What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-27 compared with 2022-02-24 · 312 added, 280 removed, 815 unchanged (42% of the section changed)

Financial Statements and Supplementary Dat a

Financial Statements and Supplementary Data

Financial Statements

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Notes to Financial Statements

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of

To the Stockholders and the Board of Directors

Opinion on the Financial Statements

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

(the Company) as of December 31, 2021 and 2020, the related statements of comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes to the financial statements.

(the Company) as of December 31, 2022 and 2021, the related statements of comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes to the financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

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

Revenue Recognition—Collaboration and Licensing Agreements

As discussed in Note 10 to the financial statements, the Company entered into collaboration and licensing agreements during the year ended December 31, 2021.

These contracts contain multiple performance obligations.

Management’s identification of the performance obligations requires significant judgment, including whether the performance obligations are distinct and capable of being distinct, which requires management to evaluate whether the customer can benefit from the good or service on its own, or together with other resources readily available to the customer.

Management applies significant judgment in determining the revenue recognition for these collaboration and licensing contracts including the identification of and accounting for all performance obligations and the calculation of the stand-alone selling price (SSP) for each identified performance obligation.

The Company’s estimate of SSP for each performance obligation within these customer contracts requires management to consider many factors, including

external market data as well as an estimate of future profitability.

For each performance obligation identified, the Company recognizes revenue upon transfer of control of promised intellectual property and technology licenses or upon delivery of research and development services to its collaboration and licensing partners in an amount that reflects the consideration the Company expects to receive in exchange for those licenses or services.

We identified the Company’s revenue recognition related to the collaboration and licensing agreements as a critical audit matter because auditing the identification and accounting for performance obligations, and the calculation of the SSP for each performance obligation, required significant audit effort and a high degree of auditor judgment and subjectivity to perform our audit procedures and evaluate the audit evidence obtained.

Our audit procedures related to the Company’s collaboration and licensing contracts included the following, among others:

● We obtained and read the collaboration and licensing agreements and evaluated the completeness of the performance obligations identified by management, and performed an evaluation of whether these performance obligations were distinct and capable of being distinct.

● We obtained an understanding of the relevant controls related to the collaboration and licensing contracts and tested such controls for design, implementation and operating effectiveness, including management review controls related to identifying distinct performance obligations and when transfer of control is satisfied, and determining the SSP over each of the identified performance obligations.

● We tested management’s process used to estimate the SSP by evaluating the models, including testing the accuracy and completeness of data used, and reasonableness of assumptions applied by management.

● As each contract has multiple performance obligations, we also tested the allocation of the transaction price to each performance obligation based upon the SSP.

Revenue Recognition Allocated to Research Services

As described in Note 10 to the financial statements, the Company is recognizing revenue allocated to research services over time.

For research services revenue recognized over time, management utilizes the input method to measure progress toward the complete satisfaction of the performance obligations based upon the research hours incurred to date as a percentage of the total estimated research hours.

We identified revenue recognition for this contract as a critical audit matter.

The principal consideration for our determination that revenue recognition for research services was a critical audit matter is that the measure of progress towards completion utilizes assumptions for future hours to complete the performance obligations, and those assumptions have significant estimation uncertainty.

A significant change in the assumptions could affect the amount of revenue recognized in an accounting period.

Given these factors, the related audit effort in evaluating management’s judgments in determining the revenue recognition allocated to research services required significant audit effort and a high degree of auditor judgment and subjectivity to perform our audit procedures and evaluate the audit evidence obtained.

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Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements.

These procedures included testing the effectiveness of controls relating to revenue recognition, including controls over management’s process for recognizing revenue over time.

Our procedures included, among others (i) obtaining information regarding the nature and extent of progress from the Company’s research team conducting the research activities;

(ii) obtaining an understanding for significant changes in budgeted to actual hours;

(iii) evaluating the progress towards completion of contracts based on hours incurred, and testing the appropriateness of the timing and amount of revenue recognized;

and (iv) assessing management’s sensitivity analyses over the significant assumptions to evaluate the impact of changes in estimated hours to complete that would result from changes in the underlying assumptions;

and (v) assessing management’s estimates based on updated information available after December 31, 2022.

/s/ RSM US LLP

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February 24, 2023

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Report of Independent Registered Public Accounting Firm

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February 24, 2023

Balance Sheet s

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Balance Sheets

(in thousands, except share and per share data)

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Accounts receivable 28,997 66,384

Contract asset

Prepaid expenses and other current assets 23,283 23,877

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Marketable debt securities - long term 3,826 300,465

Marketable equity securities - long term

Equity securities 54,383 31,262

Notes receivable - long term — 5,000

Right of use asset 34,419 31,730

Other assets 613 653

Total assets $ 846,266 $ 838,211

Liabilities and stockholders’ equity

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See accompanying notes to the financial statements.

Statements of Comprehensive Income (Los s)

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Statements of Comprehensive Income (Loss)

(in thousands, except share and per share data)

Year ended December 31,

2022 2021 2020

Collaborations, licenses, milestones, and royalties $ 164,579 $ 275,111 $ 122,694

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Other comprehensive income (loss)

Net unrealized gain (loss) on marketable securities available-for-sale

Net unrealized loss on marketable securities available-for-sale ( 5,442 ) ( 1,584 ) ( 1,087 )

Comprehensive income (loss) $ ( 60,623 ) $ 81,047 $ ( 70,420 )

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

Basic $ ( 0.93 ) $ 1.42 $ ( 1.21 )

Diluted $ ( 0.93 ) $ 1.37 $ ( 1.21 )

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

Basic 59,652,461 58,379,641 57,212,737

Diluted 59,652,461 60,495,455 57,212,737

See accompanying notes to the financial statements.

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Statements of Stockholders’ Equity

(in thousands, except share data)

Common Stock Additional

in-Capital Accumulated

Comprehensive

Income (Loss) Accumulated

Deficit Total

Stockholders’

Stockholders’ Equity

Income (Loss)

Stockholders’ Equity Shares Amount

Balance, December 31, 2019 56,902,301 $ 569 $ 887,873 $ 1,161 $ ( 296,402 ) $ 593,201

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

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

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

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

Comprehensive loss

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

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

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See accompanying notes to the financial statements.

Statements of Cash Flow s

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Statements of Cash Flows

(in thousands)

Year ended December 31,

2022 2021 2020

Cash flows from operating activities

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Changes in operating assets and liabilities:

Accounts receivable

Accounts receivable and contract assets 37,387 ( 54,941 ) 10,131

Interest receivable from marketable debt securities ( 530 ) 655 1,190

Prepaid expenses and other current assets

Income tax receivable

Prepaid expenses and other assets 634 ( 13,151 ) ( 4,170 )

Income tax — — 895

Contract asset and deposits — 12,059 ( 12,401 )

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Accrued expenses ( 715 ) 1,840 8,608

Deferred rent

Lease liabilities and ROU assets 22,976 1,211 ( 325 )

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Purchase of property and equipment ( 38,494 ) ( 13,299 ) ( 10,539 )

Purchase of convertible note

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

Exercise of stock options — ( 842 ) —

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Cash paid for:

Supplemental Schedule of Noncash Investing Activities

Interest 13 14 15

Taxes 700 — —

Supplemental Schedule of Noncash Activities

Net unrealized gain (loss) on marketable securities available-for-sale ( 5,442 ) ( 1,584 ) ( 1,087 )

Addition of right-of-use asset $ 6,155 $ 24,047 $ 3,127

See accompanying notes to the financial statements.

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Summary of Significant Accounting Policies

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Recent Accounting Pronouncements

Pronouncements adopted in 2021

Effective January 1, 2021, the Company adopted ASU No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes , which removes specific exceptions to the general principles in Topic 740 and simplifies the accounting for income taxes.

The adoption of this standard did not have a significant impact on the Company’s financial statements.

Effective January 1, 2021, the Company adopted ASU No.

2020-01, which clarifies that a company should consider observable transactions that require a company to either apply or discontinue the equity method of accounting under Topic 323, Investment – Equity Method and Joint Ventures , for the purposes of applying the measurement alternative in accordance with Topic 321, Investments – Equity Securities immediately before applying or upon discontinuing the equity method.

The adoption of this standard did not have a significant impact on the Company’s financial statements.

Effective January 1, 2021, the Company adopted ASU No.

2020-10, Codification Improvements , which amends a variety of topics in the Accounting Standards Codification to improve consistency and clarify guidance.

The adoption of this standard did not have a significant impact on the Company’s financial statements.

Pronouncements Not yet Effective

There are accounting standards that have been issued by the Financial Accounting Standards Board (FASB) but are not yet effective.

The standards are not expected to have a material impact on our results of operations, financial conditions, or cash flows.

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

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

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

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

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

Revenue Recognition

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

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

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

We did not record allowance for doubtful accounts at December 31, 2021 or 2020, as we expect to collect all receivables within the terms, which are generally between 30 and 60 days .

