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Item 8. Financial Statements and Supplementary Data

2025-02-24 compared with 2015-02-23 · 1076 added, 637 removed, 192 unchanged (90% of the section changed)

Financial Statements and Supplementary Dat a

Financial Statements and Supplementary Data

Financial Statements

Audited Financial Statements for the Years Ended December 31, 2023, 2022 and 2021:

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets (As Restated)

Consolidated Statements of Income (Loss) (As Restated)

Consolidated Statements of Comprehensive Income (Loss) (As Restated)

Consolidated Statements of Stockholders’ Equity (As Restated)

Consolidated Statements of Cash Flows (As Restated)

Notes to Consolidated Financial Statements (As Restated)

Report of Independent Registered Public Accounting Firm

Balance Sheets

Statements of Operations

Statements of Stockholders’

Equity (Deficit)

Statements of Cash Flows

Notes to Financial Statements

Report of Independent Registered Public Accounting Fir m

Board of Directors

Monrovia, California

We have audited the accompanying balance sheets of Xencor, Inc.

(the “Company”) as of December 31, 2014 and 2013 and the related statements of operations, stockholders’

equity (deficit) , and cash flows for each of the three years in the period ended December 31, 2014.

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

To the Stockholders and the Board of Directors of Xencor, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Xencor, Inc.

and its subsidiary (the Company) as of December 31, 2023 and 2022, the related consolidated statements of income (loss), comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated February 28, 2024, except for the effect of the material weaknesses described in the third paragraph of that report, as to which the date is February 23, 2025, expressed an adverse opinion thereon.

Restatement of Financial Statements

As discussed in Note 2 to the financial statements, the 2023 financial statements have been restated to correct certain misstatements.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Xencor, Inc.

at December 31, 2014 and 2013, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America.

/s/ BDO USA, LLP

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matter did not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate.

Judgement and Complexity of Accounting for the Sale of Future Royalty Streams

As described in Note 2 to the financial statements, the Company has corrected the classification of the up-front payment received from the Ultomiris Royalty Sale Agreement which was originally accounted for as deferred income and should have been accounted for as debt.

Prior to the restatement of the financial statements as discussed within the explanatory paragraph above, as of December 31, 2023, the Company had recorded deferred income of $163 million for the up-front payment received from the sale of royalties to be earned on Ultomiris sales.

As described in Note 12, the Company received an up-front payment of $22.5 million from the Monjuvi agreement and recorded debt of $20.3 million for the up-front payment received from the sale of royalties to earned on Monjuvi sales.

We had identified the classification of the sale of future royalty streams under the Ultomiris and Monjuvi agreements as a critical audit matter as auditing management’s judgements in determining the factors that would indicate whether the transaction should be recorded as debt or deferred income required a high degree of auditor judgment and subjectivity to perform our audit procedures.

Management has determined that the original classification of the up-front payment received from the sale of royalties to be earned on Ultomiris sales as deferred income was not in accordance with GAAP, resulting in the restatement of the financial statements and the identification of material weaknesses in internal control over financial reporting.

Management has revised their evaluation of the classification of the up-front payment received the sale of royalties to be earned on Ultomiris sales to reflect the up-front payment as debt.

We have identified the classification of the up-front payments from the sale of future royalty streams under the Ultomiris and Monjuvi agreements as a critical audit matter because auditing management’s judgement related to the classification of the up-front payments required a high degree of auditor judgement and an increased extent of audit effort.

Our audit procedures related to the classification of the Royalty Sales Agreements included the following procedures, among others:

obtaining and reviewing the key terms of the Royalty Sale Agreements for the Ultomiris and Monjuvi agreements;

inquiring with members of management regarding the treatment and classification of the transactions;

evaluating the reasonableness of management’s accounting treatment for the Royalty Sale Agreements, including the use of a professionals with specialized skill and knowledge;

evaluating the sufficiency of the Company's disclosures within the consolidated financial statements related to the liability

We have served as the Company's auditor since 2015.

Los Angeles, California

February 20 , 2015

Balance Sheet s

February 28, 2024, except for Notes 2 and 7, as to which the date is February 23, 2025

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Xencor, Inc.

Opinion on the Internal Control Over Financial Reporting

We have audited Xencor, Inc.

and its subsidiary’s (the Company) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

In our opinion, the Company has not maintained, as a result of the two material weaknesses described below, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

In our report dated February 28, 2024 we expressed an unqualified opinion that the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023 based on the COSO criteria.

Management has subsequently identified the following design deficiencies:

(i) Management did not have adequate supervision and review controls over the complex accounting for significant and unusual transactions;

(ii) Management did not have adequate supervision and review controls over the evaluation of certain tax legislation.

As a result, management has revised its assessment, as presented in the accompanying Management’s Annual Report on Internal Control over Financial Reporting, to conclude that the Company’s internal control over financial reporting were not effective as of December 31, 2023, Accordingly, our present opinion on the effectiveness of internal control over financial reporting as of December 31, 2023 as expressed herein, is different from that expressed in our previous report.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The following material weaknesses have been identified and included in management’s assessment:

(i) Management did not have adequate supervision and review controls over the complex accounting for significant and unusual transactions.

Specifically, the supervision and review of the accounting for the Ultomiris Royalty Sale Agreement, including the work performed by external advisors, was not designed to operate at a sufficient level of precision.

(ii) Management did not have adequate supervision and review controls over the evaluation of certain tax legislation.

Specifically, the supervision and review of the accounting for new tax legislation was not designed at a sufficient level of precision.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the accompanying consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of income (loss), comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes to the consolidated financial statements (collectively, the financial statements).

These material weaknesses were considered in determining the nature, timing and extent of audit tests applied in our audit of the 2023 financial statements, and this report does not affect our report dated February 28, 2024, except for Notes 2 and 7 as to which the date is February 23, 2025 which expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control

based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America (U.S.

A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S.

GAAP, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Los Angeles, California

February 28, 2024, except for the effect of the material weaknesses described in the fourth paragraph above, as to which the date is February 23, 2025

Consolidated Balance Sheets

(in thousands, except share and per share data)

(As Restated)

Current assets

Cash and cash equivalents $ 53,790 $ 53,942

Marketable debt securities 497,725 526,689

Marketable equity securities 42,210 42,431

Accounts receivable 23,739 28,997

1 unchanged sentence

Total current assets 635,603 675,342

Property and equipment

Computers, software and equipment

Furniture and fixtures

Leasehold improvements

Less accumulated depreciation and amortization

Property and equipment, net 66,124 59,183

Patents, licenses, and other intangible assets, net 18,663 18,500

Total other assets

Liabilities and stockholders’

Restricted cash 380 —

Marketable debt securities - long term 145,512 3,826

Equity securities 64,210 54,383

Right of use asset 33,995 34,419

Other assets 648 613

Total assets $ 965,135 $ 846,266

Liabilities and stockholders’ equity

Current liabilities

1 unchanged sentence

Accrued expenses 23,564 18,728

Current portion of deferred revenue

Current portion of capital lease obligations

Income tax payable 5,291 —

Lease liabilities 3,435 4,708

Deferred revenue — 30,320

Debt 27,711 —

Total current liabilities 73,915 63,844

Deferred revenue, less current portion

Capital lease obligations, less current portion

Uncertain tax position payable 8,336 —

Lease liabilities, net of current portion 59,025 54,926

Debt, net of current portion 161,772 —

Total liabilities 303,048 118,770

Commitments and contingencies (see note 10)

Stockholders’

Stockholders’ equity

Preferred stock, $ 0.01 par value:

10,000,000 authorized shares;

- 0 - issued and outstanding shares at December 31, 2023 and 2022

Common stock, $ 0.01 par value:

2 unchanged sentences

Additional paid-in capital 1,131,266 1,072,132

Accumulated other comprehensive income 1,291 ( 6,952 )

Accumulated deficit ( 471,418 ) ( 338,285 )

Total stockholders’

Total liabilities and stockholders’

Total stockholders’ equity attributable to Xencor, Inc.

661,750 727,496

Non-controlling interest 337 —

Total stockholders' equity 662,087 727,496

Total liabilities and stockholders’ equity $ 965,135 $ 846,266

See accompanying notes to the financial statements.

Statements of Operations

Consolidated Statements of Income (Loss)

(in thousands, except share and per share data)

Years ended December 31,

Collaborations, licenses and milestones, (including related party revenue of zero for 2014 and 2013 and $0.75 million for 2012, respectively)

Year ended December 31,

2023 2022 2021

(As Restated)

Collaborations, licenses, milestones, and royalties $ 174,615 $ 164,579 $ 275,111

Operating expenses

Research and development (including equity-based compensation of $1,013 , $158 and $11 for 2014, 2013 and 2012, respectively)

General and administrative (including equity-based compensation of $848 , $40 and $18 for 2014, 2013 and 2012, respectively)

Research and development 253,598 199,563 192,507

General and administrative 53,379 47,489 38,837

Total operating expenses 306,977 247,052 231,344

Loss from operations

Other income (expenses)

Income (loss) from operations ( 132,362 ) ( 82,473 ) 43,767

Other income (expense)

Interest income 19,331 4,830 862

Interest expense ( 6,177 ) ( 13 ) ( 13 )

Loss on settlement of convertible promissory notes

Total other income (expenses), net

Net deemed contribution on exchange and sale of preferred stock

Net income (loss) attributable to common stockholders

Net income (loss) per share attributable to common stockholders:

Weighted average shares used to compute net income (loss) per share attributable to common stockholders:

Other expense, net ( 31 ) ( 286 ) ( 1,274 )

Gain (loss) on equity securities, net ( 395 ) 23,434 39,289

Total other income, net 12,728 27,965 38,864

Income (loss) before income tax ( 119,634 ) ( 54,508 ) 82,631

Income tax expense 13,662 673 —

Net income (loss) ( 133,296 ) ( 55,181 ) 82,631

Net loss attributable to non-controlling interest ( 163 ) — —

Net income (loss) attributable to Xencor, Inc.

$ ( 133,133 ) $ ( 55,181 ) $ 82,631

Net income (loss) per common share attributable to Xencor, Inc.:

Basic $ ( 2.20 ) $ ( 0.93 ) $ 1.42

Diluted $ ( 2.20 ) $ ( 0.93 ) $ 1.37

Weighted average common shares used to compute net income (loss) per share attributable to Xencor, Inc.

Basic 60,503,283 59,652,461 58,379,641

Diluted 60,503,283 59,652,461 60,495,455

See accompanying notes to the financial statements.

Statements of Stockholders’

Equity (Deficit)

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

Year ended December 31,

2023 2022 2021

(As Restated)

Net income (loss) $ ( 133,296 ) $ ( 55,181 ) $ 82,631

Other comprehensive income (loss):

Net unrealized gain (loss) on marketable debt securities available-for-sale 8,243 ( 5,442 ) ( 1,584 )

Comprehensive income (loss) ( 125,053 ) ( 60,623 ) 81,047

Comprehensive income (loss) attributable non-controlling interest ( 163 ) — —

Comprehensive income (loss) attributable to Xencor, Inc.

$ ( 124,890 ) $ ( 60,623 ) $ 81,047

Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)

Preferred Stock

Mezzanine Equity

Balance December 31, 2011

Stock-based compensation

Balance, December 31, 2012

Series A-1 shares issued in exchange of convertible notes

Exchange of Series A-E Preferred for Series A-1 preferred

Exchange of Series A-1 preferred for Series A-2 preferred

Sale of Series A-1 preferred

Exchange of Series A-1 and A-2 preferred for common stock

Balance, December 31, 2013

Balance, December 31, 2014

Stockholders’

Equity (Deficit)

Common Stock Additional

in-Capital Accumulated

Comprehensive

Income (Loss) Accumulated

Deficit Non-Controlling Interest Total

Stockholders’

Stockholders’ Equity Shares Amount

Balance, December 31, 2020 57,873,444 $ 580 $ 937,525 $ 74 $ ( 365,735 ) — $ 572,444

Sale of common stock 748,062 7 28,913 — — — 28,920

Issuance of common stock upon exercise of stock awards 520,240 5 12,276 — — — 12,281

Issuance of common stock under the Employee Stock Purchase Plan 62,257 1 1,836 — — — 1,837

Issuance of restricted stock units 151,555 2 ( 2 ) — —

Comprehensive income (loss) — — — ( 1,584 ) 82,631 — 81,047

Stock-based compensation — — 36,975 — — — 36,975

Balance, December 31, 2021 59,355,558 595 1,017,523 ( 1,510 ) ( 283,104 ) — 733,504

Deemed contribution on exchange of Series A-E Preferred Stock for Series A-1

Deemed contribution on exchange of Series A-1 preferred for Series A-2 preferred

Deemed dividend on sale of Series A-1 preferred

Exchange of Series A-1 and A-2 preferred for common stock

Sale of common stock, net of issuance cost

Issuance of common stock upon exercise and vesting of stock awards

Issuance of common stock upon exercise of stock awards 195,485 2 3,608 — — — 3,610

Issuance of common stock under the Employee Stock Purchase Plan 105,597 1 2,091 — — — 2,092

Issuance of restricted stock units 341,073 3 ( 3 ) — — — —

Comprehensive loss — — — ( 5,442 ) ( 55,181 ) — ( 60,623 )

Stock-based compensation — — 48,913 — — — 48,913

Balance, December 31, 2022 59,997,713 601 1,072,132 ( 6,952 ) ( 338,285 ) — 727,496

Issuance of common stock upon exercise and vesting of stock awards

Issuance of common stock upon exercise of stock awards 344,383 3 3,409 — — — 3,412

Issuance of common stock under the Employee Stock Purchase Plan 98,029 1 1,976 — — — 1,977

Issuance of restricted stock units 558,066 6 ( 6 ) — — — —

Contribution from non-controlling interest owners — — — — — 500 500

Comprehensive income (loss) as restated — — — 8,243 ( 133,133 ) ( 163 ) ( 125,053 )

Stock-based compensation — — 53,755 — — — 53,755

Balance, December 31, 2023 60,998,191 $ 611 $ 1,131,266 $ 1,291 $ ( 471,418 ) $ 337 $ 662,087

(As Restated)

See accompanying notes to the financial statements.

X encor, Inc.

Statements of Cash Flow s

Consolidated Statements of Cash Flows

(in thousands)

Years ended December 31,

Year ended December 31,

2023 2022 2021

(As Restated)

Cash flows from operating activities

Adjustments to reconcile net loss to net cash used in operating activities:

Consolidated net income (loss) $ ( 133,296 ) $ ( 55,181 ) $ 82,631

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization 11,498 8,799 7,491

Amortization of premium (accretion of discount) on marketable securities ( 13,635 ) 127 3,160

Stock-based compensation 53,755 48,913 36,975

Abandonment of capitalized intangible assets 1,267 1,510 934

Gain from non-monetary exchange

Gain on disposal of assets

Loss on exchange of notes for preferred stock

Accrued interest on convertible promissory notes

Loss on disposal of assets 1,379 145 462

Equity received in connection with license agreement ( 10,000 ) ( 5,397 ) ( 22,379 )

Equity received in connection with sale of financial assets — — ( 3,300 )

Change in fair value of equity securities 395 ( 23,434 ) ( 20,988 )

Equity securities impairment — 138 762

Noncash royalty revenue related to sale of future royalties ( 14,575 ) — —

Noncash interest expense 6,153 — —

Changes in operating assets and liabilities:

Accounts receivable

Prepaid expenses and other current assets

Accounts receivable and contract assets 19,833 37,387 ( 42,441 )

Interest receivable from marketable debt securities ( 1,028 ) ( 530 ) 655

Prepaid expenses and other assets 5,103 634 ( 13,592 )

Income tax 13,633 — —

Accounts payable 3,826 ( 3,913 ) 5,047

Accrued expenses 4,836 ( 715 ) 1,840

Lease liabilities and ROU assets 3,250 22,976 1,211

Deferred revenue ( 30,320 ) ( 6,974 ) ( 55,321 )

Net cash used in operating activities

Net cash (used in) provided by operating activities ( 77,926 ) 24,485 ( 16,853 )

Cash flows from investing activities

Proceeds from sale and maturities of marketable debt securities available-for-sale 693,090 306,607 485,152

Proceeds from sale of property and equipment 1 — 19

Purchase of marketable securities ( 782,905 ) ( 387,928 ) ( 509,597 )

Purchase of intangible assets ( 2,803 ) ( 4,910 ) ( 2,682 )

Purchase of property and equipment ( 18,448 ) ( 38,494 ) ( 13,299 )

Proceeds from sale of property and equipment

Conversion (purchase) of convertible note — 5,000 ( 5,000 )

Exercise of stock options — — ( 842 )

Net cash used in investing activities ( 111,065 ) ( 119,725 ) ( 46,249 )

Cash flows from financing activities

Preferred stock issuance cost

Proceeds from sale of Series A-1preferred stock

Proceeds from issuance of common stock upon exercise of stock awards 3,412 3,610 12,281

Proceeds from issuance of common stock from Employee Stock Purchase Plan 1,977 2,092 1,837

Proceeds from sale of common stock

Payments of Initial Public Offering costs

Payments on capital lease obligations

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents , beginning of year

Cash and cash equivalents , end of year

Proceeds from issuance of common stock — — 28,920

Proceeds from sale of future royalties 183,330 — —

Proceeds from non-controlling interest 500 — —

Net cash provided by financing activities 189,219 5,702 43,038

Net increase (decrease) in cash, cash equivalents, and restricted cash 228 ( 89,538 ) ( 20,064 )

Cash, cash equivalents, and restricted cash, beginning of year 53,942 143,480 163,544

Cash, cash equivalents, and restricted cash, end of year $ 54,170 $ 53,942 $ 143,480

Supplemental disclosures of cash flow information

Cash paid for:

Supplemental Schedule of Noncash Investing Activities

Capitalization of licensing rights acquired in non-monetary exchange

Equipment acquired under capital lease

Supplemental Schedule of Noncash Financing Activities

Settlement of notes payable for preferred stock

Interest $ 22 $ 13 $ 14

Taxes — 700 —

Supplemental schedule of noncash activities

Net unrealized gain (loss) on marketable securities available-for-sale $ 8,243 $ ( 5,442 ) $ ( 1,584 )

Addition of right-of-use asset 2,462 $ 6,155 $ 24,047

See accompanying notes to the financial statements.

Notes to Financial Statements

Summary of Significant Accounting Policies

1 unchanged sentence

(we, us, our, or the Company) was incorporated in California in 1997 and reincorporated in Delaware in September 2004.

We are a clinical ‑stage biopharmaceutical company focused on discovering and developing engineered monoclonal antibodies to treat severe and life ‑threatening diseases with unmet medical needs.

We use our proprietary XmAb technology platform to create next ‑generation antibody product candidates designed to treat autoimmune and allergic diseases, cancer, and other conditions.

We focus on the portion of the antibody that interacts with multiple segments of the immune system, referred to as the Fc domain, which is constant and interchangeable among antibodies.

Our engineered Fc domains, the XmAb technology, are applied to our pipeline of antibody ‑based drug candidates to increase immune inhibition, improve cytotoxicity, extend half ‑life and most recently bispecific antibodies.

Our operations are based in Monrovia and San Diego, California.

We operate in one segment.

Basis of Presentation

The Company’s financial statements as of December 31, 2014, and 201 3 and for the years then ‑ended have been prepared in accordance with accounting principles generally accepted in the United States.

Reverse Stock Split and Conversion of Preferred Stock

On November 1, 2013, our board of directors and the requisite holders of our voting stock authorized the filing of a certificate of amendment to our amended and restated certificate of incorporation for the purposes of effecting a 3.1 ‑for ‑1 reverse split of the common stock.

The certificate of amendment was filed on November 1, 2013 and the stock split became effective as of that date.

Accordingly, all references to numbers of common shares, including the number of common shares on an as ‑if ‑converted basis, per ‑share data and share prices and exercise prices in the accompanying financial statements have been adjusted to reflect the reverse stock split on a retroactive basis.

