What changed in this filing

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Item 1A. Risk Factors

2023-02-27 compared with 2022-02-24 · 87 added, 59 removed, 651 unchanged (18% of the section changed)

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The summary below is not exhaustive and is qualified by reference to the full set of risk factors set forth in this “Risk Factors” section.

Please carefully consider all of the information in this Form 10-K, including the full set of risks set forth in this

“Risk Factors” section, and in our other filings with the U.S.

Please carefully consider all of the information in this Form 10-K, including the full set of risks set forth in this “Risk Factors” section, and in our other filings with the U.S.

Securities and Exchange Commission before making an investment decision regarding Xencor.

We have reviewed our risk factors and categorized them into five specific categories:

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Risks related to our unique and specific business operations as a small biotechnology company.

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• The COVID-19 pandemic and the future outbreak of other highly infectious or contagious diseases could materially and adversely impact or disrupt our business and our financial condition, results of operations, cash flows and performance.

• The risk of rising inflation in the United States and globally could materially and adversely impact or disrupt our business and our financial condition, results of operations, cash flows and performance.

Risks specifically related to our financial position, capital requirements and ownership of our common stock.

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• Our patent protection and prosecution for some of our product candidates is dependent on third parties.

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• We rely on third-party manufacturers for the manufacture of our product candidates.

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This platform has led to our current pipeline of candidates as well as the other programs that utilize our technology and that are being developed by our partners and licensees.

While we believe our preclinical and clinical data to date, together with our established partnerships, has validated our platform to a degree, most of the programs are in early stages of development.

While we believe our

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preclinical and clinical data to date, together with our established partnerships, has validated our platform to a degree, most of the programs are in early stages of development.

Although drug candidates incorporating our Fc technology, or Fc candidates, have been approved by the FDA, other product candidates have not yet been, and may never lead to, approved or marketable therapeutic antibody products.

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Our operations to date have been limited to raising capital, staffing our company, developing our proprietary XmAb technology platform, identifying potential product candidates, conducting preclinical studies and clinical trials, developing partnerships and business planning.

We have conducted, or are currently conducting, early phase clinical

trials for several product candidates, but have not completed any late stage clinical trials for these or any other product candidate.

We have conducted, or are currently conducting, early phase clinical trials for several product candidates, but have not completed any late stage clinical trials for these or any other product candidate.

We have not yet demonstrated our ability to successfully complete any pivotal clinical trials, obtain regulatory approvals, manufacture a commercial scale product, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization.

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In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is typically selected from a more extensive amount of available information.

You or others may not agree with what we determine is the material or otherwise appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular product, product candidate or our business.

You or others may not agree with what

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we determine is the material or otherwise appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular product, product candidate or our business.

If the preliminary or topline data that we report differ from late, final or actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize our product candidates may be harmed, which could harm our business, financial condition, results of operations and prospects.

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The COVID-19 pandemic could also potentially affect the business of the FDA as well as other health regulatory authorities, which could result in delays in our communications with these authorities and ultimately in the ability for us and our partners to have drug products approved.

The COVID-19 pandemic and mitigation measures also have had and may continue to have an adverse impact on global economic conditions which could have an adverse effect on our business and financial condition, including impairment of our ability to raise capital when needed.

The COVID-19 pandemic and mitigation measures also have had an adverse impact on global economic conditions which could have an adverse effect on our business and financial condition, including impairment of our ability to raise capital when needed.

The trading prices for biopharmaceutical companies’ stock, including our common shares have been highly volatile as a result of the COVID-19 pandemic.

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If our partners’ and collaborators’ operations are severely affected by the COVID-19 pandemic, it will adversely affect our future potential revenue from such partners and collaborators.

We have required most of our employees, including all of our administrative employees, to work remotely, restricted on-site staff to only those employees that must perform essential activities that must be completed on-site and limited the number of staff allowed in our laboratory and offices.

These changes may negatively impact productivity, or disrupt, delay, or otherwise adversely impact our business.

In addition, this could increase our cyber security risk, create data accessibility concerns, and make us more susceptible to communication disruptions, any of which could adversely impact our business operations.

When we reopen our facilities, we could encounter delays in connection with implementing precautionary measures to mitigate the risk of exposing our facilities and employees to COVID-19.

The COVID-19 pandemic could adversely affect our supply chain for our research, development, and clinical programs.

