Item 2. Management’s Discussion and Analysis
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with our financial statements and accompanying notes included in this Quarterly Report on Form 10-Q and the financial statements and accompanying notes thereto for the fiscal year ended December 31, 2020 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, 2020. See also “Special Note Regarding Forward-Looking Statements” included in this Quarterly Report on Form 10-Q.
Company Overview
We are a clinical-stage biopharmaceutical company focused on discovering and developing engineered monoclonal antibody and cytokine therapeutics to treat patients with cancer and autoimmune diseases who have unmet medical needs. We are advancing a broad portfolio of clinical-stage drug candidates from our proprietary XmAb® technology platforms. We use our protein engineering capabilities to increase our understanding of protein structure and interactions and to design new XmAb technologies and development candidates with improved properties. In contrast to conventional approaches to antibody design, which focus on the segment of antibodies that interact with target antigens, our protein engineering efforts and the XmAb technologies are focused on the Fc domain, the part of an antibody that interacts with multiple segments of the immune system and controls antibody structure. The Fc domain is constant and interchangeable among antibodies, and our engineered Fc domains, the XmAb technology, can be readily substituted for natural Fc domains.
Our protein engineering capabilities and XmAb technologies enable us and our partners to develop antibodies and biotherapeutic drug candidates with improved properties and function, which can provide innovative approaches to treating disease and potential clinical advantages over other treatment options. For example, our capabilities have enabled us to develop an antibody scaffold to rapidly create novel bispecific antibodies that bind two different targets simultaneously, creating entirely new biological mechanisms. Other applications of our XmAb technologies enhance antibody performance by increasing immune inhibitory activity, improving cytotoxicity, extending circulating half-life and stabilizing novel protein structures, such as engineered cytokines. Currently, there are three marketed drugs that have been developed with our XmAb technologies.
Refer to Part I, Item 1, “XmAb Bispecific Technologies” and “Other XmAb Fc Technologies” in the description of our business included in our Annual Report on Form 10-K for the year ended December 31, 2020 for a discussion of our core Fc technology platforms.
COVID-19
We are closely monitoring the COVID-19 pandemic and continue to evaluate its impact on all aspects of our business including how it will affect our partners, collaborations, supply chains and research and development operations. While the pandemic did not significantly disrupt our business during the three months ended September 30, 2021, the evolving nature of the pandemic prevents us from reasonably predicting how the pandemic will affect our financial condition, results of operations and cash flows due to numerous uncertainties. These uncertainties include the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impacts and the direct and indirect economic effects of the pandemic and containment measures, among others. Many states, including California, where we are headquartered and where our principal place of business is located, and cities therein have ongoing restrictions, rules and guidelines that affect the continued operation of businesses. Other countries and states where we conduct manufacturing of our drug products, testing activities and clinical sites where patients are enrolled in our clinical trials have enacted similar restrictions that could affect our ability to conduct our drug candidate development and clinical operations.
30
Table of Contents
The potential impacts on our business, revenue, clinical studies and research and development activities of the COVID-19 pandemic include:
● Business: Our broad protein engineering capabilities and technologies are uniquely suited to provide us with opportunities to identify and enhance compounds that may target the novel coronavirus and potentially treat patients with COVID-19. For example, sotrovimab (VIR-7831), an antibody that targets the SARS-CoV-2 virus, received an EUA from the FDA for the treatment of mild-to-moderate COVID-19 in high-risk adults and pediatric patients, and is made available by Vir and its partner GlaxoSmithKline Plc. Sotrovimab incorporates our Xtend Fc technology for longer duration of action. VIR-7832, a second antibody licensed to Vir, which also targets the SARS-CoV-2 virus, also incorporates Xtend technology and other XmAb Fc technologies, and it is currently enrolling patients in a Phase 1b/2a study. We are eligible to receive a mid-single digit percentage royalty on the net sales of both sotrovimab and VIR-7832. Our partner BMS has also licensed our Xtend technology to improve the half-life of an antibody that is targeting SARS-CoV-2 and has initiated a Phase 2 study for the candidate. We are eligible to receive low-single digit percentage royalty on net sales of the BMS candidate.
● Revenue: We receive upfront payments, milestone payments, royalties, and equity interests from partners from licensing our XmAb technologies and drug candidates. The COVID-19 pandemic has not adversely affected our revenues for the quarter ended September 30, 2021. During this quarter, for example, we generated approximately $19.7 million in revenue from our partnerships and collaborations including but not limited to our agreements with Janssen, Vir, and Alexion, recognizing $6.3 million, $6.3 million, and $5.8 million of revenue, respectively. We also recorded an unrealized gain of $1.5 million related to equity investments that we received in licensing transactions. In October 2021, we entered into the Second Janssen Agreement with Janssen, which became effective November 5, 2021, under which we will receive an upfront payment of $100.0 million, in addition to $25.0 million which we will receive for the sale of the Company’s common stock to Johnson and Johnson in a related transaction at the same time.