We did not record an allowance for doubtful accounts at December 31, 2022 or 2021, as we expect to collect all receivables within the terms, which are generally between 30 and 60 days.

Research and Development Expenses

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There were no impairment losses or recoveries recorded for the years ended in December 31, 2022 and 2021, respectively.

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

Accrued interest on

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marketable debt securities is included in marketable securities’ carrying value.

Accrued interest was $ 1.3 million and $ 0.8 million at December 31, 2022 and 2021, respectively.

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

During the years ended December 31, 2022 and 2021, the Company recorded an unrealized loss of $ 5.4 million and $ 1.6 million, respectively, in its portfolio of marketable debt securities.

The unrealized losses were due to the changing interest rate environment and are not due to changes in the credit quality of the underlying securities.

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

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

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

During the years ended December 31, 2022 and 2021, the Company recorded an impairment charge of $ 0.1 million and $ 0.8 million, respectively, in connection with equity securities without a readily determinable fair value.

During the years ended December 31, 2022 and 2021, the Company recorded a net gain of $ 23.4 million and $ 39.3 million, respectively, in connection with its equity investments.

Concentrations of Risk

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Amounts on deposit in excess of federally insured limits at December 31, 2022 and 2021 approximated $ 53.6 million and $ 143.2 million, respectively.

We have payables with four service providers that represent 64 % of our total payables and with one service provider that represented 49 % of our total payables at December 31, 2021 and 2020, respectively.

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

While we believe that there are

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

We have payables with two service providers that represent 45 % of our total payables and with four service providers that represented 64 % of our total payables at December 31, 2022 and 2021, respectively.

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

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

No other vendor accounted for more than 10% of total payables at December 31, 2022 or 2021.

We have receivables with two service providers that represent 84 % and 88 % of our total receivables at December 31, 2021 and 2020, respectively.

We have receivables with four service providers that represent 91 % of our total receivables and with two service providers that represent 84 % of our total receivables at December 31, 2022 and 2021, respectively.

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

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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:

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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.

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December 31, 2022

Fair Value Level 1 Level 2 Level 3

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

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Government Securities 329,889 — 329,889 —

$ 571,482 $ 40,967 $ 530,515 $ —

December 31, 2021

Fair Value Level 1 Level 2 Level 3

Money Market Funds in Cash and Cash Equivalents $ 123,892 $ 123,892 $ — $ —

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Government Securities 309,814 — 309,814 —

$ 578,124 $ 123,892 $ 454,232 $ —

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.

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Useful lives by asset category are as follows:

Computers, software and equipment

Furniture and fixtures

Leasehold improvements

5 - 7 years or remaining

Computers, software and equipment 3 - 5 years

Furniture and fixtures 5 - 7 years

Leasehold improvements 5 - 7 years or remaining

lease term, whichever is less

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Patents, Licenses, and Other Intangible Assets

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

Capitalized patent costs related to

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

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

During 2022, 2021, and 2020, we abandoned previously capitalized patent and licensing related charges of $ 1.5 million, $ 0.9 million, and $ 0.5 million, respectively.

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(in thousands)

Thereafter 3,181

Total $ 8,772

The above amortization expense forecast is an estimate.

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As of December 31, 2022, the Company has $ 9.3 million of intangible assets which are in-process and have not been placed in service, and accordingly amortization on these assets has not commenced.

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Long-Lived Assets

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

The tax reform provided for a refund of unused AMT carryforwards for years beginning after December 31, 2017.

We received an income tax refund during the years ended December 31, 2020 and 2019 of $ 0.8 million each year related to our federal AMT carryforwards.

The TCJA changed the income tax treatment of research and development expenses requiring such costs to be capitalized and amortized over several years beginning effective January 1, 2022.

The tax reform also provided for a refund of unused AMT carryforwards for years beginning after December 31, 2017.

We received an income tax refund during the year ended December 31, 2020 of $ 0.8 million each year related to our federal AMT carryforwards.

Stock-Based Compensation

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Diluted net income (loss) per common share is computed by dividing the net income (loss) attributable to common stockholders 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.

Potentially dilutive securities consisting of stock issuable pursuant to outstanding options and restricted stock units

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

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

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

Potentially dilutive securities were included in the diluted net income per common share calculation for 2021 and 2019.

In 2020, we excluded all options and awards from the calculations because we reported net losses in the period, and the inclusion of such shares would have had an antidilutive effect.

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

In 2022 and 2020, we excluded all options and awards from the calculations because we reported net losses in the period, and the inclusion of such shares would have had an antidilutive effect.

Year Ended December 31,

2022 2021 2020

(in thousands, except share and per share data)

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Diluted net income (loss) per common share $ ( 0.93 ) $ 1.37 $ ( 1.21 )

For the years ended December 31, 2022 and 2020, all outstanding potentially dilutive securities were excluded from the calculation as the effect of including such securities would have been anti-dilutive.

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

For the year ended December 31, 2020, all outstanding potentially dilutive securities were excluded from the calculation as the effect of including such securities would have been anti-dilutive.

For the year ended December 31, 2019, we excluded 1,022,623 shares of options and RSUs from the calculation because the inclusion of such shares would have had an anti-dilutive effect.

Segment Reporting

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There were no material reclassifications out of accumulated other comprehensive loss during the year ended December 31, 2022.

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Marketable Debt and Equity Securities

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December 31, 2022

Losses Fair Value

(in thousands)

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

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

Cash and cash equivalents $ 40,967

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December 31, 2021

Losses Fair Value

(in thousands)

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Government Securities 311,148 1 ( 1,335 ) 309,814

$ 579,624 $ 1 $ ( 1,501 ) $ 578,124

Cash and cash equivalents $ 123,892

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The maturities of the Company’s marketable debt securities as of December 31, 2022 are as follows:

Cost Estimated

(in thousands)

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Mature within two years 3,831 3,826

$ 537,457 $ 530,515

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The unrealized losses on available-for-sale investments and their related fair values as of December 31, 2022 and 2021 are as follows:

December 31, 2022

Less than 12 months

12 months or greater

Unrealized losses

Less than 12 months 12 months or greater

Fair value Unrealized losses Fair value Unrealized losses

(in thousands)

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

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

December 31, 2021

Less than 12 months

12 months or greater

Unrealized losses

Less than 12 months 12 months or greater

Fair value Unrealized losses Fair value Unrealized losses

(in thousands)

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Government Securities 39,909 ( 54 ) 254,593 ( 1,281 )

$ 90,246 $ ( 105 ) $ 300,465 $ ( 1,396 )

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

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Equity securities with a readily determinable fair value and their fair values (in thousands) as of December 31, 2022 and 2021 are as follows:

December 31, 2021

December 31, 2022 Fair Value

December 31, 2021

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Viridian Common Stock 20,948 14,178

$ 42,431 $ 36,860

The Company also has investments in equity securities without a readily determinable fair value.

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

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

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Carrying Value

December 31, 2021

December 31, 2022 Carrying Value

December 31, 2021

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Zenas Preferred Stock 54,209 30,950

$ 54,383 $ 31,262

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In 2018, the Company received equity shares in Quellis Biosciences, Inc.

(Quellis) in connection with a licensing transaction.

The Company recorded the Quellis equity as securities without a readily determinable fair value, and the investment was recorded at its original cost.

In 2021, Quellis merged into Catabasis Pharmaceuticals, Inc.

(Catabasis), and the Company received 259,206 shares of common stock and 3,928 shares of preferred stock in Catabasis in exchange for its Quellis equity.

(Catabasis), and the Company received common and preferred stock in Catabasis in exchange for its Quellis equity.

In June 2021, shares of the Catabasis preferred stock were exchanged for shares of Catabasis common stock;

The total 3,839,745 shares of the Catabasis common stock have a readily determinable fair value.

In August 2021, Catabasis effected a reverse stock split of its shares of common stock at a ratio of 1 :6, and in September 2021, Catabasis changed its name to Astria Therapeutics, Inc.

The adjustment in the fair value of the Astria common stock has been recorded in unrealized gain (loss) on equity securities for the year ended December 31, 2021.

the shares of the Catabasis common stock have a readily determinable fair value.

In September 2021, Catabasis changed its name to Astria Therapeutics, Inc.

The Company accounts for the shares in Astria common stock at their fair value each reporting period and the adjustment in the fair value of the Astria common stock has been recorded in unrealized gain (loss) on equity securities for the year ended December 31, 2022.

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

The Company elected to record the original 3,928 shares of preferred stock at their initial cost of $ 12.1 million and to review the carrying value for impairment or other changes in carrying value at each reporting period.

After the conversion of 3,581 shares of Astria preferred stock to common stock in June 2021, the Company owned 347 shares of preferred stock and continued to carry the shares at their original cost of $ 1.1 million.

The Company subsequently recorded impairment charges of $ 0.8 million related to its investment in Astria’s preferred stock.

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

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

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

(INmune) and an option to acquire an additional 10 % of INmune’s outstanding shares of common stock in connection with a licensing transaction.

