of our shares of common stock to AbbVie Inc. in a private placement at a purchase price of $2.30 per share for an aggregate purchase price of $10.0 million.
Liquidity and Going Concern Overview
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, upfront payments under our license agreement with Gilead Sciences, Inc., or Gilead, and collaboration agreement with AbbVie and our at-the-market, or ATM, offering program. 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. All of our programs are in early clinical or preclinical development. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates, if approved. Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve profitability. Even if we are able to generate revenue from product sales, we may not become profitable.
Since inception, we have incurred significant operating losses, including net losses of $58.2 million and $76.4 million for years ended December 31, 2024 and 2023, respectively. As of December 31, 2024, we had an accumulated deficit of
118
Table of Contents
$383.8 million. We expect to continue to incur significant expenses and operating losses for the foreseeable future, particularly to the extent we:
● continue to advance our current research programs and conduct additional research programs;
● advance our current product candidates and any future product candidates we may develop into preclinical and clinical development;
● seek marketing approvals for product candidates that successfully complete clinical trials, if any;
● obtain, expand, maintain, defend and enforce our intellectual property;
● 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;
● continue to discover, validate and develop additional product candidates;
● continue to manufacture increasing quantities of our current or future product candidates for use in preclinical studies, clinical trials and for any potential commercialization;
● acquire or in-license other product candidates, technologies or intellectual property; and
● incur additional costs associated with current and future research, development and commercialization efforts and operations as a public company.
As a result, we will need substantial additional capital to support our continuing operations and pursue our strategy. As of December 31, 2024, we had cash and cash equivalents of $55.3 million. Based on our current operating plans, we anticipate that our cash and cash equivalents as of December 31, 2024, together with the $52.0 million in upfront payments received in the first quarter of 2025 in connection with our collaboration agreement with AbbVie, will be sufficient to enable us to fund our operating expenses and capital expenditure requirements into the first quarter of 2026. Since these amounts are not expected to be sufficient to fund our operations for at least twelve months from the date of issuance of the consolidated financial statements included elsewhere in this Annual Report on Form 10-K, 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 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. For more information, refer to “—Liquidity and Capital Resources—Capital Requirements and Going Concern” below and Note 1 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Financial Operations Overview
Revenue
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 collaboration and license agreements with Gilead and AbbVie. For more information on our collaboration and license
119
Table of Contents
agreements with Gilead and AbbVie, please see Note 6, Collaboration and License Agreements, and Note 14, Subsequent Events, respectively, to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our discovery efforts, research activities and development and testing of our programs and product candidates. These expenses include:
● personnel-related expenses, including salaries, bonuses, benefits and stock-based compensation expense for employees engaged in research and development functions;
● costs incurred with third-party contract development and manufacturing organizations, or CDMOs, to acquire, develop and manufacture materials for both preclinical studies and current or future clinical trials;
● costs of funding research performed by third parties that conduct research and development and preclinical activities on our behalf;
● costs incurred with third-party contract research organizations, or CROs, and other third parties in connection with the conduct of our current or future clinical trials;
● costs of sponsored research agreements and outside consultants, including their fees and related expenses;
● costs incurred to maintain compliance with regulatory requirements;
● fees for maintaining licenses and other amounts due under our third-party licensing agreements;
● expenses incurred for the procurement of materials, laboratory supplies and non-capital equipment used in the research and development process; and
● 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. We recognize external development costs based on an evaluation of the progress to completion of specific deliverables using information provided to us by our vendors. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our consolidated balance sheets as prepaid expenses or accrued research and development expenses. We record cost-sharing payments under our clinical trial collaboration with Roche 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 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. We track these external costs, such as fees paid to CDMOs, CROs, preclinical study vendors and other third parties in connection with our manufacturing and manufacturing process development, clinical trials, preclinical studies and other research activities by program. Due to the number of ongoing programs and our ability to use resources across several projects, personnel-related expenses and indirect or shared operating costs incurred for our research and development programs are not recorded or maintained on a program-by-program basis.