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During 2020 and 2021, we required most of our employees, including all of our administrative employees, to work remotely, restricted on-site staff to only those employees that must perform essential activities that must be completed on-site and limited the number of staff allowed in our laboratory and offices.

During 2022, we returned to on-site activity for all employees with some continuing to work in a hybrid manner.

If there is a resurgence of COVID-19 related illnesses due to the emergence of new variants of the disease, this could negatively affect our employees and our ability to continue onsite operations.

In prior years, the COVID-19 pandemic adversely affected our supply chain for our research, development, and clinical programs.

We rely on third party vendors for research supplies, development activities including manufacturing of drug product for our clinical studies and testing of drug material.

In the third quarter of 2020, several manufacturing vendors notified us of critical supply shortages which delayed the development timelines for our earlier stage development programs by three to six months.

We currently do not expect these supply shortages to delay the timelines for our programs that are already in clinical studies.

However, if this supply disruption continues or becomes more acute, it will extend the timelines for advancing our earlier stage programs further and could also delay the current timelines for advancing our existing clinical programs.

If any other vendors in our supply chain of products or services are also severely affected from the COVID-19 pandemic, it will adversely affect our ability to continue our research and development activities and also continue our clinical trial activities.

In 2020, several manufacturing vendors notified us of critical supply shortages which delayed the development timelines for our earlier stage development programs.

These supply shortages did not delay the timelines for our programs that were already in clinical studies.

However, if there is resurgence of Covid-19 related illnesses, our supply chain could again be negatively affected which could potentially delay our development programs and research activities.

The COVID-19 pandemic continues to rapidly evolve.

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We will continue to monitor the situation closely.

Our business and results of operations could be adversely impacted by inflation

The Company’s financial performance is subject to global and US economic conditions.

Recent increases in interest rates and inflation, globally, and in the US regions, have led to economic volatility, increased borrowing costs, price increases and risks of recessions.

Economic recessions may have adverse consequences across industries, including the biotechnology industry, which may adversely affect the Company’s business and financial condition.

As a result of the ongoing actions taken by governments to attempt to slow down rising inflation, there is substantial uncertainty about the strength of the global economies, which may currently or in the near term be in a recession and have experienced rapid increases in uncertainty about the pace of potential recovery.

In addition, changes in general market, economic and political conditions in domestic and foreign economies or financial markets, including fluctuation in stock markets resulting from, among other things, trends in the economy and inflation, as are being currently experienced, may adversely impact our cash runway as well as our ability to raise funds.

Risks Specifically Related to Our Financial Position, Capital Requirements and Ownership of Our Common Stock

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To date, we have financed our operations primarily through equity financings and our research and development licensing agreements and have incurred significant operating losses since our inception in 1997.

For the year ended December 31, 2021, we generated net income of $82.6 million and as of December 31, 2021, we had an accumulated deficit of $283.1 million.

We expect to incur losses in future years as we execute our plan to continue our discovery, research and development activities, including the ongoing and planned clinical development of our antibody product candidates, and incur the additional costs of operating as a public company.

For the year ended December 31, 2022, we incurred a net loss of $(55.2) million and as of December 31, 2022, we had an accumulated deficit of $338.3 million.

We expect to incur additional net losses in future years as we execute our plan to continue our discovery, research and development activities, including the ongoing and planned clinical development of our antibody and cytokine product candidates, and incur the additional costs of operating as a public company.

We are unable to predict the extent of any future losses or when we will become profitable, if ever.

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We are still in the early stages of developing our product candidates, and we have not completed development of any of our wholly-owned products.

Our revenue to date has been primarily revenue from the license of our proprietary XmAb technology platform and drug candidates for the development of product candidates by others or revenue from our partners.

Our revenue to date has been primarily revenue from the license of our proprietary XmAb

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technology platform and drug candidates for the development of product candidates by others or revenue from our partners.

Our ability to generate revenue and achieve profitability depends in large part on our ability, alone or with partners, to achieve milestones and to successfully complete the development of, obtain the necessary regulatory approvals for, and commercialize and market, product candidates.

We do not anticipate generating revenues from sales

of our own products in the foreseeable future that will provide sufficient proceeds to fund our operations on an ongoing basis.

We do not anticipate generating revenues from sales of our own products in the foreseeable future that will provide sufficient proceeds to fund our operations on an ongoing basis.

