Xencor Inc 10-Q/A

Item 1. Financial Statements Xencor, Inc. Consolidated Balance Sheets (in thousands, except share and per share data) September 30, 2024 December 31, 2023 (As Restated) (unaudited) Assets Current assets Cash and cash equivalents $ 29,031 $ 53,790 Marketable debt securities 435,043 497,725 Marketable equity securities 78,903 42,210 Accounts receivable 25,872 23,739 Prepaid expenses and other current assets 20,748 18,139 Total current assets 589,597 635,603 Property and equipment, net 62,400 66,124 Patents, licenses, and other intangible assets, net 17,919 18,663 Restricted cash 385 380 Marketable debt securities - long term 290,274 145,512 Marketable equity securities - long term — 64,210 Right of use (ROU) asset 38,831 33,995 Other assets 498 648 Total assets $ 999,904 $ 965,135 Liabilities and stockholders’ equity Current liabilities Accounts payable $ 18,770 $ 13,914 Accrued expenses 25,407 23,564 Income tax payable — 5,291 Lease liabilities 2,181 3,435 Deferred income — — Debt 44,455 27,711 Total current liabilities 90,813 73,915 Uncertain tax position payable 8,336 8,336 Lease liabilities, net of current portion 66,489 59,025 Debt, net of current portion 128,340 161,772 Total liabilities 293,978 303,048 Commitments and contingencies Stockholders’ equity Preferred stock, $ 0.01 par value: 10,000,000 authorized shares; - 0 - issued and outstanding shares at September 30, 2024 and December 31, 2023 — — Common stock, $ 0.01 par value: 200,000,000 authorized shares at September 30, 2024 and December 31, 2023; 69,963,447 issued and outstanding at September 30, 2024 and 60,998,191 issued and outstanding at December 31, 2023 701 611 Additional paid-in capital 1,364,846 1,131,266 Accumulated other comprehensive income 1,800 1,291 Accumulated deficit ( 658,483 ) ( 471,418 ) Total stockholders’ equity attributable to Xencor, Inc. 708,864 661,750 Non-controlling interest ( 2,938 ) 337 Total stockholders’ equity 705,926 662,087 Total liabilities and stockholders’ equity $ 999,904 $ 965,135 See accompanying notes . 6 Table of Contents Xencor, Inc. Consolidated Statements of Loss (unaudited) (in thousands, except share and per share data) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (As Restated) (As Restated) Revenue Collaborations, milestones, and royalties $ 17,796 $ 59,164 $ 57,700 $ 123,649 Operating expenses Research and development 58,226 64,941 176,630 190,553 General and administrative 14,767 12,493 46,300 38,107 Total operating expenses 72,993 77,434 222,930 228,660 Loss from operations ( 55,197 ) ( 18,270 ) ( 165,230 ) ( 105,011 ) Other income (expense) Interest income 7,537 5,023 23,766 11,693 Interest expense ( 9,026 ) ( 7 ) ( 27,984 ) ( 21 ) Other (expense) income, net ( 10 ) 8 ( 14 ) ( 14 ) Impairment on equity securities — — ( 20,430 ) — Gain (loss) on equity securities, net 9,254 ( 11,023 ) ( 448 ) ( 13,633 ) Total other income (expense), net 7,755 ( 5,999 ) ( 25,110 ) ( 1,975 ) Net loss ( 47,442 ) ( 24,269 ) ( 190,340 ) ( 106,986 ) Net loss attributable to non-controlling interest ( 1,154 ) — ( 3,275 ) — Net loss attributable to Xencor, Inc. $ ( 46,288 ) $ ( 24,269 ) $ ( 187,065 ) $ ( 106,986 ) Basic and diluted net loss per common share attributable to Xencor, Inc. $ ( 0.72 ) $ ( 0.40 ) $ ( 3.00 ) $ ( 1.77 ) Basic and diluted weighted average common shares outstanding 64,022,547 60,621,534 62,310,045 60,387,163 See accompanying notes . 7 Table of Contents Xencor, Inc. Consolidated Statements of Comprehensive Loss (unaudited) (in thousands, except share and per share data) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (As Restated) (As Restated) Net loss ( 47,442 ) ( 24,269 ) ( 190,340 ) ( 106,986 ) Other comprehensive income Net unrealized gain on marketable debt securities 2,452 1,151 510 6,244 Comprehensive loss ( 44,990 ) ( 23,118 ) ( 189,830 ) ( 100,742 ) Comprehensive loss attributable to non-controlling interest ( 1,154 ) — ( 3,275 ) — Comprehensive loss attributable to Xencor, Inc. $ ( 43,836 ) $ ( 23,118 ) $ ( 186,555 ) $ ( 100,742 ) See accompanying notes . 8 Table of Contents Xencor, Inc. Consolidated Statements of Stockholders’ Equity (unaudited) (in thousands, except share data) Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Non-Controlling Interest Total Stockholders’ Equity Stockholders’ Equity Shares Amount Balance, December 31, 2023 As Restated 60,998,191 $ 611 $ 1,131,266 $ 1,291 $ ( 471,418 ) $ 337 $ 662,087 Issuance of common stock upon exercise of stock awards 152,682 1 1,786 — — — 1,787 Issuance of restricted stock units 483,812 5 ( 5 ) — — — — Comprehensive loss — — — ( 1,445 ) ( 73,440 ) ( 676 ) ( 75,561 ) Stock-based compensation — — 11,421 — — — 11,421 Balance, March 31, 2024 As Restated 61,634,685 $ 617 $ 1,144,468 $ ( 154 ) $ ( 544,858 ) $ ( 339 ) $ 599,734 Issuance of common stock upon exercise of stock awards 10,213 — 140 — — — 140 Issuance of restricted stock units 67,160 1 ( 1 ) — — — — Issuance of common stock under the Employee Stock Purchase Plan 53,996 1 929 — — — 930 Comprehensive loss — — — ( 498 ) ( 67,337 ) ( 1,445 ) ( 69,280 ) Stock-based compensation — — 17,190 — — — 17,190 Balance, June 30, 2024 As Restated 61,766,054 $ 619 $ 1,162,726 $ ( 652 ) $ ( 612,195 ) $ ( 1,784 ) $ 548,714 Sale of common stock and pre-funded warrants, net of issuance cost 8,093,712 81 189,098 — — — 189,179 Issuance of common stock upon exercise of stock awards 59,254 1 684 — — — 685 Issuance of restricted stock units 44,427 — — — — — — Comprehensive income (loss) as restated — — — 2,452 ( 46,288 ) ( 1,154 ) ( 44,990 ) Stock-based compensation — — 12,338 — — — 12,338 Balance, September 30, 2024 As Restated (unaudited) 69,963,447 $ 701 $ 1,364,846 $ 1,800 $ ( 658,483 ) $ ( 2,938 ) $ 705,926 Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Non-Controlling Interest Total Stockholders’ Equity Stockholders’ Equity Shares Amount Balance, December 31, 2022 59,997,713 $ 601 $ 1,072,132 $ ( 6,952 ) $ ( 338,285 ) $ — $ 727,496 Issuance of common stock upon exercise of stock awards 34,388 — 924 — — — 924 Issuance of restricted stock units 349,499 4 ( 4 ) — — — — Comprehensive income (loss) — — — 3,327 ( 60,763 ) — ( 57,436 ) Stock-based compensation — — 12,599 — — — 12,599 Balance, March 31, 2023 60,381,600 $ 605 $ 1,085,651 $ ( 3,625 ) $ ( 399,048 ) $ — $ 683,583 Issuance of common stock upon exercise of stock awards 145,003 1 676 — — — 677 Issuance of restricted stock units 18,148 — — — — — — Issuance of common stock under the Employee Stock Purchase Plan 55,309 1 1,241 — — — 1,242 Comprehensive income (loss) — — — 1,765 ( 21,954 ) — ( 20,189 ) Stock-based compensation — — 13,563 — — — 13,563 Balance, June 30, 2023 60,600,060 $ 607 $ 1,101,131 $ ( 1,860 ) $ ( 421,002 ) $ — $ 678,876 Issuance of common stock upon exercise of stock awards 34,743 — 356 — — — 356 Issuance of restricted stock units 31,097 — — — — — — Comprehensive income (loss) — — — 1,151 ( 24,269 ) — ( 23,118 ) Stock-based compensation — — 12,896 — — 12,896 Balance, September 30, 2023 (unaudited) 60,665,900 $ 607 $ 1,114,383 $ ( 709 ) $ ( 445,271 ) $ — $ 669,010 See accompanying notes . 