The Company also received an option to acquire 108,000 shares of INmune common stock in connection with a designee appointed by us serving on the board of directors of INmune.

The Company initially recorded its equity interest, including its option to acquire additional equity in INmune, at cost pursuant to ASC 323, Investments – Equity Method and Joint Ventures .

In June 2021, the Company entered into an Option Cancellation Agreement with INmune and received $ 15.0 million in proceeds and an additional 192,533 shares of INmune common stock in exchange for the option to acquire 10 % of INmune.

During the three-month period ended June 30, 2021, the Company determined that it should no longer account for its investment in INmune under the equity method.

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

The 1,885,533 shares of INmune common stock have a readily determinable fair value, and the adjustment in the fair value of the shares of INmune common stock was recorded in gain (loss) on equity securities for the year ended December 31, 2021.

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

The Company received a second option to acquire additional shares of INmune common stock in connection with a designee appointed by us serving on the board of directors of INmune.

The Company originally recorded its investment at cost pursuant to ASC 323, Investments – Equity Method and Joint Ventures .

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

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

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

The Company's current share holdings, which consist of common stock of INmune, have a readily determinable fair value, and the adjustment in the fair value of the shares of INmune common stock was recorded in gain (loss) on equity securities for the year ended December 31, 2022.

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

(Viridian) in connection with the Viridian Agreement (defined below).

In December 2021, the Company received an additional 394,737 shares of common stock of Viridian in connection with the Second Viridian Agreement (defined below).

(Viridian) in connection with the Viridian Agreement.

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

The shares of Viridian common stock are classified as equity securities with a readily determinable fair value and the adjustment in the fair value of the shares of Viridian common stock was recorded in gain (loss) on equity securities for the year ended at December 31, 2022.

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

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

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

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

During the year ended December 31, 2021, there have not been any impairment or observable price changes related to this investment.

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

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

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

We recognized an unrealized gain of $ 21.9 million from the warrant exchange and the conversion of the promissory note.

During the year ended December 31, 2022, there was no impairment related to this investment.

Unrealized gains and losses recognized on equity securities (in thousands) during the year ended December 31, 2022 and 2021 consist of the following:

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

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Sale of Additional Common Stock

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Total property and equipment, net $ 59,183 $ 28,240

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

Depreciation expense related to property and equipment in 2022, 2021, and 2020 was $ 7.4 million, $ 6.3 million, and $ 4.7 million, respectively.

Inc ome Taxes

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

There was no provision for taxes for the years ended December 31, 2021 and December 31, 2020.

The provision for income taxes for the year ended December 31, 2019 was $ 0.3 million, which represents the current state alternative minimum tax for the year.

The provision for income taxes for the year ended December 31, 2022 was $ 0.7 million.There was no provision for taxes for the years ended December 31, 2021 and December 31, 2020.

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

2022 2021 2020

Federal statutory income tax $ ( 11,447 ) $ 17,352 $ ( 14,559 )

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Stock-based compensation 3,384 2,424 529

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

Other ( 74 ) 95 56

Change in state rate 44 2,599 —

1 unchanged sentence

Income tax provision $ 673 $ — $ —

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The tax effect of temporary differences that give rise to a significant portion of the deferred tax assets and liabilities at December 31, 2022 and 2021 is presented below (in thousands):

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Accrued compensation 14,484 9,207

Deferred revenue

Capitalized research and development costs 21,338 —

Gross deferred income tax assets 130,682 104,780

2 unchanged sentences

Deferred income tax liabilities

Equity investment

Patent costs ( 2,885 ) ( 3,416 )

Deferred revenue 3,225 ( 3,508 )

Licensing costs ( 124 ) ( 151 )

Capitalized legal costs ( 9 ) ( 13 )

Depreciation ( 6,532 ) ( 288 )

Unrealized gain on securities ( 9,347 ) ( 3,824 )

2 unchanged sentences

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

One of the changes was elimination of the AMT tax system for corporations and allowance of an income tax refund for AMT tax credit carryforwards as of December 31, 2017.

We have received an income tax refund of $ 0.8 million and $ 0.8 million for each year ended December 31, 2020 and 2019 for U.S.

One of the changes was elimination of the AMT tax system for corporations and allowance of an income tax refund for AMT tax credit carryforwards.

We have received an income tax refund of $ 0.8 million for the year ended December 31, 2020 for U.S.

AMT credit carryforwards.

The other significant change made by the TCJA requires research and development costs incurred after December 31, 2021 to be capitalized and amortized over several years.

We have recorded a deferred asset as of December 31, 2022 for such capitalized research and development costs.

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

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

During the year ended December 31, 2021, the valuation allowance decreased by $ 12.4 million.

During the year ended December 31, 2022, the valuation allowance increased by $ 21.4 million.

The Company’s tax years starting in 2018 through 2021 remain open to potential examination by the U.S.

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The federal net operating loss carryforwards consist of $ 59.0 million of losses incurred prior to January 1, 2018, which are subject to carryforward limitations and $ 43.4 million of losses incurred after January 1, 2018, which may be carried forward indefinitely.

Our federal net operating loss carryforwards expire starting in 2026, state net operating loss carryforwards expire starting in 2035, and federal tax credit carryforwards began to expire in 2019.

A total of $ 0.5 million in federal tax credits will expire over the next four years if not utilized.

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

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

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

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Stock-Based Compensation

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The total number of shares that can be purchased with the withholding amounts are based on the lower of 85 % of the Company’s common stock price at the initial offering date or 85 % of the Company’s stock price at each purchase date.

We have reserved a total of 581,286 shares of common stock for issuance under the ESPP.

Unless otherwise determined by our Board, beginning on January 1, 2014, and continuing until the expiration of the ESPP, the total number shares of common stock available for issuance under the ESPP will automatically increase annually on January 1 by the lesser of (i) 1 % of the total number of issued and outstanding shares of common stock as of December 31 of the

immediately preceding year, or (ii) 621,814 shares of common stock.

On January 1, 2014, the total number of shares of common stock available for issuance under the ESPP was automatically increased by 313,545 shares, which is included in the number of shares reserved for issuance above.

Pursuant to approval by our board, there were no increases in the number of authorized shares in the ESPP in years from 2015 to 2021.

As of December 31, 2022, the total number of shares of common stock available for issuance under the ESPP is 539,392 .

Pursuant to approval by our board, the total number of shares of common stock available for issuance under the ESPP was increased by 593,555 shares on January 1, 2022.

As of December 31, 2022, we have issued a total of 635,449 shares of common stock under the ESPP.

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Research and development 31,632 24,162 20,850

$ 48,913 $ 36,975 $ 31,619

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(in thousands) 2022 2021 2020

Stock options $ 29,758 $ 27,909 $ 26,045

ESPP 1,174 992 804

RSUs 17,981 8,074 4,770

$ 48,913 $ 36,975 $ 31,619

Information with respect to stock options outstanding is as follows:

2022 2021 2020

Exercisable options 6,679,948 5,576,430 4,668,179

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The following table summarizes stock option activity for the years ended December 31, 2022 and 2021:

Intrinsic Value

Shares Weighted-

(Per Share) (1)

(in years) Aggregate

Intrinsic Value

(in thousands) (2)

3 unchanged sentences

Options exercised (3)

( 858,470 ) 19.36

Balances at December 31, 2020 7,751,789 26.23 7.00 $ 134,941

2 unchanged sentences

Options exercised (3)

( 520,240 ) 23.61

Balances at December 31, 2021 8,676,329 29.11 6.65 $ 100,057

Options granted 2,135,233 29.45

Options forfeited ( 533,435 ) 34.09

Options exercised (3)

( 195,485 ) 18.46

Balances at December 31, 2022 10,082,642 $ 29.12 6.30 $ 27,141

As of December 31, 2022

Options vested and expected to vest 10,082,642 $ 29.12 6.30 $ 27,141

Exercisable 6,679,948 $ 26.99 5.10 $ 26,979

______________________________

(1) The weighted average exercise price per share is determined using exercise price per share for stock options.

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(3) The total intrinsic value of stock options exercised was $ 1.6 million, $ 9.2 million, and $ 16.3 million for the years ended December 31, 2022, 2021 and 2020 respectively.

The stock options outstanding and exercisable by exercise price at December 31, 2021 are as follows:

Stock Options Outstanding

Stock Options Exercisable

Exercise Price

$ 4.25 – $ 10.28

$ 10.52 – $ 15.78

$ 15.91 – $ 23.87

$ 23.96 – $ 35.94

$ 35.99 – $ 53.99

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We estimated the fair value of employee and non-employee awards using the Black-Scholes valuation model.