120
Table of Contents
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will remain approximately the same or will continue to increase for the foreseeable future as we advance our programs and our current or future product candidates into and through the development phase. We expect our discovery research efforts and our related personnel costs to remain consistent with historical levels. In addition, as we progress our most advanced product candidates in clinical development, we may incur additional expenses related to milestone and royalty payments payable to third parties with whom we have entered into, or may enter into license, acquisition, option or other agreements to acquire the rights to future products and product candidates. In the event we are unable to raise sufficient additional capital in the near term to fund our operations, we will be required to adopt cost reduction strategies that seek to maintain our ability to continue the development of our most advanced product candidates in clinical development while otherwise reducing our overall research and development expenses.
At this time, we cannot reasonably estimate or know the nature, timing and projected costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, any of our product candidates or programs. This is due to the numerous risks and uncertainties associated with drug development, including the uncertainty of
● the scope, timing, costs and progress of preclinical and clinical development activities;
● the number and scope of preclinical and clinical programs we decide to pursue;
● our ability to implement and maintain cost reduction strategies, as well as the timing of such cost reductions;
● our ability to maintain our current research and development programs;
● our ability to establish an appropriate safety profile for our product candidates with IND-enabling studies;
● our ability to hire and retain key research and development personnel;
● the costs associated with the development of any additional product candidates we acquire or develop through collaborations, partnerships, licenses or similar transactions;
● our successful enrollment in and completion of clinical trials;
● our ability to successfully complete clinical trials with safety, potency and purity profiles that are satisfactory to the U.S. Food and Drug Administration, or the FDA, or any comparable foreign regulatory authority;
● our receipt of regulatory approvals from applicable regulatory authorities;
● our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize, our product candidates;
● our ability to commercialize products, if and when approved, whether alone or in collaboration with others;
● the continued acceptable safety profiles of the product candidates following approval, if any;
● our ability to establish and maintain agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing, if any of our product candidates are approved;
● the terms and timing of any collaboration, license or other arrangement, including the terms and timing of any milestone payments thereunder, if any;
121
Table of Contents
● our ability to obtain and maintain patent, trade secret and other intellectual property protection and regulatory exclusivity for our product candidates if and when approved; and
● general economic conditions, including inflation.
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. We may never succeed in obtaining regulatory approval for any product candidate we may develop.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel-related costs, including salaries, bonuses, benefits, recruiting and stock-based compensation, for personnel in our executive, finance, legal, business development, human resources and other administrative functions. General and administrative expenses also include legal fees relating to corporate matters; professional and consulting fees for accounting, auditing, tax, human resources and administrative consulting services; board of directors’ fees; insurance costs; and facility-related expenses, which include depreciation costs and other allocated expenses for rent, maintenance of facilities, and other general administrative costs. These costs relate to the operation of the business and are in support of but separate from the research and development function and our individual development programs. Costs to secure and defend our intellectual property are expensed as incurred and are classified as general and administrative expenses.
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 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 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 our strategic portfolio reprioritization and restructuring in March 2024, 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 former debt arrangement with Pacific Western Bank, or PacWest, and amortization of the debt discount related to debt issuance costs.
Income Taxes
Since our inception, we have not recorded any U.S. federal or state income tax benefits for the net losses we have incurred in each year or for our earned research and development tax credits, due to our uncertainty of realizing a benefit from those items. As of December 31, 2024, we had federal and state net operating loss, or NOL, carryforwards of $245.5 million and $217.5 million, respectively, which may be available to offset future taxable income. As of December 31, 2024, federal NOLs of $240.6 million have an indefinite carryforward period. The remaining federal NOL carryforwards and our state NOL carryforward will expire beginning in 2035. These loss carryforwards are available to reduce future federal taxable
122
Table of Contents
income, if any. As of December 31, 2024, we also had federal and state research and development credit carryforwards of approximately $10.2 million and $3.8 million, respectively, which may be available to offset any future income tax and which will begin to expire in 2033. These loss and credit carryforwards are subject to review and possible adjustment by the appropriate taxing authorities.