Our ability to earn revenue from these and other partnerships is dependent on the ability of our partners to generate sales from products, such as Ultomiris, Monjuvi, and sotrovimab, the ability of our partners to advance our partnered programs through later stages of development and through regulatory approval, which would entitle us to potential milestone payments. If the COVID-19 pandemic adversely affects the sales or clinical, development and regulatory progress of partnered programs, the amount of revenue we could earn would be adversely affected.
● Clinical studies: We are currently enrolling patients into multiple clinical trials evaluating our drug candidates, and our partner Genentech is enrolling patients in the Phase 1 study of XmAb306 (also known as RG6323), our co-development program with Genentech. Many partners are also enrolling patients in clinical trials with drug candidates that incorporate one or more XmAb technologies. Although the pandemic has not materially affected our clinical development for the period ended September 30, 2021, some of our clinical programs have experienced slower patient enrollment as a result of the pandemic. These delays have not broadly affected the status of our portfolio programs and have been limited to specific trials and specific sites. Many clinical sites have delayed starting new clinical trials and others have postponed enrollment to address the pandemic.
● Research, development, and administrative activities: We have implemented environmental, health, and safety procedures for all onsite employees and have also offered reimbursement of costs incurred and time off to employees to receive vaccinations that have been authorized. We believe we provide a safe and healthy environment for our onsite employees who have been able to continue research operations, following an initial period of reduced onsite activities while new policies and procedures were, and have been, developed and implemented. As of September 30, 2021, these activities have continued without interruption from the COVID-19 pandemic.
31
Table of Contents
Our development activities include conducting IND-enabling studies for XmAb819, our first 2+1 CD3 bispecific candidate that targets ENPP3, XmAb808, our first tumor selective CD28 bispecific candidate that targets B7-H3, and XmAb662, our IL12 cytokine candidate. Several other bispecific antibody and cytokine programs are in earlier stages of development. During the third quarter of 2020, the manufacturers of our drug supplies notified us of critical shortages of materials used in their manufacturing processes due to pandemic-related reallocation of resources. The shortages will not affect our current clinical programs as we have sufficient supply of drug material to continue the ongoing trials without interruption. However, these shortages extended the development timelines of early-stage development candidates, including XmAb819, by three to six months. We continue to monitor the effect of the COVID-19 pandemic on our supply chain.
Clinical-Stage XmAb Bispecific Antibody and Cytokine Drug Candidate Updates
Our modular XmAb bispecific technology and protein engineering capabilities enable us to rapidly advance multiple drug candidates into clinical development. We and our partners are currently enrolling Phase 1 or Phase 2 studies for six wholly owned or co-development candidates to treat patients with many different types of cancer, and a seventh, in development for patients with autoimmune disease, entered clinical development in April 2021.
XmAb306/RO7310729 (IL15/IL15Rα-Fc Cytokine): XmAb306 is an IL15/IL15Rα-Fc fusion protein that incorporates our Xtend extended half-life technology, and we are co-developing this program in collaboration with Genentech. An ongoing Phase 1 dose-escalation study of XmAb306 in patients with advanced solid tumors has enrolled six cohorts in a monotherapy arm and four cohorts in an atezolizumab combination arm, and further dose escalation in both study arms is continuing.
XmAb306 has been generally well tolerated as both a monotherapy and in combination with atezolizumab. No dose-limiting toxicities or treatment-related serious adverse events have been observed to date. Assessments of pharmacokinetics indicate that XmAb306 has a multi-day circulating half-life, which is consistent with its reduced-potency design and data generated in preclinical studies. Unconfirmed responses, as evaluated by RECIST criteria, have been observed in multiple tumor types, including in a patient treated with XmAb306 monotherapy.
In recently dosed cohorts, the study has reached dose levels that promote T cell activity, and evidence of peripheral effector T cell proliferation has been observed. Consistent and robust dose-dependent natural killer (NK) cell expansion and NK cell accumulation upon repeat dosing has been observed for multiple NK cell subsets, including mature NK cells. Significant NK cell expansion and accumulation was observed beginning in lower dose cohorts, and at higher dosing cohorts NK cell expansion has reached 40- to 100-fold higher levels than baseline and has been sustained for weeks throughout dosing.
Additional studies of XmAb306 in combination with other agents are being planned. Under the Genentech Agreement, Xencor shares in 45 percent of worldwide development and commercialization costs for XmAb306 and will receive a share of net profits or net losses from product sales at the same percentage rate.