Our ability to generate future revenues from licensing our proprietary XmAb technologies and drug candidates depends heavily on our and our partners’ success in advancing drug candidates that they have licensed from us or developed using one of our technologies.

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The trading price of our common stock is likely to be volatile.

Since our IPO, the trading price of our common stock has ranged from a low

of approximately $5.75 to a high of approximately $58.345.

Since our IPO, the trading price of our common stock has ranged from a low of

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approximately $5.75 to a high of approximately $58.345.

Our stock price could be subject to wide fluctuations in response to a variety of factors, including the following:

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Our principal stockholders, directors and management own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.

Based on information available to us as of December 31, 2021 our executive officers, directors, 5% stockholders and their affiliates beneficially owned, as a group, approximately 70% of our voting stock.

Based on information available to us as of December 31, 2022 our executive officers, management, directors, 5% stockholders and their affiliates beneficially owned, as a group, approximately 71.1% of our voting stock.

Therefore, our officers, directors and 5% stockholders and their affiliates will have the ability to influence us through this ownership position and so long as they continue to beneficially own a significant amount of our outstanding voting stock.

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For example, these stockholders, acting together, may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction.

prevent or discourage unsolicited acquisition proposals, offers for our common stock or other transactions or arrangements that you may believe are in your best interest as one of our stockholders.

This may prevent or discourage unsolicited acquisition proposals, offers for our common stock or other transactions or arrangements that you may believe are in your best interest as one of our stockholders.

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Raising additional funds through debt or equity financing may be dilutive or restrict our operations and raising funds through licensing may require us to relinquish rights to our technology or product candidates.

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As a large accelerated filer, we are subject to additional internal control requirements of the Sarbanes-Oxley Act of 2002.

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Sales of a substantial number of shares of our common stock by our existing stockholders in the public market could cause our stock price to fall.

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• eliminating the ability of stockholders to call a special meeting of stockholders;

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• establishing advance notice requirements for nominations for election to the Board of Directors or for proposing matters that can be acted upon at stockholder meetings.

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As of December 31, 2022, we held over 1,400 issued patents and pending patent applications.

We file patent applications in the United States, Canada, Japan, Europe and other major markets either directly or via the Patent Cooperation Treaty.

We file patent applications in the United States, Canada, Japan, Europe and other major

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markets either directly or via the Patent Cooperation Treaty.

Our ability to stop third parties from making, using, selling, offering to sell or importing our product candidates is dependent upon the extent to which we have rights under valid and enforceable patents or trade secrets that cover these activities.

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the patent and patent enforcement laws of some foreign jurisdictions do not protect intellectual property rights to the same extent as laws in the United States, and many companies have encountered significant difficulties in protecting and defending such rights in foreign jurisdictions.

If we encounter such difficulties or we are otherwise precluded from effectively protecting our intellectual property rights in foreign jurisdictions, our business prospects could be substantially harmed;

If we encounter such difficulties or we are

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otherwise precluded from effectively protecting our intellectual property rights in foreign jurisdictions, our business prospects could be substantially harmed;

we may not develop additional proprietary technologies that are patentable.

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As part of our discovery and development activities, we routinely evaluate in-licenses from academic and research institutions.

We have sublicensed certain intellectual property rights related to our CD3 bispecific technology from a third party, and we have licensed certain intellectual property rights from a third party related to our tidutamab product candidate.

We have sublicensed certain intellectual property rights related to our CD3 bispecific technology from a third party.

We also license certain rights to the underlying cell lines for all our product candidates from third parties.

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If there is any conflict, dispute, disagreement or issue of non-performance between us and our licensing partners regarding our rights or obligations under the license agreements, including any such conflict, dispute or disagreement arising from our failure to satisfy payment obligations under any such agreement, we may owe damages, our licensor may have a right to terminate the affected license, and our and our partners' ability to utilize the affected intellectual property in our drug discovery and development efforts, and our ability to enter into collaboration or marketing agreements for an affected product or therapeutic candidate, may be adversely affected.

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We may be required to reduce the scope of our intellectual property due to third-party intellectual property claims.

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For example, we are aware of issued patents owned by Merus B.V.

(Merus) that may relate to

and claim components of our bispecific antibody product candidates and partnered bispecific product candidates, including plamotamab, tidutamab, vudalimab, XmAb104, XmAb841, and XmAb819 will putatively expire in 2033.

(Merus) that may relate to and claim components of our bispecific antibody product candidates and partnered bispecific product candidates, including plamotamab, vudalimab, XmAb104, and XmAb819 will putatively expire in 2033.