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The fair value of employee stock options was estimated using the following weighted average assumptions for the years ended December 31, 2022, 2021 and 2020:

Common stock fair value per share

2022 2021 2020

Common stock fair value per share $ 19.74 - 38.08

$ 30.65 - 49.47

3 unchanged sentences

52.93 % - 58.95 %

60.67 % - 61.33 %

Risk-free interest rate 1.57 % - 4.34 %

1 unchanged sentence

0.29 % - 1.71 %

1.37 % - 2.60 %

Expected dividend yield — — —

Expected term (in years) 6.00 - 7.65

2022 2021 2020

Expected term (years) 0.5 - 2.0

2 unchanged sentences

50.77 % - 66.37 %

50.77 % - 71.37 %

Risk-free interest rate 0.13 % - 4.72 %

1 unchanged sentence

0.09 % - 1.65 %

1.47 % - 2.70 %

Expected dividend yield — — —

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We have not paid dividends and did not have any dividend payout at December 31, 2022.

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The following table summarizes RSU activity for the years ended December 31, 2022:

Shares Weighted-

Unvested at December 31, 2019 90,006 $ 34.66

Granted 348,288 32.51

Vested ( 62,355 ) 32.61

Forfeited ( 17,114 ) 32.33

Unvested at December 31, 2020 358,825 $ 33.04

Granted 670,700 39.11

Vested ( 151,555 ) 32.76

Forfeited ( 51,822 ) 36.68

Unvested at December 31, 2021 826,148 $ 37.79

Granted 875,330 29.45

Vested ( 341,073 ) 37.37

Forfeited ( 127,854 ) 33.66

Unvested at December 31, 2022 1,232,551 $ 32.41

As of December 31, 2022 and 2021, the unamortized compensation expense related to unvested stock options was $ 52.6 million and $ 54.5 million, respectively.

4 unchanged sentences

The remaining unamortized compensation expense will be recognized over the next 1.90 years.

The Company leases office and laboratory space in Monrovia, California under a lease that expires in December 2025 with an option to renew for an additional five years at then market rates.

In July 2017, under a separate lease agreement, the Company entered into a lease for additional space in the same building with a lease that continues through September 2022, also with an option to renew for an additional five years .

The Company has assessed that it is unlikely to exercise either of the lease term extension options.

The Company leases office and laboratory space in Monrovia, California under two separate leases that expire in January 2023 and December 2025, respectively 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 lease term extension option.

For the year ended December 31, 2022, ROU assets obtained in exchange for new operating lease liabilities are $ 0.3 million.

The Company leases additional office space in San Diego, California through August 2022, with an option to extend for an additional five years .

In May 2022, the Company entered into an amendment to the lease to extend the lease term through December 31, 2023.

The Company has assessed that it is unlikely to exercise the option to extend the lease term.

In June 2021, the Company entered into an Agreement of Lease (the Halstead Lease) relating to 129,543 rentable square feet, for laboratory and office space, in Pasadena, California, where the Company intends to move its corporate headquarters in the second half of 2022.

In June 2021, the Company entered into an 18 -month lease for office space in Monrovia, California.

The lease began August 1, 2021 and terminated January 31, 2023.

ROU assets obtained in exchange for new operating lease liabilities are $ 0.3 million

The term of the Halstead Lease will become effective in two phases.

The first phase commences on July 1, 2022 and encompasses 83,083 square feet while the second phase commences no later than September 30, 2026 and encompasses an additional 46,460 square feet.

The first phase commences on July 14, 2021 and encompasses 83,083 square feet while the second phase commences no later than July 1, 2025 and encompasses an additional 46,460 square feet.

The term of the Halstead Lease is 13 years from the first phase commencement date.

The Company received delivery of the first phase premises on July 1, 2021 and is scheduled to complete construction of office, laboratory, and related improvements in the second half of 2022.

The Halstead Lease provides the Company with improvement allowances of up to $ 17,032,015 and $ 3,252,000 in connection with the Phase 1 and Phase 2 building improvements, respectively.

The initial base monthly rent is $ 386,335.95 , or $ 4.65 per square foot, and includes increases of three percent annually.

The Halstead Lease provides the Company with improvement allowances of up to $ 17.0 million and $ 3.3 million in connection with the Phase 1 and Phase 2 building improvements, respectively.

The initial base monthly rent is $ 386,336 , or $ 4.65 per square foot, and

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includes increases of three percent annually.

The Company will also be responsible for its proportionate share of operating expenses, tax expense, and utility costs.

In July 2021, the Halstead Lease was amended to clarify the start date of the new lease as August 1, 2022 and to amend other provisions of the Halstead Lease to reflect the new start date of the lease.

In July 2021, the Halstead Lease was amended to clarify the start date of the new lease to August 1, 2022 and to amend other provisions of the Halstead Lease to reflect the new start date of the lease.

In August 2022, the Halstead lease was amended to increase the amount of the tenant allowance by$ 5.0 million with a corresponding increase in total rental payments.

The Company is eligible to receive total tenant allowance under the lease for the phase 1 space of $ 22.0 million and the initial base rent is increased to $ 416,246 , or $ 5.01 per square foot.

For the year ended December 31, 2021, ROU assets obtained in exchange for new operating lease liabilities are $ 29.7 million.

In June 2021, the Company entered into an 18-month lease for a 7,020 -square-foot office space in Monrovia, California.

The lease began on August 1, 2021, and the initial base monthly rent is $ 15,000.00 .

The Company received delivery of the premises on July 19, 2021.

The Company received delivery of the second phase premises on December 1, 2022.

For the year ended December 31, 2022, ROU assets obtained in exchange for new operating lease liabilities are $ 15.3 million.

2 unchanged sentences

Years ending December 31,

Thereafter 75,512

Total undiscounted lease payments 112,952

2 unchanged sentences

Present value of lease payments $ 59,634

Lease liabilities - short-term $ 4,708

Lease liabilities - long-term 54,926

Total lease liabilities $ 59,634

The following table summarizes lease costs, cash, and other disclosures for the years ended December 31, 2022, 2021, and 2020 (in thousands):

2022 2021 2020

Operating lease cost $ 6,588 $ 4,342 $ 2,503

7 unchanged sentences

—operating leases 8.9 % 5.8 % 5.5 %

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Commitments and Contingencies

15 unchanged sentences

Aimmune Therapeutics, Inc.

On February 4, 2020, the Company entered into a License, Development and Commercialization Agreement (the Aimmune Agreement) with Aimmune Therapeutics, Inc.

In 2020, the Company entered into a License, Development and Commercialization Agreement (the Aimmune Agreement) with Aimmune Therapeutics, Inc.

(Aimmune) pursuant to which the Company granted Aimmune an exclusive worldwide license to XmAb7195, which was renamed AIMab7195.

Under the Aimmune Agreement, Aimmune will be responsible for all further development and commercialization activities for XmAb7195.

The Company received an upfront payment of $ 5.0 million and 156,238 shares of Aimmune common stock with an aggregate value of $ 4.6 million on the closing date.

Under the Aimmune Agreement, the Company is also eligible to receive up to $ 385.0 million in milestones, which include $ 22.0 million in development milestones, $ 53.0 million in regulatory milestones and $ 310.0 million in sales milestones, and tiered royalties on net sales of approved products from high-single to mid-teen percentage range.

Under the Aimmune Agreement, Aimmune received exclusive worldwide rights to manufacture, develop and commercialize XmAb7195.

They also received the rights to all data, information and research materials related to the XmAb7195 program.

The Company evaluated the Aimmune Agreement under the revenue recognition standard ASC 606 and identified the following performance obligations that it deemed to be distinct at the inception of the contract:

● license to the rights to the XmAb7195 drug candidate;

● rights to material, data, and information that the Company had accumulated in connection with manufacturing, testing, and conducting clinical trials for the XmAb7195 program and intellectual property filings and information (XmAb7195 data).

The Company considered the licenses as functional intellectual property as Aimmune has the right to use XmAb7195 at the time that the Company transfers such rights.

The rights to the XmAb7195 data are not considered to be separate from the license to XmAb7195 as Aimmune cannot benefit from the license without the supporting data and documentation.

The Company determined the transaction price at inception is $ 9.6 million which consists of the $ 5.0 million upfront payment and the 156,238 shares of Aimmune common stock which had a value of $ 4.6 million on the closing date.

The Company determined that the transaction price is to be allocated to the performance obligations.

The Aimmune Agreement includes variable consideration for potential future milestones and royalties that are contingent on future

success factors for the XmAb7195 program.

The Company used the “most likely amount” method to determine the variable consideration.

None of the development, regulatory or sales milestones or royalties were included in the transaction price.

The Company will re-evaluate the transaction price in each reporting period as uncertain events are resolved or other changes in circumstances occur.

The Company determined the transaction price at inception of the Aimmune Agreement and allocated it to the performance obligation, delivery of the XmAb7195 license.

The Company completed delivery of its performance obligations in March 2020.

The license to XmAb7195 was transferred to Aimmune at inception of the Aimmune Agreement, and the XmAb7195 data were transferred to Aimmune in March 2020.

No revenue was recognized for the year ended December 31, 2021;

the Company recognized $ 9.6 million of revenue related to the agreement for the year ended December 31, 2020.