Plamotamab (CD20 x CD3): Plamotamab is a bispecific antibody that targets CD20, an antigen on B-cell tumors, and CD3, an activating receptor on T cells. Preliminary safety and anti-tumor activity from the ongoing Phase 1 dose-escalation study of plamotamab in B-cell malignancies, including from patients with relapsed or refractory non-Hodgkin's lymphoma (NHL), indicate that plamotamab was generally well tolerated and demonstrated encouraging clinical activity as a monotherapy. We are currently enrolling patients in this study. In November 2020, we entered a strategic clinical collaboration with MorphoSys AG and Incyte to investigate the chemotherapy-free triple combination of plamotamab, tafasitamab, and lenalidomide in patients with relapsed or refractory diffuse large B cell lymphoma (DLBCL), first-line DLBCL and relapsed or refractory follicular lymphoma (FL). We plan to initiate the first of these studies, in patients with relapsed or refractory DLBCL, an aggressive type of NHL, in late 2021 or early 2022.
In October 2021, we entered into a collaboration with Janssen to advance plamotamab and XmAb CD28 bispecific antibody combinations for the treatment of patients with B-cell malignancies, which expands our strategy to develop multiple highly active, chemotherapy-free regimens to treat patients with B-cell cancers. Janssen received
32
Table of Contents
worldwide exclusive development and commercial rights to plamotamab, and we will collaborate with Janssen on further clinical development of plamotamab, with us paying 20% of costs, including those for a subcutaneous formulation study anticipated to enter clinical trials in 2022. We will continue, at our own expense, the combination study of plamotamab, tafasitamab, and lenalidomide.
An abstract with updated clinical results from the Phase 1 study of plamotamab in patients with non-Hodgkin lymphoma was accepted for presentation at the American Society of Hematology Annual Meeting in December 2021.
Vudalimab (PD-1 x CTLA-4): Vudalimab (XmAb717) is a bispecific antibody that targets PD-1 and CTLA-4, two immune checkpoint receptors, to selectively activate the tumor microenvironment, and it is being developed in multiple types of solid tumors, including for patients with castration-resistant prostate cancer. Data from the Phase 1 study indicates that vudalimab was generally well-tolerated and that the most common treatment-related adverse events were immune-related adverse events (irAEs); however, rates of irAEs, including colitis, were lower than typically observed with CTLA-4 blockade. Clinical responses were observed in all expansion cohorts. We have initiated a Phase 2 study of vudalimab for patients with certain molecular subtypes of metastatic castration-resistant prostate cancer (mCRPC), as a monotherapy or in combination depending on the subtype. We are initiating a second Phase 2 study for patients with advanced gynecologic and genitourinary malignancies, and the study includes a cohort to evaluate vudalimab in patients with clinically-defined high-risk mCRPC.
An abstract with updated clinical results from expansion cohorts in the Phase 1 study of vudalimab in patients with prostate cancer, renal cell carcinoma and other cancers without approved checkpoint therapies was accepted for presentation at the Annual Meeting of the Society for Immunotherapy of Cancer, November 10-14, 2021.
Tidutamab (SSTR2 x CD3): Tidutamab is a bispecific antibody that targets somatostatin receptor 2, (SSTR2), a target on many neuroendocrine-like tumor types, and CD3. Dose-escalation and expansion data from the Phase 1 study in patients with neuroendocrine tumors (NET) indicates that tidutamab was generally well tolerated at the recommended dose identified for the expansion portion of the study. Tidutamab induced sustained activation of cytotoxic T cells and engagement of the SSTR2 target and demonstrated an encouraging safety profile. We are enrolling patients in a Phase 2 clinical study for tidutamab in patients with Merkel cell carcinoma and small cell lung cancer, which are SSTR2-expressing tumor types known to be responsive to immunotherapy.
XmAb564 (IL2-Fc Cytokine) : XmAb564 is a wholly owned, monovalent interleukin-2 Fc (IL-2-Fc) fusion protein, engineered to selectively activate and expand regulatory T cells (Tregs) for the potential treatment of patients with autoimmune diseases. XmAb564 is engineered with reduced binding affinity for IL-2's beta receptor and increased binding affinity for its alpha receptor. In preclinical studies, XmAb564 was well-tolerated, promoted the selective and sustained expansion of Tregs and exhibited a favorable pharmacokinetic profile. In April 2021, the first subject was dosed in a randomized, double-blind, placebo-controlled Phase 1 clinical study that will evaluate the safety and tolerability of XmAb564, administered subcutaneously in healthy adult volunteers.