Utilization of our NOL carryforwards and research and development credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that have occurred previously or that could occur in the future in accordance with Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, as well as similar state provisions. These “ownership changes”, as defined by Section 382 of the Code, may limit the amount of NOL and research and development credit carryforwards that can be utilized annually to offset future taxable income and taxes, respectively. In general, an ownership change as defined by Section 382 of the Code results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50% over a three-year period. In the second quarter of 2024, we had an ownership change as defined by Sections 382 and 383 of the Code. As a result, if we earn net taxable income, our ability to use our pre-change NOL carryforwards and other pre-change tax attributes to offset such taxable income may be subject to limitations, which could result in increased future tax liability to us and could have an adverse effect on our future results of operations.
In addition, we have not yet conducted a study of our research and development credit carryforwards. Such a study may result in an adjustment to our research and development credit carryforwards; however, until a study is completed and any adjustment is known, no amount is being presented as an uncertain tax position. A full valuation allowance has been provided against our research and development credits, and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no impact to the balance sheet or statement of operations and comprehensive loss if an adjustment were required.
Income taxes are determined at the applicable tax rates adjusted for non-deductible expenses, research and development tax credits and other permanent differences. Our income tax provision may be significantly affected by changes to our estimates.
Results of Operations
Comparison of the Years Ended December 31, 2024 and 2023
The following table summarizes our results of operations for years ended December 31, 2024 and 2023 (in thousands):
Year Ended
December 31,
2024
2023
Change
Revenue
License revenue
$
6,344
$
—
$
6,344
Total revenue
6,344
—
6,344
Operating expenses
Research and development
$
41,211
$
52,136
$
(10,925)
General and administrative
24,778
26,997
(2,219)
Restructuring
937
—
937
Total operating expenses
66,926
79,133
(12,207)
Loss from operations
(60,582)
(79,133)
18,551
Other income, net
Other income, net
2,341
2,729
(388)
Total other income, net
2,341
2,729
(388)
Net loss
$
(58,241)
$
(76,404)
$
18,163
123
Table of Contents
License Revenue
We recognized $6.3 million in license revenue for the year ended December 31, 2024 under the license agreement and stock purchase agreement that we entered into with Gilead in March 2024.
Research and Development Expenses
The following table summarizes our research and development expenses for the years ended December 31, 2024 and 2023 (in thousands):
Year Ended
December 31,
2024
2023
Change
vilastobart (XTX101)
$
7,232
$
1,787
$
5,445
XTX301
5,085
6,438
(1,353)
XTX202
5,208
9,864
(4,656)
Other early programs and indirect research and development
7,771
14,040
(6,269)
Personnel-related
15,915
20,007
(4,092)
Total research and development expenses
$
41,211
$
52,136
$
(10,925)
Research and development expenses decreased by $10.9 million from $52.1 million for the year ended December 31, 2023 to $41.2 million for the year ended December 31, 2024. The decrease in research and development expenses was primarily due to the following:
● vilastobart costs increased by $5.4 million, primarily driven by $4.5 million in aggregate development milestones that we incurred during the year ended December 31, 2024 under our CTLA-4 monoclonal antibody license agreement with WuXi Biologics (Hong Kong) Limited and our amended and restated exclusive license agreement with City of Hope, and a $2.8 million increase in clinical development activities related to our ongoing Phase 1/2 clinical trial evaluating vilastobart in combination with atezolizumab, partially offset by a $2.0 million increase in cost-sharing payments earned under our Roche clinical collaboration from $2.0 million for the year ended December 31, 2023 to $4.0 million for the year ended December 31, 2024, which were recorded as a reduction in research and development expenses;
● XTX301 costs decreased by $1.4 million, primarily driven by a $2.5 million decrease in manufacturing activities related to the purchase of the initial supply of clinical trial material occurring in the comparable period, which was partially offset by a $1.2 million increase in clinical development activities related to our ongoing Phase 1 clinical trial;
● XTX202 costs decreased by $4.7 million, primarily driven by a decrease in clinical development activities as a result of discontinuing further investment in XTX202 as a monotherapy;
● other early programs and indirect research and development costs decreased by $6.3 million, primarily driven by a decrease in external expenses related to preclinical research and development activities; and
● personnel-related costs decreased by $4.1 million, primarily driven by a $3.4 million decrease in salaries, bonuses and benefits due to lower research and development headcount and a $0.5 million decrease in stock-based compensation.