The Company received an upfront payment and is eligible to receive development, regulatory and, sales and tiered royalties on net sales of approved products from high-single to mid-teen percentage range.

No revenue was recognized for the year ended December 31, 2022 and 2021.

There is no deferred revenue as of December 31, 2022 or 2021 related to this agreement.

5 unchanged sentences

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.

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In 2020, Alexion completed certain regulatory submissions for Ultomiris, and the Company received a total of $ 10.0 million in milestone payments.

During 2020, the Company also recorded royalty revenue of $ 16.2 million in connection with reported net sales of Ultomiris by Alexion.

In 2020, the Company received $ 10.0 million for the achievement of certain sales milestones of Ultomiris in 2020 and also recorded royalty revenue of $ 16.2 million on net sales.

In 2021, the Company recorded royalty revenue of $ 22.2 million on net sales.

In 2022, the Company recorded royalty revenue of $ 29.4 million on net sales.

The total revenue recognized under this arrangement was $ 29.4 million , $ 22.2 million, and $ 26.2 million for the years ended December 31, 2022, 2021, and 2020, respectively.

2 unchanged sentences

(Amgen) to develop and commercialize bispecific antibody product candidates using the Company’s proprietary XmAb® bispecific Fc technology.

The Company also agreed to apply its bispecific technology to five previously identified Amgen provided targets (each a Discovery Program).

Amgen has advanced one of the discovery programs into clinical development.

The Company is eligible to receive up to $ 255.0 million in future development, regulatory and sales milestones in total for the program and is eligible to receive royalties on any global net sales of products.

In the third quarter of 2019, a $ 5.0 million milestone was recognized in connection with a development milestone for a Discovery Program.

During the year ended December 31, 2019, the Company recognized $ 5.0 million in revenue under this arrangement.

Amgen has advanced one of the discovery programs, now AMG509, into clinical development.

The Company is eligible to receive future development, regulatory and sales milestones in total for the program and is eligible to receive royalties on any global net sales of products.

No revenue was recognized for the year ended December 31, 2022, 2021, or 2020.

4 unchanged sentences

Under the Astellas Agreement, Astellas was granted a worldwide exclusive license, with the right to sublicense products in the field created by the research activities.

Pursuant to the Astellas Agreement, the Company applied its bispecific Fc technology to research antibodies provided by Astellas to generate bispecific antibody candidates and returned the candidates to Astellas for further development and commercialization.

Astellas will assume full responsibility for development and commercialization of the antibody candidate.

Pursuant to the Astellas Agreement, the Company received an upfront payment of $ 15.0 million and is eligible to receive up to $ 240.0 million in milestones, which include $ 32.5 million in development milestones, $ 57.5 million in regulatory milestones and $ 150.0 million in sales milestones.

The Company received an upfront payment and is eligible to receive development, regulatory and sales milestones.

If commercialized, the Company is eligible to receive royalties on net sales that range from the high-single to low-double digit percentages.

Astellas has advanced an antibody that was delivered into development, and we received a milestone related to the candidate in 2020.

The Company recognized the $ 13.6 million of revenue in 2019 and recognized $ 2.5 million related to the milestone in 2020.

The $ 1.4 million allocated to the research activities was recognized as the research services were completed.

No revenue was recognized for the year ended December 31, 2021.

We recognized $ 3.5 million and $ 14.0 million of revenue under this arrangement for the years ended December 31, 2020 and 2019, respectively.

Astellas advanced the candidate into Phase 1 studies in 2022 and we received a $ 5.0 million milestone.

The Company recognized $ 2.5 million of revenue in 2020, and $ 5.0 million of revenue in 2022 under the agreement.

There is no deferred revenue as of December 31, 2022.

Astria Therapeutics, Inc.

In May 2018, the Company entered into an agreement with Quellis, pursuant to which the Company provided Quellis a non-exclusive license to its Xtend Fc technology to apply to an identified antibody.

Quellis is responsible for all development and commercialization activities.

The Company received an equity interest in Quellis and is eligible to receive up to $ 66.0 million in milestones, which include $ 6.0 million in development milestones, $ 30.0 million in regulatory milestones and $ 30.0 million in sales milestones.

In addition, the Company is eligible to receive royalties in the mid-single digit percentage range on net sales of approved products.

In May 2018, the Company entered into an agreement with Quellis, pursuant to which the Company provided Quellis a non-exclusive license to its Xtend Fc technology.

The Company received an equity interest in Quellis and is eligible to receive development, regulatory and sales milestones.

The Company is also eligible to receive royalties in the mid-single digit percentage range on net sales of approved products.

In January 2021, Quellis merged into Catabasis, and the Company received common stock and preferred stock of Catabasis in exchange for its equity in Quellis.

2 unchanged sentences

The remaining Catabasis preferred stock is carried at its original cost and is reviewed for impairment or other changes at each reporting period.

In August 2021, Catabasis effected a reverse stock split of its shares of common stock at a ratio of 1 :6, and in September 2021, Catabasis changed its name to Astria.

In September 2021, Catabasis changed its name to Astria.

The Company recorded an impairment charge of $ 0.1 million for its investment in Astria preferred stock for the year ended December 31, 2022.

The Company recognized unrealized gain of $ 4.5 million related to its equity interest in Astria for the year ended December 31, 2021.

There is no deferred revenue as of December 31, 2021 related to this agreement.

Bristol-Myers Squibb Company

In May 2021, the Company entered into a Technology License Agreement (the BMS Agreement ) with Bristol-Myers Squibb Company (BMS) pursuant to which the Company provided a non-exclusive license to its Xtend technology to extend the half-life of antibodies that specifically bind to SARS-CoV-2.

Under the terms of the BMS Agreement, BMS is responsible for all research, development, regulatory and commercial activities for antibodies, and the Company is eligible to receive royalties on net sales of approved products in the low-single digit percentage range.

BMS initiated a Phase 2 study with a licensed antibody to treat patients with COVID-19 in the third quarter of 2021.

No revenue was recognized for the year ended December 31, 2021.

The Company recognized unrealized gain of $ 6.1 million and $ 4.5 million related to its equity interest in Astria for the years ended December 31, 2022 and 2021, respectively.

There is no deferred revenue as of December 31, 2022 related to this agreement.

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Genentech, Inc., and F.

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Hoffman-La Roche Ltd (collectively, Genentech) for the development and commercialization of novel IL-15 collaboration products (Collaboration Products), including XmAb306, the Company’s IL-15/IL15Rα-Fc candidate.

Under the terms of the Genentech Agreement, Genentech received an exclusive worldwide license to XmAb306 and other Collaboration Products, including any new IL-15 programs identified during the joint research collaboration.

Genentech and Xencor will jointly collaborate on worldwide development of XmAb306 and potentially other Collaboration Products.

The two-year research term expired in March 2021.

The Company received a $ 120.0 million upfront payment and is eligible to receive up to an aggregate of $ 160.0 million in clinical milestone payments for XmAb306 and up to $ 180.0 million in clinical milestone payments for each new Collaboration Product.

The Company is also eligible to receive 45 % share of net profits for sales of XmAb306 and other Collaboration Products, while also sharing in net losses at the same percentage rate.

The parties will jointly share in development and commercialization costs for all programs designated as a development program under the Genentech Agreement at the same percentage rate, while Genentech will bear launch costs entirely.

The initial 45 % profit-cost share percentage is subject to a one-time downward adjustment at the Company’s discretion and convertible to a royalty under certain circumstances.

Pursuant to the Genentech Agreement, XmAb306 is designated as a development program and all costs incurred for developing both XmAb306 is being shared with Genentech under the initial cost-sharing percentage.

The Company evaluated the Genentech Agreement under the provisions of ASU No.

2014-09, Revenue from Contracts with Customers and all related amendments (collectively, ASC 606) as well as ASC 808, Collaborative Arrangements .

Certain provisions of the Genentech Agreement including the cost-sharing of development programs are governed by ASC 808.

We have determined that Genentech is a customer for purposes of the delivery of specific performance obligations under the Genentech Agreement and applied the provisions of ASC 606 to the transaction.

The Company identified the following performance obligations under the Genentech Agreement:

(i) the license of XmAb306 and (ii) research services during a two-year period, which expired in March 2021, to identify additional IL-15 candidates, each a separate research program and a separate performance obligation.

The Company determined that the license and each of the potential research programs are separate performance obligations because they were capable of being distinct in the context of the Genentech Agreement.

The license to XmAb306 has standalone functionality as Genentech has exclusive worldwide rights to the program, including the right to sublicense to third parties.

Upon the transfer of the license of XmAb306, Genentech could develop and commercialize XmAb306 without further assistance from the Company.

The Company determined that the research services for a potential additional IL-15 candidate and research program were separate standalone performance obligations.

The Genentech Agreement provided an outline of an integrated research plan for the programs to be conducted by the two companies, and the research activities were separate and distinct from the license to XmAb306.