Vibecotamab (CD123 x CD3): Vibecotamab is a bispecific antibody that targets CD123, an antigen on acute myeloid leukemia (AML) cells and leukemic stem cells, and CD3, an activating receptor on T cells. In August 2021, Novartis notified the Company it was terminating its rights with respect to the vibecotamab program, which will be effective February 2022. We do not intend any further internal development of vibecotamab.
XmAb968(CD38 x CD3) (formerly AMG424): XmAb968 is a bispecific antibody that targets CD38 and CD3. We are supporting a Phase 1 investigator sponsored trial, which is evaluating XmAb968 in patients with T-cell acute lymphoblastic leukemia, T-cell lymphoblastic lymphoma and acute myeloid leukemia.
Additional wholly owned XmAb bispecific antibody programs in Phase 1 clinical studies include XmAb841 (CTLA-4 x LAG-3) and XmAb104 (PD-1 x ICOS). We continue enrolling patients with advanced solid tumors to these studies.
33
Table of Contents
Advancements Expanding XmAb Bispecific Platforms
We conduct further research into the function and application of antibody Fc domains in order to expand the scope of our XmAb technology platforms and identify additional XmAb drug candidates. We use the modularity of our XmAb bispecific Fc technology to build bispecific antibodies and cytokines in a variety of formats, and we recently introduced CD3 bispecific antibodies of a mixed valency format, the XmAb 2+1 bispecific antibody. XmAb 2+1 bispecific antibodies may preferentially kill tumor cells with high target expression, which may be especially beneficial in designing antibodies that target solid tumors. This selectivity potentially empowers CD3 bispecifics to address an expanded set of tumor antigens. Our lead XmAb 2+1 bispecific antibody candidate is XmAb819, a first-in-class ENPP3 x CD3 bispecific antibody. ENPP3 is a tumor-associated antigen in renal cell carcinoma (RCC) and exhibits low-level expression on normal tissues. We plan to submit an IND application for XmAb819 in 2021 and initiate a Phase 1 study in early 2022.
Additionally, we have engineered CD28 bispecific antibodies to provide conditional CD28 co-stimulation of T cells, activating them when bound to tumor cells. Targeted CD28 bispecific antibodies may provide conditional co-stimulation of T cells, for example, to T cells recognizing neoantigens or in concert with CD3 T-cell engaging bispecific antibodies. We are advancing wholly owned CD28 candidates including our lead candidate, XmAb808, a B7-H3 x CD28 bispecific antibody designed to be evaluated for the treatment of patients with a range of solid tumors, which is currently advancing in IND-enabling studies. We plan to submit an IND application for XmAb808 and initiate a Phase 1 study in 2022.
Our CD28 platform is also the subject of two collaborations with Janssen. The first collaboration was announced in December 2020, and involves our research efforts to create and characterize CD28 bispecific antibody candidates against a prostate tumor target specified by Janssen.
The second Janssen collaboration was announced in October 2021 and includes conducting research activities with Janssen to create and characterize CD28 bispecific antibody candidates against B-cell targets during a two-year period, with Janssen having an exclusive worldwide license to develop selected molecules from the research activities and also selected molecules in combination with plamotamab and other agents, such as other CD3 bispecific antibodies.
In April 2021, we presented emerging preclinical data from early-stage programs that highlight the potential of the XmAb 2+1 bispecific antibody format and the CD28 platform at the American Association for Cancer Research (AACR) Annual Meeting. Abstracts with data from four preclinical-stage programs, including our IL-12-Fc cytokine program, PD-L1 x CD28 bispecific antibody program, TGFβR2 bispecific program, and bispecific NK cell engager platform, were accepted for presentation at the Annual Meeting of the Society for Immunotherapy of Cancer, November 10-14, 2021.
Progress Across Partnerships
A key part of our business strategy is to leverage our protein engineering capabilities, XmAb technologies and drug candidates with partnerships, collaborations, and licenses. We have sixteen partnerships for the licensing of our XmAb technologies and drug candidates. Through these arrangements we generate revenues in the form of upfront payments, milestone payments, royalties, and equity interests from our partners. For partnerships for our drug candidates, we aim to retain a major economic interest in the form of keeping major geographic commercial rights; profit-sharing; co-development options; and the right to conduct studies with drug candidates developed in the collaboration and also equity interests in the form of stock. The types of arrangements that we have entered with partners include product licenses, novel bispecific antibody collaborations, technology licensing agreements and strategic collaborations.
Product Licenses
Product licenses are arrangements in which we have internally developed drug candidates and, based on a strategic review, licensed partial or full rights to third parties to continue development and potential commercialization. We seek partners that can provide infrastructure and resources to successfully develop our drug candidates, have a track
34
Table of Contents
record of successfully developing and commercializing medicines, or have a portfolio of development-stage candidates and commercialized medicines that could potentially be developed in rational combinations with our drug candidates.