9 Table of Contents Xencor, Inc. Consolidated Statements of Cash Flows (unaudited) (in thousands) Nine Months Ended September 30, 2024 2023 (As Restated) Cash flows from operating activities Net loss $ ( 190,340 ) $ ( 106,986 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 9,113 8,270 Accretion of discount on marketable debt securities ( 13,504 ) ( 8,211 ) Stock-based compensation 40,949 39,058 Equity received in connection with license agreements — ( 10,000 ) Abandonment of capitalized intangible assets 2,179 797 Gain on sale of marketable debt securities ( 3 ) — Change in fair value of equity securities 448 13,633 Impairment on equity securities 20,430 — Non-cash royalty revenue related to sale of future royalties ( 48,646 ) — Non-cash interest expense 27,950 — Loss on disposal of assets 6 1,380 Changes in operating assets and liabilities: Accounts receivable 1,875 ( 26,003 ) Interest receivable from marketable debt securities ( 3,131 ) 113 Prepaid expenses and other assets ( 1,851 ) 1,592 Accounts payable 4,856 4,879 Accrued expenses 1,843 5,744 Income taxes ( 5,899 ) — Lease liabilities and ROU assets 1,374 737 Deferred revenue — ( 21,098 ) Net cash used in operating activities ( 152,351 ) ( 96,095 ) Cash flows from investing activities Purchase of marketable securities ( 540,844 ) ( 444,480 ) Sale of equity securities 6,639 — Purchase of patents, licenses, and other intangible assets ( 2,396 ) ( 2,077 ) Purchase of property and equipment ( 4,433 ) ( 17,468 ) Proceeds from maturities of marketable securities 465,941 556,090 Proceeds from sale of marketable securities 9,969 — Net cash (used in) provided by investing activities ( 65,124 ) 92,065 Cash flows from financing activities Proceeds from issuance of common stock and pre-funded warrants 201,256 — Common stock and pre-funded warrants issuance costs ( 12,077 ) — Proceeds from issuance of common stock upon exercise of stock awards 2,612 1,957 Proceeds from issuance of common stock under the Employee Stock Purchase Plan 930 1,242 Net cash provided by financing activities 192,721 3,199 Net decrease in cash, cash equivalents, and restricted cash ( 24,754 ) ( 831 ) Cash, cash equivalents, and restricted cash , beginning of period 54,170 53,942 Cash, cash equivalents, and restricted cash , end of period $ 29,416 $ 53,111 10 Table of Contents Nine Months Ended September 30, 2024 2023 Supplemental disclosure of cash flow information Cash paid during the period for: Interest $ 31 $ 21 Income taxes $ 6,100 $ — Supplemental disclosures of non-cash activities Unrealized gain on marketable debt securities $ 510 $ 6,244 ROU assets obtained $ 7,166 $ 2,462 Reconciliation of cash, cash equivalents, and restricted cash reported in the balance sheets Cash and cash equivalents $ 29,031 $ 52,733 Restricted cash 385 378 Total cash, cash equivalents, and restricted cash shown in the statement of cash flows $ 29,416 $ 53,111 See accompanying notes . 11 Table of Contents Xencor, Inc. Notes to Financial Statements (unaudited) September 30, 2024 1. Summary of Significant Accounting Policies Basis of Presentation The accompanying unaudited consolidated interim financial statements for Xencor, Inc. (the Company, Xencor, we or us) have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information. The consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) that the management of the Company believes are necessary for a fair presentation of the periods presented. The preparation of consolidated interim financial statements requires the use of management’s estimates and assumptions that affect reported amounts of assets and liabilities at the date of the consolidated interim financial statements and the reported revenues and expenditures during the reported periods. These interim financial results are not necessarily indicative of the results expected for the full fiscal year or for any subsequent interim period. The accompanying unaudited consolidated interim financial statements and related notes should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 2023 Annual Report on Form 10-K/A filed with the Securities and Exchange Commission (SEC) on February 24, 2025. Principles of Consolidation The accompanying consolidated financial statements include the accounts of Xencor, Inc. and Gale Therapeutics Inc. (Gale), a variable interest entity (VIE) in which we are the primary beneficiary. Since we own less than 100% of Gale, the Company records net loss attributable to non-controlling interests in its consolidated statements of loss equal to the percentage of the economic or ownership interests retained in Gale by the non-controlling party. In determining whether we are the primary beneficiary of a VIE, we apply a qualitative approach that determines whether we have (1) the power to direct the activities of the VIE that most significantly impact the entity's economic performance and (2) the obligation to absorb losses of, or the right to receive benefits from the VIE that could potentially be significant to the VIE. We continuously assess whether we are the primary beneficiary of Gale as changes to existing relationships or future transactions may result in us consolidating or deconsolidating Gale. Use of Estimates The preparation of consolidated interim 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 income (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 consolidated interim financial statements include estimates made for royalty revenue, interest expense under the royalty sale agreements, 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. Reclassifications Certain prior year amounts in the consolidated financial statements and the notes thereto have been reclassified to conform to the current period's presentation. These reclassifications did not affect the prior period's total assets, liabilities, stockholders' equity, net loss or cash flows. During the nine months ended September 30, 2024, we adopted a change in 12 Table of Contents presentation on our consolidated statements of loss to include loss from disposal of fixed assets in operating expenses. The prior period has been revised to reflect this change in the presentation . Intangible Assets The Company maintains definite-lived intangible assets related to certain capitalized costs of acquired licenses and third-party costs incurred in establishing and maintaining its intellectual property rights to its platform technologies and development candidates. These assets are amortized over their useful lives, which are estimated to be the remaining patent life or the contractual term of the license. The straight-line method is used to record amortization expense. The Company assesses its intangible assets for impairment if indicators are present or changes in circumstances suggest that impairment may exist. There was no impairment charge recorded for the three and nine months ended September 30, 2024 and 2023. The Company capitalizes certain in-process intangible assets that are then abandoned when they are no longer pursued or used in current research activities. We abandoned $ 1.4 million and $ 2.2 million of in-process intangible assets during the three and nine months ended September 30, 2024, respectively. We abandoned $ 0.2 million and $ 0.8 million of in-process intangible assets during the three and nine months ended September 30, 2023, respectively. 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 investment policy limits the maturity of any individual security to a maximum of 36 months. The average maturity of securities in the portfolio as of September 30, 2024 is less than 12 months. 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 because it is not more likely than not that the Company will be required to sell the securities before recovery of the amortized cost. 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 three and nine months ended September 30, 2024 and 2023. Accrued interest on marketable debt securities is included in the marketable securities’ carrying value. 