In October 2020, an additional program was declared a Collaboration Program under the Agreement, and the Company completed its performance obligation for that specific

research program as the program and licensed rights were transferred to Genentech.

The Company determined the standalone selling price of the license to be $ 114.4 million using the adjusted market assessment approach considering similar collaboration and license agreements and transactions.

The standalone selling price for the research activities to be performed during the research term was determined to be $ 8.5 million using the expected cost approach which was derived from the Company’s experience and information from providing similar research activities to other parties.

Under the terms of the Genentech Agreement, Genentech received an exclusive worldwide license to XmAb306 and Genentech and Xencor will jointly collaborate on worldwide development of XmAb306.

The Company determined that the transaction price of the Genentech Agreement at inception was $ 120.0 million consisting of the upfront payment, and allocated the transaction price to each of the separate performance obligations using the relative standalone selling price with $ 111.7 million allocated to the license to XmAb306, $ 4.1 million allocated to the additional program and $ 4.2 million allocated to the research services.

1 unchanged sentence

The research term expired in the first half of 2021, and the balance in deferred revenue related to the Genentech Agreement was recognized as the Company is no longer required to render services.

A total of $ 2.5 million, $ 3.5 million, and $ 2.2 million of revenue related to the research activities was recognized for the years ended December 31, 2021, 2020, and 2019, respectively.

For the years ended December 31, 2021, 2020, and 2019, we recognized $ 2.5 million, $ 3.5 million, and $ 113.9 million of income, respectively from the Genentech Agreement.

As of December 31, 2021, there is a $ 2.2 million payable related to cost-sharing development activities during the fourth quarter of 2021.

No revenue was recognized for the year ended December 31, 2022.

For the years ended December 31, 2021 and 2020, we recognized $ 2.5 million and $ 3.5 million of income, respectively, from the Genentech Agreement.

As of December 31, 2022, there was a $ 0.2 million receivable related to cost-sharing development activities during the fourth quarter of 2022.

There is no deferred revenue as of December 31, 2022.

3 unchanged sentences

Gilead is responsible for all development and commercialization activities for all target candidates.

The Company received an upfront payment of $ 6.0 million and is eligible to receive up to $ 67.0 million in milestones, which include $ 10.0 million in development milestones, $ 27.0 million in regulatory milestones and $ 30.0 million in sales milestones for each product incorporating the antibodies selected.

The Company received an upfront payment and is eligible to receive development, regulatory and, sales milestones for each product incorporating the antibodies selected.

In addition, the Company is eligible to receive royalties in the low-single digit percentage range on net sales of approved products.

In the second quarter of 2020, Gilead exercised options on three additional antibody compounds, and in April 2020, we received a total of $ 7.5 million in payment of the three options.

The total transaction price is $ 13.5 million which includes the upfront payment of $ 6.0 million and the option fee payment of $ 7.5 million which was contractually due with the exercise of the three options by Gilead.

The milestone payments are variable consideration to which the Company applied the “most likely amount” method and concluded at inception of the Gilead Agreement it is unlikely that the Company will collect such payments.

The milestone payments were not included in the transaction price, and the Company will review this conclusion and update at each reporting period.

No revenue was recognized for the year ended December 31, 2021.

No revenue was recognized for the year ended December 31, 2022 and 2021.

The Company recognized $ 13.5 million of revenue related to the Gilead Agreement for the year ended December 31, 2020.

4 unchanged sentences

In connection with the agreement the Company received shares of INmune common stock and an option to acquire additional shares of INmune.

The Company also received an option to acquire 108,000 shares of INmune common stock with a designee appointed by us serving on the board of directors of INmune.

The option had a six-year term from the date of the INmune Agreement and provided the Company the option to purchase up to 10 % of the fully diluted outstanding shares of INmune common stock for $ 10.0 million.

The Company also received a second option to acquire additional shares of INmune common stock with a designee appointed by us serving on the board of directors of INmune.

The Company initially recorded its equity interest in INmune, including its option to acquire additional INmune shares, at cost pursuant to ASC 323.

In June 2021, the Company entered into the First Amendment to License Agreement (the Amended INmune Agreement) and an Option Cancellation Agreement (the Option Agreement) with INmune.

The Amended INmune Agreement modified certain diligence provisions in the INmune Agreement with no change in total consideration or performance obligations.

The Option Agreement provided for the sale of the option to INmune for the total consideration of $ 18.3 million which includes $ 15.0 million in cash and $ 3.3 million in additional shares of INmune common stock, which represented an additional 192,533 shares of INmune common stock.

The Company recorded a realized gain of $ 18.3 million according to ASC 860, Transfer and Servicing , and recorded the additional investment of 192,533 shares of INmune common stock according to ASC 321, Investments – Equity Securities .

The Amended INmune

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Agreement modified certain diligence provisions in the INmune Agreement with no change in total consideration or performance obligations.

The Option Agreement provided for the sale of the initial option to INmune for the total consideration of $ 18.3 million which includes $ 15.0 million in cash and additional shares of INmune common stock.

The Company recorded a realized gain of $ 18.3 million according to ASC 860, Transfer and Servicing , and recorded the additional shares of INmune common stock according to ASC 321, Investments – Equity Securities .

During the three months ended June 30, 2021, the Company determined that it should no longer record its investment in INmune under the equity method and recorded its investment in INmune pursuant to ASC 321.

The Company adjusted the carrying value of this investment by recognizing an unrealized gain of $ 27.8 million as other income for the three months ended June 30, 2021.

In September 2021, the Company exercised its option to purchase 108,000 shares of INmune common stock for $ 0.8 million.

In September 2021, the Company exercised its second to purchase additional shares of INmune common stock for $ 0.8 million.

The Company recognized an unrealized gain of $ 2.0 million, which consists of $ 1.1 million of fair value of the option and $ 0.9 million gain on the purchase, as other income for the three months ended September 30, 2021.

For the year ended December 31, 2022, the Company recorded $ 7.3 million of unrealized loss related to its investment in INmune.

For the year ended December 31, 2021, the Company recorded $ 15.1 million of unrealized gain and $ 18.3 million of realized gain related to its investment in INmune.

No revenue was recognized for the year ended December 31, 2021, 2020, or 2019.

No revenue was recognized for the years ended December 31, 2022, 2021, or 2020.

At the inception of the INmune Agreement in 2017, INmune was a related party as a result of the Company's significant influence with respect to its investment in INmune, as determined under ASC 323.

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In November 2020, the Company entered into a Collaboration and License Agreement (the Janssen Agreement) with Janssen Biotech, Inc.

(Janssen) pursuant to which Xencor and Janssen will conduct research and development activities to discover novel CD28 bispecific antibodies for the treatment of prostate cancer.

Janssen and Xencor will conduct joint research activities for up to a three-year period to discover XmAb bispecific antibodies against CD28 and against an undisclosed prostate tumor-target with Janssen maintaining exclusive worldwide rights to develop and commercialize Licensed Products identified from the research activities.

(Janssen) pursuant to which Xencor and Janssen conducted research and development activities to discover novel CD28 bispecific antibodies for the treatment of prostate cancer.

Janssen and Xencor will conducted joint research activities to discover XmAb bispecific antibodies against CD28 and against an undisclosed prostate tumor-target with Janssen maintaining exclusive worldwide rights to develop and commercialize Licensed Products identified from the research activities.

Under the Janssen Agreement, the Company will conduct research activities and apply its bispecific Fc technology to antibodies targeting prostate cancer provided by Janssen.

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Janssen will assume full responsibility for development and commercialization of the CD28 bispecific antibody candidate.

Pursuant to the Janssen Agreement, the Company received an upfront payment of $ 50.0 million and is eligible to receive up to $ 662.5 million in milestones which include $ 161.9 million in development milestones, $ 240.6 million in regulatory milestones and $ 260.0 million in sales milestones.

Pursuant to the Janssen Agreement, the Company received an upfront payment and is eligible to receive development, regulatory and, sales milestones.

If commercialized, the Company is eligible to receive royalties on net sales that range from the high-single to low-double digit percentages.

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If we exercise this right, we will be eligible to receive tiered royalties in the low-double digit to mid-teen percentage range.

We evaluated the Janssen Agreement under ASC 606 and identified the performance obligation under the Agreement to be delivery of CD28 bispecific antibodies to Janssen from the research activities outlined in the research plan.

The Company determined that the license to the bispecific antibodies is not a separate performance obligation because it is not capable of being distinct, the license to the antibodies cannot be separated from the underlying antibodies.

Janssen will benefit from delivery of the bispecific antibodies upon completion of the research activities.

The Company determined that the transaction price of the Janssen Agreement at inception was $ 50.0 million consisting of the upfront payment.

The potential milestones are not included in the transaction price as these are contingent on future events and the Company would not recognize these in revenue until it is not probable that these would not result in significant reversal of revenue amounts in future periods.

The candidate selection option payment is substantive and is a separate performance obligation.

The Company will re-assess the transaction price at each reporting period and when event outcomes are resolved or changes in circumstances occur.

The Company allocated the transaction price to the single performance obligation, delivery of CD28 bispecific antibodies to Janssen.

The Company will recognize the $ 50.0 million transaction price as it satisfies its performance obligation to deliver CD28 bispecific antibodies to Janssen.

The Company will recognize revenue related to the performance obligation over the expected period of time to complete and deliver the CD28 bispecific antibodies to Janssen using the expected input method which considers an estimate of the Company’s efforts to complete the research activities outlined in the Janssen Agreement.

The Company recognized the $ 50.0 million transaction price as it satisfied its performance obligation to deliver CD28 bispecific antibodies to Janssen.

The Company recognized revenue related to the performance obligation over the expected period of time to complete and deliver the CD28 bispecific antibodies to Janssen using the expected input method which considers an estimate of the Company’s efforts to complete the research activities outlined in the Janssen Agreement.

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In November 2021, the Company completed its performance obligations under the research activities and delivered CD28 bispecific antibodies to Janssen.

1 unchanged sentence

For the year ended December 31, 2021 the Company recognized as revenue the $ 50.0 million transaction price in connection with the completion of the research activities and the $ 5.0 million milestone for selection of an antibody candidate by Janssen.

No revenue was recognized under this agreement in 2022.

Second Janssen Agreement

On October 1, 2021, the Company entered into a second Collaboration and License Agreement (the Second Janssen Agreement) with Janssen pursuant to which the Company granted Janssen an exclusive worldwide license to develop, manufacture, and commercialize plamotamab, the Company’s CD20 x CD3 development candidate, and pursuant to which Xencor and Janssen will conduct research and development activities to discover novel CD28 bispecific antibodies.

The parties will conduct joint research activities for up to a two-year period to discover XmAb bispecific antibodies against CD28 and undisclosed B cell tumor-targets with Janssen 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.

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Janssen has significant experience and capabilities in developing and commercializing drug candidates similar to plamotamab, and Janssen is capable of performing these activities without the Company’s involvement.

Upon the transfer of the license of plamotamab and the related data and materials, Janssen could develop and commercialize plamotamab without further assistance from the Company.

Upon the transfer of the license of plamotamab and the related data and materials, Janssen could develop and

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commercialize plamotamab without further assistance from the Company.

The Company determined that the research services for potential CD28 candidates was a separate standalone performance obligation.

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The Company will re-assess the transaction price at each reporting period and when event outcomes are resolved or changes in circumstances occur.

The Company allocated the transaction price to each of the separate performance obligations using the relative standalone selling price with $ 58.5 million allocated to the license to the plamotamab program and $ 37.6 allocated to the research services.

The Company recognized the $ 58.5 million allocated to the license when it satisfied its performance obligation and transferred the license to Janssen in November 2021.

1 unchanged sentence

The $ 37.6 million allocated to the research services is being recognized over a period of time through the end of the research term that services are rendered as we determine that the input method is the appropriate approach to recognize income for such services.

A total of $ 0.3 million of revenue related to the research services was recognized in the year ended December 31, 2021.

The Company recognized $ 113.8 million of revenue related to the two Janssen agreements for the year ended December 31, 2021.

A total of $ 7.0 million and $ 0.3 million of revenue related to the research services was recognized in each of the years ended December 31, 2022 and December 31, 2021, respectively.

The Company recognized $ 7.0 million and $ 113.8 million of revenue related to the two Janssen agreements for the years ended December 31, 2022 and 2021, respectively.

No revenue was recognized under this arrangement for the year ended December 31, 2020.

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If certain developmental, regulatory, and sales milestones are achieved, the Company is eligible to receive future milestone payments and royalties.

The Company recognized a total of $ 12.5 million of milestone revenue related to clinical studies and $ 5.9 million of royalty revenue on net sales of Monjuvi for the year ended December 31, 2021.

The Company recognized a total of $ 37.5 million of milestone revenue related to regulatory submission and approval of Monjuvi in the U.S, and royalties of $ 1.5 million on net sales of Monjuvi for the year ended December 31, 2020.

There was no revenue recognized under this arrangement for the year ended December 31, 2019.

The Company recognized a total of $ 7.8 million of royalty revenue on net sales of Monjuvi for the year ended December 31, 2022.

The Company recognized a total of $ 12.5 million of milestone revenue related to clinical studies and royalties of $ 5.9 million on net sales of Monjuvi for the year ended December 31, 2021.

There was $ 39.0 million of revenue recognized under this arrangement for the year ended December 31, 2020.

As of December 31, 2022, the Company has no deferred revenue related to this agreement and has recorded a receivable of $ 2.2 million for royalties due.

1 unchanged sentence

In June 2016, the Company entered into a Collaboration and License Agreement (Novartis Agreement) with Novartis Institutes for BioMedical Research, Inc.

(Novartis), to develop and commercialize bispecific and other Fc engineered antibody drug candidates using the Company’s proprietary XmAb technologies and drug candidates.

(Novartis), to develop and commercialize bispecific and other Fc

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engineered antibody drug candidates using the Company’s proprietary XmAb technologies and drug candidates.

Pursuant to the Novartis Agreement:

● The Company granted Novartis certain exclusive rights to research, develop and commercialize XmAb14045 (vibecotamab) and XmAb13676 (plamotamab), two development stage products that incorporate the Company’s bispecific Fc technology;

● The Company will apply its bispecific technology in up to four target pair antibodies identified by Novartis (each a Global Discovery Program);

• The Company granted Novartis certain exclusive rights to research, develop and commercialize XmAb14045 (vibecotamab) and,

• The Company will provide Novartis with a non-exclusive license to certain of its Fc technologies to apply against up to ten targets identified by Novartis.

In December 2018, Novartis notified the Company it was terminating its rights with respect to the plamotamab program, which became effective June 2019.

Under the Novartis Agreement, Novartis is responsible to fund its share of plamotamab development costs through June 2020.

In November 2019, the Company and Novartis amended the Agreement, and Novartis paid the Company $ 1.4 million in settlement of its projected remaining cost-sharing due for the plamotamab program.

In August 2021, Novartis notified the Company it was terminating its rights with respect to the vibecotamab program, which will be effective in February 2022.

1 unchanged sentence

We completed delivery of two Global Discovery Programs under the Agreement.

In December 2019, Novartis dosed a patient in a Phase 1 study with an undisclosed bispecific antibody that is a Global Discovery Program, and we received a $ 10.0 million milestone payment.

Novartis will assume full responsibility for development and commercialization of this Global Discovery Program.

Under ASC 606, revenue is recognized at the time that the Company’s performance obligation for each Global Discovery is completed upon delivery of each discovery program to Novartis.

The Company delivered two discovery programs to Novartis and recognized $ 40.1 million of revenue in the period that each program was delivered.

In the third quarter of 2019, we received a $ 10.0 million milestone related to development activity for a Global Discovery Program, and we recognized $ 10.0 million of revenue.

The Company’s obligations to provide research services under the Agreement for additional Global Discovery Programs expired in 2021, and we recognized $ 40.1 million of research revenue from deferred revenue.

3 unchanged sentences

During the year ended December 31, 2021, Novartis advanced the Fc candidate into development and initiated clinical studies and the Company recognized $ 3.0 million of revenue related to the milestones.

During the year ended December 31, 2021 and 2019, the Company recognized $ 43.1 million and $ 10.0 million of revenue, respectively.

No revenue was recognized during the year ended December 31, 2020.

There is a receivable of $ 0.6 million as of December 31, 2021 related to the arrangement, and there is no deferred revenue as of December 31, 2021 related to the arrangement.

During the year ended December 31, 2021, the Company recognized $ 43.1 million of revenue.

No revenue was recognized during the years ended December 31, 2022 and 2020.

There was a $ 0.03 million receivable and no deferred revenue as of December 31, 2022 related to the arrangement.

Omeros Corporation

1 unchanged sentence

Omeros is responsible for all development and commercialization activities for all target candidates.

The Company received an upfront payment of $ 5.0 million and is eligible to receive up to $ 65.0 million in milestones, which include $ 15.0 million in development milestones, $ 25.0 million in regulatory milestones and $ 25.0 million in sales milestones for each product incorporating the antibodies selected.

The Company received an upfront payment and is eligible to receive development, regulatory and, sales milestones for each product incorporating the antibodies selected.

In addition, the Company is eligible to receive royalties in the mid-single digit percentage range on net sales of approved products.

There was no revenue recognized for the year ended December 31, 2022 and 2021.

The Company recognized $ 5.0 million of revenue related to the Omeros Agreement for the year ended December 31, 2020.

There was no revenue recognized for the year ended December 31, 2021.

There is no deferred revenue as of December 31, 2022 related to this agreement.

4 unchanged sentences

Vir initiated a Phase 1 study with a licensed antibody in 2019, and in the second quarter of 2020, it initiated a Phase 1 study with a second licensed antibody.