The FDA approved Monjuvi® (tafasitamab-cxix) under accelerated approval in July 2020. Monjuvi is a CD19-directed cytolytic antibody indicated in combination with lenalidomide for the treatment of adult patients with relapsed or refractory diffuse large B-cell lymphoma (DLBCL) not otherwise specified , including DLBCL arising from low grade lymphoma, and who are not eligible for autologous stem cell transplant (ASCT). This indication is approved under accelerated approval based on overall response rate. Continued approval for this indication may be contingent upon verification and description of clinical benefit in a confirmatory trial(s). In August 2021, the European Commission granted conditional marketing authorization for Minjuvi® (tafasitamab) in combination with lenalidomide, followed by tafasitamab monotherapy, for the treatment of adult patients with relapsed or refractory diffuse large B-cell lymphoma (DLBCL) who are not eligible for autologous stem cell transplantation (ASCT). Tafasitamab was created and initially developed by us. Tafasitamab is co-marketed by Incyte and MorphoSys under the brand name Monjuvi in the U.S. and is marketed by Incyte under the brand name Minjuvi in the E.U. Monjuvi® and Minjuvi® are registered trademarks of MorphoSys AG.
In April 2021, MorphoSys and Incyte announced the initiation of a Phase 3 study (inMIND) evaluating the addition of tafasitamab to lenalidomide and rituximab in patients with relapsed or refractory follicular lymphoma or marginal zone lymphoma. In the first nine months of 2021, we earned $12.5 million for the development milestone, and we recognized royalty revenue of $1.3 million and $3.9 million on net sales of Monjuvi for the three and nine months ended September 30, 2021, respectively.
In March 2021, the two-year research collaboration with Genentech to discover new targeted IL-15 cytokine candidates concluded, and we may independently advance into development targeted IL-15 programs not previously nominated under the agreement.
A targeted IL-15 program was identified as a development candidate under the Genentech Agreement in October 2020, and we were sharing in 45% of development costs for this candidate. In August 2021, Genentech and Xencor ceased development of the targeted IL-15 program due to observations in preclinical studies that suggested an undesirable clinical profile. No additional development of this candidate is planned by Genentech or us.
In November 2020, we entered into an agreement with Zenas, to which we licensed the exclusive, worldwide rights to develop and commercialize three preclinical-stage Fc-engineered drug candidates for autoimmune disease. Zenas is a cross-border biopharmaceutical company committed to becoming a global leader in the development and delivery of immune-based therapies for patients in China and around the world. XmAb6755, XPro9523, and XmAb10171 incorporate an Xtend Fc Domain, a Cytotoxic Fc Domain, or both. Zenas has indicated that these programs, which are collectively named ZB002, ZB003 and ZB004, are undergoing IND-enabling studies to support clinical development for both new and established autoimmune disease indications. We received a 15% equity interest in the company, and we are eligible to receive royalties on net sales of approved products in the mid-single digit to mid-teen percentage range.
In October 2017, we entered into an agreement with INmune, pursuant to which we provided INmune with an exclusive license to our XPro1595 drug candidate. INmune is currently conducting a Phase 2 study in hospitalized patients with respiratory symptoms from COVID-19 infection, as Quellor™ and Phase 1 studies in patients with Alzheimer’s disease and treatment resistant depression, as XPro1595. In connection with the license, we received shares of INmune common stock and an option to acquire up to 10% of the outstanding common stock of INmune for $10.0 million. At inception of the INmune Agreement, INmune became a related party of the Company as a result of the Company’s significant influence with respect to its investment in INmune. In June 2021, we sold the option for $15.0 million in cash and $3.3 million in additional shares of INmune common stock. After the sale of the option, the Company determined that INmune is no longer a related party of the Company as of June 2021. In September 2021, we exercised an option to acquire an additional 108,000 shares of INmune common stock for $0.8 million.
35
Table of Contents
Technology License Agreements
We enter into technology licensing agreements pursuant to which we license access to one or more of our XmAb Fc technologies on a restricted basis, typically to an XmAb Cytotoxic Fc Domain and/or the Xtend Fc Domain. Our partners are responsible for all research, development, and commercialization activities of the drug candidates. The plug-and-play nature of XmAb technologies allows us to license access to our platforms with limited or no internal research and development activities.
Alexion’s Ultomiris® uses Xtend Fc technology for longer half-life. Ultomiris has received marketing authorizations from regulatory agencies in the U.S., Europe, and Japan for the treatment of patients with paroxysmal nocturnal hemoglobinuria (PNH) and for patients with atypical hemolytic uremic syndrome (aHUS). Alexion is also evaluating Ultomiris in a broad late-stage development program across many indications in neurology and nephrology. We earned $5.8 million and $16.4 million in royalties from Alexion for the three and nine months ended September 30, 2021, respectively. Alexion, AstraZeneca Rare Disease, is the group within AstraZeneca focused on rare diseases, created following AstraZeneca’s acquisition of Alexion in 2021.