We are additionally aware of several patents and pending applications directed to the use of IL-15 fused with Fc domains, and in some cases in combination with targeting domains, that might be relevant to XmAb306, with putative expirations ranging from 2025 to later than 2032.

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Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future.

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If we are sued for patent infringement, we would need to demonstrate that our products or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid, and we may not be able to do this.

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We may not be able to protect our trade secrets adequately.

We have a policy of

requiring our consultants, advisors, and collaborators to enter into confidentiality agreements and our employees to enter into invention, non-disclosure and non-compete agreements.

We have a policy of requiring our consultants, advisors, and collaborators to enter into confidentiality agreements and our employees to enter into invention, non-disclosure and non-compete agreements.

However, no assurance can be given that we have entered into appropriate agreements with all parties that have had access to our trade secrets, know-how or other proprietary information.

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Moreover, the applicable time period or the scope of patent protection afforded could be less than we request.

If we are unable to obtain patent term extension or the term of any such extension is shorter than what we request or we fail to choose the most optimal patents to extend, our competitors may obtain approval of competing products following our patent expiration, and our business, financial condition, results of operations and prospects could be materially harmed.

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following our patent expiration, and our business, financial condition, results of operations and prospects could be materially harmed.

Risks Related to Our Dependence on Third Parties

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These problems include difficulties with production costs and yields, quality control, including stability of the product, quality assurance testing, operator error, shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations.

Furthermore, if microbial, viral or other contaminations are discovered in our products or

in the manufacturing facilities in which our products are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination.

Furthermore, if microbial, viral or other contaminations are discovered in our products or in the manufacturing facilities in which our products are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination.

All of our XmAb engineered antibodies are manufactured by starting with cells which are stored in a cell bank.

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Because developing biologics products, conducting clinical trials, obtaining regulatory approval, establishing manufacturing capabilities and marketing approved products are expensive, we have entered into partnerships, and may seek to enter into additional partnerships, with companies that have more resources and experience than us, and we may become dependent upon the establishment and successful implementation of partnership agreements.

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Our partnership and license agreements include those we have announced with Janssen, Genentech, Vir, Amgen, MorphoSys, Alexion and others.

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For example, in 2021, Novartis notified us of its decision to return the rights to vibecotamab to us under the terms of the Novartis Agreement, and in 2020, Amgen notified us of its decision to return the rights to AMG 424 to us under the terms of the Amgen Agreement;

our Janssen Agreement provides for cost-sharing on development costs for the bispecific antibody candidate, plamotamab.

our Janssen Agreement provides for cost-sharing on development costs for the bispecific candidate, plamotamab.

Such an arrangement may require us to incur substantial costs in excess of our available resources;

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If our partnerships and license agreements do not result in the successful development and commercialization of products or if one of our collaborators terminates its agreement with us, we may not receive any future research and development funding or milestone or royalty payments under the arrangement.

If we do not receive the funding we expect under these arrangements, our continued development of our product candidates could be delayed, and we may need additional resources to develop additional product candidates.

If we do not receive the funding we expect

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under these arrangements, our continued development of our product candidates could be delayed, and we may need additional resources to develop additional product candidates.

All of the risks described in these risk factors relating to product development, regulatory approval and commercialization described in this Annual Report also apply to the activities of our collaborators and there can be no assurance that our partnerships and license agreements will produce positive results or successful products on a timely basis or at all.

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If we fail to comply with or breach any provision of a partnership agreement, a collaborator may have the right to terminate, in whole or in part, such agreement or to seek damages.

Many of our collaborators also have the right to terminate the partnership

agreement for convenience.

Many of our collaborators also have the right to terminate the partnership agreement for convenience.

If a partnership agreement is terminated, in whole or in part, we may be unable to continue the development and commercialization of the applicable product candidates, and even if we are able to do so, such efforts may be delayed and result in additional costs.

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There is no assurance these third parties will pass FDA or regulatory audits, which could delay or prohibit regulatory approval.

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We rely on third parties to manufacture supplies of our preclinical and clinical product candidates.

The development of such candidates could be stopped or delayed if any such third party fails to provide us with sufficient quantities of product or fails to do so at acceptable quality levels or prices or fails to maintain or achieve satisfactory regulatory compliance.