124
Table of Contents
General and Administrative Expenses
The following table summarizes our general and administrative expenses for the years ended December 31, 2024 and 2023 (in thousands):
Year Ended
December 31,
2024
2023
Change
Personnel-related
$
14,646
$
15,827
$
(1,181)
Professional and consulting fees
6,354
6,879
(525)
Facility-related and other general and administrative expenses
3,778
4,291
(513)
Total general and administrative expenses
$
24,778
$
26,997
$
(2,219)
General and administrative expenses decreased by $2.2 million from $27.0 million for the year ended December 31, 2023 to $24.8 million for the year ended December 31, 2024. The decrease in general and administrative expenses was primarily due to the following:
● personnel-related costs decreased by $1.2 million, primarily driven by a $1.1 million decrease in salaries, bonuses and benefits due to lower general and administrative headcount and a $0.4 million decrease in stock-based compensation, partially offset by a $0.4 million increase in recruiting and other personnel-related costs;
● professional and consulting fees decreased by $0.5 million, primarily driven by a $0.9 million decrease in consulting and other professional related fees, partially offset by a $0.5 million increase in legal fees; and
● facility-related and other general and administrative expenses decreased by $0.5 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 year ended December 31, 2024. The restructuring expenses were associated with our workforce reduction in March 2024 and consisted of employee severance, benefits continuation and outplacement service costs.
Other Income, Net
Other income, net decreased by $0.4 million from $2.7 million for the year ended December 31, 2023 to $2.3 million for the year ended December 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
Sources of Liquidity
Since our inception, we have incurred significant operating losses and negative cash flows from operations. 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, convertible preferred stock, common stock and prefunded warrants, a debt financing, our IPO, upfront payments under our license agreement with Gilead and collaboration agreement with AbbVie and our ATM offering program. Through December 31, 2024, we have received an aggregate of $437.7 million in gross proceeds from such transactions, including $224.5 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, the $30.0 million upfront payment under our license
125
Table of Contents
agreement with Gilead, $36.3 million in gross proceeds from the sale and issuance of common stock and prefunded warrants to certain existing accredited investors and Gilead in private placements and $7.0 million in gross proceeds from the sale and issuance of common stock under our sales agreement with Cowen and Company LLC, or Cowen, from our existing ATM offering program. As of December 31, 2024, we had cash and cash equivalents of $55.3 million.
In February 2025, we received $52.0 million in total upfront payments in connection with the collaboration agreement with AbbVie.
ATM Offering Program
In November 2022, we filed a universal shelf registration statement on Form S-3 with the SEC to register for sale up to $250.0 million of our common stock, preferred stock, debt securities, units and warrants, which we may issue and sell from time to time in one or more offerings, which became effective on November 18, 2022 (333-268264). In November 2022, we entered into a sales agreement with Cowen under which we could issue and sell shares of our common stock, from time to time, having an aggregate offering price of up to $75.0 million under a sales agreement prospectus filed as part of the Form S-3. In March 2025, we terminated the sales agreement with Cowen, which terminated the offering and sale of shares of our common stock registered under the sales agreement prospectus. As of the termination of the sales agreement with Cowen, we had sold an aggregate of 8,550,000 shares of our common stock for aggregate gross proceeds of approximately $9.1 million, and shares of common stock having an aggregate offering price of approximately $65.9 million remained unsold.
In March 2025, we entered into a new sales agreement with Leerink Partners, LLC, or Leerink, under which we may issue and sell shares of our common stock, from time to time, having an aggregate offering price of up to $50.0 million under a sales agreement prospectus filed as part of the Form S-3.