Vir has non-exclusive access to multiple of our Fc technologies, including Xtend™ Fc technology, designed to extend the half-life of novel antibodies that Vir is investigating as potential treatments for patients with COVID-19. In May 2021, the FDA granted EUA to sotrovimab (VIR-7831) for the treatment of mild-to-moderate COVID-19 in high-risk adults and pediatric patients. A second drug candidate, VIR-7832, is in a Phase 1b/2a trial of adults with mild-to-moderate COVID-19. We earned $6.3 million and $7.2 million in royalties from Vir for the three and nine months ended September 30, 2021, respectively.
In August 2019, we provided Vir a non-exclusive license to our Xtend Fc technology for two targets in infectious disease. Vir has advanced two programs under this agreement. In the second quarter of 2021, Vir announced plans to initiate a Phase 2 trial of VIR-3434 in combination with an siRNA drug candidate as a potential treatment for patients with chronic hepatitis B virus infection, and we earned $0.5 million for the development milestone.
In May 2021, we entered into a technology license agreement with Bristol-Myers Squibb Company (BMS) under which BMS has access to Xtend Fc technology to extend the half-life of a novel antibody combination therapy that is intended to neutralize the SARS-CoV-2 virus for the treatment or prevention of COVID-19. Phase 2 and 3 studies are planned as part of the NIH ACTIV-2 trial examining treatment of infected outpatients. Under the terms of the agreement, BMS is solely responsible for the activities and costs related to research, development, regulatory, and commercial activities for their COVID-19 drug candidates, and Xencor is eligible to receive royalties on net sales in the mid-single digit percent range. BMS initiated a Phase 2 study of the antibody combination therapy in the third quarter of 2021.
In connection with our June 2016 collaboration and license agreement with Novartis, we granted Novartis a non-exclusive license to certain non-bispecific XmAb Fc technologies to apply against up to ten targets. In the second quarter of 2021, we earned $1.0 million for a development milestone related to an undisclosed XmAb antibody program.
Refer to Part I, Item 1, Note 9, Collaboration and Licensing Agreements of the Notes to Financial Statements included in this Quarterly Report on Form 10-Q for a description of the key terms of our arrangements.
We have over 1,300 issued and pending patents worldwide to protect our XmAb technology platform and XmAb drug candidates.
Since we commenced active operations in 1998, we have devoted substantially all our resources to staffing our Company, business planning, raising capital, developing our technology platforms, identifying potential product candidates, undertaking pre-clinical and IND-enabling studies, and conducting clinical trials. We have no products approved for commercial sale and have not generated any revenues from product sales, and we continue to incur significant research and development expenses and other expenses related to our ongoing operations. To date, we have funded our operations primarily through the sale of stock and from payments generated from our product development partnerships and licensing arrangements.
36
Table of Contents
As of September 30, 2021, we had an accumulated deficit of $356.2 million. Substantially all of the operating losses that we have incurred resulted from expenses incurred in connection with our product candidate development programs, our research activities and general and administrative costs associated with our operations.
Results of Operations
Comparison of the Three Months Ended September 30, 2021 and 2020
The following table summarizes our results of operations for the three months ended September 30, 2021 and 2020 (in millions):
Three Months Ended
September 30,
2021
2020
Change
Revenues:
Research collaboration
$
6.3
$
0.9
$
5.4
Milestone
—
25.0
(25.0)
Licensing
—
5.0
(5.0)
Royalties
13.4
4.5
8.9
Total revenues
19.7
35.4
(15.7)
Operating expenses:
Research and development
50.6
44.5
6.1
General and administrative
10.4
7.6
2.8
Total operating expenses
61.0
52.1
8.9
Other income, net
1.1
4.2
(3.1)
Net loss
$
(40.2)
$
(12.5)
$
(27.7)
Revenues
Revenues for the three months ended September 30, 2021 are primarily from the collaboration with Janssen and royalty revenue from Alexion, MorphoSys, and Vir. Revenues for the three months ended September 30, 2020 are primarily from the milestone revenue recognized from MorphoSys, licensing revenue from Omeros, and the royalty revenue from Alexion.