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 three and nine months ended September 30, 2024, the Company recorded an unrealized gain of $ 2.5 million and $ 0.5 million, respectively, in its portfolio of marketable debt securities. During the three and nine months ended September 30, 2023, the Company recorded a net unrealized gain of $ 1.2 million and $ 6.2 million, respectively. The unrealized gain is due to the changing interest rate environment. The net unrealized gain is recorded in other comprehensive income for the three and nine months ended September 30, 2024 and 2023. The Company receives equity securities in connection with certain licensing transactions with its partners. These investments in equity securities 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 gain or loss on the sale of the securities will be recognized within other income (expense) in the consolidated statements of loss in the period of sale. The Company also had an investment in equity securities without a readily determinable fair value, where the Company elected the measurement alternative to record the investment at its 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. There is no impairment charge for the three months ended September 30, 2024. There was an impairment charge of $ 20.4 million recorded for the nine months ended September 30, 2024 in connection with the valuation of equity securities without a readily determinable fair value. There was no impairment charge recorded for the three and nine months ended September 30, 2023. Following the closing of Zenas' initial public offering on September 16, 2024, the Company no longer holds an investment in equity securities without a readily determinable fair value. See Note 6. 13 Table of Contents Liability Related to the Sale of Future Revenues We treat 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, respectively. See Note 12. The amortization of the liability related to the sale of future Ultomiris and Monjuvi royalties is based on our current estimate of future royalty payments. 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 are 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 is recorded based on the timing of the payments received over the term of the Ultomiris and Monjuvi Royalty Sale Agreements. The actual interest rate will be affected by the timing of the royalty payments and changes in the forecasted revenue. Recent Accounting Pronouncements There have been no material changes in recently issued or adopted accounting standards from those disclosed in the Company's 2023 Annual Report on Form 10-K. The Company has reviewed all recently issued accounting pronouncements and does not believe they will have a material impact on our results of operations, financial condition or cash flows. There have been no other material changes to the significant accounting policies previously disclosed in the Company’s 2023 Annual Report on Form 10-K. 2. Restatement of a 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. The impact of the restatement on the consolidated balance sheet as of September 30, 2024 is as follows (in thousands): 14 Table of Contents September 30, 2024 (unaudited) Assets Accounts receivable 10,205 15,667 25,872 Prepaid expenses and other current assets 20,146 602 20,748 Total current assets 573,328 16,269 589,597 Total assets $ 983,635 $ 16,269 $ 999,904 Liabilities and stockholders’ equity Current liabilities Deferred income 37,865 ( 37,865 ) — Debt 7,749 36,706 44,455 Total current liabilities 91,972 ( 1,159 ) 90,813 Uncertain tax position payable — 8,336 8,336 Deferred income, net of current portion 94,107 ( 94,107 ) — Debt, net of current portion 10,169 118,171 128,340 Total liabilities 262,737 31,241 293,978 Stockholders’ equity Accumulated deficit ( 643,511 ) ( 14,972 ) ( 658,483 ) Total stockholders’ equity 720,898 ( 14,972 ) 705,926 Total liabilities and stockholders’ equity $ 983,635 $ 16,269 $ 999,904 The impact of the restatement on the consolidated statements of loss for the three months ended September 30, 2024 is as follows (in thousands): Three Months Ended September 30, 2024 As Reported Adjustment As Restated Revenue Collaborations, milestones, and royalties $ 10,710 $ 7,086 $ 17,796 Loss from operations ( 62,283 ) 7,086 ( 55,197 ) Other income (expense) Interest expense ( 795 ) ( 8,231 ) ( 9,026 ) Loss before income tax expense ( 46,297 ) ( 1,145 ) ( 47,442 ) Income tax expense — — — Net loss ( 46,297 ) ( 1,145 ) ( 47,442 ) Net loss attributable to non-controlling interest ( 1,154 ) — ( 1,154 ) Net loss attributable to Xencor, Inc. ( 45,143 ) ( 1,145 ) ( 46,288 ) Basic and diluted net loss per common share attributable to Xencor, Inc. $ ( 0.71 ) $ ( 0.01 ) $ ( 0.72 ) The impact of the restatement on the consolidated statement of loss for the nine months ended September 30, 2024 is as follows (in thousands): 15 Table of Contents Nine Months Ended September 30, 2024 As Reported Adjustment As Restated Revenue Collaborations, milestones, and royalties $ 40,475 $ 17,225 $ 57,700 Loss from operations ( 182,455 ) 17,225 ( 165,230 ) Other income (expense) Interest expense ( 2,716 ) ( 25,268 ) ( 27,984 ) Loss before income tax expense ( 182,297 ) ( 8,043 ) ( 190,340 ) Income tax expense 117 ( 117 ) — Net loss ( 182,414 ) ( 7,926 ) ( 190,340 ) Net loss attributable to non-controlling interest ( 3,275 ) — ( 3,275 ) Net loss attributable to Xencor, Inc. $ ( 179,139 ) $ ( 7,926 ) $ ( 187,065 ) Basic and diluted net loss per common share attributable to Xencor, Inc. $ ( 2.87 ) $ ( 0.13 ) $ ( 3.00 ) The impact of the restatement on the consolidated statements of comprehensive loss for the three months ended September 30, 2024 is as follows (in thousands): Three Months Ended September 30, 2024 As Reported Adjustment As Restated Net loss ( 46,297 ) ( 1,145 ) ( 47,442 ) Other comprehensive income Net unrealized gain on marketable debt securities 2,452 — 2,452 Comprehensive loss ( 43,845 ) ( 1,145 ) ( 44,990 ) Comprehensive loss attributable to non-controlling interest ( 1,154 ) — ( 1,154 ) Comprehensive loss attributable to Xencor, Inc. $ ( 42,691 ) $ ( 1,145 ) $ ( 43,836 ) The impact of the restatement on the consolidated statement of comprehensive loss for the nine months ended September 30, 2024 is as follows (in thousands): Nine Months Ended September 30, 2024 As Reported Adjustment As Restated Net loss ( 182,414 ) ( 7,926 ) ( 190,340 ) Other comprehensive income Net unrealized gain on marketable debt securities 510 — 510 Comprehensive loss ( 181,904 ) ( 7,926 ) ( 189,830 ) Comprehensive loss attributable to non-controlling interest ( 3,275 ) — ( 3,275 ) Comprehensive loss attributable to Xencor, Inc. $ ( 178,629 ) $ ( 7,926 ) $ ( 186,555 ) The impact of the restatement on the consolidated statements of cash flows for the nine months ended September 30, 2024 is as follows (in thousands): 16 Table of Contents Nine Months Ended September 30, 2024 As Reported Adjustment As Restated Cash flows from operating activities Net loss $ ( 182,414 ) $ ( 7,926 ) $ ( 190,340 ) Adjustments to reconcile net loss to net cash used in operating activities: Non-cash royalty revenue related to sale of future royalties — ( 48,646 ) ( 48,646 ) Non-cash interest expense 2,682 25,268 27,950 Changes in operating assets and liabilities: Accounts receivable 1,085 790 1,875 Income taxes ( 5,782 ) ( 117 ) ( 5,899 ) Deferred income ( 24,893 ) 24,893 — Net cash used in operating activities ( 146,613 ) ( 5,738 ) ( 152,351 ) Cash flows from financing activities Reduction of liability for sale of future royalties ( 5,738 ) 5,738 — Net cash provided by financing activities 186,983 5,738 192,721 3. Fair Value of Financial Instruments Financial instruments included in the financial statements include cash and cash equivalents, marketable debt and equity securities, accounts receivable, accounts payable, and accrued expenses. Marketable debt securities, equity securities, and cash equivalents are carried at fair value. The fair value of the other financial instruments closely approximates their fair value due to their short-term maturities. The Company accounts for recurring and non-recurring fair value measurements in accordance with FASB Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures (ASC 820). 