Cash Flows
The following table provides information regarding our cash flows for each period presented (in thousands):
Year Ended
December 31,
2024
2023
Net cash provided by (used in):
Operating activities
$
(18,378)
$
(68,620)
Investing activities
(36)
(486)
Financing activities
29,196
(6,550)
Net increase (decrease) in cash, cash equivalents and restricted cash
$
10,782
$
(75,656)
Operating Activities
Our cash flows from operating activities are greatly influenced by our use of cash for operating expenses and working capital requirements to support our business. We have historically experienced negative cash flows from operating activities as we invested in research and development of our product candidates, including preclinical studies, clinical trials, manufacturing and manufacturing process development. 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 year ended December 31, 2024, net cash used in operating activities of $18.4 million was primarily due to our net loss of $58.2 million, partially offset by changes in operating assets and liabilities of $31.8 million and net non-cash expenses of $8.1 million.
126
Table of Contents
During the year ended December 31, 2023, net cash used in operating activities of $68.6 million was primarily due to our net loss of $76.4 million and changes in operating assets and liabilities of $1.7 million, partially offset by net non-cash expenses of $9.4 million.
Investing Activities
During the years ended December 31, 2024 and 2023, net cash used in investing activities consisted of purchases of property and equipment.
Financing Activities
During the year ended December 31, 2024, net cash provided by financing activities of $29.2 million consisted of aggregate net proceeds of $25.7 million from the sale and issuance of common stock and prefunded warrants to certain existing accredited investors and Gilead in private placements and aggregate net proceeds of $6.8 million from the sale and issuance of common stock under our ATM offering program, partially offset by repayments of debt principal of $3.3 million under our loan agreement with PacWest and payments on our finance lease for certain lab equipment.
During the year ended December 31, 2023, net cash used in financing activities of $6.5 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.
Capital Requirements and Going Concern
We expect our future capital requirements to increase substantially over time in connection with our ongoing research and development activities, particularly as we advance our current and planned clinical development of our product candidates and maintain the research efforts and preclinical activities associated with our other existing programs and discovery platform. In addition, we expect to continue to incur additional costs associated with operating as a public company. As a result, we expect to incur substantial operating losses and negative operating cash flows for the foreseeable future.
Inflation generally affects us by increasing our cost of labor and certain services. We do not believe that inflation had a material effect on our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. However, the United States has recently experienced historically high levels of inflation. If the inflation rate continues to increase it may affect our expenses, such as employee compensation and research and development charges due to, for example, increases in the costs of labor and supplies. Additionally, the United States is experiencing a workforce shortage, which in turn has created a competitive wage environment that may also increase our operating costs in the future.
As of December 31, 2024, we had cash and cash equivalents of $55.3 million. Based on our current operating plans, we anticipate that our cash and cash equivalents as of December 31, 2024, together with the $52.0 million in upfront payments received in the first quarter of 2025 in connection with our collaboration agreement with AbbVie, will be sufficient to enable us to fund our operating expenses and capital expenditure requirements into the first quarter of 2026. 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 are not expected to be sufficient to fund our operations for at least twelve months from the date of issuance of the consolidated financial statements included elsewhere in this Annual Report on Form 10-K, 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 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 consolidated financial statements included elsewhere in this Annual Report on Form 10-K 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 consolidated financial statements do not include
127
Table of Contents
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 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:
● the scope, progress, results and costs of research and development for our current and future product candidates, including our current and planned clinical trials for our clinical-stage product candidates, vilastobart and XTX301, and ongoing preclinical development for our current and future product candidates;
● our ability to implement and maintain cost reduction strategies, as well as the timing of such cost reductions;
● the scope, prioritization and number of our research and development programs;
● the scope, costs, timing and outcome of regulatory review of our product candidates;
● the costs of securing manufacturing materials for use in preclinical studies, clinical trials and, for any product candidates for which we receive regulatory approval, if any, commercial supply;
● the costs and timing of future commercialization activities for any of our product candidates for which we receive regulatory approval;
● the amount and timing of revenue, if any, received from commercial sales of any product candidates for which we receive regulatory approval;
● the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property and proprietary rights and defending any intellectual property-related claims;
● the extent to which we may acquire or in-license other products, product candidates, technologies or intellectual property, as well as the terms of any such arrangements;
● our ability to maintain our clinical collaboration to further develop vilastobart in combination with atezolizumab, including the cost-sharing arrangements of such collaboration;
● the timing and amount of cost-sharing payments under our clinical collaboration with Roche for vilastobart;
● the timing and amount of milestones, option-related fees and other contingent payments under our license agreement with Gilead for XTX301 and our collaboration agreement with AbbVie for tumor-activated immunotherapies;
● the costs of maintaining our operations and continuing to operate as a public company; and
● whether we are able to overcome the substantial doubt about our ability to continue as a going concern.