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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 is investigating as potential treatments for patients with COVID-19.

Under the terms of the Second Vir Agreement, Vir is responsible for all research, development, regulatory and commercial activities for the antibody, and the Company is eligible to receive royalties on the net sales of approved products in the mid-single digit percentage range.

In May 2021, the FDA granted emergency use authorization (EUA) to Vir’s COVID-19 antibody, sotrovimab (VIR-7831), for the treatment of mild-to-moderate COVID-19 in high-risk adult and pediatric patients.

In December 2021, the European Union, and several other countries authorized sotrovimab for the treatment of mild-to-moderate COVID-19 in high-risk adult and pediatric patients.

Vir and its marketing partner, GSK, began recording sales for sotrovimab beginning in June 2021.

In 2021, we recognized royalty revenue of $ 52.2 million related to this agreement.

In 2022 and 2021, we recognized royalty revenue of $ 114.9 million and $ 52.2 million , respectively related to this agreement.

In February 2021, the Company entered into the Vir Amendment No.

13 unchanged sentences

Viridian is responsible for all development and commercialization activities.

We received an upfront payment of 322,407 shares of Viridian common stock valued at $ 6.0 million and are eligible to receive up to $ 55.0 million in milestones, which include $ 10.0 million in development milestones, $ 20.0 million in regulatory milestones and $ 25.0 million in sales milestones.

eligible to receive royalties in the mid-single digit percentage range on net sales of approved products.

The Company evaluated the Viridian Agreement under the revenue recognition standard ASC 606 and identified the following performance obligation that it deemed to be distinct at the inception of the contract:

● non-exclusive license to its Xtend Fc technologies

The Company considered the license as functional intellectual property as Viridian has the right to use the technology at the time that the Company transfers such rights.

The total transaction price is $ 6.0 million, which includes the upfront payment of 322,407 Viridian shares at their fair value at the date of the Agreement.

The milestone payments are variable consideration to which the Company applied the “most likely amount” method and concluded at inception of the Viridian Agreement it is unlikely that the Company will collect such payments.

The milestone payments were not included in the transaction price, and the Company will review this conclusion and update at each reporting period.

We received an upfront payment of shares of Viridian common stock valued at $ 6.0 million and are eligible to receive development, regulatory and sales milestones.

We are also eligible to receive royalties in the mid-single digit percentage range on net sales of approved products.

The Company allocated $ 6.0 million of the transaction price to the licenses to the Xtend Fc technology and recognized income for the licenses at inception of the arrangement when Viridian began benefiting access to it.

2 unchanged sentences

Viridian is responsible for all further development of the selected antibodies.

We received an upfront payment of 394,737 shares of Viridian common stock valued at $ 7.5 million and are eligible to receive up to $ 24.75 million in milestones, which include $ 1.75 million in development milestones, $ 3.0 million in regulatory milestones and $ 20.0 million in sales milestones in addition to royalties on net sales of approved products under the Second Viridian Agreement.

We received an upfront payment shares of Viridian common stock valued at $ 7.5 million and are eligible to receive up to $ 24.8 million in milestones, which include $ 1.8 million in development milestones, $ 3.0 million in regulatory milestones and $ 20.0 million in sales milestones in addition to royalties on net sales of approved products under the Second Viridian Agreement.

The Company evaluated the Second Viridian Agreement under the revenue recognition standard ASC 606 and identified the following performance obligation that it deemed to be distinct at the inception of the contract:

1 unchanged sentence

The Company considered the license as functional intellectual property as Viridian has the right to use the materials and license at the time that the Company transfers such rights.

The total transaction price is $ 7.5 million, which includes the upfront payment of 394,737 Viridian shares at their fair value at the date of the Agreement.

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The total transaction price is $ 7.5 million, which includes the upfront payment of Viridian common stock at their fair value at the date of the Agreement.

1 unchanged sentence

The Company allocated $ 7.5 million of the transaction price to the licenses to the antibody libraries and recognized income for the licenses at inception of the arrangement when Viridian received the materials and began accessing them.

The Company recognized $ 7.5 million and $ 6.0 million of revenue related to the Viridian Agreement for the year ended December 31, 2021 and 2020, respectively.

No revenue related to the Viridian Agreement was recognized for the year ended December 31, 2022.

The Company recognized $ 7.5 million and $ 6.0 million of revenue related to the Viridian Agreement for the years ended December 31, 2021 and 2020, respectively.

There is no deferred revenue as of December 31, 2022 related to this agreement.

Zenas BioPharma Limited

In November 2020, the Company entered into a License Agreement (Zenas Agreement) with Zenas BioPharma Limited (Zenas) pursuant to which the Company granted Zenas exclusive worldwide rights to develop and

commercialize to three preclinical-stage Fc-engineered drug candidates:

XmAb6755, Xpro9523, and XmAb10171.

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In November 2021, the Company entered into a second License Agreement (Second Zenas Agreement) with Zenas, in which we licensed the exclusive worldwide rights to develop and commercialize the Company’s obexelimab (XmAb5871) drug candidate.

Under the Second Zenas Agreement, Zenas will be responsible for all further development and commercialization activities for obexelimab.

Under the Second Zenas Agreement, Zenas will be responsible for all further development

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and commercialization activities for obexelimab.

The Company received a warrant to acquire additional equity in Zenas with a fair value of $ 14.9 million, and the Company is eligible to receive royalties on net sales of approved products in the mid-single digit to mid-teen percentage range.

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The licenses to obexelimab were transferred to Zenas at inception of the Second Zenas Agreement, and the related research data and documentation was transferred to Zenas in December 2021.

In 2021, the Company purchased a convertible promissory note from Zenas which would automatically convert to equity in a financing transaction.

In November 2022, Zenas completed a financing transaction, pursuant to which a warrant to purchase Zenas equity that was held by the Company was automatically exercised, and a convertible note issued to the Company by Zenas was automatically converted with both converting into shares of Zenas’ preferred stock.

After the financing transaction, we continued to record our investment in Zenas at fair value adjusted at each reporting period for impairment or other evidence of change in value.

The equity shares in Zenas received from exercise of the warrant and conversion of the notes have an estimated fair value of $ 34.5 million and $ 7.7 million, respectively.

As a result of the Zenas financing transaction, the estimated fair value of our investment in equity securities increased by $ 17.9 million.

This amount has been recorded in other income.

No revenue was recognized for the year ended December 31, 2022.

The Company recognized $ 14.9 million and $ 16.1 million of revenue related to the two Zenas Agreements for the years ended December 31, 2021 and 2020, respectively.

There is no deferred revenue as of December 31, 2022 related to this agreement.

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Revenue Earned

The $ 164.6 million, $ 275.1 million, and $ 122.7 million of revenue recorded for the years ended December 31, 2022, 2021, and 2020, respectively, were earned principally from the following licensees (in millions):

2022 2021 2020

Aimmune $ — $ — $ 9.6

Alexion 29.4 22.2 26.2

Astellas 5.0 — 3.5

Genentech — 2.5 3.5

Gilead — — 13.5

Janssen 7.0 113.8 —

MorphoSys 7.8 18.4 39.0

Novartis — 43.1 —

Omeros — — 5.0

Vir 115.4 52.7 0.3

Viridian — 7.5 6.0

Zenas — 14.9 16.1

Total $ 164.6 $ 275.1 $ 122.7

The table below summarizes the disaggregation of revenue recorded for the years ended December 31, 2022, 2021, and 2020 (in millions):

2022 2021 2020

Research collaboration $ 7.0 $ 93.0 $ 4.5

Milestone 5.5 21.0 50.2

Licensing — 80.8 50.2

Royalties 152.1 80.3 17.8

Total $ 164.6 $ 275.1 $ 122.7

Remaining Performance Obligations and Deferred Revenue

1 unchanged sentence

As of December 31, 2022 and 2021, we have deferred revenue of $ 30.3 million and $ 37.3 million, respectively.

The Company completed its performance obligations for research activities pursuant to the Astellas Agreement in the second quarter of 2020.

The Company’s obligation to perform research services for Genentech and to deliver additional Global Discovery Programs under the Novartis Agreement ended upon expiration of the respective research terms for each agreement in the second quarter of 2021.

All of the deferred revenue was classified as short term as of December 31, 2021 and 2020, respectively, as the Company’s obligations to perform research services are due on demand when requested by Novartis, Genentech, and Janssen under the respective Agreements.

All of the deferred revenue was classified as short term as of December 31, 2022 and 2021, respectively, as the Company’s obligations to perform research services are due on demand when requested by Janssen under the Janssen Agreement.

We have a 401(k) plan covering all full-time employees.

5 unchanged sentences

Employer contributions made for the years ended December 31, 2022, 2021, and 2020 were $ 1.4 million, $ 1.1 million, and $ 0.8 million, respectively.

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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

1 unchanged sentence

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 8. Financial Statements and Supplementary Data