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. 17 Table of Contents 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): September 30, 2024 (unaudited) December 31, 2023 Total Fair Value Level 1 Level 2 Total Fair Value Level 1 Level 2 Money Market Funds $ 21,028 $ 21,028 $ — $ 25,520 $ 25,520 $ — Corporate Securities 161,643 — 161,643 228,723 — 228,723 Government Securities 563,674 — 563,674 414,514 — 414,514 $ 746,345 $ 21,028 $ 725,317 $ 668,757 $ 25,520 $ 643,237 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 three and nine months ended September 30, 2024 and 2023, there were no transfers between Level 1 and Level 2. 4. Net Loss Per Common Share Basic net loss per common share is computed by dividing the net loss attributable to Xencor by the weighted-average number of common shares outstanding during the period without consideration of common stock equivalents. Diluted net loss per common share is computed by dividing the net 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 loss per common share is computed as follows: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (in thousands, except share and per share data) (in thousands, except share and per share data) (As Restated) (As Restated) Numerator: Net loss attributable to Xencor, Inc. $ ( 46,288 ) $ ( 24,269 ) $ ( 187,065 ) $ ( 106,986 ) Denominator: Weighted-average common shares outstanding used in computing basic and diluted net loss 64,022,547 60,621,534 62,310,045 60,387,163 Basic and diluted net loss per common share attributable to Xencor, Inc. $ ( 0.72 ) $ ( 0.40 ) $ ( 3.00 ) $ ( 1.77 ) For each of the three and nine months ended September 30, 2024 and 2023, all outstanding potentially dilutive securities have been excluded from the calculation of diluted net loss per common share as the effect of including such securities would have been anti-dilutive. 5. Comprehensive Loss Comprehensive loss is comprised of net loss and other comprehensive income. For each of the three and nine-month periods ended September 30, 2024 and 2023, the only component of other comprehensive income is net unrealized gain on marketable debt securities. There were no material reclassifications out of accumulated other comprehensive income (loss) during each of the three and nine-month periods ended September 30, 2024 and 2023. 18 Table of Contents 6. Marketable Debt and Equity Securities The Company’s marketable debt securities held as of September 30, 2024 and December 31, 2023 are summarized below: September 30, 2024 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (in thousands) Money Market Funds $ 21,028 $ — $ — $ 21,028 Corporate Securities 161,118 525 — 161,643 Government Securities 562,387 1,419 ( 132 ) 563,674 $ 744,533 $ 1,944 $ ( 132 ) $ 746,345 Reported as Cash and cash equivalents $ 21,028 Marketable securities 725,317 Total investments $ 746,345 December 31, 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized 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 Reported as Cash and cash equivalents $ 25,520 Marketable securities 643,237 Total investments $ 668,757 The maturities of the Company’s marketable debt securities as of September 30, 2024 are as follows: September 30, 2024 Amortized Cost Estimated Fair Value (in thousands) Mature in one year or less $ 433,602 $ 435,043 Mature within two years 289,903 290,274 $ 723,505 $ 725,317 19 Table of Contents The unrealized losses on available-for-sale investments and their related fair values as of September 30, 2024 and December 31, 2023 are as follows: Less than 12 months 12 months or greater September 30, 2024 Fair value Unrealized losses Fair value Unrealized losses (in thousands) Government Securities $ — $ — $ 198,710 $ ( 132 ) Less than 12 months 12 months or greater December 31, 2023 Fair value Unrealized losses Fair value Unrealized losses (in thousands) Corporate Securities $ 8,073 $ ( 1 ) $ — $ — Government Securities 66,546 ( 76 ) — — $ 74,619 $ ( 77 ) $ — $ — The unrealized losses from the available-for-sale securities are due to changes in the interest rate environment and not changes in the credit quality of the underlying securities in the portfolio. The Company’s equity securities include securities with a readily determinable fair value and securities without a readily determinable fair value. Equity securities with a readily determinable fair value are carried at fair value with changes in fair value recognized each period and reported within other income (expense), net. For equity securities 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. The Company sold 443,909 shares of common stock of Astria Therapeutics, Inc. (Astria) in the second quarter of 2024, and sold the remaining 253,958 shares of common stock of Astria in July 2024. The Company does not hold any shares of common stock of Astria as of September 30, 2024. The Company recorded realized gains of $ 0.1 million and $ 1.3 million for the three and nine months ended September 30, 2024, respectively. The Company held 697,867 shares of common stock as of September 30, 2023, which were classified as equity securities with a readily determinable fair value. The Company recorded unrealized losses of $ 0.6 million and $ 4.5 million for the three and nine months ended September 30, 2023, respectively. The Company currently holds 1,885,533 shares of common stock of INmune Bio, Inc. (INmune). The 1,885,533 shares of INmune common stock are classified as equity securities with a readily determinable fair value. For the three and nine months ended September 30, 2024, the Company recorded unrealized losses of $ 6.5 million and $ 11.1 million, respectively. For the three and nine months ended September 30, 2023, the Company recorded an unrealized loss of $ 4.4 million and an unrealized gain of $ 0.8 million, respectively. The Company currently holds 717,144 shares of common stock of Viridian Therapeutics, Inc. (Viridian). The shares of Viridian common stock are classified as equity securities with a readily determinable fair value. The Company recorded unrealized gains of $ 7.0 million and $ 0.7 million for the three and nine months ended September 30, 2024, respectively. The Company recorded unrealized losses of $ 6.1 million and $ 9.9 million for the three and nine months ended September 30, 2023, respectively. The Company holds an equity interest in Zenas BioPharma, Inc. (Zenas). The Company’s equity interests previously included preferred stock in Zenas when Zenas was a privately-held company. The preferred shares were received as an upfront payment and a milestone payment for licensing certain clinical and preclinical assets from the Company and did not have a readily determinable fair value. 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 an orderly transaction for the identical or a similar investment of the same issuer. During the six months ended June 30, 2024, the Company recorded $ 20.4 million of impairment charge due to an impairment analysis using the measurement alternative for the valuation of a security without a readily determinable fair value. 