Identifying potential product candidates and conducting preclinical studies and clinical trials is a time consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that we do not expect
128
Table of Contents
to be commercially available for several years, if ever. Accordingly, we will need to obtain substantial additional capital to achieve our business objectives.
Our expectation with respect to our ability to fund our currently planned operations is based on estimates that are subject to various risks and uncertainties. Our operating plan may change as a result of many factors currently unknown to management and there can be no assurance that our current operating plan will be achieved in the time frame anticipated by us, and we may exhaust our available capital resources sooner than we expect.
Adequate additional capital may not be available to us on acceptable terms, or at all. 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 additional warrants, which could potentially dilute the ownership interest of our existing stockholders.
Contractual Obligations
In the normal course of business, we enter into agreements that contain contractual obligations, of which the most significant to date include our loan and security agreement with PacWest, an operating lease for our corporate headquarters and certain license agreements.
Loan and Security 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. In November 2019, we borrowed $10.0 million under a term loan pursuant to the loan agreement. 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. 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.
Lease Agreement
We lease building space for our corporate headquarters at 828 Winter Street in Waltham, Massachusetts under a non-cancellable operating lease that expires in March 2030. Our operating lease includes the option to extend the term for a period of five years at the then-market rental rate. As of December 31, 2024, the remaining required payments for our operating lease, not including the optional extension period, are approximately $9.9 million. For further information regarding our operating lease agreement, please see Note 7, Leases, to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.
Other Contractual Obligations
We are party to certain agreements that require us to pay third parties upon achievement of certain development, regulatory or commercial milestones or upon the consummation of specified transactions. Amounts related to contingent payments are not considered contractual obligations as they are contingent on the successful achievement of certain development, regulatory and commercial milestones that may not be achieved or upon the consummation of specified transactions that may not occur. We have not included payments contingent upon the achievement of certain development, regulatory or commercial milestones on our consolidated balance sheets. For further information regarding certain of our license agreements and amounts that could become payable in the future under those agreements, please see Note 6, Collaboration
129
Table of Contents
and License Agreements, to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.
In addition, we are party to certain agreements with contract research organizations for clinical trials and clinical supply manufacturing and with vendors for preclinical research studies and other services and products for operating purposes. Such contracts are generally cancellable by us for convenience with up to 90 days of notice. We may be subject to certain termination fees or wind-down costs upon termination of these agreements. The exact amount of such costs are generally not fixed or estimable.
Critical Accounting Policies and Use of Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies used in the preparation of our consolidated financial statements require the most significant judgments and estimates.
License Revenue
Our license revenue to date is comprised of amounts recognized from our license agreement with Gilead. We recognize revenue in accordance with ASC 606, Revenue from Contracts with Customers , or ASC 606.
Under ASC 606, we recognize revenue when our 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 we determined are within the scope of ASC 606, we perform 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) we satisfy each performance obligation.
The promised good or services in our arrangements typically consist of license rights to our intellectual property and research and development services. Performance obligations are promised goods or services in a contract to transfer a distinct good or service to the customer. Promised goods or services are considered distinct when (i) the customer can benefit from the good or service on its own or together with other readily available resources or (ii) the promised good or service is separately identifiable from other promises in the contract. In assessing whether promised goods or services are distinct, we consider factors such as the stage of development of the underlying intellectual property, the capabilities of the customer to develop the intellectual property on their own or whether the required expertise is readily available.
We estimate 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 both fixed consideration and variable consideration. At the inception of each arrangement that includes variable consideration and at each reporting period, we evaluate the amount of potential payment and the likelihood that the payments will be received. We utilize either the most likely amount method or expected amount method to estimate the amount expected to be received based on which method better predicts the amount expected to be received. If it is probable that a significant revenue reversal would not occur, the variable consideration is included in the transaction price.
130
Table of Contents
Our contracts often include development and regulatory milestone payments. At contract inception and at each reporting period, we evaluate whether the milestones are considered probable of being reached and estimate 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 our control or the licensee’s control, such as regulatory approvals, are not included in the transaction price. At the end of each subsequent reporting period, we re-evaluate the probability of achievement of such development milestones and any related constraint, and if necessary, adjust our estimate of the overall transaction price.
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, we recognize 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).
We allocate the transaction price based on the estimated standalone selling price of the underlying performance obligations or in the case of certain variable consideration to one or more performance obligations. We must develop assumptions that require judgment to determine the standalone selling price for each performance obligation identified in the contract. We utilize key assumptions to determine the standalone selling price, which may include other comparable transactions, pricing considered in negotiating the transaction and the estimated costs to complete the respective performance obligation. Certain 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 to each performance obligation are consistent with the amounts we would expect to receive for each performance obligation.
For performance obligations consisting of licenses and other promises, we utilize 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 for purposes of recognizing revenue from non-refundable, up-front fees. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.
Research and Development Expenses and Related Accruals and Prepaid Expenses
Research and development expenses are comprised of costs incurred in performing research and development activities, including salaries, stock-based compensation and benefits, facilities costs and laboratory supplies, depreciation, manufacturing expenses and external costs of outside vendors engaged to conduct planned clinical development, preclinical development, manufacturing and manufacturing process development and other research support activities. All costs associated with research and development activities are expensed as incurred.
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued expenses as of each balance sheet date. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with certain service providers and make adjustments if necessary. The significant estimates in our accrued research and development expenses include the costs incurred for services performed by our vendors in connection with research and development activities for which we have not yet been invoiced. In certain instances, we prepay for services to be provided in the future. These amounts are initially capitalized and subsequently expensed as the services are performed.
We base our expenses related to research and development activities on our estimates of the services received and efforts expended pursuant to quotes and contracts with vendors that conduct research and development on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the research and development expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the
131
Table of Contents
performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid balance accordingly. Nonrefundable advance payments for goods and services that will be used in future research and development activities are initially capitalized and subsequently expensed when the activity has been performed or when the goods have been received rather than when the payment is made.
Although we do not expect our estimates to be materially different from amounts incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting accrued amounts that are too high or too low in any particular period. To date, there have been no material differences between our estimates of such expenses and the amounts incurred.
Emerging Growth Company and Smaller Reporting Company Status
As an emerging growth company, or EGC, under the Jumpstart Our Business Startups Act of 2012, or JOBS Act, we may delay the adoption of certain accounting standards until such time as those standards apply to private companies. Other exemptions and reduced reporting requirements under the JOBS Act for EGCs include presentation of only two years of audited financial statements in a registration statement for an IPO, an exemption from the requirement to provide an auditor’s report on internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, an exemption from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation, and less extensive disclosure about our executive compensation arrangements.
In addition, the JOBS Act provides that an EGC can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an EGC to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we can adopt the new or revised standard at the time private companies adopt the new or revised standard and may do so until such time that we either (1) irrevocably elect to “opt out” of such extended transition period or (2) no longer qualify as an emerging growth company. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
We may remain classified as an EGC until December 31, 2026, although if the market value of our common stock that is held by non-affiliates exceeds $700 million as of any June 30 before that time or if we have annual gross revenues of $1.235 billion or more in any fiscal year, we would cease to be an emerging growth company as of December 31 of the applicable year. We also would cease to be an EGC if we issue more than $1 billion of non-convertible debt over a three-year period.
We are also a “smaller reporting company,” meaning that the market value of our shares held by non-affiliates is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our shares held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our shares held by non-affiliates is less than $700 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies.
Recent Accounting Pronouncements
For a description of recent accounting pronouncements, see Note 2, Summary of Significant Accounting Policies, to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company, as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the information required under this item.
132
Table of Contents
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.