37
Table of Contents
Research and Development Expenses
The following tables summarize our research and development expenses for the three months ended September 30, 2021 and 2020 (in millions):
Three Months Ended
September 30,
2021
2020
Change
Product programs:
Obexelimab (XmAb5871)
$
0.2
$
0.3
$
(0.1)
Bispecific programs:
CD3 programs:
Vibecotamab*
1.5
3.3
(1.8)
Plamotamab
9.6
8.0
1.6
Tidutamab
3.4
4.4
(1.0)
XmAb819 (ENPP3 x CD3)
4.0
2.7
1.3
Total CD3 programs
18.5
18.4
0.1
Tumor micro environment (TME) activator programs:
Vudalimab (XmAb717)
6.8
7.2
(0.4)
XmAb104
2.7
3.7
(1.0)
XmAb841
3.6
2.8
0.8
Total TME activators programs
13.1
13.7
(0.6)
Cytokine programs:
XmAb306/RG6323 and a targeted IL-15 candidate*
5.7
2.3
3.4
XmAb564
3.8
5.0
(1.2)
Total cytokine programs
9.5
7.3
2.2
Subtotal bispecific programs
41.1
39.4
1.7
Other, research and early stage programs
9.3
4.8
4.5
Total research and development expenses
$
50.6
$
44.5
$
6.1
*Includes net payments to, and reimbursements from our partners pursuant to agreements that include cost-sharing arrangements.
Three Months Ended
September 30,
2021
2020
Change
External research and development expenses
$
28.2
$
26.1
$
2.1
Internal research and development expenses
16.8
13.0
3.8
Stock based compensation
5.6
5.4
0.2
Total research and development expenses
$
50.6
$
44.5
$
6.1
Research and development expenses increased by $6.1 million for the three months ended September 30, 2021 over the same period in 2020 primarily due to increased spending on our XmAb306, the targeted IL-15 program, and other early stage programs.
38
Table of Contents
General and Administrative Expenses
The following table summarizes our general and administrative expenses for the three months ended September 30, 2021 and 2020 (in millions):
Three Months Ended
September 30,
2021
2020
Change
General and administrative
$
10.4
$
7.6
$
2.8
General and administrative expenses increased by $2.8 million for the three months ended September 30, 2021 over the same period in 2020 primarily due to increased general and administrative staffing and additional lease expenses.
Other Income, Net
Other income, net was $1.1 million and $4.2 million for the three months ended September 30, 2021 and 2020, respectively. The decrease in other income, net was primarily due to the unrealized gain recognized from the change in fair value of our equity investments in connection with our licensing transactions.
Comparison of the Nine Months Ended September 30, 2021 and 2020
The following table summarizes our results of operations for the nine months ended September 30, 2021 and 2020 (in millions):
Nine Months Ended
September 30,
2021
2020
Change
Revenues:
Research collaboration
$
79.7
$
3.2
$
76.5
Milestone
14.0
37.8
(23.8)
Licensing
—
28.1
(28.1)
Royalties
27.4
11.7
15.7
Total revenues
121.1
80.8
40.3
Operating expenses:
Research and development
141.5
121.9
19.6
General and administrative
27.5
22.1
5.4
Total operating expenses
169.0
144.0
25.0
Other income, net
57.5
7.5
50.0
Net income (loss)
$
9.6
$
(55.7)
$
65.3
Revenues
Revenues for the nine months ended September 30, 2021 are primarily from our collaboration with Janssen, milestone revenue recognized from MorphoSys and Novartis, research revenue recognized in connection with the expiration of research terms under the Genentech and Novartis collaborations, and the royalty revenue from Alexion, MorphoSys, and Vir. Revenues for the nine months ended September 30, 2020 are primarily from royalty revenue from Alexion, milestones revenue from MorphoSys, and licensing revenue recognized from our collaborations with Gilead, Aimmune, and Omeros.
39
Table of Contents
Research and Development Expenses
The following tables summarize our research and development expenses for the nine months ended September 30, 2021 and 2020 (in millions):
Nine Months Ended
September 30,
2021
2020
Change
Product programs:
Obexelimab (XmAb5871)
$
1.1
$
2.3
$
(1.2)
Bispecific programs:
CD3 programs:
Vibecotamab*
6.5
8.9
(2.4)
Plamotamab
26.4
24.3
2.1
Tidutamab
11.6
11.3
0.3
XmAb819 (ENPP3 x CD3)
11.3
5.7
5.6
Total CD3 programs
55.8
50.2
5.6
Tumor micro environment (TME) activator programs:
Vudalimab (XmAb717)
19.0
19.4
(0.4)
XmAb104
11.5
10.1
1.4
XmAb841
9.1
7.5
1.6
Total TME activators programs
39.6
37.0
2.6
Cytokine programs:
XmAb306/RG6323 and a targeted IL-15 candidate*
12.8
6.3
6.5
XmAb564
10.6
11.6
(1.0)
Total cytokine programs
23.4
17.9
5.5
Subtotal bispecific programs
118.8
105.1
13.7
Other, research and early stage programs
21.6
14.5
7.1
Total research and development expenses
$
141.5
$
121.9
$
19.6
*Includes net payments to, and reimbursements from our partners pursuant to agreements that include cost-sharing arrangements.