20 Table of Contents On September 16, 2024, following the closing of Zenas' initial public offering, the Company's preferred stock in Zenas was automatically converted to 3,098,380 shares of common stock which were then classified as equity securities with a readily determinable fair value. The Company subsequently discontinued the use of the measurement alternative in valuing its equity interest in Zenas. As a result, the Company recorded an unrealized gain of $ 8.6 million for each of the three and nine months ended September 30, 2024. Equity securities with a readily determinable fair value, which are categorized as Level 1 in the fair value hierarchy under ASC 820, and their fair values (in thousands) as of September 30, 2024 and December 31, 2023 are as follows: Fair Value Fair Value September 30, 2024 December 31, 2023 Astria Common Stock $ — $ 5,360 INmune Common Stock 10,163 21,231 Viridian Common Stock 16,315 15,619 Zenas Common Stock 52,425 — $ 78,903 $ 42,210 Equity securities without a readily determinable fair value and their carrying values (in thousands) as of September 30, 2024 and December 31, 2023 are as follows: Carrying Value Carrying Value September 30, 2024 December 31, 2023 Zenas Preferred Stock $ — $ 64,210 Net gain (loss) recorded related to these equity securities are recorded under other income (expense). Below is a reconciliation of net gain (loss) recorded on equity securities during the three and nine months ended September 30, 2024 and 2023: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Net gain (loss) recorded on equity securities $ 9,254 $ ( 11,023 ) $ ( 448 ) $ ( 13,633 ) Less: Net gain recorded on sale of equity securities 92 — 1,280 — Unrealized gain (loss) recorded on equity securities held at the reporting date $ 9,162 $ ( 11,023 ) $ ( 1,728 ) $ ( 13,633 ) 7. Stock Based Compensation In June 2023, our Board of Directors (the Board) and stockholders approved the 2023 Equity Incentive Plan (the 2023 Plan), which became effective as of June 14, 2023, and superseded the 2013 Equity Incentive Plan (the 2013 Plan). No additional awards 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 2023 Plan does not include a provision for an automatic increase in shares, also known as an evergreen provision. As of September 30, 2024, the total number of shares of common stock available for issuance under the 2023 Plan is 18,617,423 , which includes shares of common stock that were available for issuance under the 2013 Plan as of the 21 Table of Contents effective date of the 2023 Plan. As of September 30, 2024, a total of 2,510,949 options have been granted under the 2023 Plan. In November 2013, the Board and our stockholders approved the ESPP, which became effective as of December 5, 2013. As of September 30, 2024, the total number of shares of common stock available for issuance under the ESPP is 987,344 . Unless otherwise determined by the Board, beginning on January 1, 2014, and continuing until January 1, 2023, the total number of shares of common stock available for issuance under the ESPP automatically increased 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. The automatic increase has expired, and the number of shares of common stock available for issuance under the ESPP was not increased on January 1, 2024. As of September 30, 2024, we have issued a total of 787,474 shares of common stock under the ESPP. During the nine months ended September 30, 2024, the Company awarded 1,026,220 RSUs under the 2023 Plan to certain employees and non-employee directors. The standard vesting of these awards is generally in three equal annual installments and is contingent on an employee’s continued service to the Company. 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. As of September 30, 2024, a total of 1,112,887 RSUs have been granted under the 2023 Plan. The Company extended vesting periods and expiration dates of equity awards for employees who retired in April 2024. There was a $ 3.1 million incremental expense as a result of the extension of the expiration dates, and there was a $ 1.2 million expense as a result of the extension of the vesting periods. Total employee, director and non-employee stock-based compensation expense recognized for the three and nine months ended September 30, 2024 and 2023 are as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 General and administrative $ 5,158 $ 4,487 $ 18,326 $ 13,234 Research and development 7,180 8,409 22,623 25,824 $ 12,338 $ 12,896 $ 40,949 $ 39,058 Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Stock options $ 6,760 $ 6,314 $ 24,578 $ 20,139 ESPP 206 307 623 970 RSUs 5,372 6,275 15,748 17,949 $ 12,338 $ 12,896 $ 40,949 $ 39,058 The following table summarizes option activity under our stock plans and related information: Number of Shares Subject to Outstanding Options Weighted Average Exercise Price (Per Share) Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands) Balance at December 31, 2023 11,142,986 $ 29.60 6.03 $ 9,977 Options granted 2,297,551 $ 22.21 Options forfeited ( 614,922 ) $ 32.36 Options exercised ( 222,149 ) $ 11.76 Balance at September 30, 2024 12,603,466 $ 28.44 5.96 $ 6,942 Exercisable 8,522,788 $ 29.56 4.62 $ 6,550 22 Table of Contents We calculate the intrinsic value as the difference between the exercise price of the options and the closing price of common stock of $ 20.11 per share as of September 30, 2024. The weighted-average fair value of options granted during the nine-month periods ended September 30, 2024 and 2023 were $ 22.21 and $ 30.07 per share, respectively. There were 2,068,582 options granted during the nine-month period ended September 30, 2023. We estimated the fair value of each equity award, including stock options and shares issued under our ESPP, using the Black-Scholes option-pricing model based on the date of grant of such stock option or ESPP share issuance date, with the following weighted average assumptions for the three and nine months ended September 30, 2024 and 2023: Options Options Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Expected term (years) 5.8 6.1 6.4 6.1 Expected volatility 50.8 % 50.0 % 50.1 % 50.5 % Risk-free interest rate 4.15 % 4.43 % 4.18 % 4.18 % Expected dividend yield — % — % — % — % ESPP ESPP Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Expected term (years) 0.5 - 2.0 0.5 - 2.0 0.5 - 2.0 0.5 - 2.0 Expected volatility 43.0 % - 44.6 % 38.2 % - 55.7 % 43.0 % - 44.6 % 38.2 % - 55.7 % Risk-free interest rate 4.71 % - 5.40 % 0.13 % - 5.39 % 4.71 % - 5.40 % 0.13 % - 5.39 % Expected dividend yield — % — % — % — % As of September 30, 2024, the unamortized compensation expense related to unvested stock options was $ 50.4 million. The remaining unamortized compensation expense will be recognized over the next 2.5 years. As of September 30, 2024, the unamortized compensation expense under our ESPP was $ 1.0 million. The remaining unamortized expense will be recognized over the next 1.2 years. The following table summarizes the RSU activity for the nine-month period ended September 30, 2024: Restricted Stock Units Weighted Average Grant Date Fair Value (Per unit) Unvested RSUs at December 31, 2023 1,490,040 $ 30.66 Granted 1,026,220 22.31 Vested ( 595,399 ) 31.49 Forfeited ( 167,097 ) 28.89 Unvested RSUs at September 30, 2024 1,753,764 $ 25.57 As of September 30, 2024, the unamortized compensation expense related to unvested RSUs was $ 31.6 million. The remaining unamortized expense will be recognized over the next 1.9 years. 8. Leases The Company leases office and laboratory space in Monrovia, California under a lease that expires in December 2025 with an option to renew for an additional five years at then market rates. The Company has assessed that it is unlikely to exercise the option to extend the lease term. 23 Table of Contents In June 2021, the Company entered into an Agreement of Lease (Lease Agreement) for laboratory and office space in Pasadena, California, which will expire in July 2035. The Lease Agreement provides for two separate phases of lease and occupancy. The first phase commenced on August 1, 2022 and provided the Company with an improvement allowance up to $ 17.0 million. The second phase of the lease agreement will commence no later than September 30, 2026 and includes an additional improvement allowance up to $ 3.3 million. In August 2022, the Company entered into an amendment pursuant to which the Company received an additional $ 5.0 million in tenant improvement allowance in exchange for an increase in the rental rate of the phase 1 space. The Company received delivery of the second phase premises on December 1, 2022. The Company placed the new facility into service in February 2023. In January 2024, the Company entered into an amendment, in which the Company was paid $ 0.7 million of tenant improvement allowance from the second phase for HVAC costs in the first phase. In August 2023, the Company entered into a Sublease Agreement for office space in San Diego, California. The term of the Sublease Agreement began in September 2023 and ends in December 2027. In connection with the Sublease Agreement, the Company provided a $ 0.4 million Letter of Credit to the landlord. The Letter of Credit will decline over the term of the lease. The Company also entered into a Cash Collateral Agreement for $ 0.4 million, which is classified as restricted cash in the Consolidated Balance Sheets. 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 September 30, 2024 to the operating lease liabilities recorded on the balance sheet (in thousands): Years ending December 31, For the remainder of 2024 $ 1,143 2025 8,022 2026 9,238 2027 9,560 2028 9,076 2029 9,331 Thereafter 57,104 Total undiscounted lease payments 103,474 Less: Tenant allowance ( 2,536 ) Less: Imputed interest ( 32,268 ) Present value of lease payments $ 68,670 Lease liabilities - short-term $ 2,181 Lease liabilities - long-term 66,489 Total lease liabilities $ 68,670 The following table summarizes lease costs and cash payments for the three and nine months ended September 30, 2024 and 2023 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Operating lease cost $ 1,881 $ 2,075 $ 5,643 $ 6,275 Variable lease cost ( 201 ) 232 939 685 Total lease costs $ 1,680 $ 2,307 $ 6,582 $ 6,960 Cash paid for amounts included in the measurement of lease liabilities $ 801 $ 820 $ 2,679 $ 2,265 24 Table of Contents As of September 30, 2024, the weighted-average remaining lease term for operating leases is 10.5 years, and the weighted-average discount rate for operating leases is 7.0 %. As of September 30, 2023, the weighted-average remaining lease term for operating leases was 11.0 years, and the weighted-average discount rate for operating leases was 8.8 %. 9. Commitments and Contingencies From time to time, the Company may be subject to various litigation and related matters arising in the ordinary course of business. We are currently a party to an action initiated by Merus N.V. (Merus) in the District of Delaware alleging that our manufacture, use, offer for sale, sale, and/or importation of common light chain antibodies and heterodimeric antibodies infringes certain claims of three Merus patents. Merus filed its complaint against us on August 5, 2024. Merus asserted claims of U.S. Patent Nos. 9,944,695, 9,358,286 and 11,926,859 (collectively, the Asserted Patents). Merus seeks a judgment of patent infringement, an order enjoining us from infringing the Asserted Patents, a damages award (together with interest), a declaration of willful infringement, and a finding that this case is exceptional. On October 10, 2024, we filed a motion to dismiss the Merus complaint with prejudice under Rule 12(b)(6), in which we argued that all of the activities accused of infringement are covered by the 35 U.S.C.§ 271(e)(1) safe harbor. Merus filed its response to our motion on October 31, 2024, and our deadline for replying to the Merus response is November 14, 2024. We believe we have strong defenses to Merus' claims, including defenses of invalidity and/or non-infringement, but there is no guarantee that we will prevail. The Company does not believe it is currently subject to other matters where there is at least a reasonable possibility that a material loss may be incurred. The Company is obligated to make future payments to third parties pursuant to certain 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 the Company’s balance sheets for the periods ended September 30, 2024 and December 31, 2023. The Company has also entered into agreements with third-party vendors that will require us to make future payments upon the delivery of goods and services in future periods. 10. Collaboration and Licensing Agreements The following is a summary description of the material collaboration arrangements in the three and nine months ended September 30, 2024 and 2023. Alexion Pharmaceuticals, Inc. In January 2013, the Company entered into an Option and License Agreement (the Alexion Agreement) with Alexion Pharmaceuticals, Inc. (Alexion). Under the terms of the Alexion Agreement, the Company granted to Alexion an exclusive research license, with limited sublicensing rights, to make and use the Company’s Xtend technology to evaluate and advance compounds. Alexion exercised its rights to one target program, ALXN1210, which is now marketed as Ultomiris®. The Company is entitled to receive royalties based on a percentage of net sales of Ultomiris 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. 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 cash consideration. For the nine months ended September 30, 2024, Company earned and recognized $ 42.1 million in non-cash royalty revenue under the Ultomiris Royalty Sale Agreement. The Company recognized $ 15.7 million and $ 42.1 million of non-cash royalty revenue during the three and nine months ended September 30, 2024, respectively, and $ 11.8 million and $ 33.4 million of royalty revenue under this arrangement for the three and nine months ended September 30, 2023, respectively. As of September 30, 2024, there is $ 15.7 million receivable and no deferred revenue related to this agreement. Payment of this receivable will be made directly to OMERS. 25 Table of Contents 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. and F. Hoffmann-La Roche Ltd (collectively, Genentech) for the development and commercialization of novel IL-15 collaboration products (Collaboration Products), including efbalropendekin alfa (also named XmAb306 and RG6323), 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 shared in 45 % of development and commercialization costs of Collaboration Products. We were also 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 assumed 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-teen percentages. The Company did not recognize revenue related to the Genentech Agreement for the three and nine months ended September 30, 2024 or 2023. As of September 30, 2024, there is a $ 7.6 million payable related to cost-sharing development activities during the first half of 2024 for development studies being conducted under the Genentech Agreement. There is no deferred revenue as of September 30, 2024 related to this agreement. 