Each 3.1 shares of convertible preferred stock was convertible, at the stockholder’s option, into one share of common stock.

Additionally, each share of convertible preferred stock was automatically converted into common stock, at the then ‑effective conversion rate upon the effective date of a registration statement filed with the SEC under the Securities Act or Exchange act.

On December 3, 2013, our registration statement on Form S ‑1 related to our initial public offering became effective and 49,671,392 shares of Series A ‑1 preferred stock converted into 16,022,915 shares of common stock and 1,851,814 shares of Series A ‑2 preferred stock converted into 597,359 shares of common stock.

We are a clinical-stage biopharmaceutical company focused on discovering and developing engineered monoclonal bispecific antibody and cytokine therapeutics to treat patients with cancer and autoimmune diseases who have unmet medical needs.

We create our product candidates using our proprietary XmAb technology platforms, which focus on the portion of an antibody that interacts with multiple segments of the immune system, referred to as the Fc domain, which is constant and interchangeable among antibodies.

Our engineered Fc domains, the XmAb technology, can increase antibody immune inhibition, improve cytotoxicity, extend half-life and most recently are used to create bispecific antibodies and cytokines.

Our operations are based in Pasadena, California and San Diego, California.

Consolidation and Basis of Presentation

The Consolidated Financial Statements include the accounts of Xencor, Inc.

and its subsidiary Gale Therapeutics Inc., which was incorporated in December 2023.

Since we own less than 100% of Gale, the Company records net loss attributable to non-controlling interests in its consolidated statements of income (loss) equal to the percentage of the economic or ownership interests retained in Gale by the non-controlling party.

The Company’s consolidated financial statements as of December 31, 2023, 2022, and 2021 and for the years then ended have been prepared in accordance with accounting principles generally accepted in the United States (U.S.).

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.

Actual results could differ materially from those estimates.

The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, other comprehensive gain (loss) and the related disclosures.

On an ongoing basis, management evaluates its estimates, including estimates related to its accrued clinical trial and manufacturing development expenses, stock-based compensation expense, evaluation of intangible assets, investments, leases and other assets for evidence of impairment, fair value measurements, and contingencies.

Significant estimates in these financial statements include estimates made for royalty revenue, accrued research and development expenses, stock-based compensation expenses, intangible assets, incremental borrowing rate for right-of-use asset and lease liability, estimated standalone selling price of performance obligations, estimated time for completing delivery of performance obligations under certain arrangements, the likelihood of recognizing variable consideration, the carrying value of equity instruments without a readily determinable fair value, and recoverability of deferred tax assets.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, which establishes principles for reporting revenue and cash flows arising from an entity’s contracts with customers.

The new pronouncement is effective for reporting periods beginning

Notes to Financial Statements (Continued)

after December 15, 2016 and will replace most of the existing revenue recognition guidance within the United States GAAP.

The new pronouncement permits the use of either the retroactive or cumulative effect transition method.

Early adoption is not permitted.

The Company is evaluating the effect that ASU 2014-09 will have on its financial statements and related disclosures .

Pronouncements Not yet Effective

In June 2022, the Financial Accounting Standards Board (FASB) issued ASU No.

2022-03, Fair Value Measurement (Topic 820):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restriction s, which is effective for fiscal years beginning on and after December 15, 2023, and interim periods within those fiscal years.

The standard clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and is not considered in measuring fair value.

The Company does not anticipate that the standard will have a significant impact on its financial statements.

In December 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures , which is effective for fiscal years beginning on and after December 15, 2024, and interim periods within those fiscal years.

The standard provides more transparency about income tax information through improvements to income tax

disclosures primarily related to the rate reconciliation and income taxes paid information.

The Company does not anticipate that the standard will have a significant impact on its financial statements.

Variable Interest Entity

A Variable Interest Entity (VIE) is a legal entity that, by design, 1) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties, 2) has equity investors that lack the power to direct the entity's activities, 3) has investors with limited obligation to absorb expected losses, or 4) has investors who do not have the right to receive the residual returns of the entity.

The primary beneficiary of a VIE is the party with the controlling financial interest and has the power to direct the activities of the VIE that most significantly impact the entity's economic performance and has the obligation to absorb losses of the VIE, or the right to receive benefits of the VIE that could be potentially significant to the VIE.

On December 19, 2023 we entered into the Gale License and Gale Services Agreements.

See Note 11 , We consolidated Gale's financial statements in which we have direct controlling financial interest based on the VIE model.

We consider all the facts and circumstances, including our role in establishing Gale and our ongoing rights and responsibilities to assess where we have the power to direct the activities of Gale.

In general, the parties that make the most significant decisions affecting the VIE and have the right to remove those decision-makers unilaterally or by majority vote are deemed to have the power to direct the activities of a VIE.

At Gale's inception, we determined whether we were the primary beneficiary and if Gale should be consolidated based on facts and circumstances.

Under the rules of determining whether an entity is a VIE, we determined that Gale is a VIE and we are the primary beneficiary.

Liability Related to the Sale of Future Royalties

We record a liability related to the sale of future Ultomiris and Monjuvi royalties as debt, amortized under the effective interest rate method over the estimated life of the Ultomiris and Monjuvi Royalty Sale Agreements.

See Note 12 .

The amortization of the liability related to the sale of future royalties is based on our current estimate of future royalty payments to be made to OMERS.

Royalty revenue will be recognized as earned, and the payments made will be a reduction of the liability when paid.

Non-Cash Interest Expense on the Liability Related to the Sale of Future Royalties

The total expected royalty payments less the net proceeds received will be recorded as non-cash interest expense over the life of the liability.

Interest is imputed on the unamortized portion using the effective interest method and expense is recorded based on the timing of the payments received by OMERS over the term of the Ultomiris and Monjuvi Royalty Sale Agreements.

The actual interest rate will be affected by the timing of royalty payments made and changes in the forecasted revenue.

Revenue Recognition

We have, to date, earned revenue from research collaborations, which may include research and development services, licenses of our internally ‑developed technologies, or a combination of both.

We recognize revenue when all of the following criteria are met:

persuasive evidence of an arrangement exists;

transfer or access of technology has been completed or services have been rendered;

our price to the customer is fixed or determinable and collectability is reasonably assured.

The terms of our license and research and development agreements generally include nonrefundable upfront payments, research funding, license fees and, milestone and other contingent payments to us for the achievement of defined collaboration objectives and certain clinical, regulatory and sales ‑based events, as well as royalties on sales of any commercialized products.

We have, to date, earned revenue from research and development collaborations, which may include research and development services, licenses of our internally developed technologies, licenses of our internally developed drug candidates, or combinations of these.

The terms of our license, research and development, and collaboration agreements generally include non-refundable upfront payments, research funding, co-development payments and reimbursements, license fees, and milestone and other contingent payments to us for the achievement of defined collaboration objectives and certain clinical, regulatory and sales-based events, as well as royalties on sales of any commercialized products.

The terms of our licensing agreements include non-refundable upfront fees, annual licensing fees, and contractual payment obligations for the achievement of pre-defined preclinical, clinical, regulatory and sales-based events by our partners.

The licensing agreements also include royalties on sales of any commercialized products by our partners.

Multiple ‑Element Revenue Arrangements.

Certain of our collaboration and license agreements represent multiple ‑element revenue arrangements.

To account for such transactions, we determine the elements, or deliverables, included in the arrangement and determine which deliverables are separate units for accounting purposes.

We consider delivered items to be separate units of accounting if the delivered items have stand ‑alone value to the customer.

If the delivered items are separate units we allocate the consideration received or due under the arrangement to the various elements based on each elements’

relative selling price.

The identification of individual elements in a multiple ‑element arrangement and the estimation of the selling price of each element involve significant judgment, including consideration as to whether each delivered element has standalone value to the customer.

We determine the estimated selling price for deliverables within each arrangement using vendor ‑specific objective evidence (VSOE) of selling price, if available, or third ‑party evidence of selling price if VSOE is not available, or our best evidence of selling price if neither VSOE nor third ‑party evidence is available.

Determining the best estimate of selling price for a deliverable requires significant judgment.

We use our best estimate of selling price to estimate the selling price for licenses to our technologies and product candidates, since we do not have VSOE or third ‑party evidence of selling for these deliverables.

The basis of our estimate of selling price is the arm’s length negotiation with the licensee that occurs in each transaction.

The potential value of our technology to a licensee in a transaction depends on a variety of factors unique to each transaction.

Factors that impact the negotiation and hence that we consider in our estimates center on the specific product candidate and include:

the product candidate’s potential market size, the product candidate’s stage of development, the existence of competitive technologies that could be substituted for ours by the licensee and the scientific assessment of the product candidate’s likelihood of success at various development stages.

The most common deliverable is the commercial license for our technology in the product candidate, and frequently a research license with an option for commercial license.

The upfront payments, annual license fees, contingent payments, milestones and royalties relate to these licenses and/or options and depend on the product ‑specific factors described above.

The other significant deliverable is research and development services and the

Notes to Financial Statements (Continued)

price for these depends on estimates for our personnel and supply costs and the costs of third ‑party contract research organizations necessary to support the services.

We recognize consideration allocated to an individual element when all other revenue recognition criteria are met for that element.

Our multiple ‑element revenue arrangements may include the following:

License arrangements .

The deliverables under our collaboration and license agreements generally include exclusive or non ‑exclusive licenses to one or more of our technologies.

The technologies can be applied to a collaborator’s product candidates for discovery, development, manufacturing and commercialization.

We will also enter into agreements for the exclusive or non ‑exclusive licenses to our internally developed product candidates.

To account for this element of the arrangement, we evaluate whether the exclusive or non ‑exclusive license has standalone value apart from the undelivered elements to the collaboration partner, which may include research and development services or options for commercial licenses, based on the consideration of the facts and circumstances of each arrangement, including the research and development capabilities of the collaboration partner and other market participants.

We recognize arrangement consideration allocated to licenses upon delivery of the license, if the facts and circumstances indicate the license has standalone value apart from the undelivered elements.

If facts and circumstances indicate that the delivered license does not have standalone value from the undelivered elements, we recognize the revenue as a combined unit of accounting.

In those circumstances we recognize revenue from non ‑refundable upfront fees in the same manner as the undelivered item(s), which is generally the period over which we provide research and developments services.

Research and Development Services.

The deliverables under our collaboration and license arrangements may include research and development services we perform on behalf of or with the collaboration partner.

As the provision of research and development services is an integral part of our operations and we may be principally responsible for the performance of these services under the agreements, we recognize revenue on a gross basis for research and development services as we perform those services.

Additionally, we recognize research related funding under collaboration research and development efforts as revenue as we perform or deliver the related services in accordance with contract terms.

Milestone Revenue .

Our collaboration and license agreements generally include contingent contractual payments related to achievement of specific research, development and regulatory milestones and sales ‑based milestones that are based solely upon the performance of the licensor or collaborator.

Research, development and regulatory contingent contractual payments and milestone payments are typically payable under our collaborations when our collaborator selects a compound, or initiates or advances a covered product candidate in preclinical or clinical development, upon submission for marketing approval of a covered product with regulatory authorities, upon receipt of actual marketing approvals of a covered product or for additional indications, or upon the first commercial sale of a covered product.

Sales ‑based contingent contractual payments are typically payable when annual sales of a covered product reach specific levels.

At the inception of each arrangement that includes contingent contractual payments, we evaluate whether each potential payment and milestone is substantive and at risk to both parties based on the basis of the contingent nature of the milestone event.

We evaluate factors such as scientific, regulatory, commercial and other risks that we must overcome to achieve the respective milestone event, whether the contractual payments due at each milestone event is reasonable relative to all deliverables and payment terms in the arrangement in making this assessment and whether the contingent contractual payment relates solely to past performance.

Additionally, certain of our product development and technology license arrangements may include milestone payments related to the achievement of specific research and development milestones, which are achieved in whole or in part on our performance.

Notes to Financial Statements (Continued)

We recognize any payment that is contingent upon the achievement of a substantive milestone entirely in the period in which the milestone is achieved.

A milestone is defined as an event that can only be achieved based in whole or in part either on our performance, or the performance of our collaborators, or the occurrence of a specific outcome resulting from our past performance for which there is a substantive uncertainty at the date the arrangement is entered into that the event will be achieved.

Collaborative Research and Licensing Agreements

Novo Nordisk A/S

In December 2014, we entered into a Collaboration and License Agreement with Novo Nordisk A/ S (Novo).

Under the terms of the agreement, we granted Novo a research license to use certain Xencor technologies including our bispecific, IIb, Xtend and others during a two year research term.

We will provide research support for four FTE’s in collaboration with Novo to apply our technologies to Novo provided targets to identify compounds with improved properties.

Novo has an option to extend the research term for another twelve months upon written notice to us and payment of another year of research funding.

At the end of the research term, Novo will have a commercial license to develop and commercialize any new targets identified during the research term.

Under the agreement , in January 2015, we receive d an upfront payment of $2.5 million and w e will receive research funding of $1.6 million per year over the research term.

We are also eligible to receive $2.0 million in milestone payments upon the successful completion of certain projects during the research term.

In addition, if Novo identifies a compound from the collaboration to advance into clinical development, we are eligible to receive future development, regulatory and commercial milestone payments and royalties.

The potential future milestones total $16 7 .3 million and include $3 6 .3 million in development milestones, $51.0 million in regulatory milestones and $8 0 .0 million in sales milestones.

We determined that the deliverables under the arrangement were the research license to our technologies and the research support.

We believe that the research support and the technologies are integral to each other and are not separate units of accounting.

The commercial license did not have standalone value at inception of the arrangement due to the uncertainty of identifying a commercial target.

At inception of the arrangement, we determined that consideration under the agreement is represented by the upfront payment and the research funding and we are recognizing the $2.5 million upfront payment as income over the two year research term.

The research funding is being recognized into income over the period that the services are being provided.

We determined that future milestone payments were substantive and contingent and we did not allocate any of the upfront consideration to these milestones.

During the year ended December 31, 2014 we recognized $0.1 million in revenue related to the arrangement;

as of December 31, 2014 we have $2.9 million in deferred revenue related to the agreement.

In June 2010, we entered into a Collaboration and License Agreement with MorpohSys AG (MorphoSys), which we subsequently amended in March 2012.

The agreement provided us an upfront payment of $13.0 million in exchange for an exclusive worldwide license to our patents and know ‑how to research, develop and commercialize our XmAb5574 product candidate (subsequently renamed MOR208) with the right to sublicense under certain conditions.

Under the agreement, we agreed to collaborate with MorphoSys to develop and commercialize XmAb5574/MOR208.

We determined that the arrangement was one with multiple deliverables and we identified the multiple elements in the agreement as the license of XmAb5574/MOR208 and the research and development services provided by us for the initial Phase 1 clinical trial.

If certain developmental, regulatory and sales milestones are achieved, we are eligible to

Notes to Financial Statements (Continued)

receive future milestone payments and royalties.

We determined that the future milestone payments were substantive and contingent and we did not allocate any of the upfront consideration to these milestones.

Our responsibility with respect to the collaboration services is limited to completion of the Phase 1 clinical trial.

MorphoSys is responsible all further development of XmAb5574/MOR208.

Under the terms of the amendment, we received additional proceeds for the additional research and development services related to extension of the Phase 1 clinical trial.

During 2012, we recognized $0.4 million of revenue related to the additional services provided.

In April and May 2013, MorphoSys initiated two Phase II clinical trials under the arrangement and we received a milestone payment of $3.0 million.

We have recognized the payment as revenue in the period that the milestone event occurred.

The total revenue recognized under this arrangement was zero , $3.0 million and $2.0 million for the years ended December 31, 2014, 2013 and 2012, respectively.

As of December 31, 2014, we have no deferred revenue related to this agreement.

Alexion Pharmaceuticals, Inc.

In January 2013, we entered into an option and license agreement with Alexion Pharmaceuticals, Inc.

Under the terms of the agreement, we granted to Alexion an exclusive research license, with limited sublicensing rights, to make and use our Xtend technology to evaluate and advance compounds against six different target programs during a five ‑year research term under the agreement, up to completion of the first multi ‑dose human clinical trial for each target compound.

Alexion may extend the research term for an additional three years upon written notice to us and payment of an extension fee of $2.0 million.

Alexion is responsible for conducting all research and development activities under the agreement at its own expense.

In addition, we granted to Alexion an exclusive option, on a target ‑ by ‑target basis, to obtain an exclusive commercial, worldwide, royalty ‑ bearing license, with sublicensing rights, under our Xtend technology to develop and commercialize products that contain the target for which the option is exercised.

In order to exercise this option, Alexion must pay a $4.0 million option fee with respect to each target for which the option is exercised.

Alexion may exercise this option at any time during the research term but must exercise it prior to initiating a second clinical trial with a target that includes our technology.

Under the agreement, we received an upfront payment of $3.0 million.

Alexion is also required to pay an annual maintenance fee of $0.5 million during the research term of the agreement and $1.0 million during any extension of the research term.

In addition, if certain development, regulatory and commercial milestones are achieved, we are eligible to receive up to $66.5 million for the first product to achieve such milestones on a target ‑by ‑target basis.

If licensed products are successfully commercialized, we are also entitled to receive royalties based on a percentage of net sales of such products sold by Alexion, its affiliates or its sublicensees, which percentage is in the low single digits.

Alexion’s royalty obligations continue on a product ‑by ‑product and country ‑by ‑ country basis until the expiration of the last ‑to ‑expire valid claim in a licensed patent covering the applicable product in such country.

Absent early termination, the term of the agreement will continue until the expiration of Alexion’s royalty payment obligations or until the expiration of the research term if Alexion has not exercised its option for a product license under the agreement.

Either party may terminate the agreement for a material breach of the agreement by the other party if such breach remains uncured for 60 days, or 30 days in the case of a non ‑payment breach.

Alexion may terminate the agreement without cause on a target ‑by ‑target basis upon 90 days’

advance written notice to us.

Notes to Financial Statements (Continued)

The total revenue recognized under this arrangement was $1.0 million and $0.9 million for the years ended December 31, 2014 and 2013 respectively.

As of December 31, 2014 we have deferred revenue related to this agreement of $1.6 million.

In December 2010, we entered into a Collaboration and Option Agreement with Amgen, Inc.

(Amgen), pursuant to which we agreed to collaborate with Amgen to research, develop and commercialize XmAb5871 and products based thereon.

Under the agreement, we granted to Amgen an option to acquire an exclusive license to research, develop, manufacture and commercialize XmAb5871 and certain related products worldwide, which option is exercisable by Amgen only after Amgen’s (1) notification to us that it is electing to exercise the option and (2) payment of an option exercise fee to us during the option period under the agreement.

The term of the option began at the effective date of the Agreement and expires 90 days after delivery of the data from a Phase 2 proof ‑of ‑concept (POC) clinical trial.

During the option period and prior to Amgen exercising its option under the agreement, we retain ownership of the compound and are responsible for all clinical development of the compound through completion of the Phase 2 POC clinical trial and delivery of the clinical study data for the POC clinical trial.

We received a nonrefundable upfront payment of $11.0 million upon execution of the agreement and a $2.0 million payment in January 2013 upon initiation of a Phase 1b trial .

We determined that substantially all of the future milestones and related payments were substantive and contingent and we did not allocate any of the upfront consideration to the milestones.

We determined that the arrangement is one with multiple deliverables and we identified the multiple elements at the inception of the agreement.

We determined that the deliverables under the arrangement were the research and development services and the option to acquire the rights to XmAb5871.

Since the option is a contingent and a substantive element, no portion of the upfront fee was allocated to it.

The upfront payment was allocated to the research and development services and is being recognized ratably over the estimated service period to complete the Phase 2 POC trial and delivery of the clinical study reports to Amgen.

We have estimated that the term of the service period to be 72 months from inception of the agreement through completion of the POC trial.

In October 2014, we entered into an agreement with Amgen to terminate the Collaboration Agreement pursuant to which all worldwide rights to develop and commercialize XmAb5871 reverted back to us.

Our obligations to continue development of XmAb5871 under the terms of the Collaboration Agreement terminated effective as of the date of the termination agreement.

As a result of and effective as of the date of the termination agreement, all of Amgen’s rights to XmAb5871 terminated including the right to exercise an exclusive option to acquire the worldwide rights to XmAb5871.

Amgen’s obligations to make any further payments to us are also terminated.

In connection with the termination, we granted Amgen a right of first negotiation (ROFN) to obtain an exclusive license to develop and commercialize any XmAb5871 product.

The ROFN requires us to notify Amgen if we decide to pursue a licensing transaction with a third party involving XmAb5871.

Upon receipt of the notification, Amgen will have a limited time to review the data from XmAb5871 and enter into negotiations to obtain an exclusive license to develop and commercialize any future XmAb5871 product.

The ROFN will expire upon the earlier of:

(1) October 27, 2019, (2) initiation by us of a Phase 3 clinical trial with XmAb5871 or (3) the transfer or sale to a third party of substantially all of our business.

We have determined that the termination results in a cancellation of all our obligations to Amgen under the Collaboration Agreement.

We have evaluated the terms of the ROFN and determined that it has de minimis value because Amgen’s rights under the ROFN are limited to an exclusive negotiating period of a short duration and there is no bargain element in the ROFN.

As a result of the termination, we have recognized $5.

2 million of income wh i ch represents the balance of the deferred revenue related to the agreement at the time of the termination .

Notes to Financial Statements (Continued)

The total revenue recognized under this arrangement was $ 6 .

9 million, $2.2 million and $1.8 million for the years ended December 31, 2014, 2013 and 2012, respectively.

As of December 31, 2014 we have no deferred revenue related to this agreement.

MedImmune LLC

In December 2012, we entered into a Cross ‑License Agreement with MedImmune, LLC (MedImmune).

Under the agreement we provided MedImmune with a non ‑exclusive research license to certain technology and options to acquire commercial licenses to a limited number of compounds.

In exchange, MedImmune provided us with a worldwide, non ‑exclusive, royalty ‑free license and sub ‑license to certain U.S.

patent rights granted to MedImmune.

We determined that the exchange is a non ‑monetary transaction as provided under ACS 845 ‑10, Non ‑Monetary Transactions.

The transaction did not include any cash proceeds and only the exchange of intellectual property rights between the two companies.

We estimated the fair value of the license and options transferred to be $0.75 million.

Our estimate was based on the risk adjusted discounted cash flow that is associated with the research license and options to commercial licenses transferred to MedImmune.

We recognized licensing revenue on the exchange of $0.75 million for the year ended December 31, 2012 equal to the fair value of the assets transferred.

We also recorded an asset of $0.75 million to reflect the licensing rights that we acquired from MedImmune in the exchange;

the capitalized rights are being amortized over the shorter of the remaining patent term or the estimated useful life of the license.

MedImmune Ventures, Inc., an affiliate of MedImmune, was one of our 5% stockholders and has a designee on our Board of Directors as of December 31, 2012.

As a result of our Initial Public Offering that became effective December 2013, MedImmune was no longer a 5% stockholder.

Boehringer Ingelheim International GmbH

In 2007 we entered into a Research Licensee and Collaboration Agreement with Boehringer Ingelheim International GmbH (BI).

Under the agreement, we provided BI with a three ‑year research license to one of our technologies and commercial options.

We identified the deliverables under the agreement at inception as the research licenses and options to acquire commercial licenses to up to two compounds.

Upon exercise of an option to a commercial license, we are eligible to receive future milestone payments and royalties.

We determined that the future milestones and related payments were substantive and contingent and we did not allocate any of the upfront consideration to the milestones.

The upfront payment and the annual license fees are being recognized ratably into income over the research license term which expired in 2011 and payments for the commercial options were recognized in the period the commercial option was exercised since the options were contingent and substantive.

During 2012, BI advanced a compound that incorporates our technology into clinical development and we received a milestone payment of $1.2 million and recognized the payment as revenue in the period the milestone event occurred.

No revenue related to this arrangement was recognized in 2014 or 2013.

There is no deferred revenue related to this agreement at December 31, 2104.

Janssen, Research & Development, LLC

In 2009 we entered into a Research License and Option Agreement with Janssen, Research & Development, LLC (Janssen).

Under the agreement, we provided Janssen with non ‑exclusive research license and options for exclusive commercial licenses to apply our technology to their compounds.

We identified the deliverables under the agreement at inception as the research licenses and options to acquire commercial licenses to up to three compounds.

Upon exercise of an option, we are eligible to receive future milestone and royalty payments.

We determined that the options and future milestones and related payments were substantive and contingent and we did not allocate any of the upfront consideration to the options or milestones.

The upfront payment of $1.0 million received at

Notes to Financial Statements (Continued)

inception and the annual research license renewal payments are being recognized as revenue recorded ratably over the two ‑year term of the research license.

During 2012, we recognized total revenue of $1.4 million consisting of $0.9 million in research license revenue and $0.5 million for the exercise of a commercial option.

No revenues related to this arrangement were recognized in 2014 and 2013.

There is no deferred revenue related to this agreement at December 31, 2104.

In 2009 we entered into a Research License and Commercialization Agreement with CSL Limited (CSL -2009 ).

Under the agreement, we provided CSL with a research license to one of our technologies and up to five commercial options.

The upfront payment of $0.75 million received at inception and the annual research license renewal payments w ere recognized as revenue ratably over the five ‑year term of the research license.

During 2012, we recognized total revenue of $1.8 million consisting of $0.3 million in annual research license revenue and $1.5 million in milestone payments.

We identified the deliverables under the agreement at inception as the five ‑year research licenses and options to acquire commercial licenses.

In May 2013, we entered into an amendment to a February 2009 Research License and Commercialization Agreement with CSL, which eliminated a contingent milestone payment requirement and reduced the royalty rate on net sales for a product in development .

The amendment provided for a payment upon signing of $2.5 million.

We determined that the amendment was a material modification to the original agreement and evaluated the remaining deliverables at the date of the amendment.

We determined that the remaining deliverables were the research license which expires in February 2014 and four additional options to take commercial licenses through the term of the research period.

The options were considered to be substantive and contingent and we did not allocate any of the proceeds received in the amendment to the options.

The amendment proceeds were recognized into income over the remaining period of the research term.

Total revenue recognized for the years ended December 31, 2014, 2013 and 2012 was $0.7 million, $2.

4 million and $1.8 million respectively.

As of December 31, 2014 we have no deferred revenue related to this agreement.

In March 2013, we entered into a License Agreement with CSL Limited (CSL -2013 ).

Under the terms of the agreement, we provided CSL with a non ‑exclusive commercial license to apply our technology to one of their compounds.

The agreement provided for upfront payment of $0.5 million and we are eligible to receive future milestones as CSL advances the compound into clinical development.

We determined that the deliverables under this agreement were the non ‑exclusive commercial license.

We determined that the future milestones and related payments were substantive and contingent and we did not allocate any of the upfront consideration to the milestones.

We recognized zero and $0.5 million of revenue related to this agreement for the year ended December 31, 2014 and 2013, respectively.

There is no deferred revenue related to this agreement at December 31, 2014.

Merck Sharp & Dohme Corp.

In July 2013, we entered into a License Agreement with Merck Sharp & Dohme Corp (Merck).

Under the terms of the agreement, we provided Merck with a non ‑exclusive commercial license to certain patent rights to our Fc domains to apply to one of their compounds.

We also provided Merck with contingent options to take additional non ‑exclusive commercial licenses.

The contingent options provide Merck an opportunity to take non ‑exclusive commercial licenses at an amount less than the amount paid for the original license.

The agreement provided for an upfront payment of $1.0 million and annual maintenance fees totaling $0.5 million.

We are also eligible to receive future milestones and royalties as Merck advances the compound into clinical development.

We determined that the deliverables under this agreement were the non ‑exclusive commercial license and the options.

The options are considered substantive and contingent and no amount of the upfront payment was allocated to

Notes to Financial Statements (Continued)

these options.

We also determined that the future milestones and related payments were substantive and contingent and did not allocate any of the upfront payment to the milestones.

In the first quarter of 2014, Merck initiated a Phase 1 clinical trial which triggered a $0.5 million milestone payment to us.

F or the years ended December 31, 2014 and 2013 total revenue recognized was $0.6 million and $1.0 million respectively.

As of December 31, 2014, we had deferred revenue of $0.1 million related to this agreement.

As of December 31, 2014, the Company may be eligible to receive the following maximum payments from its collaborative partners and licensees based upon contractual terms in the agreements assuming all options are exercised and all milestones are achieved:

Potential Milestones (in millions) (1)

Development - based

Regulatory - based

Sales - based

The payments are solely dependent upon activities of the collaborative partner or licensee.

The $9.5 million, $10.2 million and $9.5 million of revenue recorded for the years ended December 31, 2014, 2013 and 2012, respectively was earned principally from the following licensees (in millions):

As of December 31, 2014 and 2013 our accounts receivable included $3.0 million and $0.1 million from Novo Nordisk A/S and MorphoSys AG respectively.

Notes to Financial Statements (Continued)

A substantial portion of our revenue is earned from collaboration partners outside the United States.

revenue is denominated in U.S.

A breakdown of our revenue from U.S.

and Non ‑U.S.

sources for the years ended December 31, 2014, 2013 and 2012 is as follows (in millions):

We recognize revenue through the five-step process in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers , when control of the promised goods or services is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

Deferred Revenue

Deferred revenue arises from payments received in advance of the culmination of the earnings process.

We have classified deferred revenue expected to be recognized within the next 12 months as a current liability.

We have classified deferred revenue for which we stand ready to perform within the next 12 months as a current liability.

We recognize deferred revenue as revenue in future periods when the applicable revenue recognition criteria have been met.

The total amounts reported as deferred revenue were $4.6 million and $9.7 million for the years ended December 31, 2014 and 2013, respectively.

There was no deferred revenue reported at December 31, 2023.

The total amount reported as deferred revenue was $ 30.3 million at December 31, 2022.

Accounts Receivable

Accounts receivable primarily consists of royalty and milestone revenues receivable from our license and collaboration agreements, as well as receivables arising from cost-sharing development activities.

Pursuant to the Ultomiris and Monjuvi Royalty Sale Agreements, a portion of the proceeds we received from the purchasers related to the sale of accounts receivable on royalty and milestone revenue earned at September 30, 2023.

Payments for these receivables were paid directly to the purchasers prior to the year-ended December 31, 2023.

We did not record an allowance for doubtful accounts at December 31, 2023 or 2022 due to an immaterial allowance as a result of our evaluation of credit risk under ASC 326.

We expect to collect all receivables within the terms, which are generally between 30 and 60 days.

Research and Development Expenses

1 unchanged sentence

Research and development costs are expensed as incurred.

These costs consist primarily of salaries and benefits, including associated stock ‑based compensation, laboratory supplies, facility costs, and applicable overhead expenses of personnel directly involved in the research and development of new technology and products, as well as fees paid to other entities that conduct certain research development activities on our behalf.

We estimate preclinical study and clinical trial expenses based on the services performed pursuant to the contracts with research institutions and clinical research organizations that conduct and manage preclinical studies and clinical trials on our behalf based on the actual time and expenses incurred by them.

These costs consist primarily of salaries and benefits, including associated stock-based compensation, laboratory supplies, facility costs, and applicable overhead expenses of personnel directly involved in the research and development of new technology and products, as well as fees paid to other entities that conduct certain research and development activities on our behalf.

Further, we accrue expenses related to clinical trials based on the level of patient enrollment and activity according to the related agreement.

We monitor patient enrollment levels and related activity to the extent reasonably possible and adjust estimates accordingly.

During 2014, 2013 and 2012 we expensed $ 18.5 million, $ 17.0 million and $12.7 million, respectively, for research and development.

We capitalize acquired research and development technology licenses and third ‑party contract rights and amortize the costs over the shorter of the license term or the expected useful life.

We capitalize acquired research and development technology licenses and third-party contract rights where such assets have an alternative use and amortize the costs over the shorter of the license term or the expected useful life.

We review the license arrangements and the amortization period on a regular basis and adjust the carrying value or the amortization period of the licensed rights if there is evidence of a change in the carrying value or useful life of the asset.

See “Patents, licenses and other intangible assets.”

Cash and Cash Equivalents

We consider cash equivalents to be only those investments which are highly liquid, readily convertible to cash and which mature within three months from the date of purchase.

The primary objectives for our investment portfolio are liquidity and safety of principal.

Investments are made to achieve the highest rate of return for us, while maintaining consistency with these two objectives.

Notes to Financial Statements (Continued)

Restricted Cash

As of December 31, 2023, we had an outstanding letter of credit (LOC) collateralized by a money market account of $ 0.4 million, to the benefit of the landlord related to the Company’s San Diego facility lease.

The terms of the lease provide that the amount of the LOC will be reduced on a ratable basis over the term of the lease.

The original amount of the LOC was classified as long-term restricted cash as of December 31, 2023.

Marketable Debt and Equity Securities

The Company has an investment policy that includes guidelines on acceptable investment securities, minimum credit quality, maturity parameters, and concentration and diversification.

The Company invests its excess cash primarily in marketable debt securities issued by investment grade institutions.

The Company considers its marketable debt securities to be available-for-sale and does not intend to sell these securities, and it is not more likely than not the Company will be required to sell the securities before recovery of the amortized cost basis.

These assets are carried at fair value and any impairment losses and recoveries related to the underlying issuer’s credit standing are recognized within other income (expense), while non-credit related impairment losses and recoveries are recognized within accumulated other comprehensive income (loss).

There were no impairment losses or recoveries recorded for the years ended in December 31, 2023 and 2022, respectively.

Accrued interest on marketable debt securities is included in marketable securities’ carrying value.

Accrued interest was $ 2.3 million and $ 1.3 million at December 31, 2023 and 2022, respectively.

Each reporting period, the Company reviews its portfolio of marketable debt securities, using both quantitative and qualitative factors, to determine if each security’s fair value has declined below its amortized cost basis.

During the years ended December 31, 2023 and 2022, the Company recorded an unrealized gain of $ 8.2 million and an unrealized loss of $ 5.4 million, respectively, in its portfolio of marketable debt securities.

The unrealized loss was due to the changing interest rate environment and is not due to changes in the credit quality of the underlying securities.

The unrealized gain and loss were recorded in other comprehensive income (loss) for the years then ended.

The Company receives equity securities in connection with certain licensing transactions with its partners.

These investments in an equity security are carried at fair value with changes in fair value recognized each period and reported within other income (expense).

For equity securities with a readily determinable fair value, the Company remeasures these equity investments at each reporting period until such time that the investment is sold or disposed.

If the Company sells an investment, any realized gains or losses on the sale of the securities will be recognized within other income (expense) in the Statement of Comprehensive Income (Loss) in the period of sale.

The Company also has investments in equity securities without a readily determinable fair value, where the Company elects the measurement alternative to record at their initial cost minus impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

The Company did not record an impairment charge for the year ended December 31, 2023.

During the year ended December 31, 2022, the Company recorded an impairment charge of $ 0.1 million in connection with equity securities without a readily determinable fair value.

During the years ended December 31, 2023 and 2022, the Company recorded a net loss of $ 0.4 million and net gain of $ 23.4 million, respectively, in connection with its equity investments.

Concentrations of Risk

Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits.

Cash, cash equivalents, restricted cash, and marketable debt securities are financial instruments that potentially subject the Company to concentrations of risk.

We invest our cash in corporate debt securities and U.S.

sponsored agencies with strong credit ratings.

We have established guidelines relative to diversification and maturities that are designed to help ensure safety and liquidity.

These guidelines are periodically reviewed to take advantage of trends in yields and interest rates.

Cash, cash equivalents, and restricted cash are maintained at financial institutions, and at times, balances may exceed federally insured limits.

We have never experienced any losses related to these balances.

Amounts on deposit in excess of federally insured limits at December 31, 2023 and 2022 approximated $ 53.8 million and $ 53.6 million, respectively.

We have payables with one service provider that represents 47% of our total payables and five service providers that represented 57% of our total payables for the years ended December 31, 2014 and 2013, respectively.

We rely on two critical suppliers for the manufacture of our drug product for use in our clinical trials.

We have payables with two service providers that represent 38 % of our total payables and with two service providers that represented 45 % of our total payables at December 31, 2023 and 2022, respectively.

We rely on six critical suppliers for the manufacture of our drug product for use in our clinical trials.

While we believe that there are alternative vendors available, a change in manufacturing vendors could cause a delay in the availability of drug product and result in a delay of conducting and completing our clinical trials.

No other vendor accounted for more than 10.0% of payables at December 31, 2014 and 2013.

No other vendor accounted for more than 10% of total payables at December 31, 2023 or 2022.

We have receivables with three customers and service providers that represent 76 % of our total receivables and with four customers and service providers that represent 91 % of our total receivables at December 31, 2023 and 2022, respectively.

The receivables are related to cost share reimbursement and royalty revenues from our licensing and collaboration agreements.

Payment on receivables relating to non-cash royalty revenue earned under the Ultomiris and Monjuvi Royalty Sale Agreements will be made directly to OMERS.

No other customer accounted for more than 10% of total receivables at December 31, 2023 or 2022.

Fair Value of Financial Instruments

Our financial instruments primarily consist of cash, money market funds, trade accounts receivable, accounts payable, accrued expenses and convertible notes payable.

The fair value of cash, money market funds, trade accounts receivable, accounts payable and accrued expenses closely approximate their carrying value due to their short maturities.

The carrying amounts of convertible notes payable approximate their fair value, as the interest rates, in consideration of the conversion feature, approximate the interest rates presently available to us.

We determine the fair value of the principal amount of financial and nonfinancial assets and liabilities using the fair value hierarchy, which describes three levels of inputs that may be used to measure fair value, as follows:

Level 1—

Quoted prices in active markets for identical assets or liabilities;

Level 2—

Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities;

Level 3—

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

There are no fair value assets or liabilities .

Our financial instruments primarily consist of cash and cash equivalents, marketable debt securities, accounts receivable, accounts payable, and accrued expenses.

Marketable debt securities and cash equivalents are carried at fair value.

The fair value of a financial instrument is the amount that would be received in an asset sale or paid to transfer a liability in an orderly transaction between unaffiliated market participants.

The fair value of the other financial instruments closely approximate their fair value due to their short maturities.

The Company accounts for recurring and non-recurring fair value measurements in accordance with FASB ASC 820, Fair Value Measurements and Disclosures .

ASC 820 defines fair value, establishes a fair value hierarchy for assets and liabilities measured at fair value, and requires expanded disclosure about fair value measurements.

The ASC 820 hierarchy ranks the quality of reliable inputs, or assumptions, used in the determination of fair value and requires assets and liabilities carried at fair value to be classified and disclosed in one of the following three categories:

Level 1— Fair value is determined by using unadjusted quoted prices that are available in active markets for identical assets or liabilities.

Level 2— Fair value is determined by using inputs other than Level 1 quoted prices that are directly or indirectly observable.

Inputs can include quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in markets that are not active.

Related inputs can also include those used in valuation or other pricing models, such as interest rates and yield curves that can be corroborated by observable market data.

Level 3— Fair value is determined by inputs that are unobservable and not corroborated by market data.

Use of these inputs involves significant and subjective judgments to be made by the reporting entity – e.g.

determining an appropriate discount factor for illiquidity associated with a given security.

The Company measures the fair value of financial assets using the highest level of inputs that are reasonably available as of the measurement date.

The assets recorded at fair value are classified within the hierarchy as follows for the periods reported (in thousands):

December 31, 2023

Fair Value Level 1 Level 2

Money Market Funds in Cash and Cash Equivalents $ 25,520 $ 25,520 $ —

Corporate Securities 228,723 — 228,723

Government Securities 414,514 — 414,514

$ 668,757 $ 25,520 $ 643,237

December 31, 2022

Fair Value Level 1 Level 2

Money Market Funds in Cash and Cash Equivalents $ 40,967 $ 40,967 $ —

Corporate Securities 200,626 — 200,626

Government Securities 329,889 — 329,889

$ 571,482 $ 40,967 $ 530,515

Our policy is to record transfers of assets between Level 1 and Level 2 at their fair values as of the end of each reporting period, consistent with the date of the determination of fair value.

During the years ended December 31, 2023 and 2022, there were no transfers between Level 1 and Level 2.

Property and Equipment

Property and equipment are recorded at cost and depreciated using the straight ‑line method over the estimated useful lives of the assets, ranging from three to seven years, or the lease term, whichever is shorter.

Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets.

Expenditures for repairs and maintenance are charged to expense as incurred, while renewals and improvements are capitalized.

Useful lives by asset category are as follows:

Notes to Financial Statements (Continued)

Computers, software and equipment

Furniture and fixtures

Leasehold improvements

5 - 7 years or remaining

Computers, software and equipment 3 - 5 years

Furniture and fixtures 5 - 7 years

Leasehold improvements 5 - 7 years or remaining

lease term, whichever is less

Patents, Licenses, and Other Intangible Assets

The cost of acquiring licenses is capitalized and amortized on the straight ‑ line basis over the shorter of the term of the license or its estimated economic life, ranging from five to 25 years.

The cost of acquiring licenses is capitalized and amortized on the straight-line basis over the shorter of the term of the license or its estimated economic life, ranging from 1 to 20 years.

Third-party costs incurred for acquiring patents are capitalized.

2 unchanged sentences

Our senior management, with advice from outside patent counsel, assesses three primary criteria to determine if a patent will be capitalized initially:

i) technical feasibility, ii) magnitude and scope of new technical function covered by the patent compared to the company’s existing technology and patent portfolio, particularly assessing the value added to our product candidates or licensing business, and iii) legal issues, primarily assessment of patentability and prosecution cost.

We review our intellectual property on a regular basis to determine if there are changes in the estimated useful life of issued patents and if any capitalized costs for unissued patents should be abandoned.

Capitalized patent costs related to abandoned patent filings are charged off in the year of the decis ion to abandon.

During 2014, 2013 and 2012 , we abandoned previously capitalized patent and licensing related charges o f $509,000 , $205,000 and $388,000 , respectively.

Capitalized patent costs related to abandoned patent filings are charged off in the period of the decision to abandon.

During 2023, 2022, and 2021, we abandoned previously capitalized patent and licensing related charges of $ 1.3 million, $ 1.5 million, and $ 0.9 million, respectively.

The carrying amount and accumulated amortization of patents, licenses, and other intangibles is as follows (in thousands):

4 unchanged sentences

Total gross carrying amount 29,469 28,170

Accumulated amortization—patents

Accumulated amortization—licenses and other

Accumulated amortization—patents ( 8,663 ) ( 7,781 )

Accumulated amortization—licenses and other ( 2,143 ) ( 1,889 )

Total intangible assets, net $ 18,663 $ 18,500

Amortization expense for patents, licenses, and other intangible assets was $694,000 , $598,000 and $373,000 for the years ended December 31, 2014, 2013 and 2012, respectively.

Notes to Financial Statements (Continued)

Amortization expense for patents, licenses, and other intangible assets was $ 1.3 million, $ 1.4 million, and $ 1.2 million for the years ended December 31, 2023, 2022, and 2021, respectively.

Future amortization expense for patents, licenses, and other intangible assets recorded as of December 31, 2023, and for which amortization has commenced, is as follows:

(in thousands)

Thereafter 3,760

Total $ 8,540

The above amortization expense forecast is an estimate.

2 unchanged sentences

Long-Lived Assets

Management reviews long ‑lived assets which include fixed assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable.

Management reviews long-lived assets which include fixed assets and amortizable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable.

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted net cash flows expected to be generated by the asset.

If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.

Fair value for our long ‑lived assets is determined using the expected cash flows discounted at a rate commensurate with the risks involved.

As of December 31, 2014, we determined that our continuing losses from operations triggered a review of the carrying value of our long ‑lived assets including our capitalized patent and licensing costs.

We conducted an impairment analysis of the assets in accordance with ASC 360 by estimating the future undiscounted cash flows as of December 31, 2014, by patent family, which included granted and pending patents and related licenses.

For purposes of the analysis, we grouped our patents into the four primary technology groups, IIb, ADCC, Xtend and, bi ‑specific, and compared the carrying value of the group to the undiscounted cash flows expected to be received from the patents in each group.

We determined that the fair value of the potential future cash flows using this method was in excess of the carrying value of the intangible assets as of December 31, 2014.

The patent groups assessed for impairment were the IIb, ADCC, Xtend and bi ‑specific patent families and represented the lowest level of cash flows for evaluation.

These four patent families cover all of our current product candidates and our current license agreements.

We modeled the cash flows from our internal product development program XmAb7195 and licensed programs that use each particular category of patent asset.

We used multiple published sources of pharmaceutical product development stage failure rates to estimate failure rates at each stage of clinical development in order to probability weight the cash flows for each internal and licensed program.

We did not recognize a loss from impairment for the years ended December 31, 2023, 2022, or 2021.

We account for income taxes in accordance with accounting guidance which requires an asset and liability approach to financial accounting and reporting for income taxes.

Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable

Notes to Financial Statements (Continued)

or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.

Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.

Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

3 unchanged sentences

For those income tax positions where there is a 50% or less likelihood that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements.

We recorded unrecognized tax benefits of $ 8.3 million related to capitalized research and developments costs and state taxes, net of federal benefits, as of December 31, 2023.

We did not have any material uncertain tax positions at December 31, 2022.

Our policy is to recognize interest and penalties on taxes, if any, as a component of income tax expense.

We did not have any uncertain tax positions at December 31, 2014 or 2013.

We are potentially subject to tax authority audits for the years 2011 and onwards for U.S.

federal purposes and 2 0 10 and onwards for state purposes.

The Tax Cuts and Jobs Act of 2017 (TCJA) enacted on December 22, 2017 included several key provisions impacting the accounting for and reporting of income taxes.

The most significant provisions reduced the U.S.

corporate statutory tax rate from 35% to 21%, eliminated the corporate Alternative Minimum Tax (AMT) system, and made changes to the carryforward of net operating losses beginning on January 1, 2018.

The TCJA changed the income tax treatment of research and development expenses requiring such costs to be capitalized and amortized over several years beginning

effective January 1, 2022.

We recorded an income tax expense of $ 13.7 million and $ 0.7 million for the years ended December 31, 2023 and 2022, respectively.

Stock-Based Compensation

We recognize compensation expense using a fair ‑value ‑based method for costs related to all share ‑based payments, including stock options and shares issued under our Employee Stock Purchase Plan (“ESPP”

Stock ‑based compensation cost related to employees and directors is measured at the grant date, based on the fair ‑value—based measurement of the award using the Black ‑Scholes method, and is recognized as expense over the requisite service period on a straight ‑line basis.

We are required to estimate forfeitures at the time of grant and revise those estimates in subsequent period if actual forfeitures differ from those estimates.

We use historical data and industry published statistics to estimate pre ‑vesting option forfeitures and record stock ‑based compensation expense only for those awards that are expected to vest.

We recorded stock ‑based compensation (benefit) and expense for stock ‑based awards to employees , directors and consultants of approximately $1.8 million, $198,000 and $29,000 for the years ended December 31, 2014, 2013 and 2012, respectively.

Included in the 2014 total compensation expense is $172,000 under our ESP P .

Options granted to individual service providers that are not employees or directors are accounted for at estimated fair value using the Black ‑Scholes option ‑pricing method and are subject to periodic re ‑measurement over the period during which the services are rendered.

Net Loss Per Share

Basic net loss per common share is computed by dividing the net loss by the weighted ‑average number of common shares outstanding during the period.

Potentially dilutive securities consisting of stock options at December 31, 2014, 2013 and 2012, and convertible preferred stock and convertible promissory notes at December 31, 2012 and 2011

Notes to Financial Statements (Continued)

were not included in the diluted net loss per common shares calculation because the inclusion of such shares would have had an antidilutive effect.

(in thousands)

Convertible preferred stock

Convertible promissory notes

Options to purchase common stock

Employee stock purchase plan shares

The loss for the period ended December 31, 2013 was adjusted, for purposes of the diluted net income per share calculation, to reflect the deemed contribution of $144.8 million.

This reflects a deemed contribution of $148.1 million from the exchange of convertible preferred stock, a deemed dividend of $1.0 million for the difference between the fair value of the shares of Series A ‑1 convertible preferred stock and the price at which shares were sold in June 2013, and an additional deemed dividend of $2.3 million for the difference between the fair value of the shares of Series A ‑1 convertible preferred stock and the price at which additional shares were sold in the subsequent Series A ‑1 closing in September 2013.

Notes to Financial Statements (Continued)

For 2013, t he diluted loss per share calculation assumes the conversion of outstanding shares of convertible preferred stock into common stock using the as ‑if converted method.

We recognize compensation expense using a fair-value-based method for costs related to all share-based payments, including stock options, restricted stock units (RSUs), and shares issued under our Employee Stock Purchase Plan (ESPP).

Stock-based compensation cost related to employees and directors is measured at the grant date, based on the fair-value-based measurement of the award using the Black-Scholes method, and is recognized as expense over the requisite service period on a straight-line basis.

We account for forfeitures when they occur.

We recorded stock-based compensation and expense for stock-based awards to employees, directors, and consultants of approximately $ 53.8 million, $ 48.9 million, and $ 37.0 million for the years ended December 31, 2023, 2022, and 2021, respectively.

Net Income (Loss) Per Share

Basic net income (loss) per common share attributable to Xencor is computed by dividing the net income (loss) attributable to Xencor by the weighted-average number of common shares outstanding during the period without consideration of common stock equivalents.

Diluted net income (loss) per common share attributable to Xencor is computed by dividing the net income (loss) attributable to Xencor by the weighted-average number of common stock equivalents outstanding for the period.

Potentially dilutive securities consisting of stock issuable pursuant to outstanding options and restricted stock units (RSUs), and stock issuable pursuant to the 2013 Employee Stock Purchase Plan (ESPP) are not included in the per common share calculation in periods when the inclusion of such shares would have an anti-dilutive effect.

Basic and diluted net income (loss) per common share attributable to Xencor is computed as follows:

Basic net income (loss) per common share is computed by dividing the net income or loss attributable to Xencor by the weighted-average number of common shares outstanding during the period.

Potentially dilutive securities were included in the calculation of diluted net income per common share attributable to Xencor for 2021.

In 2023 and 2022, we excluded all options and awards from the calculations because we reported net losses in the period, and the inclusion of such shares would have had an antidilutive effect.

Year Ended December 31,

(in thousands, except

per share data)

Deemed contribution

Net income (loss) attributable to common stockholders for basic income per share

2023 2022 2021

(in thousands, except share and per share data)

(As Restated)

Net income (loss) attributable to Xencor, Inc.

$ ( 133,133 ) $ ( 55,181 ) $ 82,631

Weighted-average common shares outstanding 60,503,283 59,652,461 58,379,641

Basic net income (loss) per common share

Net income (loss) attributable to common stockholders for basic net loss per share

Deemed contribution

Net loss attributable to common stockholders for diluted net loss per share

Weighted average number of common shares outstanding used in computing basic net (loss) income per common share

Dilutive effect of conversion of convertible preferred stock

Weighted-average number of common shares outstanding used in computing net loss per common share

Diluted net loss per common share

Basic net income (loss) per common share attributable to Xencor, Inc.

$ ( 2.20 ) $ ( 0.93 ) $ 1.42

Net income (loss) attributable to Xencor, Inc.

$ ( 133,133 ) $ ( 55,181 ) $ 82,631

Weighted average number of common shares outstanding used in computing basic net income (loss) per common share 60,503,283 59,652,461 58,379,641

Dilutive effect of employee stock options, RSUs, and ESPP — — 2,115,814

Weighted-average number of common shares outstanding used in computing diluted net income (loss) per common share 60,503,283 59,652,461 60,495,455

Diluted net income (loss) per common share attributable to Xencor, Inc.

$ ( 2.20 ) $ ( 0.93 ) $ 1.37

For the years ended December 31, 2023 and 2022, all outstanding potentially dilutive securities were excluded from the calculation as the effect of including such securities would have been anti-dilutive.

For the year ended December 31, 2021, we excluded 1,196,268 shares of options and RSUs from the calculation of diluted net income per common share because the inclusion of such shares would have had an anti-dilutive effect.

Segment Reporting

1 unchanged sentence

The Company has only one operating segment related to the development of pharmaceutical products.

Convertible Notes Payable

In 2009, we issued $7.7 million of convertible promissory notes (the 2009 Notes) to existing preferred stockholders.

Originally, the 2009 Notes had an interest rate of 10.0% per annum and original maturity date of September 30, 2009 which was subsequently extended to July 31, 2011.

In June 2011, the 2009 Notes were amended to increase the interest rate on the Note from 10.0% to 12.5% and to extend the maturity date to December 31, 2012.

In December 2010, we issued an additional $7.5 million of convertible promissory notes (the 2010 Notes) to existing preferred stockholders.

The 2010 Notes bear similar terms as the 2009 notes and, originally had an interest rate of 10.0% per annum and an original maturity date of December 31, 2011.

In December 2011, the 2010 Notes were

Notes to Financial Statements (Continued)

amended to increase the interest rate from 10.0% to 12.5% and to extend the maturity date of the Notes to December 31, 2012.

In December 2012 the maturity dates for the 2009 Notes and the 2010 Notes were extended to April 15, 2013 and in April 2013 the maturity dates were extended again to June 15, 2013, with each such extension considered to be a modification of debt under ASC 470 ‑50 ‑40.

In June 2013, and prior to the maturity dates of the 2009 Notes and the 2010 Notes, our Board of Directors and the requisite stockholders and holders of the 2009 Notes and 2010 Notes agreed to exchange the outstanding principal into shares of our Series A ‑1 convertible preferred stock in connection with a concurrent financing .

The exchange of the 2009 Notes and 2010 Notes was not pursuant to the terms of the applicable notes so we accounted for the exchange as an extinguishment of the original debt instrument .

Capital Structure

Authorized Capital Stock

We are authorized to issue 200,000,000 shares of common stock and 10,000,000 shares of preferred stock as of December 31, 2014.

We had 200,000,000 shares of common stock and 10,000,000 shares of preferred stock authorized as of December 31, 2013.

Restatement of Previously Issued Financial Statements

In connection with the preparation of the Company’s financial statements for the year ended December 31, 2024, the Company determined that the Ultomiris Royalty Sale Agreement with OMERS entered into in November 2023 was incorrectly accounted for as deferred income and should have been accounted for as debt and that the Company understated the amount of its research and experimental expenses that should have been capitalized under Section 174 of the Code for the year ended December 31, 2023 as well as misstatement related to its state tax obligations, and therefore identified uncertain tax positions for federal and state income tax purposes.

The impact of the restatement on the consolidated balance sheet as of December 31, 2023 is as follows (in thousands):

December 31, 2023

As Reported Adjustment As Restated

Accounts receivable 11,290 12,449 23,739

Prepaid expenses and other current assets 18,145 ( 6 ) 18,139

Total current assets 623,160 12,443 635,603

Total assets $ 952,692 $ 12,443 $ 965,135

Liabilities and stockholders’ equity

Current liabilities

Income tax payable 5,782 ( 491 ) 5,291

Deferred income 31,682 ( 31,682 ) —

Debt 6,332 21,379 27,711

Total current liabilities 84,709 ( 10,794 ) 73,915

Uncertain tax position payable — 8,336 8,336

Deferred income, net of current portion 125,183 ( 125,183 ) —

Debt, net of current portion 14,642 147,130 161,772

Total liabilities 283,559 19,489 303,048

Stockholders’ equity

Accumulated deficit ( 464,372 ) ( 7,046 ) ( 471,418 )

Total stockholders' equity 669,133 ( 7,046 ) 662,087

Total liabilities and stockholders’ equity $ 952,692 $ 12,443 $ 965,135

The impact of the restatement on the consolidated statement of loss for the year ended December 31, 2023 is as follows (in thousands):

Year ended December 31, 2023

As Reported Adjustment As Restated

Collaborations, licenses, milestones, and royalties $ 168,338 $ 6,277 $ 174,615

Income (loss) from operations ( 138,639 ) 6,277 ( 132,362 )

Other income (expense)

Interest income 18,626 705 19,331

Interest expense — ( 6,177 ) ( 6,177 )

Other expense, net ( 31 ) — ( 31 )

Gain (loss) on equity securities, net ( 395 ) — ( 395 )

Total other income, net 18,200 ( 5,472 ) 12,728

Income (loss) before income tax ( 120,439 ) 805 ( 119,634 )

Income tax expense 5,811 7,851 13,662

Net loss attributable to Xencor, Inc.

$ ( 126,087 ) $ ( 7,046 ) $ ( 133,133 )

Net loss per common share attributable to Xencor, Inc.:

Basic and diluted $ ( 2.08 ) $ ( 0.12 ) $ ( 2.20 )

The impact of the restatement on the consolidated statement of comprehensive loss for the year ended December 31, 2023 is as follows (in thousands):

Year ended December 31, 2023

As Reported Adjustment As Restated

Net loss $ ( 126,250 ) $ ( 7,046 ) $ ( 133,296 )

Other comprehensive income:

Net unrealized gain on marketable debt securities available-for-sale 8,243 — 8,243

Comprehensive loss ( 118,007 ) ( 7,046 ) ( 125,053 )

Comprehensive loss attributable non-controlling interest ( 163 ) — ( 163 )

Comprehensive loss attributable to Xencor, Inc.

$ ( 117,844 ) $ ( 7,046 ) $ ( 124,890 )

The impact of the restatement on the consolidated statement of cash flows for the year ended December 31, 2023 is as follows (in thousands):

Year ended December 31, 2023

As Reported Adjustment As Restated

Cash flows from operating activities

Consolidated net (loss) $ ( 126,250 ) $ ( 7,046 ) $ ( 133,296 )

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Noncash royalty revenue related to sale of future royalties — ( 14,575 ) ( 14,575 )

Noncash interest expense 681 5,472 6,153

Changes in operating assets and liabilities:

Accounts receivable and contract assets 17,707 2,126 19,833

Income tax 5,782 7,851 13,633

Deferred income 156,865 ( 156,865 ) —

Net cash (used in) provided by operating activities 85,111 ( 163,037 ) ( 77,926 )

Cash flows from financing activities

Proceeds from sale of future royalties 20,293 163,037 183,330

Net cash provided by financing activities 26,182 163,037 189,219

The Company has updated Note 11 and Note 12 for the impact of the Ultomiris Royalty Sale Agreement, and the impact of the restatement has also been reflected within Note 7 to conform the 2022 deferred tax assets to 2023 presentation.

Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss).

For the years ended December 31, 2023, 2022, and 2021, the only component of other comprehensive income (loss) is net unrealized gain (loss) on marketable debt securities.

There were no material reclassifications out of accumulated other comprehensive loss during the year ended December 31, 2023.

Marketable Debt and Equity Securities

The Company’s marketable debt securities held as of December 31, 2023 and 2022 are summarized below:

December 31, 2023

Losses Fair Value

(in thousands)

Money Market Funds $ 25,520 $ — $ — $ 25,520

Corporate Securities 228,382 342 ( 1 ) 228,723

Government Securities 413,553 1,037 ( 76 ) 414,514

$ 667,455 $ 1,379 $ ( 77 ) $ 668,757

Cash and cash equivalents $ 25,520

Marketable securities 643,237

Total investments $ 668,757

December 31, 2022

Losses Fair Value

(in thousands)

Money Market Funds $ 40,967 $ — $ — $ 40,967

Corporate Securities 201,752 — ( 1,126 ) 200,626

Government Securities 335,705 3 ( 5,819 ) 329,889

$ 578,424 $ 3 $ ( 6,945 ) $ 571,482

Cash and cash equivalents $ 40,967

Marketable securities 530,515

Total investments $ 571,482

The maturities of the Company’s marketable debt securities as of December 31, 2023 are as follows:

Cost Estimated

(in thousands)

Mature in one year or less $ 497,326 $ 497,725

Mature within two years 144,609 145,511

$ 641,935 $ 643,236

The unrealized losses on available-for-sale investments and their related fair values as of December 31, 2023 and 2022 are as follows:

December 31, 2023

Less than 12 months 12 months or greater

Fair value Unrealized losses Fair value Unrealized losses

(in thousands)

Corporate Securities $ 8,073 $ ( 1 ) $ — $ —

Government Securities 66,546 ( 77 ) — —

$ 74,619 $ ( 78 ) $ — $ —

December 31, 2022

Less than 12 months 12 months or greater

Fair value Unrealized losses Fair value Unrealized losses

(in thousands)

Corporate Securities $ 132,658 $ ( 1,121 ) $ 3,826 $ ( 5 )

Government Securities 324,933 ( 5,819 ) — —

$ 457,591 $ ( 6,940 ) $ 3,826 $ ( 5 )

The unrealized losses from the listed securities are due to a change in the interest rate environment and not a change in the credit quality of the securities.

The Company’s equity securities include securities with a readily determinable fair value.

These investments are carried at fair value with changes in fair value recognized each period and reported within other income (expense).

Equity securities with a readily determinable fair value and their fair values (in thousands) as of December 31, 2023 and 2022 are as follows:

December 31, 2023 Fair Value

December 31, 2022

Astria Common Stock $ 5,360 $ 9,529

INmune Common Stock 21,231 11,954

Viridian Common Stock 15,619 20,948

$ 42,210 $ 42,431

The Company also has an investment in an equity security without a readily determinable fair value.

The Company elects the measurement alternative to record these investments at their initial cost and evaluates such investments at each reporting period for evidence of impairment or observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

During the year ended December 31, 2022, the Company recorded an impairment charge of $ 0.1 million related to the Astria preferred stock.

Equity securities without a readily determinable fair value and their carrying values (in thousands) as of December 31, 2023 and 2022 are as follows:

Carrying Value

December 31, 2023 Carrying Value

December 31, 2022

Astria Preferred Stock $ — $ 174

Zenas Preferred Stock 64,210 54,209

$ 64,210 $ 54,383

In 2018, the Company received common and preferred stock in Astria (formerly Quellis Biosciences, Inc.) in connection with a licensing transaction.

In January 2023, the Company exchanged its preferred shares for additional shares of common stock in Astria.

The common stock has a readily determinable fair value, and difference in the fair value of the common stock and the carrying value of the preferred stock has been recorded as a gain in equity securities for the year ended December 31, 2023.

The Company accounts for the shares in Astria common stock at their fair value each reporting period and the adjustment in the fair value of the Astria common stock has been recorded in unrealized gain (loss) on equity securities for the year ended December 31, 2023.

The Company records its investment in the shares of Astria preferred stock as an equity interest without a readily determinable fair value.

The Company elected to record the original shares of preferred stock at their initial cost and to review the carrying value for impairment or other changes in carrying value at each reporting period.

The Company subsequently recorded impairment charges of $ 0.1 million and $ 0.8 million related to its investment in Astria’s preferred stock in 2022 and 2021, respectively.

In 2017, the Company received shares of common stock of INmune Bio, Inc.

(INmune) and an option to acquire additional shares of INmune’s common stock in connection with a licensing transaction.

In June 2021, the Company entered into an Option Cancellation Agreement with INmune and received $ 15.0 million in proceeds and an additional shares of INmune common stock in exchange for the initial option.

During 2021, the Company determined that it should no longer account for its investment in INmune under the equity method.

In September 2021, the Company exercised its second option to purchase 108,000 shares of INmune common stock for $ 0.8 million and the Company recorded a gain of $ 0.9 million on the purchase.

The Company's current share holdings, which consist of common stock of INmune, have a readily determinable fair value, and the adjustment in the fair value of the shares of INmune common stock was recorded in gain (loss) on equity securities for the year ended December 31, 2023.

In December 2021, the Company received shares of common stock of Viridian Therapeutics, Inc.

(Viridian) in connection with the Viridian Agreement.

In December 2022, the Company received additional shares of common stock of Viridian in connection with the Second Viridian Agreement (defined below).

The shares of Viridian common stock are classified as equity securities with a readily determinable fair value and the adjustment in the fair value of the shares of Viridian common stock was recorded in gain (loss) on equity securities for the year ended at December 31, 2023.

In 2020, the Company received an equity interest in Zenas BioPharma (Cayman) Limited (Zenas), in connection with the Zenas Agreement (defined below).

The Company elected the measurement alternative to carry the Zenas equity at cost minus impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or a similar investment of the same issuer.

In 2021, the Company received a warrant to receive equity from Zenas in connection with the Second Zenas Agreement (defined below).

In 2021, the Company purchased a convertible promissory note from Zenas.

In 2022, the Zenas warrant was exchanged for additional equity in Zenas.

In 2022, the convertible note and accrued interest through the conversion date were exchanged for equity shares in Zenas.

During 2022, the Company recognized an unrealized gain of $ 21.9 million from the warrant exchange and the conversion of the promissory note.

In 2023, Zenas initiated a Phase 3 trial and we received a milestone of additional equity in Zenas with a fair value of $ 10.0 million.

The Company recorded the additional equity at its fair value.

During the year ended December 31, 2023, there was no impairment related to this investment.

Unrealized gains and losses recognized on equity securities (in thousands) during the year ended December 31, 2023 and 2022 consist of the following:

Year Ended December 31,

2023 2022 2021

Net (losses) gains recognized on equity securities $ ( 395 ) $ 23,434 $ 39,289

net gains recognized on equity securities redeemed — — 18,301

Unrealized (losses) gain recognized on equity securities $ ( 395 ) $ 23,434 $ 20,988

Sale of Additional Common Stock

Under the terms of the Stock Purchase Agreement (defined below), Johnson & Johnson Innovation, JJDC, Inc.

(JJDC), purchased $ 25.0 million of newly issued unregistered shares of the Company’s common stock, priced at a 30 -day

volume-weighted average price of $ 33.4197 per share as of October 1, 2021.

The Company issued 748,062 shares of common stock to JJDC on November 12, 2021.

The issued shares are subject to customary resale restrictions pursuant to Rule 144 of the Securities Act of 1933.

Property and Equipment

4 unchanged sentences

Leasehold and tenant improvements 52,410 41,774

Total gross carrying amount 102,350 87,472

Less accumulated depreciation and amortization ( 36,226 ) ( 28,289 )

During 2012, we entered into a capital lease for certain computer equipment for $22,000 .

Total assets under capital lease were $22,000 as of December 31, 2014 and 2013, respectively;

accumulated depreciation for these assets was $20,000 and $12,900 at December 31, 2014 and 2013, respectively.

Depreciation expense in 2014, 2013 and 2012 was $188,000 , $113,000 and $154,000 , respectively.

We use the assets and liability method to account for income taxes in accordance with ASC 740 ‑10, Income taxes.

Under this method, deferred income tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities.

At each balance sheet date, we evaluate the available evidence about future taxable income and other possible source of realization of deferred income tax assets, and record a valuation allowance that reduces the deferred income tax assets to an amount that represents management’s best estimate of the amount of such deferred income tax assets that more likely than not will be realized.

We did not record a liability or an asset related to an uncertain tax position for the years ended December 31, 2014 and 2013.

Notes to Financial Statements (Continued)

Our effective tax rate differs from the statutory federal income tax rate, primarily as a result of the operating loss and tax credit s generated .

For the years ended December 31, 2014, 2013 and 2012 there was no current provision for federal or state income taxes due to taxable losses incurred in each of the years.

A reconciliation of the federal statutory income tax rate to our effective income tax rate is as follows (in thousands):

Federal statutory income tax rate

Loss on settlement of notes

Non-deductible research and development credit

Total property and equipment, net $ 66,124 $ 59,183

Leasehold and tenant improvements consist primarily of leasehold construction at our new Pasadena headquarters.

Depreciation expense related to property and equipment in 2023, 2022, and 2021 was $ 10.1 million, $ 7.4 million, and $ 6.3 million, respectively.

Our effective tax rate differs from the statutory federal income tax rate, primarily as a result of the changes in valuation allowance.

The provision for income taxes (in thousands) for the years ended December 31, 2023, 2022, and 2021 is as follows:

2023 2022 2021

Federal 11,472 672 —

State 2,190 1 —

Federal — — —

Total $ 13,662 $ 673 $ —

A reconciliation of the federal statutory income tax to our effective income tax is as follows (in thousands):

2023 2022 2021

Federal statutory income tax $ ( 25,123 ) $ ( 11,447 ) $ 17,352

State and local income taxes ( 1,978 ) ( 615 ) 783

Research and development credit ( 15,816 ) ( 9,366 ) ( 10,492 )

Stock-based compensation 3,132 3,384 2,424

Foreign-derived intangible income ( 4,915 ) ( 1,449 ) —

Other 286 ( 74 ) 95

Change in state rate ( 176 ) 44 2,599

Deferred tax adjustment ( 1,199 ) — —

Net change in valuation allowance 57,313 20,196 ( 12,761 )

Net effective tax rate

Uncertain tax position 2,138 — —

Income tax provision $ 13,662 $ 673 $ —

The tax effect of temporary differences that give rise to a significant portion of the deferred tax assets and liabilities at December 31, 2023 and 2022 is presented below (in thousands).

The FY 2022 numbers have been revised to conform with the presentation in the 2023 10K/A.

Deferred income tax assets

1 unchanged sentence

Research credits 36,535 53,767

Stock-based compensation

Unrealized loss on securities — 1,573

Lease liability 13,640 13,144

Accrued compensation 19,168 14,484

Deferred revenue

Deferred revenue / advance payment 36,106 3,225

Capitalized research and development costs 72,836 32,626

Gross deferred income tax assets 200,560 142,686

2 unchanged sentences

Deferred income tax liabilities

Patent costs ( 2,339 ) ( 2,885 )

Licensing costs ( 143 ) ( 124 )

Capitalized legal costs ( 6 ) ( 9 )

Depreciation ( 10,659 ) ( 6,532 )

Right of use assets ( 7,404 ) ( 7,580 )

Unrealized gain on securities ( 9,559 ) ( 9,347 )

Gross deferred income tax liabilities ( 30,110 ) ( 26,477 )

Net deferred income tax asset/(liability)

Due to the uncertainty surrounding the realization of the benefits of our deferred tax assets in future tax periods, we have placed a valuation allowance against our deferred tax assets.

Net deferred income tax asset $ — $ —

The Tax Cuts and Jobs Act of 2017 (TCJA) was enacted in December 2017 and made substantial changes in the U.S.

The significant changes made by the TCJA include a reduction in the maximum corporate income tax rate and the requirement that research and development costs incurred after December 31, 2021 to be capitalized and amortized over several years.

We have recorded a deferred asset for each year ended December 31, 2023 and 2022, respectively for such capitalized research and development costs.

We have net deferred tax assets relating primarily to capitalized research and development costs, net operating loss carryforwards and research and development tax credit carryforwards.

uncertainty surrounding the realization of the benefits of our deferred tax assets in future tax periods, we have placed a valuation allowance against our deferred tax assets at December 31, 2023 and 2022.

The Company recognizes valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized.

The Company’s net deferred income tax asset is not more likely than not to be realized due to the lack of sufficient sources of future taxable income and cumulative book losses that have resulted over the years.

During the years ended December 31, 2014, the valuation allowance decreased by $ 21.4 million;

during 2013 the valuation allowance increased by $3.0 million.

Upon analysis, there were change s in ownership under Section 382 of the Internal Revenue Code and related state provisions.

Section 382 limits the amount of net operating losses and tax credit forwards that may be available after a change in ownership.

The Company has adjusted its net operating loss and tax credit carryforwards to reflect the impact of the section 382 limitations.

The Company’s tax returns remain open to potential inspection for the years 201 1 and onwards for federal purposes and 2010 and onwards for state purposes.

Notes to Financial Statements (Continued)

As of December 31, 2014, we had cumulative net operating loss carryforwards for federal and state income tax purposes of $16 9 .

2 million and $13 4 .

2 million respectively, and available tax credit carryforwards of approximately $1 5 .

2 million for federal income tax purposes and $ 11.5 million for state income tax purposes, which can be carried forward to offset future taxable income, if any.

Our federal net operating loss carryforwards expire starting in 2019 , state net operating losses expire starting in 2015 and f ederal tax credit carryforwards expire starting in 2033 .

Utilization of the net operating losses and tax credits are subject to a substantial annual limitation due to “

ownership changes ”

which occurred.

As a result of these changes, provisions in the Internal Revenue Code of 1986 under Section 382 and similar state provisions may result in the expiration of certain of our net operating losses and tax credits before we could use them.

The Company’s net deferred income tax asset is not more likely than not to be realized due to the lack of sufficient sources of future taxable income and cumulative losses that have resulted over the years.

During the year ended December 31, 2023, the valuation allowance increased by $ 54.2 million.

The Company’s tax years starting in 2019 through 2023 remain open to potential examination by the U.S.

and state taxing authorities due to carryforwards of net operating losses and income tax credits.

As of December 31, 2023, we had cumulative net operating loss carryforwards for federal and state income tax purposes of $ 54.2 million and $ 155.9 million, respectively, and available tax credit carryforwards of approximately $ 16.9 million for federal income tax purposes and $ 24.9 million for state income tax purposes, which can be carried forward to offset future taxable income, if any.

All of the federal net operating loss carryforwards were incurred prior to January 1, 2018, which are subject to carryforward limitations.

To the extent allowed by law, taxing authorities may examine prior periods where net operating losses were carried forwards and were claimed and offset against current year taxable income, and make adjustments up to the amount of the net operating loss carryforward amount.

Our federal net operating loss carryforwards expire starting in 2027, state net operating loss carryforwards expire starting in 2035, and federal tax credit carryforwards begin to expire in 2034.

Utilization of our net operating loss and tax credit carryforwards are subject to a substantial annual limitation under Section 382 of the Code due to the fact that we have experienced ownership changes.

As a result of these changes, certain of our net operating loss and tax credit carryforwards may expire before we can use them.

A reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows:

2023 2022 2021

Balance at January 1 $ — $ — $ —

Increase related to prior period tax positions 1,054 — —

Increase related to current year tax positions 7,851 — —

Balance at December 31 $ 8,905 $ — $ —

Unrecognized tax benefits were $ 8.9 million as of December 31, 2023.

We did not have any material unrecognized tax benefits at December 31, 2022.

Our policy is to recognize interest and penalties on taxes, if any, as a component of income tax expense.

The amounts accrued for interest and penalties as of December 31, 2023 were not significant.

If recognized, $ 8.3 million would affect the effective tax rate, subject to changes in the valuation allowance.

We do not expect a significant change to unrecognized tax benefits in the next twelve months.

Stock-Based Compensation

Our Board of Directors and the requisite stockholders previously approved the 2010 Equity Incentive Plan.

In October 2013, our Board of Directors approved the 2013 Equity Incentive plan (the 2013 Plan) and in November 2013 our stockholders approved the 2013 Plan.

The 2013 Plan became effective as of December 3, 2013, the date of the Company’s IPO.

As of December 2, 2013, we suspended the 2010 Plan and no additional awards may be granted under the 2010 Plan.

Any shares of common stock covered by awards granted under the Prior Plans that terminate after December 2, 2013 by expiration, forfeiture, cancellation or other means without the issuance of such shares will be added to the 2013 Plan reserve.

As of December 31, 2014, the total number of shares of common stock available for issuance under the 2013 Plan was 5,409,980 , which includes 2, 662,065 of common stock that were available for issuance under the Prior Plans as of the effective date of the 2013 Plan.

Unless otherwise determined by the Board, beginning January 1, 2014, and continuing until the expiration of the 2013 Plan, the total number of shares of common stock available for issuance under the 2013 Plan will automatically increase annually on January 1 by 4% of the total number of issued and outstanding shares of common stock as of December 31 of the immediate preceding year.

On January 1, 2014, the total number of shares of common stock available for issuance under the 2013 Plan was automatically increased by 1,254,179 shares, which number is included in the number of shares available for issuance above.

As of December 31, 2014 a total of 1,063,500 options had been issued under the 2013 Plan.

In 2013, our Board of Directors and our stockholders approved the 2013 Equity Incentive Plan (the 2013 Plan).

The 2013 Plan provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, performance cash awards, and other stock awards.

The 2013 Plan had a ten-year term and would expire on December 3, 2023.

In June 2023, the Board and shareholders approved the 2023 Equity Incentive Plan (the 2023 Plan), which became effective as of June 14, 2023.

We suspended the 2013 Plan, and no additional award may be granted under the 2013 Plan.

The 2023 Plan reserve consists of 3,000,000 shares and the remaining available shares from the 2013 Plan as of the effective date of the 2023 Plan.

In addition, any shares of common stock covered by awards granted under the 2013 Plan that terminate on or after June 14, 2023 by expiration, forfeiture, cancellation, or other means without the issuance of such shares will be added to the 2023 Plan reserve.

The 2013 Plan provided for an automatic increase in the number of shares annually on January 1 by 4 % of the total number of issued and outstanding shares of common stock as of December 31 of the immediately preceding year.

On January 1, 2023, pursuant to approval by the Board, the total number of shares of common stock available for issuance under the 2013 Plan was increased by 2,399,908 shares.

The 2023 Plan does not include a provision for an automatic increase in shares, also known as an Evergreen provision.

As of December 31, 2023, the total number of shares of common stock available for issuance under the 2023 Plan was 19,434,971 , which includes 16,932,548 shares of common stock that were available for issuance under the Prior Plans as of the effective date of the 2023 Plan.

As of December 31, 2023, a total of 16,616,038 options have been granted under the 2013 Plan and 2023 Plan.

As of December 31, 2023, the Company has awarded 2,994,168 RSUs to certain employees pursuant to the 2013 Plan and 2023 Plan.

Vesting of these awards will be annually over equal installments, either a two or three-year vesting period, and is contingent on continued employment terms.

The fair value of these awards is determined based on the intrinsic value of the stock on the date of grant and will be recognized as stock-based compensation expense over the requisite service period.

In November 2013, our Board of Directors and stockholders approved the 2013 Employee Stock Purchase Plan (2013 ESPP), which became effective as of December 5, 2013.

Under the ESPP our employees may elect to have between 1-15% of their compensation withheld to purchase Company stock at a discount.

The ESPP has an initial two -year term that includes four six -month purchase periods and employee withholding amounts may be used to purchase Company stock during each six-month purchase period.

The total number of shares that can be purchased with the withholding amounts are based on the lower of 85% of the Company’s stock price at the initial offering date or, 85% of the Company’s stock price at each purchase date.

We have reserved a total of 581,286 shares of common stock for issuance under the ESPP.

Unless otherwise determined by our Board, beginning on January 1, 2014, and continuing until the expiration of the ESPP, the total number shares of common stock available for issuance under the ESPP will automatically increase annually on January 1 by the lesser of (i) 1% of the total number of issued and outstanding shares of common stock as of December 31 of the immediately preceding year, or (ii) 621,814 shares of common stock.

On January 1, 2014, the total number of shares of common stock available for issuance under the ESPP was automatically increased by 313,545 shares, which number is included in the number of shares reserved for issuance above.

Under the ESPP our employees may elect to have between 1 - 15 % of their compensation withheld to purchase shares of the Company’s common stock at a discount.

The ESPP had an initial two-year term that included four six-month purchase periods, and employee withholding amounts could be used to purchase Company stock during each six-month purchase period.

The initial two-year term ended in December 2015 and, pursuant to the provisions of the ESPP, subsequent two-year terms began automatically upon the end of the previous term.

The total number of shares that can be purchased with the withholding amounts are based on the lower of 85 % of the Company’s common stock price at the initial offering date or 85 % of the Company’s stock price at each purchase date.

As of December 31, 2023, the total number of shares of common stock available for issuance under the ESPP is 1,041,340 .

Under the 2013 ESPP, the total number shares of common stock available for issuance under the ESPP will automatically increase annually on January 1 by the lesser of (i) 1 % of the total number of issued and outstanding shares of common stock as of December 31 of the immediately preceding year, or (ii) 621,814 shares of common stock.

Pursuant to approval by our board, the total number of shares of common stock available for issuance under the ESPP was increased by 599,977 shares on January 1, 2023.

As of December 31, 2023, we have issued a total of 733,478 shares of common stock under the ESPP.

Total employee, director and non-employee stock-based compensation expense recognized was as follows:

(in thousands) 2023 2022 2021

General and administrative $ 19,239 $ 17,281 $ 12,813

Research and development 34,516 31,632 24,162

$ 53,755 $ 48,913 $ 36,975

(in thousands) 2023 2022 2021

Stock options $ 29,345 $ 29,758 $ 27,909

ESPP 1,243 1,174 992

RSUs 23,167 17,981 8,074

$ 53,755 $ 48,913 $ 36,975

Information with respect to stock options outstanding is as follows:

2023 2022 2021

Exercisable options 7,761,829 6,679,948 5,576,430

Weighted average exercise price per share of exercisable options $ 28.79 $ 26.99 $ 24.15

Notes to Financial Statements (Continued)

Weighted average grant date fair value per share of options granted during the year $ 15.98 $ 15.45 $ 21.65

2 unchanged sentences

The following table summarizes stock option activity for the years ended December 31, 2023 and 2022:

Intrinsic Value

Shares Weighted-

(Per Share) (1)

(in years) Aggregate

Intrinsic Value

(in thousands) (2)

1 unchanged sentence

Options granted 1,827,234 41.22

Options canceled

Options forfeited ( 382,454 ) 36.15

Options exercised (3)

( 520,240 ) 23.61

Balances at December 31, 2021 8,676,329 29.11 6.65 $ 100,057

2 unchanged sentences

Options exercised (3)

( 195,485 ) 18.46

Balances at December 31, 2022 10,082,642 29.12 6.30 $ 27,141

Options granted 2,080,732 30.02

Options forfeited ( 676,005 ) 33.19

Options exercised (3)

( 344,383 ) 9.91

Balances at December 31, 2023 11,142,986 $ 29.60 6.03 $ 9,977

As of December 31, 2023

Options vested and expected to vest 11,142,986 $ 29.60 6.03 $ 9,977

The weighted average exercise price per share is determined using exercise price per share for stock options.

The aggregate intrinsic value is calculated as the difference between the exercise price of the option and the fair value of our common stock for in ‑ the ‑money options at December 31, 2014.

The total intrinsic value of stock options exercised was $155,000 and $191,000 for the years ended December 31, 2014 and 2013 respectively.

There were no option exercises in 2012.

Notes to Financial Statements (Continued)

The stock options outstanding and exercisable by exercise price at December 31, 2014 are as follows:

Stock Options Outstanding

Stock Options Exercisable

Exercise Price

$0.59 - $4.25

Exercisable 7,761,829 $ 28.79 4.90 $ 9,907

______________________________

$9.26 –

(1) The weighted average exercise price per share is determined using exercise price per share for stock options.

(2) The aggregate intrinsic value is calculated as the difference between the exercise price of the option and the fair value of our common stock for in-the-money options at December 31, 2023 and 2022.

(3) The total intrinsic value of stock options exercised was $ 4.8 million, $ 1.6 million, and $ 9.2 million for the years ended December 31, 2023, 2022 and 2021 respectively.

We estimated the fair value of employee and non-employee awards using the Black-Scholes valuation model.

The fair value of employee stock options is being amortized on a straight-line basis over the requisite service period of the awards.

Management’s estimates the probability of non ‑employee awards being vested based upon an evaluation of the non ‑employee achieving their specific performance goals.

Options granted after our Initial Public Offering, are issued at the fair market value of our stock at the date the grant is approved by our board of directors.

For 2013 options granted prior to our Initial Public Offering, we used and estimated fair value of $4.25 per share as determined by the board of directors based on input from management.

For the options granted in the year ended December 31, 2012, we used an estimated fair value per share of $0.59, originally determined by our Board of Directors as of December 31, 2009.

For options granted prior to 2012, w e used the capital asset valuation model to determine fair value with the following key assumptions:

junior nature of the common stock to outstanding convertible preferred stock and convertible preferred promissory notes, conversion dilution, minority status and the illiquid nature of our common stock.

Management estimates the probability of non-employee awards being vested based upon an evaluation of the non-employee achieving their specific performance goals.

Options are issued at the fair market value of our stock on the date of grant.

The fair value of employee stock options was estimated using the following weighted average assumptions for the years ended December 31, 2023, 2022 and 2021:

2023 2022 2021

Common stock fair value per share $ 20.14 - 36.02

$ 19.74 - 38.08

$ 30.65 - 49.47

Expected volatility 49.75 % - 52.48 %

51.51 % - 54.36 %

53.91 % - 56.82 %

Risk-free interest rate 3.50 % - 4.55 %

1.57 % - 4.34 %

0.9% –

0.47 % - 1.33 %

Expected dividend yield — — —

Expected term (in years) 6.00 - 6.59

2023 2022 2021

Expected term (years) 0.5 - 2.0

1 unchanged sentence

43.19 % - 55.72 %

46.08 % - 66.37 %

Risk-free interest rate 0.13 % - 5.39 %

0.13 % - 4.72 %

0.04 % - 1.65 %

Expected dividend yield — — —

Notes to Financial Statements (Continued)

Total employee, director and non ‑employee stock ‑based compensation expense recognized was as follows:

(In thousands)

General and administrative

Research and development

The expected term of stock options represents the average period the stock options are expected to remain outstanding.

The expected stock price volatility for our stock options for the years ended December 31, 2014, 2013 and 2012 was determined by examining the historical volatilities for industry peers and adjusting for differences in our life cycle and financing leverage.

Industry peers consist of several public companies in the biopharmaceutical industry.

We determined the average expected life of stock options based on the simplified method because our common stock has not been publicly traded for an extended period and we do not have a track record of establishing the volatility.

For all option grants prior to our Initial Public Offering we were a privately held company.

The expected stock price volatility for our stock options for the years ended December 31, 2023, 2022, and 2021 was determined using a blended volatility by examining the historical volatility for industry peer companies and the volatility of our stock from the effective date that our shares were publicly traded on a national stock exchange.

We determined the average expected life of stock options based on the anticipated time period between the measurement date and the exercise date by examining the option holders’ past exercise patterns.

The risk-free interest rate assumption is based on the U.S.

Treasury instruments whose term was consistent with the expected term of our stock options.

Treasury instruments, for which the term was consistent with the expected term of our stock options.

The expected dividend assumption is based on our history and expectation of dividend payouts.

At December 31, 2014, 2013 and 2012, the unamortized compensation expense related to unvested stock options was $7.6 million, $895,000 and $26,000 , respectively.

The remaining unamortized compensation expense will be recognized over the next 3.57 years At December 31, 2014, the unamortized compensation expense of $204,000 under our ESPP will be recognized in the next year.

Commitments and Contingencies

Although we may be involved from time to time in litigation incidental to our business, we are not currently aware of any ongoing, pending or threatened litigation which would have a material adverse effect on our financial position, results of operations and cash flows.

However, unforeseen litigation may be initiated by us or by third parties.

Such litigation could adversely affect our business, financial position and results of operations and divert our attention and resources from other matters.

In 2009, we purchased certain computer equipment under a three ‑year capital lease.

Total payments due under the capital lease are listed below.

In 2011, we entered into an agreement with its landlord to amend the terms of its existing facility lease in Monrovia, California.

The new lease extends the term of the lease from January 2012 to April 2015 and provides for a new rent payment schedule.

In January 2015, we entered into a new lease agreement for the Monrovia propert y the new lease replaces the previous lease and extends our lease term to June 2020 with an option to renew for an additional five year.

The new lease is a non ‑cancelable operating lease.

We are responsible for other lease related costs such as personal property taxes, insurance, maintenance and utilities.

In May 2014 we entered into a lease for office space in San Diego, California.

The lease term is for 26 months with an option to renew for an additional year.

The total payments under the lease are approximately $200,000 .

Notes to Financial Statements (Continued)

Future minimum payments under the non ‑cancelable operating and capital leases consist of the following at December 31, 2014 (in thousands):

We have not paid dividends and did not have any dividend payout at December 31, 2023.

The following table summarizes RSU activity for the years ended December 31, 2023:

Shares Weighted-

Unvested at December 31, 2020 358,825 $ 33.04

Granted 670,700 39.11

Vested ( 151,555 ) 32.76

Forfeited ( 51,822 ) 36.68

Unvested at December 31, 2021 826,148 $ 37.79

Granted 875,330 29.45

Vested ( 341,073 ) 37.37

Forfeited ( 127,854 ) 33.66

Unvested at December 31, 2022 1,232,551 $ 32.41

Granted 994,351 30.33

Vested ( 558,066 ) 33.61

Forfeited ( 178,796 ) 31.64

Unvested at December 31, 2023 1,490,040 $ 30.66

As of December 31, 2023 and 2022, the unamortized compensation expense related to unvested stock options was $ 49.2 million and $ 52.6 million, respectively.

The remaining unamortized compensation expense will be recognized over the next 2.39 years.

At December 31, 2023 and 2022, the unamortized compensation expense was $ 1.8 million and $ 1.2 million respectively under our ESPP.

The remaining unamortized expense will be recognized over the next 1.94 years.

At December 31, 2023 and 2022, the unamortized compensation expense related to unvested restricted stock units was $ 29.6 million and $ 28.3 million, respectively.

The remaining unamortized compensation expense will be recognized over the next 1.90 years.

The Company leases office and laboratory space in Monrovia, California under two separate leases;

one lease expired in January 2023, and a second lease will expire in December 2025.

The second lease includes an option to renew for an additional five years at then market rates.

The initial lease expired in January 2023, and the Company has assessed that it is unlikely to exercise the lease term extension option for the second lease that will expire in December 2025.

For the year ended December 31, 2023, there were no ROU assets obtained in exchange for new operating lease liabilities.

The Company leases additional office space in San Diego, California under a lease that expired December 31, 2023.

In August 2023, the Company entered into a Sublease Agreement for office space in San Diego, California.

The term of the Sublease Agreement begins in September 2023 and ends in December 2027.

For the year ended December 31, 2023, ROU assets obtained in exchange for new operating lease liabilities were $ 2.5 million.

In connection with the Sublease Agreement, the Company provided a $ 0.4 million Letter of Credit (LOC) to the landlord.

The Letter of Credit will decline ratably over the term of the lease.

In connection with the LOC, Company entered into a Cash Collateral Agreement for $ 0.4 million, which is classified as restricted cash in the Consolidated Balance Sheets.

In June 2021, the Company entered into an 18 -month lease for office space in Monrovia, California.

The lease began August 1, 2021 and terminated January 31, 2023.

For the year ended December 31, 2023, there were no ROU assets obtained in exchange for new operating lease liabilities.

In June 2021, the Company entered into an Agreement of Lease (the Halstead Lease) relating to 129,543 rentable square feet, for laboratory and office space, in Pasadena, California.

The term of the Halstead Lease became effective in two phases.

The first phase commenced on July 14, 2021 and encompasses 83,083 square feet while the second phase commences no later than July 1, 2025 and encompasses an additional 46,460 square feet.

The term of the Halstead Lease is

13 years from the first phase commencement date.

The Company received delivery of the first phase premises on July 1, 2021 and completed construction of office, laboratory, and related improvements in 2023.

The Company placed the new facility into service in February 2023.

The Halstead Lease provides the Company with improvement allowances of up to $ 17.0 million and $ 3.3 million in connection with the Phase 1 and Phase 2 building improvements, respectively.

The initial base monthly rent is $ 386,336 , or $ 4.65 per square foot, and includes increases of three percent annually.

The Company will also be responsible for its proportionate share of operating expenses, tax expense, and utility costs.

In July 2021, the Halstead Lease was amended to clarify the start date of the new lease to August 1, 2022 and to amend other provisions of the Halstead Lease to reflect the new start date of the lease.

In August 2022, the Halstead lease was amended to increase the amount of the tenant allowance by $ 5.0 million with a corresponding increase in total rental payments.

The Company is eligible to receive total tenant allowance under the lease for the phase 1 space of $ 22.0 million and the initial base rent is increased to $ 416,246 , or $ 5.01 per square foot.

The second phase premises was made available on December 1, 2022.

For the year ended December 31, 2023, there were no ROU assets obtained in exchange for new operating lease liabilities.

The Company’s lease agreements do not contain any residual value guarantees or restrictive covenants.

The following table reconciles the undiscounted cash flows for the operating leases at December 31, 2023 to the operating lease liabilities recorded on the balance sheet (in thousands):

Years ending December 31,

Net rent expense for the years ended December 31, 2014 and 2013 was $597,000 and $547,000 respectively.

Thereafter 66,435

Total undiscounted lease payments 108,459

Tenant allowance ( 3,252 )

Imputed interest ( 42,747 )

Present value of lease payments $ 62,460

Lease liabilities - short-term $ 3,435

Lease liabilities - long-term 59,025

Total lease liabilities $ 62,460

The following table summarizes lease costs, cash, and other disclosures for the years ended December 31, 2023, 2022, and 2021 (in thousands):

2023 2022 2021

Operating lease cost $ 8,459 $ 6,588 $ 4,342

Variable lease cost 906 506 58

Total lease costs $ 9,365 $ 7,094 $ 4,400

Cash paid for amounts included in

the measurement of lease liabilities $ 3,253 $ 2,869 $ 2,773

Weighted-average remaining lease term

—operating leases (in years) 11.0 12.0 12.3

Weighted-average discount rate

—operating leases 8.9 % 8.9 % 5.8 %

Commitments and Contingencies

Contingencies

From time to time, the Company may be subject to various litigation and related matters arising in the ordinary course of business.

The Company does not believe it is currently subject to any material matters where there is at least a reasonable possibility that a material loss may be incurred.

We are obligated to make future payments to third parties under in-license agreements, including sublicense fees, royalties, and payments that become due and payable on the achievement of certain development and commercialization milestones.

As the amount and timing of sublicense fees and the achievement and timing of these milestones are not probable and estimable, such commitments have not been included on our balance sheet.

We have also entered into agreements with third party vendors which will require us to make future payments upon the delivery of goods and services in future periods.

In the normal course of business, we indemnify certain employees and other parties, such as collaboration partners and other parties that perform certain work on behalf of, or for the Company or take licenses to our technologies.

hawse have agreed to hold these parties harmless against losses arising from our breach of representations or covenants, intellectual property infringement or other claims made against these parties in performance of their work with us.

We have agreed to hold these parties harmless against losses arising from our breach of representations or covenants, intellectual property infringement or other claims made against these parties in performance of their work with us.

These agreements typically limit the time within which the party may seek indemnification by us and the amount of the claim.

1 unchanged sentence

Further, each potential claim would be based on the unique facts and circumstances of the claim and the particular provisions of each agreement.

We are not aware of any potential claims and did not record a liability as of December 31, 2014 and 2013.

We are not aware of any potential claims and we did not record a liability as of December 31, 2023 and 2022.

Collaboration and Licensing Agreements

Following is a summary description of the material revenue arrangements, including arrangements that generated revenue in the period ended December 31, 2023, 2022, and 2021.

The revenue reported for each agreement has been adjusted to reflect the adoption of ASC 606 for each period presented.

Alexion Pharmaceuticals, Inc.

In January 2013, the Company entered into an option and license agreement with Alexion Pharmaceuticals, Inc.

Under the terms of the agreement, the Company granted to Alexion an exclusive research license, with limited sublicensing rights, to make and use our Xtend technology.

Alexion exercised its rights to include our technology in ALXN1210, which is now marketed as Ultomiris.

The Company is eligible to receive royalties based on a percentage of net sales of such products sold by Alexion, its affiliates, or its sub licensees, which percentage is in the low single digits.

Alexion’s royalty obligations continue on a product-by-product and country-by-country basis until the expiration of the last-to-expire valid claim in a licensed patent covering the applicable product in such country.

In 2022 and 2021, the Company recorded royalty revenue of $ 29.4 million and $ 22.2 million, respectively in connection with reported net sales of Ultomiris by Alexion.

In 2023, Alexion completed certain sales milestones for Ultomiris, and the Company received a milestone payment of $ 20.0 million and recorded royalty revenue of $ 44.9 million on net sales.

On November 3, 2023, the Company entered into the Ultomiris Royalty Sale Agreement with OMERS, in which OMERS acquired the rights to certain royalties associated with the existing license relating to Ultomiris in exchange for an upfront payment of $ 192.5 million.

Included in the proceeds is $ 29.5 million of accounts receivable the Company sold for royalties and milestone receivable recorded at September 30, 2023.

For the year ended December 31, 2023, the Company earned and recognized $ 44.9 million in royalty revenue, $ 12.5 million of which was non-cash royalty revenue under the Ultomiris Royalty Sale Agreement.

The total revenue recognized under this arrangement was $ 64.9 million, $ 29.4 million, and $ 22.2 million for the years ended December 31, 2023, 2022, and 2021, respectively.

As of December 31, 2023, there is $ 12.5 million receivable and no deferred revenue related to this agreement.

Payment of this receivable will be made directly to OMERS.

Astellas Pharma Inc.

Effective March 2019, the Company entered into a Research and License Agreement (Astellas Agreement) with Astellas Pharma Inc.

(Astellas) pursuant to which the Company and Astellas conducted a discovery program to characterize compounds and products for development and commercialization.

Under the Astellas Agreement, Astellas was granted a worldwide exclusive license, with the right to sublicense products in the field created by the research activities.

The Company received an upfront payment and is eligible to receive development, regulatory and sales milestones.

If commercialized, the Company is eligible to receive royalties on net sales that range from the high-single to low-double digit percentages.

Astellas has advanced an antibody that was delivered into development, and we received a milestone related to the candidate in 2020.

Astellas advanced the candidate into Phase 1 studies in 2022 and we received a $ 5.0 million milestone.

No revenue was recognized for the year ended December 31, 2023 or 2021.The Company recognized $ 5.0 million of revenue for the year ended December 31, 2022 under the agreement.

There is no deferred revenue as of December 31, 2023.

Astria Therapeutics, Inc.

In May 2018, the Company entered into an agreement with Quellis, pursuant to which the Company provided Quellis a non-exclusive license to its Xtend Fc technology.

The Company received an equity interest in Quellis and is eligible to receive development, regulatory and sales milestones.

The Company is also eligible to receive royalties in the mid-single digit percentage range on net sales of approved products.

In January 2021, Quellis merged into Astria (formerly Catabasis), and the Company received common stock and preferred stock of Astria in exchange for its equity in Quellis.

The Company recognized an increase in the fair value of its equity interest for the exchange of shares, which was recorded as unrealized gain for the three months ended March 31, 2021.

In June 2021, a portion of the Company’s preferred stock in Astria was converted to common stock.

The remaining Astria preferred stock was converted to common stock in 2023.

The Company recorded an impairment charge of $ 0.1

million and $ 0.8 million for its investment in Astria preferred stock for the year ended December 31, 2022 and 2021, respectively.

The Company recognized unrealized (loss) gain of $( 4.3 ) million, $ 6.1 million, and $ 4.5 million related to its equity interest in Astria for the years ended December 31, 2023, 2022, and 2021 respectively.