Nine Months Ended
September 30,
2021
2020
Change
External research and development expenses
$
75.5
$
68.0
$
7.5
Internal research and development expenses
48.7
38.8
9.9
Stock based compensation
17.3
15.1
2.2
Total research and development expenses
$
141.5
$
121.9
$
19.6
Research and development expenses increased by $19.6 million for the nine months ended September 30, 2021 over the same period in 2020 primarily due to increased spending on XmAb306, the targeted IL-15 program, XmAb819, and other early stage programs.
40
Table of Contents
General and Administrative Expenses
The following table summarizes our general and administrative expenses for the nine months ended September 30, 2021 and 2020 (in millions):
Nine Months Ended
September 30,
2021
2020
Change
General and administrative
$
27.5
$
22.1
$
5.4
General and administrative expenses increased by $5.4 million for the nine months ended September 30, 2021 over the same period in 2020 primarily due to increased general and administrative staffing and additional spending on professional services and leases.
Other Income, Net
Other income, net was $57.5 million and $7.5 million for the nine months ended September 30, 2021 and 2020, respectively. The increase in other income, net was primarily due to the gain realized from the sale of the INmune option, and the unrealized gain recognized from the change in accounting for our investments in equity securities in connection with our licensing transactions.
Cash Flows
The following table sets forth the primary sources and uses of cash for each of the periods presented below (in thousands):
Nine Months Ended
September 30,
2021
2020
Change
Net cash provided by (used in):
Operating activities
$
(78,643)
$
(22,088)
$
(56,555)
Investing activities
(54,109)
21,413
(75,522)
Financing activities
10,408
8,457
1,951
Net increase (decrease) in cash
$
(122,344)
$
7,782
$
(130,126)
Operating Activities
Cash used in operating activities for the nine months ended September 30, 2021 increased by $56.6 million over the same period in 2020. The increase in cash used in operating activities is primarily due to increased research and development expenses.
Investing Activities
Investing activities consist primarily of investments in marketable securities available-for-sale, purchases of intangible assets, capitalization of patent and licensing costs and purchases of property and equipment.
Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 2021 increased by $2.0 million over the same period in 2020, which reflects additional proceeds received from the exercise of stock options and purchases under the ESPP.
41
Table of Contents
Liquidity and Capital Resources
We have financed our operations primarily through private placements of our equity securities, the issuance of convertible notes, public offerings of our common stock, and payments received under our product development partnerships and licensing arrangements.
As of September 30, 2021, we had $537.9 million of cash, cash equivalents, receivables, and marketable debt securities compared to $610.2 million as of December 31, 2020. The investments in marketable debt securities are further described above in Note 5, Marketable Debt and Equity Securities , of Notes to Financial Statements included in this Quarterly Report on Form 10-Q. In November 2021, the Second Janssen Agreement became effective under which we are eligible to receive a $100.0 million upfront payment and a $25.0 million payment for the sale of common stock, both are expected to be received before year end. We expect to continue to receive additional payments from our collaborators for research and development services rendered, additional milestone, opt-in, contingent payments, and royalties. Our ability to receive milestone payments and contingent payments from our partners is dependent upon either our ability or our partners’ abilities to achieve certain levels of research and development activities and is therefore uncertain at this time.
Funding Requirements
We have not generated any revenue from product sales to date and do not expect to do so until we obtain regulatory approval of and commercialize one or more of our product candidates. As we are currently in the clinical stage of development, it will be some time before we expect to achieve this, and it is uncertain that we ever will commercialize one or more of our product candidates. We expect that we will continue to increase our operating expenses in connection with ongoing as well as additional clinical and preclinical development of product candidates in our pipeline.
Although it is difficult to predict our funding requirements, based upon our current operating plan, we expect that our existing cash, cash equivalents, marketable securities, and certain potential milestone payments will fund our operating expenses and capital expenditure requirements into 2025. We have based these estimates on assumptions that may prove to be wrong, and the COVID-19 pandemic could materially alter these estimates, which would cause us to use our capital resources sooner than we currently expect.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements.
Contractual Obligations and Commitments
There were no material changes outside of the ordinary course of business to our specific contractual obligations during the three months ended September 30, 2021.
Critical Accounting Policies
For a discussion of our material changes in critical accounting policies, see “Recent Accounting Pronouncements” in Note 1, Summary of Significant Accounting Policies , of the Notes to Financial Statements included in this Quarterly Report on Form 10-Q.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.