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. In the second quarter 2020, Gilead exercised its options for the three additional antibody compounds. No revenue was recognized for the three and nine months ended September 30, 2024. For the three and nine months ended September 30, 2023, the Company recognized $ 6.0 million in revenue related to development milestones. There is no deferred revenue as of September 30, 2024 related to this agreement. 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 the Company 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 applied its bispecific Fc technology to antibodies targeting prostate cancer provided by J&J. Upon completion of the research activities J&J had a candidate selection option to advance an identified candidate for development and commercialization. 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. J&J will assume full responsibility for development and commercialization of the CD28 bispecific antibody candidate. The Company did not recognize revenue for the three and nine months ended September 30, 2024, and the Company recognized $ 7.5 million of revenue for the three and nine months ended September 30, 2023 under the J&J Agreement. As of September 30, 2024, there is no deferred revenue related to this Agreement. 26 Table of Contents 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 conducted research and development activities to discover novel CD28 bispecific antibodies. The parties conducted joint research activities for 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. The Company collaborated with J&J on clinical development of plamotamab and shared development costs with J&J paying 80 % and the Company paying 20 % of certain development costs. In June 2024, the Company was notified that J&J was terminating its rights to plamotamab, which termination became effective in June 2024. 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. Revenue from the research activities was recognized over a period of time through the end of the research term that services were rendered as we determined that the input method was the appropriate approach to recognize income for such services. There is a receivable of $ 2.3 million as of September 30, 2024, related to cost-sharing activities for the development of plamotamab under the Second J&J Agreement. No revenue was recognized for the three and nine months ended September 30, 2024, and the Company recognized $ 6.2 million and $ 33.6 million of revenue for the three and nine months ended September 30, 2023, respectively. There is no deferred revenue as of September 30, 2024 related to the Second J&J Agreement as obligations to perform research activities have expired. MorphoSys AG/Incyte Corporation In June 2010, the Company entered into a Collaboration and License Agreement (the MorphoSys Agreement) with MorphoSys AG (MorphoSys), which was subsequently amended. Under the MorphoSys Agreement, we granted MorphoSys an exclusive worldwide license to the Company’s patents and know-how to research, develop and commercialize the XmAb5574 product candidate (subsequently renamed MOR208 and tafasitamab) with the right to sublicense under certain conditions. In February 2024, Incyte Corporation assumed all of MorphoSys' right, title and interest in the MorphoSys Agreement and acquired exclusive global development and commercialization rights to tafasitamab. 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. The Company recognized $ 2.1 million and $ 6.5 million of non-cash royalty revenue during the three and nine months ended September 30, 2024, respectively. The Company recognized $ 2.7 million and $ 6.6 million of royalty revenue during the three and nine months ended September 30, 2023, respectively. As of September 30, 2024, there is a receivable of $ 2.1 million related to estimated royalties due under the arrangement. As of September 30, 2024, there is no deferred revenue related to this agreement. 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. No revenue was recognized for the three and nine months ended September 30, 2024. For the three and nine months ended September 30, 2023, the Company recognized $ 5.0 million of milestone revenue related to a development milestone. As of September 30, 2024, there is no deferred revenue related to this Agreement. 27 Table of Contents Shanghai Mabgeek Biotech Co., Ltd. On December 22, 2023, the Company entered into a Technology License Agreement with Shanghai Mabgeek Biotech Co., Ltd. (Mabgeek), and the Company and Mabgeek entered into Amendment No. 1 on June 21, 2024 (collectively, the Mabgeek Agreement). Under the Mabgeek Agreement, the Company received an upfront payment of $ 1.5 million and up to $ 11.9 million of milestones. In addition, the Company is eligible to receive royalties on the net sales of approved products in the low single digits. The Company evaluated the Mabgeek Agreement and determined that the single performance obligation was access to a non-exclusive license to certain patents of the Company which were transferred to Mabgeek in June 2024. No revenue was recognized for the three months ended September 30, 2024. The Company recognized $ 1.5 million of license revenue related to the Mabgeek Agreement for the nine months ended September 30, 2024. There is no deferred revenue as of September 30, 2024 related to this agreement. Vega Therapeutics, Inc. In October 2021, the Company entered into a Technology License Agreement (the Vega Agreement) with Vega Therapeutics, Inc. (Vega), in which the Company provided Vega a non-exclusive license to its Xtend Fc technology. In March 2024, Vega notified the Company that it initiated a Phase 1 study, and the Company recorded milestone revenue of $ 0.5 million. The Company recognized $ 0.5 million of revenue for the nine months ended September 30, 2024. No revenue was recognized for the three months ended September 30, 2024 or the three and nine months ended September 30, 2023. 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, including sotrovimab. Under the terms of the Second Vir Agreement, Vir is responsible for all research, development, regulatory and commercial activities for the antibodies, 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. The Company recognized nominal amounts of revenue for the three months ended September 30, 2024 and 2023. The Company recognized $ 0.1 million and $ 1.5 million of revenue for the nine months ended September 30, 2024 and 2023, respectively. As of September 30, 2024, there is no receivable related to estimated royalty due under this agreement, and there is no deferred revenue related to this agreement. Zenas BioPharma, Inc. In November 2020, the Company entered into a License Agreement (the Zenas Agreement) with Zenas, pursuant to which the Company received an equity interest in Zenas in exchange for the exclusive, worldwide rights to develop and commercialize drug candidates from the Company. The equity in Zenas was recorded at the fair value as of the date of the Zenas Agreement and was reviewed each reporting period for impairment or other evidence of change in value. In November 2021, the Company entered into a second License Agreement (the Second Zenas Agreement) with Zenas, pursuant to which the Company received additional equity in Zenas in exchange for the exclusive worldwide rights to develop and commercialize the Company’s obexelimab (XmAb5871) drug candidate. Under the license, the Company is eligible to receive development, regulatory and sales milestones in connection with the development of obexelimab and royalties on net sales of approved products. The original equity received for the second license was a warrant to acquire additional shares of Zenas. The warrant was exchanged for additional preferred stock in Zenas in November 2022. The warrant in Zenas was recorded at its fair value as of the date of the Second Zenas Agreement and was reviewed each reporting period for impairment or other evidence of change in value. The preferred shares received in 28 Table of Contents exchange for the warrant were recorded at their fair value at the date of the exchange and were reviewed each reporting period for impairment or other evidence of change in value. In 2023, Zenas initiated a Phase 3 clinical study with obexelimab and also dosed a second patient in the study. The Company received a development milestone in the form of additional preferred stock in Zenas with a fair value of $ 10.0 million. On September 16, 2024, following the closing of Zenas' initial public offering, the Company's preferred stock ownership automatically converted to 3,098,380 shares of common stock of Zenas, which is classified as equity securities with a readily determinable fair value. As a result, the Company discontinued the use of the measurement alternative to record its equity interest in Zenas. The Company did not recognize any revenue for the three and nine months ended September 30, 2024, or the three months ended September 30, 2023. The Company recognized $ 10.0 million of milestone revenue for the nine months ended September 30, 2023, and there is no deferred revenue related to this agreement. Third-Party Licensee In May 2024, the Company entered into a Patent License Agreement (Third-Party Licensee Agreement) with a third-party licensee. The Company completed delivery of the performance obligation under the agreement, and the Company received a payment of $ 7.0 million in August 2024. No revenue was recognized for the three months ended September 30, 2024, and the Company recognized $ 7.0 million of license revenue for the nine months ended September 30, 2024. There is a no receivable as of September 30, 2024., and there is no deferred revenue related to this agreement. 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. In December 2023, the Company entered into a Technology License Agreement (Gale License Agreement) with Gale in which Gale received an exclusive worldwide, royalty-bearing, non-transferable license to preclinical assets in exchange for royalties on future sales and an option for future drug candidates that Gale will develop. Concurrently, the Company entered into a Service Agreement (Gale Services Agreement) to provide research and development services and administrative support for Gale. In exchange for $ 7.5 million of funding, the Company acquired a majority stake in Gale. Total charges of $ 2.7 million and $ 10.7 million under the Gale Services Agreement for the three and nine months ended September 30, 2024, respectively, were eliminated in consolidation. In July 2024 and September 2024, the Company entered into a preferred stock purchase agreement to purchase additional shares in Gale for $ 3.0 million each, for a total of $ 6.0 million. 29 Table of Contents Revenues earned The revenues recorded for the three and nine months ended September 30, 2024 and 2023 were earned principally from the following licensees (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (As Restated) (As Restated) Alexion $ 15.7 $ 31.8 $ 42.1 $ 53.4 Gilead — 6.0 — 6.0 Janssen — 13.7 — 41.1 Mabgeek — — 1.5 — MorphoSys/Incyte 2.1 2.7 6.5 6.6 Omeros — 5.0 — 5.0 Vega — — 0.5 — Vir — — 0.1 1.5 Zenas — — — 10.0 Third Party Licensee — — 7.0 — Total $ 17.8 $ 59.2 $ 57.7 $ 123.6 The table below summarizes the disaggregation of revenue recorded for the three and nine months ended September 30, 2024 and 2023 (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 (As Restated) (As Restated) Research collaboration $ — $ ( 1.3 ) $ — $ 21.1 License — — 8.5 — Milestone — 46.0 0.5 61.0 Royalties — 14.5 0.1 41.5 Non-cash royalties 17.8 — 48.6 — Total $ 17.8 $ 59.2 $ 57.7 $ 123.6 Remaining Performance Obligations and Deferred Revenue The Company does not have any remaining performance obligations as of September 30, 2024. As of September 30, 2023, the Company had deferred revenue of $ 9.2 million for conducting research activities pursuant to the Second J&J Agreement. All deferred revenue as of September 30, 2023 was classified as current liabilities as the Company’s obligations to perform services are due on demand when requested by J&J under the Second J&J Agreement. 11. Income taxes There is no provision for income tax for the three and nine months ended September 30, 2024 or 2023. As of September 30, 2024, the Company’s deferred income tax assets are primarily comprised of deferred revenue, capitalized research and development expenses, federal and state tax net operating loss (NOL) carryforwards and research and development tax credit carryforwards, and have been fully offset by a valuation allowance. 30 Table of Contents 12. Sale of Future Royalties Ultomiris Royalty Sale Agreement 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 Debt . At September 30, 2024, the estimated effective interest rate remains at 21.1 %. The Company continues to reassess the estimate of total future royalty payments and prospectively adjusts the imputed interest rate and related amortization if the estimate is materially different. For the three and nine months ended September 30, 2024, the Company recognized $ 15.7 million and $ 42.1 million of non-cash royalty revenue, respectively, and $ 8.2 million and $ 25.3 million of non-cash interest expense, respectively. Monjuvi Royalty Sale Agreement The Company evaluated the arrangement and determined that the proceeds from the sale of future royalties should be classified as debt pursuant to ASC 470 Debt . At June 30, 2024, the Company reassessed the estimate of total future royalty payments and updated the estimated effective interest rate to 17.5 %. The Company continues to reassess the estimate of total future royalty payments and prospectively adjusts the imputed interest rate and related amortization if the estimate is materially different. For the three and nine months ended September 30, 2024, the Company recognized $ 2.1 million and $ 6.5 million of non-cash royalty revenue, respectively, and $ 0.8 million and $ 2.7 million of non-cash interest expense, respectively. The following table shows the activity within debt for the nine months ended September 30, 2024 (in thousands): September 30, 2024 (As Restated) Beginning balance of debt related to sale of future royalties $ 189,483 Royalties owed to OMERS 834 Royalties paid to OMERS ( 45,472 ) Non-cash interest expense recognized 27,950 Ending balance of debt related to sale of future royalties $ 172,795 Debt - short-term 44,455 Debt - long-term 128,340 Total debt $ 172,795 13. Sale of Common Stock In September 2024, we completed an underwritten public offering pursuant to an automatic universal shelf registration statement on Form S-3 of 8,093,712 shares of common stock which included 1,458,600 shares issued pursuant to our underwriters’ exercise of their over-allotment option, as well as pre-funded warrants to purchase up to an aggregate of 3,088,888 shares of common stock. We received net proceeds of $ 189.2 million after deducting underwriting discounts, commissions, and offering expenses.