There is no deferred revenue as of December 31, 2023 related to this agreement.

Genentech, Inc., and F.

Hoffmann-La Roche Ltd.

In February 2019, the Company entered into a collaboration and license agreement (the Genentech Agreement) with Genentech, Inc.

Hoffman-La Roche Ltd (collectively, Genentech) for the development and commercialization of novel IL-15 collaboration products (Collaboration Products), including XmAb306, the Company’s IL-15/IL15Rα-Fc candidate.

Under the terms of the Genentech Agreement, Genentech received an exclusive worldwide license to XmAb306 and we share in 45 % of development and commercialization costs of Collaboration Products, and we are eligible to share in 45 % of net profits and losses from the sale of approved products.

However, in the fourth quarter of 2023, we agreed with Genentech to convert our current development cost and profit-sharing arrangement into a royalty and milestone payment-based arrangement.

Pursuant to the terms of the amended agreement with Genentech, effective June 1, 2024, Genentech will assume sole responsibility over all clinical, regulatory and commercial activities.

We are eligible to receive up to $ 600.0 million in milestones, including $ 115.0 million in development milestones, $ 185.0 million in regulatory milestones and $ 300.0 million in sales-based milestones and tiered royalties ranging from low double-digit to mid-teens percentages.

The Company determined that the transaction price of the Genentech Agreement at inception was $ 120.0 million consisting of the upfront payment, and allocated the transaction price to each of the separate performance obligations using the relative standalone selling price with $ 111.7 million allocated to the license to XmAb306, $ 4.1 million allocated to the additional program and $ 4.2 million allocated to the research services.

The Company recognized the $ 111.7 million allocated to the license when it satisfied its performance obligation and transferred the license to Genentech in March 2019, and the $ 8.3 million allocated to the research activities was recognized over a period of time through the end of the research term or the time that a program is delivered to Genentech.

The research term expired in the first half of 2021, and the balance in deferred revenue related to the Genentech Agreement was recognized as the Company is no longer required to render services.

No revenue was recognized for the years ended December 31, 2023, and 2022.

For the year ended December 31, 2021, we recognized $ 2.5 million of income from the Genentech Agreement.

As of December 31, 2023, there was a $ 3.3 million payable related to cost-sharing development activities during the fourth quarter of 2023.

There is no deferred revenue as of December 31, 2023.

Gilead Sciences, Inc.

In January 2020, the Company entered into a Technology License Agreement (the Gilead Agreement) with Gilead Sciences, Inc.

(Gilead), in which the Company provided Gilead an exclusive license to its Cytotoxic Fc and Xtend Fc technologies for an initial identified antibody and options for up to three additional antibodies directed to the same molecular target.

Gilead is responsible for all development and commercialization activities for all target candidates.

The Company received an upfront payment and is eligible to receive development, regulatory and, sales milestones for each product incorporating the antibodies selected.

In addition, the Company is eligible to receive royalties in the low-single digit percentage range on net sales of approved products.

The Company recognized $ 6.0 million in milestone revenue for the year ended December 31, 2023.

No revenue was recognized for the years ended December 31, 2022 and 2021.

There is no deferred revenue as of December 31, 2023 related to this agreement.

INmune Bio, Inc.

In October 2017, the Company entered into a License Agreement (the INmune Agreement) with INmune.

Under the terms of the INmune Agreement, the Company provided INmune with an exclusive license to certain rights to a proprietary protein, XPro1595.

In connection with the agreement the Company received shares of INmune common stock

and an option to acquire additional shares of INmune.

The Company also received a second option to acquire additional shares of INmune common stock with a designee appointed by us serving on the board of directors of INmune.

The Company initially recorded its equity interest in INmune, including its option to acquire additional INmune shares, at cost pursuant to ASC 323.

In June 2021, the Company entered into the First Amendment to License Agreement (the Amended INmune Agreement) and an Option Cancellation Agreement (the Option Agreement) with INmune.The Option Agreement provided for the sale of the initial option to INmune for the total consideration of $ 18.3 million which includes $ 15.0 million in cash and additional shares of INmune common stock.

The Company recorded a realized gain of $ 18.3 million according to ASC 860, Transfer and Servicing , and recorded the additional shares of INmune common stock according to ASC 321, Investments – Equity Securities .

During 2021, the Company determined that it should no longer record its investment in INmune under the equity method and recorded its investment in INmune pursuant to ASC 321.

The Company adjusted the carrying value of this investment by recognizing an unrealized gain of $ 27.8 million as other income during 2021.

During 2021, the Company exercised its second to purchase additional shares of INmune common stock for $ 0.8 million, and the Company recognized an unrealized gain of $ 2.0 million, which consists of $ 1.1 million of fair value of the option and $ 0.9 million gain on the purchase.

For the year ended December 31, 2023, the Company recorded $ 9.3 million of unrealized gain related to its investment in INmune.

For the year ended December 31, 2022, the Company recorded $ 7.3 million of unrealized loss related to its investment in INmune.

For the year ended December 31, 2021, the Company recorded $ 15.1 million of unrealized gain and $ 18.3 million of realized gain related to its investment in INmune.

No revenue was recognized for the years ended December 31, 2023, 2022, or 2021.

Janssen Biotech, Inc., a Johnson & Johnson company

J&J Agreement

In November 2020, the Company entered into a Collaboration and License Agreement (the J&J Agreement) with Janssen Biotech, Inc., a Johnson & Johnson company, pursuant to which Xencor and J&J conducted research and development activities to discover novel CD28 bispecific antibodies for the treatment of prostate cancer.

Xencor together with J&J conducted joint research activities to discover XmAb bispecific antibodies against CD28 and against an undisclosed prostate tumor-target with J&J maintaining exclusive worldwide rights to develop and commercialize Licensed Products identified from the research activities.

Under the J&J Agreement, the Company conducted research activities and apply its bispecific Fc technology to antibodies targeting prostate cancer provided by J&J.

Upon completion of the research activities Janssen will have a candidate selection option to advance an identified candidate for development and commercialization.

The activities will be conducted under a research plan agreed to by both parties.

J&J will assume full responsibility for development and commercialization of the CD28 bispecific antibody candidate.

Pursuant to the J&J Agreement, the Company received an upfront payment and is eligible to receive development, regulatory and, sales milestones.

If commercialized, the Company is eligible to receive royalties on net sales that range from the high-single to low-double digit percentages.

Pursuant to the J&J Agreement, upon development of a bispecific candidate by J&J through proof of concept, we have the right to opt-in to fund 20 % of development costs and to perform 30 % of detailing efforts in the U.S.

If we exercise this right, we will be eligible to receive tiered royalties in the low-double digit to mid-teen percentage range.

The Company allocated the transaction price to the single performance obligation, delivery of CD28 bispecific antibodies to J&J.

The Company recognized the $ 50.0 million transaction price as it satisfied its performance obligation to deliver CD28 bispecific antibodies to J&J.

The Company recognized revenue related to the performance obligation over the expected period of time to complete and deliver the CD28 bispecific antibodies to J&J using the expected input method which considers an estimate of the Company’s efforts to complete the research activities outlined in the J&J Agreement.

In November 2021, the Company completed its performance obligations under the research activities and delivered CD28 bispecific antibodies to J&J.

In December 2021, J&J selected a bispecific CD28 candidate for further development, and we received a milestone of $ 5.0 million.

For the year ended December 31, 2021 the Company recognized as revenue the $ 50.0 million transaction price in connection with the completion of the research activities and the $ 5.0 million milestone for selection of an antibody candidate by J&J.

No revenue was recognized under this agreement for the year ended December 31, 2022.

In 2023, J&J completed filing of regulatory submission for a CD28 candidate and initiated Phase 1 clinical trial, and the Company received $ 17.5 million in milestone payments.

For the year ended December 31, 2023, the Company recognized $ 17.5 million in milestones under the J&J Agreement.

There is no deferred revenue related to the Agreement at December 31, 2023.

Second J&J Agreement

On October 1, 2021, the Company entered into a second Collaboration and License Agreement (the Second J&J Agreement) with J&J pursuant to which the Company granted J&J an exclusive worldwide license to develop, manufacture, and commercialize plamotamab, the Company’s CD20 x CD3 development candidate, and pursuant to which Xencor and J&J will conduct research and development activities to discover novel CD28 bispecific antibodies.

The parties will conduct joint research activities for up to a two-year period to discover XmAb bispecific antibodies against CD28 and undisclosed B cell tumor-targets with J&J receiving exclusive worldwide rights, subject to certain Xencor opt-in rights, to develop, manufacture and commercialize pharmaceutical products that contain one or more of such discovered antibodies (CD28 Licensed Antibodies).

The Agreement became effective on November 5, 2021.

Pursuant to the Second J&J Agreement, the Company received an upfront payment of $ 100.0 million and is eligible to receive up to $ 1,187.5 million in milestones which include $ 289.4 million in development milestones, $ 378.1 million in regulatory milestones and $ 520.0 million in sales milestones.

Under the terms of the Stock Purchase Agreement, Johnson & Johnson Innovation, JJDC, Inc.

(JJDC), agreed to purchase $ 25.0 million of newly issued unregistered shares of the Company’s common stock, priced at a 30 -day volume-weighted average price of $ 33.4197 per share as of October 1, 2021.

The Company issued JJDC 748,062 shares of its common stock which had a fair market value of $ 28.9 million when the shares were transferred.

The Company will collaborate with J&J on further clinical development of plamotamab with J&J and share development costs with J&J paying 80 % and the Company paying 20 % of certain development costs.

The Company is generally responsible for conducting research activities under the Second J&J Agreement, and J&J is generally responsible for all development, manufacturing, and commercialization activities for CD28 Licensed Antibodies that are advanced.

Under the Second J&J Agreement, the Company granted J&J an exclusive worldwide right to its plamotamab program and the Company will conduct research activities and apply its CD28 bispecific Fc technology to antibodies targeting B-cells.

Upon completion of the research activities J&J will have options to advance up to four identified candidates for development and commercialization.

The activities will be conducted under a research plan agreed to by both parties.

J&J will assume full responsibility for development and commercialization of the CD28 bispecific antibody candidate.

If commercialized, the Company is eligible to receive royalties on net sales that range from the high-single to low-double digit percentages.

The Company evaluated the Second J&J Agreement under the provisions of ASC 606.

We have determined that J&J is a customer for purposes of the delivery of specific performance obligations under the Second Janssen Agreement and applied the provisions of ASC 606 to the transaction.

The Company identified the following performance obligations under the Second Janssen Agreement:

(i) the license to the plamotamab program, and

(ii) research services during a two-year period to create up to four CD28 bispecific candidates targeting B-cell antigens.

The Company determined that the license and the research services are separate performance obligations because they are capable of being distinct and are distinct in the context of the Second J&J Agreement.

The Company determined the standalone selling price of the license to be $ 58.5 million using the adjusted market assessment approach considering similar collaboration and license agreements and transactions.

The standalone selling price for the research services to be performed during the research term was determined to be $ 37.6 million using the market approach which was derived from the Company’s experience and information from providing similar research services.

The Company determined that the transaction price of the Second J&J Agreement at inception was $ 96.1 million consisting of the $ 100.0 million upfront payment reduced by the $ 3.9 million discount on the proceeds received from the sale of Company common stock to J&J.

The potential milestones are not included in the transaction price as these are contingent on future events and the Company would not recognize these in revenue until it is not probable that these would not result in significant reversal of revenue amounts in future periods.

The Company will re-assess the transaction price at each reporting period and when event outcomes are resolved or changes in circumstances occur.

The Company allocated the transaction price to each of the separate performance obligations using the relative standalone selling price with $ 58.5 million allocated to the license to the plamotamab program and $ 37.6 million allocated to the research services.

The Company recognized the $ 58.5 million allocated to the license when it satisfied its performance obligation and transferred the license to J&J in November 2021.

The $ 37.6 million allocated to the research services is being recognized over a period of time through the end of the research term that services are rendered as we determine that the input method is the appropriate approach to recognize income for such services.

The Company completed its performance obligations under the research agreement in December 2023.

During 2023, J&J exercised its options on three CD28 candidates developed under the collaboration, and it completed regulatory submissions for a selected candidate and initiated a Phase 1 study for it.

During the year ended December 31, 2023, we received $ 30.0 million in milestone revenue and recognized $ 30.3 million in revenue related to completion of the research services.

A total of $ 30.3 million, $ 7.0 million, and $ 0.3 million of revenue related to the research services was recognized in each of the years ended December 31, 2023, 2022, and 2021, respectively.

The Company recognized $ 77.8 million, $ 7.0 million, and $ 113.8 million of revenue related to the two J&J agreements for the years ended December 31, 2023, 2022, and 2021, respectively.

As of December 31, 2023, there was a $ 2.9 million receivable related to cost-sharing development activities during the fourth quarter of 2023.

There is no in deferred revenue as of December 31, 2023 related to our obligation to complete research activities and deliver CD28 bispecific antibodies under the Second J&J Agreement.

MorphoSys AG/Incyte Corporation

In June 2010, the Company entered into a Collaboration and License Agreement with MorphoSys AG (MorphoSys), which was subsequently amended in March 2012 and in 2020.

The agreement provides MorphoSys with an exclusive worldwide license to the Company’s patents and know-how to research, develop, and commercialize the Company’s XmAb5574 product candidate (subsequently renamed MOR208 and tafasitamab) with the right to sublicense under certain conditions.

If certain developmental, regulatory, and sales milestones are achieved, the Company is eligible to receive future milestone payments and royalties.

On November 3, 2023, the Company entered into the Monjuvi Royalty Sale Agreement with OMERS, pursuant to which OMERS acquired the rights to certain royalties earned after July 1, 2023 associated with the existing license relating to Monjuvi in exchange for an upfront payment of $ 22.5 million.

The upfront payment included $ 2.2 million of accounts receivable we recorded as a royalty receivable at September 30, 2023.

The payment for the receivable was received by OMERS.

In February 2024, Incyte Corporation acquired exclusive global development and commercialization rights to tafasitamab.

The Company recognized a total of $ 8.7 million and $ 7.8 million of royalty revenue on net sales of Monjuvi for the years ended December 31, 2023 and 2022.

Of the $ 8.7 million royalty revenue earned in 2023, $ 2.1 million was non-cash royalty revenue from the Monjuvi Royalty Sale Agreement.The Company recognized a total of $ 12.5 million of milestone revenue related to clinical studies and royalties of $ 5.9 million on net sales of Monjuvi for the year ended

December 31, 2021.

As of December 31, 2023, the Company has no deferred revenue related to this agreement and has recorded a receivable of $ 2.1 million for royalties due.

Novartis Institute for Biomedical Research, Inc.

In June 2016, the Company entered into a Collaboration and License Agreement (Novartis Agreement) with Novartis Institutes for BioMedical Research, Inc.

(Novartis), to develop and commercialize bispecific and other Fc engineered antibody drug candidates using the Company’s proprietary XmAb technologies and drug candidates.

Pursuant to the Novartis Agreement:

• The Company granted Novartis certain exclusive rights to research, develop and commercialize XmAb14045 (vibecotamab) and,

• The Company will provide Novartis with a non-exclusive license to certain of its Fc technologies to apply against up to ten targets identified by Novartis.

In August 2021, Novartis notified the Company it was terminating its rights with respect to the vibecotamab program, which became effective in February 2022.

Under the Novartis Agreement, Novartis is responsible for its share of vibecotamab development costs through August 2022.

We completed delivery of two Global Discovery Programs under the Agreement.

Under ASC 606, revenue is recognized at the time that the Company’s performance obligation for each Global Discovery is completed upon delivery of each discovery program to Novartis.

The Company delivered two discovery programs to Novartis and recognized $ 40.1 million of revenue in the period that each program was delivered.

The Company’s obligations to provide research services under the Agreement for additional Global Discovery Programs expired in 2021, and we recognized $ 40.1 million of research revenue from deferred revenue.

In June 2021, Novartis selected an Fc candidate and received a non-exclusive license to the Company’s Fc technology.

Novartis will assume full responsibility for development and commercialization of the licensed Fc product candidate.

The Company is eligible to receive development, clinical, and sales milestones and royalties on net sales of approved products for the licensed Fc candidate.

During the year ended December 31, 2021, Novartis advanced the Fc candidate into development and initiated clinical studies and the Company recognized $ 3.0 million of revenue related to the milestones.

No revenue was recognized during the years ended December 31, 2023 and 2022.

During the year ended December 31, 2021, the Company recognized $ 43.1 million of revenue.

There is no receivable and no deferred revenue as of December 31, 2023 related to the arrangement.

Omeros Corporation

In August 2020, the Company entered into a Technology License Agreement (the Omeros Agreement) with Omeros Corporation (Omeros), in which the Company provided Omeros a non-exclusive license to its Xtend Fc technology, an exclusive license to apply its Xtend technology to an initial identified antibody and options to apply its Xtend technology to three additional antibodies.

Omeros is responsible for all development and commercialization activities for all target candidates.

The Company received an upfront payment and is eligible to receive development, regulatory and, sales milestones for each product incorporating the antibodies selected.

In addition, the Company is eligible to receive royalties in the mid-single digit percentage range on net sales of approved products.

During 2023, Omeros advanced a candidate that incorporates the Company's Xtend Fc technology into a Phase 2 study, and the Company received a $ 5.0 million milestone.

The Company recognized $ 5.0 million of revenue related to the Omeros Agreement for the year ended December 31, 2023.

There was no revenue recognized for the years ended December 31, 2022 and 2021.

There is no deferred revenue as of December 31, 2023 related to this agreement.

Vir Biotechnology, Inc.

In 2019, the Company entered into a Patent License Agreement (the Vir Agreement) with Vir Biotechnology, Inc.

(Vir) pursuant to which the Company provided a non-exclusive license to its Xtend technology for up to two targets.

In March 2020, the Company entered into a second Patent License Agreement (the Second Vir Agreement) with Vir pursuant to which the Company provided a non-exclusive license to its Xtend technology to extend the half-life of novel antibodies Vir developed as potential treatments for patients with COVID-19.

Under the terms of the Second Vir Agreement, Vir is responsible for all research, development, regulatory and commercial activities for the antibody, and the Company is eligible to receive royalties on the net sales of approved products in the mid-single digit percentage range.Vir and its marketing partner, GSK, began recording sales for sotrovimab beginning in June 2021.

In 2023, 2022, and 2021, we recognized royalty revenue of $ 2.2 million, $ 114.9 million, and $ 52.2 million , respectively related to this agreement.

In June 2021, Vir announced its plan to initiate a Phase 2 study for VIR-3434 and subsequently completed dosing of the first patient in such study in July 2021.

The Company recorded a $ 0.5 million contract asset in connection with this milestone event, and the payment was received in August 2021.

In October 2022, Vir completed dosing of the first patient in Phase 2 study for VIR-2482, and the Company recorded $ 0.5 million revenue in connection with this milestone event.

The Company recognized $ 2.2 million , $ 115.4 million, and $ 52.7 million of revenues related to the agreement for the years ended December 31, 2023, 2022, and 2021, respectively.

There is no deferred revenue as of December 31, 2023 related to this agreement.

As of December 31, 2023, the Company has recorded a receivable of $ 0.6 million for royalties due related to this agreement.

Viridian Therapeutics, Inc.

In December 2020, we entered into a Technology License Agreement (Viridian Agreement) with Viridian Therapeutics, Inc.

(Viridian), in which we provided Viridian a non-exclusive license to our Xtend Fc technology and an exclusive license to apply our Xtend Fc technology to antibodies targeting IGF-1R.

We received an upfront payment of shares of Viridian common stock originally valued at $ 6.0 million and are eligible to receive development, regulatory and sales milestones.

We are also eligible to receive royalties in the mid-single digit percentage range on net sales of approved products.

The Company allocated $ 6.0 million of the transaction price to the licenses to the Xtend Fc technology and recognized income for the licenses at inception of the arrangement when Viridian began benefiting access to it.

During 2023, Viridian terminated the license agreement.

In December 2021, we entered into a second Technology License Agreement (Second Viridian Agreement) with Viridian for a non-exclusive license to certain antibody libraries developed by us.

Under the Second Viridian Agreement, Viridian received a one-year research license to review the antibodies and the right to select up to three antibodies for further development.

We received an upfront payment shares of Viridian common stock originally valued at $ 7.5 million and are eligible to receive up to $ 24.8 million in milestones, which include $ 1.8 million in development milestones, $ 3.0 million in regulatory milestones and $ 20.0 million in sales milestones in addition to royalties on net sales of approved products under the Second Viridian Agreement.

The Company evaluated the Second Viridian Agreement under the revenue recognition standard ASC 606 and identified the following performance obligation that it deemed to be distinct at the inception of the contract:

• non-exclusive license to certain antibody libraries created by the Company

The Company considered the license as functional intellectual property as Viridian has the right to use the materials and license at the time that the Company transfers such rights.

The total transaction price is $ 7.5 million, which includes the upfront payment of Viridian common stock at their fair value at the date of the Agreement.

The milestone payments are variable consideration to which the Company applied the “most likely amount” method and concluded at inception of the Viridian Agreement it is unlikely that the Company will collect such payments.

The milestone payments were not included in the transaction price, and the Company will review this conclusion and update at each reporting period.

The Company allocated $ 7.5 million of the transaction price to the licenses to the antibody libraries and recognized income for the licenses at inception of the arrangement when Viridian received the materials and began accessing them.

In 2023, the research term under the second Viridian license expired.

No revenue related to the Viridian Agreement was recognized for the years ended December 31, 2023 and 2022.

The Company recognized $ 7.5 million of revenue related to the Viridian Agreement for the year ended December 31, 2021.

There is no deferred revenue as of December 31, 2023 related to this agreement.

Zenas BioPharma, Inc.

In November 2020, the Company entered into a License Agreement (Zenas Agreement) with Zenas BioPharma (Cayman) Limited, now Zenas BioPharma, Inc., (Zenas) pursuant to which the Company granted Zenas exclusive worldwide rights to develop and commercialize three preclinical-stage Fc-engineered drug candidates:

XmAb6755, Xpro9523, and XmAb10171.

The Company received an upfront payment in equity in Zenas with a fair value of $ 16.1 million and the Company is eligible to receive royalties on net sales of approved products in the mid-single digit to mid-teen percentage range.

In November 2021, the Company entered into a second License Agreement (Second Zenas Agreement) with Zenas, in which we licensed the exclusive worldwide rights to develop and commercialize the Company’s obexelimab (XmAb5871) drug candidate.

The Company received a warrant to acquire additional equity in Zenas with a fair value of $ 14.9 million, and the Company is eligible to receive royalties on net sales of approved products in the mid-single digit to mid-teen percentage range.

The total transaction price is $ 14.9 million, which includes the upfront payment of a warrant to acquire up to 15 % of the equity of Zenas in connection with a future financing at its fair value at the date of the Second Zenas Agreement.

The Second Zenas Agreement includes variable consideration for potential future royalties that were contingent on future success factors for the licensed programs.

The Company used the “most likely amount” method to determine the variable consideration.

None of the royalties were included in the transaction price.

The Company will re-evaluate the transaction price in each reporting period as uncertain events are resolved or other changes in circumstances occur.

The Company determined the transaction price at inception of the Second Zenas Agreement and allocated it to the performance obligation, delivery of the obexelimab license.

The Company completed delivery of its performance obligations in December 2021.

The licenses to obexelimab were transferred to Zenas at inception of the Second Zenas Agreement, and the related research data and documentation was transferred to Zenas in December 2021.

In 2021, the Company purchased a convertible promissory note from Zenas which would automatically convert to equity in a financing transaction.

In November 2022, Zenas completed a financing transaction, pursuant to which a warrant to purchase Zenas equity that was held by the Company was automatically exercised, and a convertible note issued to the Company by Zenas was automatically converted with both converting into shares of Zenas’ preferred stock.

After the financing transaction, we continued to record our investment in Zenas at fair value adjusted at each reporting period for impairment or other evidence of change in value.

The equity shares in Zenas received from exercise of the warrant and conversion of the notes have an estimated fair value of $ 34.5 million and $ 7.7 million, respectively.

As a result of the Zenas financing transaction, the estimated fair value of our investment in equity securities increased by $ 17.9 million.

In 2022, this amount has been recorded in other income.

In 2023, Zenas initiated a Phase 3 study with obexelimab, and we received additional equity in Zenas as a milestone payment.

We recorded milestone revenue of $ 10.0 million, which is the fair value of the equity shares at the date of issuance.

No revenue was recognized for the year ended December 31, 2022.

The Company recognized $ 10.0 million and $ 14.9 million of revenue related to the two Zenas Agreements for the years ended December 31, 2023 and 2021, respectively.

There is no deferred revenue as of December 31, 2023 related to this agreement.

Technology License Agreement and Services Agreement with Gale Therapeutics Inc.

In the fourth quarter of 2023, the Company formed a subsidiary, Gale Therapeutics Inc.

(Gale), to develop novel drug candidates with its Fc technologies.

On December 19, 2023, the Company entered into the Gale License Agreement and the Gale Services Agreement with Gale.

Under the Gale License Agreement, Gale received an exclusive license to certain preclinical candidates and related Xencor technologies.

The Company also has an option on future compounds Gale will develop.

Under the Gale Services Agreement, the Company will provide research and development services as well as accounting and administrative support.

Pursuant to the Gale Agreement, the Company acquired a majority stake in Gale.

The Company is deemed to be the primary beneficiary of Gale, a VIE, and they are under common control;

therefore, the assets, liabilities and non-controlling interests of Gale are initially recorded at their previous carrying amounts, with no adjustment to current fair values and no gain or loss is recognized.

The value of the preclinical assets and technology had no value on Xencor's financial statements, and the license to Gale at inception had no carrying value.

The Company would not recognize license revenue related to the transfer for the year ended December 31, 2023.

Total charges under the Services Agreement during 2023 of $ 1.0 million have been eliminated in consolidation.

Revenue Earned

The $ 174.6 million, $ 164.6 million, and $ 275.1 million of revenue recorded for the years ended December 31, 2023, 2022, and 2021, respectively, were earned principally from the following licensees (in millions):

2023 2022 2021

(As Restated)

Alexion 64.9 29.4 22.2

Astellas — 5.0 —

Genentech — — 2.5

Gilead 6.0 — —

Janssen 77.8 7.0 113.8

MorphoSys 8.7 7.8 18.4

Novartis — — 43.1

Omeros 5.0 — —

Vir 2.2 115.4 52.7

Viridian — — 7.5

Zenas 10.0 — 14.9

Total $ 174.6 $ 164.6 $ 275.1

The table below summarizes the disaggregation of revenue recorded for the years ended December 31, 2023, 2022, and 2021 (in millions):

2023 2022 2021

(As Restated)

Research collaboration $ 30.3 $ 7.0 $ 93.0

Milestone 88.5 5.5 21.0

Licensing — — 80.8

Royalties 41.2 152.1 80.3

Non-cash royalties 14.6 $ — $ —

Total $ 174.6 $ 164.6 $ 275.1

Remaining Performance Obligations and Deferred Revenue

There is no remaining performance obligation under the Company's arrangements as of December 31, 2023.

The Company's performance obligation as of December 31, 2022 was completing research activities pursuant to the Second J&J Agreement.

As of December 31, 2022, we have deferred revenue of $ 30.3 million.

All of the deferred revenue was classified as short term as of December 31, 2022, as the Company’s obligations to perform research services are due on demand when requested by J&J under the Second J&J Agreement.

Sale of Future Royalties

Ultomiris Royalty Sale Agreement

On November 3, 2023, the Company and OMERS entered into the Ultomiris Royalty Sale Agreement.

Pursuant to the Ultomiris Royalty Sale Agreement, OMERS acquired the rights to a portion of royalties and milestones earned after July 1, 2023 associated with the existing license relating to Ultomiris® (ravulizumab) in exchange for an upfront payment of $ 192.5 million.

Pursuant to the Ultomiris Royalty Sale Agreement and subject to the Company’s existing license with Alexion, OMERS has acquired the right to receive:

(i) 100 % of royalties payable on past and potential sales related to Ultomiris® that occur from July 1, 2023 through December 31, 2025;

(ii) up to $ 35.0 million annually in royalties on potential sales related to Ultomiris® that occur from January 1, 2026 through December 31, 2028 with any royalties in excess of $ 35.0 million reverting to the Company;

(iii) up to $ 12.0 million annually in royalties on potential sales related to Ultomiris® that occur from and after January 1, 2029, with any royalties in excess of $ 12.0 million reverting to the Company;

and (iv) $ 18.0 million of a certain potential sales based milestone payment pursuant to the existing license with Alexion.

OMERS will pay an additional $ 12.0 million in 2024 to the Company if certain potential sales based milestones have been reached.

The Company determined that $ 29.5 million of the upfront payment is for a recorded receivable for royalties and a milestone earned in the third quarter of 2023 and $ 163.0 million is for the sale of future royalties.

The Company evaluated the arrangement and determined that the proceeds from the sale of future royalties should be classified as debt according to ASC 470.

As of December 31, 2023, the estimated effective rate under the agreement was 21.1 %.

The Company will reassess the estimate of total future royalty payments and prospectively adjust the imputed interest rate and related amortization if the estimate is materially different.

For the year ended December 31, 2023, the Company recognized $ 12.5 million of non-cash royalty revenue and $ 5.5 million of non-cash interest expense.

Monjuvi Royalty Sale Agreement

On November 3, 2023, the Company and OMERS entered into the Monjuvi Royalty Sale Agreement.

Pursuant to the Monjuvi Royalty Sale Agreement, OMERS acquired the rights to a portion of royalties earned after July 1, 2023 associated with the existing license relating to Monjuvi®/Minjuvi® (tafasitamab-cxix) in exchange for an upfront payment of $ 22.5 million.

Pursuant to the Monjuvi Royalty Sale Agreement and subject to the Company’s existing license with MorphoSys, OMERS has acquired the right to receive up to $ 29.3 million in royalties earned after July 1, 2023 related to sales of Monjuvi®/Minjuvi®, with any royalties in excess of $ 29.3 million paid to OMERS reverting to the Company.

The Company determined that $ 2.2 million of the upfront payment is for a recorded receivable for royalties earned in the third quarter of 2023 and $ 20.3 million is from the sale of future royalties.

The Company evaluated the arrangement and determined that the proceeds from the sale of future royalties should be classified as debt according to ASC 470.

As of December 31, 2023, the estimated effective rate under the agreement was 21.1 %.

The Company will reassess the estimate of total future royalty payments and prospectively adjust the imputed interest rate and related amortization if the estimate is materially different.

For the year ended December 31, 2023, the Company recognized $ 2.1 million of non-cash royalty revenue and $ 0.7 million of non-cash interest expense.

The following table shows the activity within debt for the year ended December 31, 2023 (in thousands):

December 31, 2023

(As Restated)

Beginning balance of debt related to sale of future royalties $ —

Proceeds from sale of future royalties 183,330

Royalties paid to OMERS —

Non-cash interest expense recognized 6,153

Ending balance of debt related to sale of future royalties $ 189,483

Debt - short-term 27,711

Debt - long-term 161,772

Total debt $ 189,483

We have a 401(k) plan covering all full-time employees.

Employees may make pre-tax contributions up to the maximum allowable by the Internal Revenue Code.

Participants are immediately vested in their employee contributions and employer discretionary contributions, if any.

No employer contributions were made for the years ended December 31, 2014, 2013 or 2012.

Related Parties

On September 4, 2013, our Board of Directors authorized the forgiveness of the outstanding principal and interest of approximately $166,000 , under the promissory note from our Chief Executive Officer, effective and contingent upon the filing of a registration statement on Form S ‑1 for our initial public offering with the U.S.

Securities and Exchange Commission.

Conversion of Convertible Promissory Notes and Preferred Stock

In June 2013, our Board of Directors and the requisite holders of the 2009 Notes and 2010 Notes and requisite preferred stockholders agreed to a series of transactions as follows:

Notes to Financial Statements (Continued)

an exchange of the outstanding principal due on the 2009 Notes and 2010 Notes for shares of Series A ‑1 convertible preferred stock and cancellation of the accrued and unpaid interest thereon, pursuant to a Note Conversion Agreement;

an exchange of the current outstanding shares of Preferred Series A—E for Series A ‑1 convertible preferred stock pursuant to the operation of provisions in our amended and restated certificate of incorporation;

the sale of an additional $10.0 million in Series A ‑1 convertible preferred stock to existing stockholders;

the conversion of certain shares of Series A ‑1 convertible preferred stock into shares of Series A ‑2 convertible preferred stock at a conversion rate of 1 for 3, pursuant to a mandatory conversion provision (e.g.

a “pay to play”

provision) in our amended and restated certificate of incorporation.

The primary business purpose for this series of transactions was to raise an additional $10 million of capital from the sale of shares of our Series A ‑1 convertible preferred stock (the financing).

The exchange of Notes, cancellation of interest, restatement of our certificate of incorporation to effect the exchange of Preferred Series A—E for Series A ‑1 convertible preferred stock and the conversion of certain shares of Series A ‑1 convertible preferred stock for shares of Series A ‑2 convertible preferred stock were each negotiated aspects of, and conditions to, the financing.

When considering the terms for the financing, our Board of Directors took these conditions into account and, ultimately, determined that the financing was in the best interests of the Company and our stockholders.

Subsequent to approval of the financing by our Board of Directors, the requisite stockholders and holders of the Notes also approved this series of transactions.

Under the terms of the Note Conversion Agreement, the total outstanding principal due on the Notes as of June 13, 2013 was exchanged for 45,902,321 shares of Series A ‑1 convertible preferred stock, 5,303,597 of which were subsequently converted into 1,766,097 shares of Series A ‑2 convertible preferred stock.

We determined that the per share fair value of the shares of Series A ‑1 convertible preferred stock issued was $1.54 and the total fair value of the issued shares under the Note Conversion Agreement was $70.7 million and we recognized a loss on the exchange of $48.6 million for the difference in the fair value of the shares of Series A ‑1 convertible preferred stock and the carrying value of the Notes as of June 13, 2013.

The $48.6 million loss is reported on our Statement of Operation as a Loss on Settlement of Notes as an Other Expense for the year ended December 31, 2013.

Associated transaction costs of $41,000 related to the exchange were expensed.

After the exchange of the Notes, the outstanding shares of Preferred Series A—E were exchanged for 1,977,137 shares of Series A ‑1 convertible preferred stock, 257,409 of which were subsequently converted into 85,717 shares of Series A ‑2 convertible preferred stock.

We determined the fair value of the shares of Series A ‑1 convertible preferred stock issued to be $3.0 million and we recorded a deemed contribution to equity of $140.6 million equal to the difference in the fair value of the shares issued and the carrying value of the existing shares of Preferred Series A—E.

We record issuance costs related to our preferred stock sales as a reduction to paid ‑in capital at the time the preferred securities are issued and reflect the carrying value of the preferred stock at the aggregate issuance price.

We record these issuances as a non ‑cash equity distribution at the date of redemption.

The deemed contribution has been adjusted to reflect $3.0 million of original issuance costs of the Preferred Series A—E.

We determined that the value of the Series A ‑2 convertible preferred stock to be $0.58 per share.

A total of 1,851,814 shares of Series A ‑2 convertible preferred stock with a fair value of $1.1 million were issued in exchange for 5,561,006 shares of Series A ‑1 convertible preferred stock with the fair value of $8.6 million.

We recognized a deemed

Notes to Financial Statements (Continued)

contribution of $7.5 million for the difference in the fair value of the shares of Series A ‑2 convertible preferred stock issued in exchange for the shares of Series A ‑1 convertible preferred stock.

On June 26, 2013 we sold 5,586,510 shares of additional Series A ‑1 convertible preferred stock to existing stockholders at a purchase price of $1.36 per share for aggregate proceeds of $7.6 million.

We determined that the fair value of the shares sold in June 2013 to be $8.6 million and we recorded a deemed dividend of $1.0 million for the difference in the sales price of the Series A ‑1 convertible preferred stock and the fair value of the shares.

The $40,000 of transaction costs related to the sale was recorded against Additional Paid in Capital.

We determined that the fair value of the Series A ‑1 and Series A ‑2 convertible preferred stock as of June 26, 2013 was $1.54 and $0.58 , respectively.

We used the probability ‑weighted expected return method (PWERM) to determine the fair value of the shares of the Series A ‑1 and A ‑2 convertible preferred stock.

PWERM is a scenario ‑based analysis that estimates the value per share based on the probability ‑weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the economic and control rights of each share class.

On September 23, 2013 we sold 1,766,430 additional shares of Series A ‑1 convertible preferred stock for gross proceeds of $2.4 million at a purchase price of $1.36 per share.

We determined the fair value of the shares of Series A ‑1 convertible preferred stock sold to be $4.7 million, based on a per share fair value of $2.69 , determined by estimating the enterprise value of the Company based on a projected offering price in an initial public offering, and we recorded a deemed dividend of $2.3 million for the difference in the sales price of the Series A ‑1 convertible preferred stock and the fair value of the shares.

Transaction costs of $34,000 related to the sale were recorded against Additional Paid in Capital.

Initial Public Offering

On December 2, 2013, we commenced our initial public offering pursuant to a registration statement on Form S ‑1 that was declared effective by the SEC on December 3, 2013 and that registered an aggregate of 14,639,500 shares of our common stock for sale to the public at a price of $5.50 per share and an aggregate offering price of $80,517,250 .

The net offering proceeds to us, after deducting underwriting discounts and commissions and offering costs, were approximately $72.5 million.

Deferred offering costs as of December 31, 2013, consisted of legal, accounting, printing and filing fees incurred in the preparation of the Company’s Registration Statement on Form S ‑1 as part of the Company’s IPO have been offset against the IPO proceeds upon the completion of the offering in December 2013.

Subsequent Events

We completed an evaluation of all subsequent events through the date the financial statements were issued to ensure that this filing includes appropriate disclosure of events both recognized in the December 31, 2014 financial statements and events which occurred but were not recognized in the financial statements.

In January 2015, we entered into a new lease agreement for the Monrovia property.

The new lease agreement replaces the existing lease, is effective January 1, 2015 and extends the term of the lease to June 2020.

The lease includes an option to renew at our discretion for an additional five years at the prevailing market rate.

The total payments under the new lease are $2.8 million.

We are also obligated for other lease related costs such as personal property taxes, insurance, maintenance and utilities.

Condensed Quarterly Financial Data (unaudited)

The following table contains selected unaudited financial data for each quarter of 2014 and 2013.

The unaudited information should be read in conjunction with the Company’s financial statements and related notes included elsewhere

Notes to Financial Statements (Continued)

in this report.

The Company believes that the following information reflects all normal recurring adjustments necessary for a fair presentation of the information for the periods presented.

The operating results for any quarter are not necessarily indicative of results for any future period.

Quarterly Financial Data (in thousands, except per share data):

2014 Quarter Ended

September 30,

Total revenue

Loss from operations

Basic net loss per common share

Diluted net loss per common share

2013 Quarter Ended

September 30,

Total revenue

Loss from operations

Basic net loss per common share

Diluted net loss per common share

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Effective March 31, 2020, the Company contributes 100 % of the first 1 % of participating employees’ contribution and 50 % of the next 6 % of participating employees’ contribution, for a maximum of 4.0 % of employer contribution.

Participants are immediately vested in their employee contributions;

employer contributions are vested over a three-year period with one-third for each year of a participating employee’s service.

Employer contributions made for the years ended December 31, 2023, 2022, and 2021 were $ 1.7 million, $ 1.4 million, and $ 1.1 million, respectively.

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-K/A

Item 8. Financial Statements and Supplementary Data