We do not currently have nor do we plan to acquire the infrastructure or capability internally to manufacture our clinical drug supplies for use in the conduct of our clinical trials, and we lack the resources and the capability to

manufacture any clinical candidates on a clinical scale.

Instead, we rely on our third-party manufacturing partners to manufacture our clinical drug supply.

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We may not be able to initiate or continue clinical trials for our product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or similar regulatory authorities outside the United States.

In addition, some of our competitors have ongoing clinical trials for product candidates that treat the same indications as our product candidates, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’ product candidates.

In addition, some of our competitors have ongoing clinical trials for product

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candidates that treat the same indications as our product candidates, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’ product candidates.

Our inability to enroll a sufficient number of patients for any of our clinical trials could result in significant delays and could require us to abandon one or more clinical trials altogether.

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The biotechnology and pharmaceutical industries are intensely competitive.

We have competitors both in the United States and internationally, including major multinational pharmaceutical companies, biotechnology companies,

universities and other research institutions.

Many of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing organizations and well-established sales forces.

We have competitors both in the United States and internationally, including major multinational pharmaceutical companies, biotechnology companies, universities and other research institutions.

Many of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing organizations

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and well-established sales forces.

Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries.

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Efforts to ensure that our future business arrangements with third parties will comply with applicable healthcare laws and regulations may involve substantial costs.

It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and

abuse or other healthcare laws.

It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws.

If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, including, without limitation, damages, fines, imprisonment, disgorgement, exclusion from participation in government healthcare programs, such as Medicare and Medicaid, additional reporting requirements and/or oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations, as well as reputational harm, which could significantly harm our business.

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Present and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the prices we may obtain.

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Our operations also produce hazardous waste products.

The risk of accidental contamination or injury from

these materials cannot be completely eliminated.

The risk of accidental contamination or injury from these materials cannot be completely eliminated.

In the event of such an accident, we could be held liable for any damages that result, and any such liability could exceed our resources.

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For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during clinical testing, manufacturing, marketing, or sale.

Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability, and a breach of warranties.

Any such product liability

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claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability, and a breach of warranties.

Claims could also be asserted under state consumer protection acts.

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We are required by contractual obligations to indemnify collaborators, partners, third-party contractors, clinical investigators, and institutions.

These indemnifications could result in a material

impact due to product liability claims against us and/or these groups.

These indemnifications could result in a material impact due to product liability claims against us and/or these groups.

We currently carry at least $10.0 million in product liability insurance, which we believe is appropriate for our current clinical trials.

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Litigation may be necessary to defend against these claims.

If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights.

If we fail in

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defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights.

A loss of key research personnel work product could hamper or prevent our ability to commercialize certain potential products, which could severely harm our business.

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In addition, these breaches and other inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm of the type described above.

Moreover, the prevalent use of mobile devices that access

confidential information increases the risk of data security breaches, which could lead to the loss of confidential information, trade secrets or other intellectual property.

Moreover, the prevalent use of mobile devices that access confidential information increases the risk of data security breaches, which could lead to the loss of confidential information, trade secrets or other intellectual property.

As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities.

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There is also a risk of inappropriate disclosure of sensitive information or negative or inaccurate posts or comments about us on any social networking website.

If any of these events were to occur or we otherwise fail to comply with applicable regulations, we could incur liability, face overly restrictive regulatory actions or incur other harm to our business.

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these events were to occur or we otherwise fail to comply with applicable regulations, we could incur liability, face overly restrictive regulatory actions or incur other harm to our business.

Compliance with global privacy and data security requirements could result in additional costs and liabilities to us or inhibit our ability to collect and process data globally, and the failure to comply with such requirements could have a material adverse effect on our business, financial condition or results of operations.

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Additionally, California recently enacted legislation that has been dubbed the first “GDPR-like” law in the U.S.

Known as the California Consumer Privacy Act (CCPA), it creates new individual privacy rights for consumers (as that word is broadly defined in the law) and places increased privacy and security obligations on entities handling personal

data of consumers or households.

The CCPA, which went into effect on January 1, 2020, requires covered companies to provide new disclosures to California consumers, and provides such consumers new ways to opt-out of certain sales of personal information.

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Misconduct by employees could include intentional failures to comply with FDA regulations, to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state healthcare fraud and abuse laws and regulations, or to report financial information or data accurately or disclose unauthorized activities to us.

In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices.

In particular,

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sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices.

These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors