In August 2020, we entered into an agreement with Omeros Corporation, in which we provided Omeros a non-exclusive license to our Xtend Fc technology, an exclusive license to apply our Xtend Fc technology to an initial identified antibody, OMS906, and options to apply our Xtend Fc technology to three additional antibodies. Omeros is responsible for all development and commercialization activities. WeIn 2023, Omeros initiated a Phase 2 study of OMS906, a MASP-3 targeted antibody, in patients with PNH, and we received an upfront payment ofa $5.0 million and for each product incorporating our Xtend Fc technology, wemilestone. We are eligible to receive up to $65.0 million in milestones, which includes $15.0an additional $60.0 million in development, milestones, $25.0 million in regulatory and sales milestones and $25.0 millionroyalties in the mid-single digit percentage range on net sales milestones. Weof approved products.
We enter into strategic collaborations where we can create synergies between our partners'partners’ capabilities and assets and our own protein engineering capabilities, XmAbFc technologies and XmAb drug candidates. Through these arrangements we seek to create new drug candidates, investigate novel combination therapies and potentially identify additional indications for our portfolio of XmAb drug candidates.
activities, and 46 are49 were engaged in business development, information systems, facilities, human resources, or administrative support. Of these employees, 4268 hold Ph.D. degrees, and 69 hold M.D. degrees. None of our employees are represented by any collective bargaining unit. We believe we maintain good relations with our employees.
We are an equal opportunity employer and maintain policies that prohibit unlawful discrimination based on race, color, religion, gender, sexual orientation, gender identity/expression, national origin/ancestry, age, disability, marital and veteran status. We are proud to employ a diverse workforce that, as
of December 31,
2020,2023, was
53%58% non-white and
55%57% women. In addition, as of December 31,
2020,2023, women made up
22%33% of our senior leadership team. We strive to build and nurture a culture where all employees feel empowered to be their authentic selves.
In January 2024, in connection with re-prioritization of our development programs, we completed a reduction in force (RIF) affecting approximately 10% of the total employee headcount. The RIF was applied across all functional areas. As of February 1, 2024, we had 256 full-time employees.
We seek to provide human capital and employee health and safety policies that provide for the health, safety, and welfare of our employeesemployees. We continue practices that address the COVID-19 pandemic consistent with government
guidelines to mitigate and prevent the spread of disease, such as
well as professional developmentmasking, social distancing, providing hybrid work opportunities where possible, contact tracing, and
training. In 2020 in connection with the ongoing pandemic we implemented the following policies: | ● | Instituted a remote work mandate for all non-laboratory staff and provided technical support and training to enable employees to continue to perform their responsibilities while working remotely; |
| ● | Implemented onsite safety procedures for all laboratory staff which includes mandatory weekly onsite SARS-CoV-2 virus testing for all laboratory employees and their household members, reimbursement of 100% of medical insurance costs for all onsite employees, and fully paid time off for any employee that missed time due to the COVID-19 virus including for the care of family members; and |
| ● | Provided additional compensation for onsite employees and provided additional days off for all employees. |
encouraging vaccinations. Compensation, Benefits, and Development
We provide compensation packages designed to attract,
retain, and
retainmotivate high-quality
employees, and allemployees. All of our employees are eligible for cash bonuses and grants of equity awards. We regularly evaluate our compensation programs with an independent compensation consultant and utilize industry benchmarking in an effort to ensure they are competitive compared to similar biotechnology and biopharmaceutical companies with which we compete for talent and that they are fair and equitable across our workforce with respect to gender, race, and other personal characteristics.
In addition, we provideAll employees are eligible to participate in the Employee Stock Purchase Plan where they can purchase shares of our common stock at a
varietydiscounted price. This plan, and our other equity compensation plans, assists us in building long-term relationships with our employees and aligns the interest of
programs and services to help employees
meet and balance their needs at work, at home and in life, including an attractive mix of healthcare, insurance, and other benefit plans.with stockholders. We
also deliver a benefits program that is designed to keep our employees and their families healthy, which includes not only medical, dental and vision benefits, but also dependent care, mental health, and other wellness benefits.
| ● | We also value career development for all employees, and we provide reimbursement and time for employees to attend professional development courses ranging from technical training, competency-based workshops and leadership development programs facilitated by external partners who are experts in their respective fields. Direct managers also take an active role in identifying individualized development plans to assist their employees in realizing their full potential and creating opportunities for promotions and added responsibilities that enhance the engagement and retention of our workforce. |
In addition, we provide a variety of programs and services to help employees meet and balance their needs at work, at home and in life.We value career development for all employees, and we provide reimbursement and time for employees to attend professional development courses ranging from technical training, competency-based workshops, and leadership development programs. Direct managers also take an active role in identifying individualized development plans to assist their employees in realizing their full potential and creating opportunities for promotions and added responsibilities that enhance the engagement and retention of our workforce.
Our wholly owned drug candidates that use the XmAb bispecific Fc domain, which we are actively advancing in clinical development, including plamotamab, XmAb717, vibecotamab, tidutamab, XmAb841, XmAb104vudalimab, XmAb819, XmAb808 and XmAb306XmAb541: We are developing ourthese bispecific antibody and cytokinedrug candidates to treat cancer. Cancer is a broad group of diseases in which cells divide and grow in an uncontrolled fashion, forming malignancies that can invade other parts of the body, and it is the second leading cause of death in the United States (U.S.). The American Cancer Society estimates that in 20212024 there will be approximately 1.92.0 million new cases of cancer and approximately 608,570611,720 deaths from cancer. The National Institutes of Health (NIH) has estimated that based on growth and aging of the U.S. population, medical expenditures for cancer in the year 2020 were2030 are projected to reach at least $158.0 billion (in 2010 dollars).$245.6 billion.
Umbrella Development Services Agreement with Patheon Biologics LLC
In September 2018, we entered into an Umbrella Development Services Agreement (Patheon Agreement) with Patheon Biologics LLC (Patheon). Under the terms of the Patheon Agreement, any of the affiliates within the global network of service sites in Thermo Fisher Scientific Inc.’s Pharma Services Group may perform clinical manufacturing and development services for us in accordance with cGMP regulations.
The Patheon Agreement includes a statement of work for Patheon to provide process transfer, process development and cGMP manufacturing to support our obexelimab program. The Patheon Agreement may be terminated by either party for a breach or default that is not remedied within 30 days, or such other time period as may be reasonably necessary to remedy such breach after receiving notice of the breach from the non-breaching party or if the other party is subject to an insolvency event. We have the unilateral right to terminate the Patheon Agreement upon 30 days written notice to Patheon for any business reason, subject to cancellation fees. Patheon has the unilateral right to terminate the Patheon Agreement if we request to reschedule work beyond 120 days, the project work is not progressing according to our expectations and we cannot agree on appropriate changes, after six months of inactivity on a project at our request or if Patheon determines it is unable to perform its obligations in a safe and effective way in compliance with applicable regulatory requirements.
Patheon is currently
conducting process transfer, process development and cGMP manufacturing
for our obexelimab program and process development and cGMP manufacturingdrug substance material for our XmAb819
program and drug product for our plamotamab program.
Master Services Agreement with WuXi Biologics (Hong Kong) Limited
In February 2021, we entered into a Master Services Agreement (WuXi Agreement) with WuXi Biologics (Hong Kong) Limited (WuXi). Under the terms of the WuXi Agreement, WuXi and its affiliates will perform manufacturing, analytical, development and other services for Xencor in accordance with applicable regulations. The WuXi Agreement includes customary rights to replacement of non-conforming products. The WuXi Agreement may be terminated by either party for a breach by the other party that is not remedied within 45 days (or 10 days for a non-payment breach), or if the other party is subject to an insolvency event. We have the unilateral right to terminate the WuXi Agreement upon 90 days’ prior written notice to WuXi for any reason, subject to applicable cancellation fees. WuXi has the unilateral right to terminate the WuXi Agreement only if the services cannot be performed due to technical difficulties or the performance of the services is not permitted under applicable law.
WuXi is currently manufacturing drug substance and drug product for our XmAb808 and XmAb662 programs.
Master Clinical Services Agreement with ICON Clinical Research Limited
In April 2016, we entered into a Master Clinical Services Agreement (ICON Agreement) with ICON Clinical Research Limited (ICON) which was amended in April 2021. Under the terms of the ICON Agreement, ICON and its affiliates will perform clinical trial services (including site selection, study design, site monitoring, management and training, and patient selection) for Xencor in accordance with applicable regulations. The ICON Agreement may be terminated by either party for a breach by the other party that is not remedied within 30 days, or if the other party is subject to an insolvency event. Each party may terminate the ICON Agreement upon 30 days’ prior written notice to the other party for any reason, however such termination would not affect any ongoing project under the ICON Agreement. We may unilaterally terminate any project under the ICON Agreement upon 30 days’ prior written notice to ICON for any reason, subject to applicable close-out costs.
ICON is currently providing services to us in connection with ongoing Xencor-sponsored clinical trial that target oncology indications.
Master Services Agreement with Innovaderm Research, Inc.
In April 2022, we entered into a Master Services Agreement (Innovadrem Agreement) with Innovaderm Research, Inc. (Innovaderm). Under the terms of the Innovaderm Agreement, Innovaderm will perform clinical trial management and
clinical development services (including site selection, study design, site monitoring, management and training, and patient selection) for Xencor in accordance with applicable regulations. The Innovaderm Agreement may be terminated by either party for a breach upon 15 days' written notice, if such breach is not cured within 30 days. We may terminate the Innovaderm Agreement upon 30 days' written notice to Innovaderm for any reason; however, we will be obligated for any costs incurred through the cancellation date and any non-refundable and non-cancellable commitments incurred by Innovaderm.
Innovaderm is currently conducting clinical studies for our XmAb564 program.
Master Services Agreement with PPD Development, L.P.
In June 2015, we entered into a Master Services Agreement (PPD Agreement) with PPD Development, L.P.(PPD). Under the terms of the PPD Agreement, PPD will perform clinical trial management and clinical development services (including site selection, study design, site monitoring, management and training, and patient selection) for Xencor in accordance with applicable regulations. The PPD Agreement may be terminated by either party for a breach upon 30 days' written notice, if such breach is not cured within 30 days. We may terminate the PPD Agreement upon 30 days' written notice to PPD for any reason; however, we will be obligated for any costs incurred through the cancellation date and any non-refundable and non-cancellable commitments incurred by PPD.
PPD is currently conducting clinical studies for our vudalimab program.
Master Services Agreement with Vetter Pharma International GmbH
In October 2020, we entered into a master services agreement (Vetter Agreement) with Vetter Pharma International GmbH (Vetter). We have engaged Vetter under the Vetter Agreement for clinical scale-up, analytical method development, formulation development, and other services related to manufacturing drug product for our bispecific antibody candidates vudalimab and XmAb541 in accordance with cGMP regulations. For each bispecific program, we have entered into a separate agreement with the terms and conditions of services and payment. The Vetter Agreement is for a eight-year term but is automatically extended on an annual basis until the services are completed. The Vetter Agreement may be terminated by either party for a breach that is not remedied within 60 days after notice or 60 days after notice of the existence of an incurable scientific or technical issue that renders Vetter unable to render services under the Vetter Agreement. For termination other than a material breach by Vetter, we must pay for all services conducted prior to the termination and to wind down the activities.
Vetter is currently manufacturing drug product for our vudalimab and XmAb541 programs.
Master Services Agreement with OncoBay Clinical, Inc.
In August 2023, we entered into a Master Services Agreement (OncoBay Agreement) with OncoBay Clinical, Inc. (OncoBay). Under the terms of the OncoBay Agreement, OncoBay will perform Contract Research Organization (CRO) services including clinical trial management and clinical development services (including site selection, study design, site monitoring, management and training, and patient selection) for Xencor in accordance with applicable regulations. The OncoBay Agreement may be terminated by either party for a breach upon 30 days' written notice, if such breach is not cured within thirty (30) days. We may terminate the OncoBay Agreement upon 60 days' written notice to OncoBay for any reason; however, we will be obligated for any costs incurred through the cancellation date and any non-refundable and non-cancellable commitments incurred by OncoBay.
OncoBay is currently conducting clinical studies for our XmAb541 program.
We compete in an industry that is characterized by rapidly advancing technologies, intense competition, and a strong emphasis on proprietary products. Our competitors include pharmaceutical companies, biotechnology companies, academic institutions, and other research organizations. We compete with these parties for promising targets for antibody-based therapeutics, new technology for optimizing antibodies and cytokines, and in recruiting highly qualified personnel. Many competitors and potential competitors have substantially greater scientific, research, and product development capabilities as well as greater financial, marketing and sales, and human resources than we do. In addition, many specialized biotechnology firms have formed collaborations with large, established companies to support the research,
development, and commercialization of products that may be competitive with ours. Accordingly, our competitors may be more successful than we may be in developing, commercializing, and achieving widespread market acceptance. In addition, our competitors’ products may be more effective, more effectively developed, or more effectively marketed and sold than any treatment we or our development partners may commercialize, which may render our product candidates obsolete or noncompetitive before we can recover the expenses related to developing and commercializing any of our product candidates.
Competition in the field of cancer drug development is intense, with hundreds of compounds in clinical trials. Many large pharmaceutical companies and other smaller biotechnology companies are developing competing bispecific antibody platforms, and many of these companies have advanced multiple drug candidates into clinical development, including Amgen Inc.; Genmab A/S; Macrogenics, Inc.; Merus N.V.; Regeneron Pharmaceuticals, Inc.;
and Roche Holding
AG; and Zymeworks Inc.AG.
We are developing bispecific antibody drug candidates engineered to direct cytotoxic T cell killing of
solid tumor cells, by engaging the CD3
or CD28 receptor on T cells and an antigen on tumor cells.
Regarding plamotamab, otherOther companies
developingconducting clinical trials to evaluate CD3
or CD28 bispecific antibodies directed to
CD20, an antigenantigens expressed on
many bloodsolid tumors include
AbbVieAmgen Inc.
and; Astellas Pharma Inc.; BioAtla, Inc.; CytomX Therapeutics, Inc.; Genmab A/S;
IGM Biosciences,Immunocore Holdings plc; Janux Therapeutics, Inc.;
Johnson & Johnson; Regeneron Pharmaceuticals, Inc.;
and Roche Holding
AG.AG; and Takeda Pharmaceutical Co. Ltd. Other antibodies, antibody drug
candidatesconjugates and cell therapies are in development or approved to treat patients with
non-Hodgkin lymphomas. Regarding vibecotamab, other companies developing CD3 bispecific antibodies directed to CD123, an antigen expressed on myeloid tumors, include Aptevo Therapeutics Inc. and Macrogenics, Inc.cancer.
We are also developing several bispecific antibody drug candidates engineered to selectively engage the immune system in order to treat patients with cancer, such as XmAb717, XmAb841 and XmAb104.cancer. Immuno-oncology is a competitive field within the biotechnology and pharmaceutical industries, and most large pharmaceutical companies are developing drug candidates, have marketed medicines in this space, or both: AstraZeneca plc; Bristol-Myers Squibb Company; GlaxoSmithKline plc; Merck & Co., Inc.; Novartis AG; Pfizer Inc.; Roche Holding AG; and Sanofi S.A.
U.S. Patent Term Restoration and Marketing Exclusivity
Depending upon the timing, duration and specifics of the FDA approval of any of our biologic product candidates, we may apply for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years for one patent per product as compensation for patent term lost during product development and the FDA regulatory review process of that product. The U.S. Patent and Trademark Office, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration.
Market exclusivity provisions under the FDCA can also delay the submission or the approval of certain applications of other companies seeking to reference another company’s BLA. Specifically, the Biologics Price Competition and Innovation Act established an abbreviated pathway for the approval of biosimilar and interchangeable biological products generally not earlier than 12 years after the original BLA approval. The abbreviated regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable” based on their similarity to existing brand product.
Pharmaceutical Coverage, Pricing and Reimbursement
The cost of pharmaceuticals continues to generate substantial governmental and third-party payor interest. We expect that the pharmaceutical industry will experience pricing pressures due to the trend toward managed healthcare, the increasing influence of managed care organizations and additional legislative proposals.
In the United States and foreign jurisdictions, there have been and will continue to be a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell our product candidates profitably, once they are approved for sale. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives.
Other Healthcare Laws and Compliance Requirements
In the United States, the research, manufacturing, distribution, sale and promotion of drug products and medical devices are potentially subject to regulation by various federal, state and local authorities in addition to the FDA, including the Centers for Medicare & Medicaid Services, other divisions of Health and Human Services (e.g., the Office of Inspector General), the U.S. Department of Justice, state Attorneys General, and other state and local government agencies.
Europe / Rest of World Government Regulation
In addition to regulations in the United States, we, and our collaborators, will be subject to a variety of regulations in other jurisdictions governing, among other things, clinical trials and any commercial sales, marketing and distribution of our products, similar or more stringent than the U.S. laws.
Whether or not we, or our collaborators, obtain FDA approval for a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement of clinical trials or marketing of the product in those countries. The requirements and process governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In addition, we and our collaborators may be subject to foreign laws and regulations and other compliance requirements, including, without limitation, anti-kickbackanti-kickback laws, false claims laws and other fraud and abuse laws, as well as laws and regulations requiring transparency of pricing and marketing information and governing the privacy and security of health information, such as the European Union’s Directive 95/46 on the Protection of Individuals with regard to the Processing of Personal Data.
If we, or our collaborators, fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.
We were incorporated in California in August 1997 under the name Xencor. In September 2004, we reincorporated in the state of Delaware under the name Xencor, Inc. Our principal offices are located at 111 West Lemon Avenue, Monrovia,465 North Halstead Street, Suite 200, Pasadena, CA, 91016,91107, and our telephone number is (626) 305-5900. Our website address is www.xencor.com. Our website and the information contained on, or that can be accessed through, the website will not be deemed to be incorporated by reference in and are not considered part of this Annual Report. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed or furnished pursuant to Section 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on the Investor Relations portion of our web site at www.xencor.com as soon as reasonably practical after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (SEC). The SEC maintains an internet site at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC and state the address of that site (www.sec.gov).SEC.
Item
1A.1A. Risk Factors.Factors.
We are subject to a number of risks that if realized could materially harm our business, prospects, operating results, and financial condition. Some of the more significant risks and uncertainties we face include those summarized below. The summary below is not exhaustive and is qualified by reference to the full set of risk factors set forth in this “Risk Factors” section. Please carefully consider all of the information in this Form 10-K, including the full set of risks set forth in this
“Risk “Risk Factors” section, and in our other filings with the U.S. Securities and Exchange Commission before making an investment decision regarding Xencor.
We have reviewed our risk factors and categorized them into five specific categories:
| 1. | Risks related to our unique and specific business operations as a small biotechnology company. These risks include: |
| ● | Our success depends on our ability to use and expand our XmAb technology platform to build a pipeline of product candidates and develop marketable products. We cannot be certain our candidates will receive regulatory approval or be successfully commercialized. |
| ● | The clinical development stage of our operations may make it difficult for you to evaluate the success of our business to date and to assess our future viability. |
| ● | The COVID-19 pandemic and the future outbreak of other highly infectious or contagious diseases could materially and adversely impact or disrupt our business and our financial condition, results of operations, cash flows and performance. |
| 2. | Risks specifically related to our financial position, capital requirements and ownership of our common stock. These risks include: |
| ● | We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future. |
| ● | Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of uncertainty. We have never generated any revenue from product sales and may never be profitable. |
| ● | We will require additional financing and may be unable to raise sufficient capital, which could lead us to delay, reduce or abandon research and development programs or commercialization. |
| ● | The market price of our common stock is likely to be highly volatile, and you could lose all or part of |
1.Risks related to our unique and specific business operations as a small biotechnology company. These risks include: | ● | Our principal stockholders, directors and management own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval. |
| ● | Raising additional funds through debt or equity financing may be dilutive or restrict our operations and raising funds through licensing may require us to relinquish rights to our technology or product candidates. |
| ● | Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans, could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall. |
| 3. | Risks related to our intellectual property. These risks include: |
| ● | If we are unable to obtain, maintain and enforce intellectual property protection covering our products, others may be able to make, use or sell products substantially the same as ours, which could adversely affect our ability to compete in the market. |
| ● | We have in-licensed, and may in the future in-license, a portion of our intellectual property, and, if we fail to comply with our obligations under these arrangements, we could lose such intellectual property rights or owe damages to the licensor of such intellectual property. |
| ● | We may be required to reduce the scope of our intellectual property due to third party intellectual property claims. |
| ● | Our products could infringe patents and other property rights of others, which may result in costly litigation and, if we are not successful, could cause us to pay substantial damages or limit our ability to commercialize our products, which could have a material adverse effect on our business. |
| ● | If we are not able to prevent disclosure of our trade secrets and other proprietary information, the value of our technology and products could be significantly diminished. |
| ● | If we do not obtain patent term extension and data exclusivity for any therapeutic candidates we develop, our business may be materially harmed. |
| 4. | Risks related to our dependence on third parties. These risks include: |
| ● | Our patent protection and prosecution for some of our product candidates is dependent on third parties. |
| ● | We rely on third party manufacturers for the manufacture of our XmAb engineered antibodies. This entails a complex process and manufacturers often encounter difficulties in production. If we, or any of our third-party manufacturers, encounter any loss of our master cell banks or if any of our third party manufacturers otherwise fail to comply with their contractual obligations, the development or commercialization of our product candidates could be delayed or stopped. |
| ● | Our existing partnerships are important to our business, and future partnerships may also be important to us. If we are unable to maintain any of these partnerships, or if these partnerships are not successful, our business could be adversely affected. |
| ● | We rely upon third party contractors, and service providers for the execution of most aspects of our development programs. Failure of these collaborators to provide services of a suitable quality and within acceptable timeframes may cause the delay or failure of our development programs. |
| ● | We rely on third parties to manufacture supplies of our preclinical and clinical product candidates. The development of such candidates could be stopped or delayed if any such third party fails to provide us with sufficient quantities of product or fails to do so at acceptable quality levels or prices or fails to maintain or achieve satisfactory regulatory compliance. |
| 5. | Risks related to our industry. These risks include: |
| ● | Clinical trials are expensive and take years to conduct, and the outcome of such clinical trials is uncertain. Clinical trials may fail to prove our product candidates are safe and effective. This could lead to delays, downsizing or termination of clinical development plans for any our product candidates. |
| ● | Adverse side effects or other safety risks associated with our product candidates could delay or preclude |
| | approval, cause us to suspend or discontinue clinical trials, abandon product candidates, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any. |
| ● | If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented. |
| ● | Our industry is subject to competition for skilled personnel and the challenges we face to identify and retain key personnel could impair our ability to effectively conduct and grow our operations. |
| ● | The development and commercialization of biologic products is subject to extensive regulation, and we may not obtain regulatory approvals for any of our product candidates. |
| ● | We face significant competition from other biotechnology and pharmaceutical companies and our operating results will suffer if we fail to compete effectively. |
| ● | Our current and future relationships with healthcare professionals, principal investigators, consultants, customers, and third-party payors in the United States and elsewhere may be subject, directly or indirectly, to applicable anti-kickback, fraud and abuse, false claims, physician payment transparency, health information privacy and security and other healthcare laws and regulations, which could expose us to penalties. |
| ● | Present and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the prices we may obtain. |
| ● | Even if we are able to commercialize any product candidates, our product candidates may be subject to unfavorable pricing regulations, third-party coverage and reimbursement policies or healthcare reform initiatives. |
| ● | Our business involves the controlled use of hazardous materials, and as such we are subject to environmental and occupational safety laws. Continued compliance with these laws may incur substantial costs and failure to maintain compliance could result in liability for damages that may exceed our resources. |
Risks Related To Our Company
Our success depends on our ability to use and expand our XmAb technology platform to build a pipeline of product candidates and develop marketable products. We cannot be certain our candidates will receive regulatory approval or be successfully commercialized.
•The clinical development stage of our operations may make it difficult for you to evaluate the success of our business to date and to assess our future viability.
•Preliminary, interim, and topline data from our clinical trials that we announce or publish may change as more patient data become available that could result in material changes in the final data.
•Our business and results of operations could be adversely impacted by inflation.
2.Risks specifically related to our financial position, capital requirements and ownership of our common stock. These risks include:
•We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future.
•Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of uncertainty. We may never be profitable.
•We will require additional financing and may be unable to raise sufficient capital, which could lead us to delay, reduce or abandon research and development programs or commercialization.
•The market price of our common stock is likely to be highly volatile, and you could lose all or part of your investment.
•Our principal stockholders, directors and management own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.
•Raising additional funds through debt or equity financing may be dilutive and raising funds through licensing may require us to relinquish rights to our technology or product candidates.
•Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans, could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.
3.Risks related to our intellectual property. These risks include:
•If we are unable to obtain, maintain and enforce intellectual property protection covering our products, others may be able to make, use or sell products substantially the same as ours, which could adversely affect our ability to compete in the market.
•We have in-licensed, and may in the future in-license, a portion of our intellectual property, and, if we fail to comply with our obligations under these arrangements, we could lose such intellectual property rights or owe damages to the licensor of such intellectual property.
•We may be required to reduce the scope of our intellectual property due to third party intellectual property claims.
•Our products could infringe patents and other property rights of others, which may result in costly litigation and, if we are not successful, could cause us to pay substantial damages or limit our ability to commercialize our products, which could have a material adverse effect on our business.
•If we are not able to prevent disclosure of our trade secrets and other proprietary information, the value of our technology and products could be significantly diminished.
•If we do not obtain patent term extension and data exclusivity for any therapeutic candidates we develop, our business may be materially harmed.
4.Risks related to our dependence on third parties. These risks include:
•Our patent protection and prosecution for some of our product candidates is dependent on third parties.
•We rely on third-party manufacturers to manufacture our product candidates and provide supplies for our preclinical candidates. If any of our third-party manufacturers encounter problems or loss of drug material during production or otherwise fail to comply with their contractual obligations, the development of our product candidates could be delayed or stopped.
•Our existing partnerships are important to our business. If we are unable to maintain any of these partnerships, or if these partnerships are not successful, our business could be adversely affected.
•We rely upon third-party contractors, and service providers for the execution of most aspects of our development programs. Failure of these collaborators to provide services of a suitable quality and within acceptable timeframes may cause the delay or failure of our development programs.
5.Risks related to our industry. These risks include:
•Clinical trials are expensive and take years to conduct and the outcome of such clinical trials is uncertain. Clinical trials may fail to prove our product candidates are safe and effective.
•Adverse side effects or other safety risks associated with our product candidates could delay or preclude approval, cause us to suspend or discontinue clinical trials and abandon product candidates.
•If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.
•Our industry is subject to competition for skilled personnel and the challenges we face to identify and retain key personnel could impair our ability to effectively conduct and grow our operations.
•The development and commercialization of biologic products is subject to extensive regulation, and we may not obtain regulatory approvals for any of our product candidates.
•We face significant competition from other biotechnology and pharmaceutical companies and our operating results will suffer if we fail to compete effectively.
•Present and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the prices we may obtain.
•Our business involves the controlled use of hazardous materials, and as such we are subject to environmental and occupational safety laws. Continued compliance with these laws may incur substantial costs and failure to maintain compliance could result in liability for damages that may exceed our resources.
Risks Related to Our Unique and Specific Business Operations as a Small Biotechnology Company
Our success depends on our ability to use and expand our XmAb technology platform to build a pipeline of product candidates and develop marketable products. We cannot be certain our candidates will receive regulatory approval or be successfully commercialized.
We use our proprietary XmAb technology platform to develop engineered antibodies, with an initial focus on four properties: immune inhibition, cytotoxicity, extended half-life and most recently, heterodimeric Fc domains enabling molecules with dual target binding. This platform has led to our current pipeline of candidates as well as the other programs that utilize our technology and that are being developed by our partners and licensees. While we believe our preclinical and clinical data to date, together with our established partnerships, has validated our platform to a degree, most of the programs are in early stages of development. Although drug candidates incorporating our Fc technology, or Fc candidates, have been approved by the FDA, other product candidates have not yet been, and may never lead to, approved or marketable therapeutic antibody products. Even if we are successful in continuing to build our pipeline, the potential candidates that we identify may not be suitable for clinical development, including as a result of their harmful side effects, limited efficacy or other characteristics that indicate that they are unlikely to receive marketing approval and achieve market acceptance. If we do not successfully develop and commercialize product candidates, we may not be able to obtain product or partnership revenues in future periods, which would adversely affect our business, prospects, financial condition and results of operations.
The clinical development stage of our operations may make it difficult for you to evaluate the success of our business to date and to assess our future viability.
Our operations to date have been limited to raising capital, staffing our company, developing our proprietary XmAb technology platform, identifying potential product candidates, conducting preclinical studies and clinical trials, developing partnerships and business planning. We have conducted, or are currently conducting, early phase clinical trials for several product candidates, but have not completed any late stage clinical trials for these or any other product candidate. We have not yet demonstrated our ability to successfully complete any pivotal clinical trials, obtain regulatory
approvals, manufacture a commercial scale product, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we were further advanced in development of our product candidates.
In addition, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We believe
to be successfulwe will need to transition from a company with a research and development focus to a company capable of supporting commercial activities. We may not be successful in this transition.
We expect our financial condition and operating results to continue to fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. Accordingly, you should not rely upon the results of any quarterly or annual periods as indications of future operating performance.
The COVID-19 pandemic
Preliminary, interim, and topline data from our clinical trials that we announce or publish may change as more patient data become available that could result in material changes in the final data.
From time to time, we may publicly disclose preliminary, interim or topline data from our clinical trials. These updates are based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. Additionally, interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Therefore, positive interim results in any ongoing clinical trial may not be predictive of such results in the completed study or trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the preliminary results that we report may differ from future outbreakresults of other highly infectiousthe same studies, or contagious diseases,different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Preliminary data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, preliminary, interim or topline data should be viewed with caution until the final data are available. In addition, we may report interim analyses of only certain endpoints rather than all endpoints. Adverse changes between preliminary or interim data and final data could materially and adversely impact or disruptsignificantly harm our business and prospects. Further, additional disclosure of interim data by us
or by our
financial condition, results of operations, cash flows and performance.On March 11, 2020, the World Health Organization (WHO) declared the rapid spread of COVID-19 a global pandemic, and on March 19, the Governor of the State of California, where we are headquartered and where our principal place of business is located, implemented a mandatory stay at home order for residents workingcompetitors in non-critical businesses.
While we have managed to maintain our operations during the COVID-19 pandemic, additional developments with this pandemic or another epidemic or pandemic, could cause significant disruptions to our business operations, business operations of our partners, on whom we rely for potential revenue, and product development collaborations; operations of our third-party manufacturers and CROs, on which we rely to conduct our clinical trials; and to our clinical trials, including as a result of significant restrictions or bans on travel into and within the countries in which our manufacturers produce our product candidates or where we conduct our clinical trials. Such disruptions could impede, delay, limit or prevent our employees and CROs from continuing research and development activities.
Although the COVID-19 pandemic has not materially affected our clinical development for the year ended December 31, 2020, certain of our clinical programs have seen slower enrollment and there have also been delays in initiating new studies as a result of the COVID-19 pandemic. These delays are not seen across all our trials and are specific to certain trials enrolling at certain sites. In the future the COVID-19 pandemic could further adversely affect our and our partners’ ability to enroll and recruit patients in current and future clinical trials. Our success is dependent on our ability and the ability of our partners to advance our wholly-owned and partnered development programs into later stages of clinical development. Many pharmaceutical and biotechnology companies have indicated that their clinical trials will be delayed and enrollment of current and ongoing trials will suffer as a result of the COVID-19 pandemic. Completion of our ongoing clinical and preclinical studies or commencement of new clinical trials could be impeded, delayed, limited or prevented by the effects of the COVID-19 pandemic and related restrictions including negative effects on the production, delivery or release of our product candidates to our clinical trial sites, as participation by our clinical trial investigators, patients or other critical staff, which to could delay data collection, analysis and other related activities, any of which could cause delay or denial of regulatory approval of our product candidates. The delay and impact on enrollment cannot be determined at this time and will depend on the length and severity of the COVID-19 pandemic. Continued delays on our clinical and preclinical studies or trials will increase our costs and expenses and seriously harm our operations and financial condition, which will adversely affect our business.
The COVID-19 pandemic could also potentially affect the business of the FDA as well as other health regulatory authorities, which could result in delays in our communications with these authorities and ultimatelyvolatility in the ability for us and our partners to have drug products approved.
The COVID-19 pandemic and mitigation measures also have had and may continue to have an adverse impact on global economic conditions which could have an adverse effect on our business and financial condition, including impairment of our ability to raise capital when needed. The trading prices for biopharmaceutical companies’ stock, including our common shares have been highly volatile as a result of the COVID-19 pandemic. In addition, a recession, depression, or other sustained adverse market event resulting from the COVID-19 pandemic could materially and adversely affect our business and the valueprice of our common shares.
The COVID-19 pandemic could potentially affect our partnerships and collaborations which provide us with revenue and non-dilutive payments instock. See the formdescription of upfront payments, milestone payments, royalties, and cost-sharing of co-development programs. If our partners’ and collaborators’ operations are severely affected byrisks under the COVID-19 pandemic, it will adversely affect our future potential revenue from such partners and collaborators.
We have required most of our employees, including all of our administrative employees, to work remotely, restricted on-site staff to only those employees that must perform essential activities that must be completed on-site and limited the number of staff allowed in our laboratory and offices. These changes may negatively impact productivity, or disrupt, delay, or otherwise adversely impact our business. In addition, this could increase our cyber security risk, create data accessibility concerns, and make us more susceptible to communication disruptions, any of which could adversely impact our business operations. When we reopen our facilities, we could encounter delays in connection with implementing precautionary measures to mitigate the risk of exposing our facilities and employees to COVID-19.
The COVID-19 pandemic could adversely affect our supply chain for our research, development, and clinical programs. We rely on third party vendors for research supplies, development activities including manufacturing of drug product for our clinical studies and testing of drug material. In the third quarter of 2020, several manufacturing vendors notified us of critical supply shortages which will delay the development timelines for our earlier stage development programs by three to six months. We currently do not expect these supply shortages to delay the timelines for our programs that are already in clinical studies. However, if this supply disruption extends for more than the expected three to six months, it will extend the timelines for advancing our earlier stage programs further and could also delay the current timelines for advancing our existing clinical programs. If any other vendors in our supply chain of products or services are also severely affected from the COVID-19 pandemic, it will adversely affect our ability to continue our research and development activities and also continue our clinical trial activities.
The COVID-19 pandemic continues to rapidly evolve. Its ultimate impact on our business operations is highly uncertain and subject to change that will depend on future developments, which cannot be accurately predicted, including the duration of the COVID-19 pandemic, additional or modified government actions, new information that will emerge concerning the severity and impact of COVID-19 and the actions taken to address its impact in the short and long term, among others. We do not yet know the full extent of potential delays or impacts on our business, our clinical trials, our research programs, healthcare systems or the global economy. We will continue to monitor the situation closely.
Risksheading “Risks Specifically Related to ourOur Financial Position, Capital Requirements and Ownership of Our Common Stock” for more disclosure related to the risk of volatility in our stock price.
Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate or product and our company in general. In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is typically selected from a more extensive amount of available information. You or others may not agree with what we determine is the material or otherwise appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular product, product candidate or our business. If the preliminary or topline data that we report differ from late, final or actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize our product candidates may be harmed, which could harm our business, financial condition, results of operations and prospects.
Our business and results of operations could be adversely impacted by inflation.
The Company’s financial performance is subject to global and US economic conditions. Recent increases in interest rates and inflation, globally, and in the US regions, have led to economic volatility, increased borrowing costs, price increases and risks of recessions. Economic recessions may have adverse consequences across industries, including the biotechnology industry, which may adversely affect the Company’s business and financial condition. As a result of the ongoing actions taken by governments to attempt to slow down rising inflation, there is substantial uncertainty about the strength of the global economies, which may currently or in the near term be in a recession and have experienced rapid increases in uncertainty about the pace of potential recovery. In addition, changes in general market, economic and political conditions in domestic and foreign economies or financial markets, including fluctuation in stock markets resulting from, among other things, trends in the economy and inflation, as are being currently experienced, may adversely impact our cash runway as well as our ability to raise funds.
Risks Specifically Related to Our Financial Position, Capital Requirements and Ownership of Our Common Stock
We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future.
We are a clinical-stage biopharmaceutical company. To date, we have financed our operations primarily through equity financings and our research and development licensing agreements and have incurred significant operating losses since our inception in 1997. For the year ended December 31, 2020,2023, we incurred a net loss $69.3of $126.1 million and as of December 31, 2020,2023, we had an accumulated deficit of $365.7$464.4 million. We expect to incur additional net losses in future years as we execute our plan to continue our discovery, research and development activities, including the ongoing and planned clinical development of our antibody product candidates, and incur the additional costs of operating as a public company. We are unable to predict the extent of any future losses or when we will become profitable, if ever. Even if we do achieve profitability, we may not be able to sustain or increase profitability on an ongoing basis which would adversely affect our business, prospects, financial condition, and results of operations.
Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of uncertainty. We have never generated any revenue from product sales and may never be profitable.
We have devoted substantially all of our financial resources and efforts to developing our proprietary XmAb technology platform, identifying potential product candidates and conducting preclinical studies and clinical trials. We
and our partners are still in the early stages of developing our product candidates, and we have not completed development of any of our wholly-owned products. Our revenue to date has been primarily revenue from the license of our proprietary XmAb technology platform and drug candidates for the development of product candidates by others or revenue from our partners. Our ability to generate revenue and achieve profitability depends in large part on our ability, alone or with partners, to achieve milestones and to successfully complete the development of, obtain the necessary regulatory approvals for, and commercialize and market, product candidates. We do not anticipate generating revenues from sales of our own products in the foreseeable future that will provide sufficient proceeds to fund our operations on an ongoing basis.
Our ability to generate future revenues from licensing our proprietary XmAb technologies and drug candidates depends heavily on our and our partners’ success in advancing drug
candidatecandidates that they have licensed from us or developed using one of our technologies. Our partners face the same development, regulatory and market risk for advancing their drug candidates and their ability to successfully advance these partnered programs will affect potential milestones and royalties we could earn under our collaboration agreements. Further, our partners may decide not to pursue, or decide to deprioritize our programs due to changing priorities which could affect our future potential revenue from such arrangements.
Because of the numerous risks and uncertainties associated with biologic product development, we are unable to predict the timing or amount of increased expenses and when we will be able to achieve or maintain profitability, if ever. In addition, our expenses could increase beyond expectations if we are required by the FDA, or foreign regulatory agencies, to perform studies and trials in addition to those that we currently anticipate, or if there are any delays in our or our
partners completingpartners’ completion of clinical trials or
delays in the development of any of our product candidates. Even if we or our partners are able to generate revenues from the sale of any approved products, we may not become profitable and may need to obtain additional funding to continue operations, which may not be available to us on favorable terms, if at all.
We will require additional financing and may be unable to raise sufficient capital, which could lead us to delay, reduce or abandon research and development programs or commercialization.
As of December 31,
2020,2023, we had
$604.0$697.4 million in cash, cash equivalents, and marketable
debt securities. We expect our expenses to increase in connection with our ongoing development activities, including the continued development of our pipeline of bispecific
antibody drug candidates and other research activities. Identifying potential product candidates and conducting preclinical testing and clinical trials are time-consuming, expensive, and uncertain processes that take years to complete, and we or our partners may never generate the necessary data or results required to obtain regulatory approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success.
Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for many years, if at all. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or any future commercialization efforts.
We believe our existing cash, cash equivalents and marketable securities, together with interest thereon and expected milestones and royalty payments will be sufficient to fund our operations into 2024.2027. However, changing circumstances or inaccurate estimates by us may cause us to use capital significantly faster than we currently anticipate, and we may need to spend more money than currently expected because of circumstances beyond our control. We do not have sufficient cash to complete the clinical development of any of our product candidates and will require additional funding to complete the development activities required for regulatory approval of our current product candidates or any other future product candidates that we develop independently. Because successful development of our product candidates is uncertain, we are unable to estimate the actual funds we will require to complete research and development
and commercialize our product candidates. Adequate additional financing may not be available to us on acceptable terms, or at all. In addition, we may seek additional capital due to favorable market conditions or strategic considerations; even if we believe we have sufficient funds for our current or future operating plans. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or any future commercialization efforts.
The market price of our common stock is likely to be highly volatile, and you could lose all or part of your investment.
Prior to our initial public offering (IPO), there was no public market for our common stock. The trading price of our common stock is likely to be volatile. Since our IPO, the trading price of our common stock has ranged from a low of approximately $5.75 to a high of approximately
$55.33.$58.345. Our stock price could be subject to wide fluctuations in response to a variety of factors, including the following:
| 1. | adverse results or delays, or cancellations of clinical trials by us or our partners; |
| 2. | inability to obtain additional funding; |
| 3. | changes in laws or regulations applicable to our products; |
| 4. | inability to obtain adequate product supply for our product candidates, or the inability to do so at acceptable prices; |
| 5. | adverse regulatory decisions; |
| 6. | changes in the structure of healthcare payment systems; |
| 7. | introduction of new products or technologies by our competitors; |
| 8. | failure to meet or exceed product development or financial projections we provide to the public; |
| 9. | the perception of the pharmaceutical and biotechnology industry by the public, legislatures, regulators and the investment community; |
| 10. | announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors; |
| 11. | disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies; |
| 12. | additions or departures of key scientific or management personnel; |
| 13. | significant lawsuits, including patent or stockholder litigation; |
| 14. | changes in the market valuations of similar companies; |
| 15. | sales of our common stock by us or our stockholders in the future; and |
| 16. | trading volume of our common stock. |
1.adverse results or delays, or cancellations of clinical trials by us or our partners;
2.inability to obtain additional funding;
3.changes in laws or regulations applicable to our products;
4.inability to obtain adequate product supply for our product candidates, or the inability to do so at acceptable prices;
5.adverse regulatory decisions;
6.changes in the structure of healthcare payment systems;
7.introduction of new products or technologies by our competitors;
8.failure to meet or exceed product development or financial projections we provide to the public;
9.the perception of the pharmaceutical and biotechnology industry by the public, legislatures, regulators and the investment community;
10.announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors;
11.disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies;
12.additions or departures of key scientific or management personnel;
13.significant lawsuits, including patent or stockholder litigation;
14.changes in the market valuations of similar companies;
15.sales of our common stock by us or our stockholders in the future; and
16.trading volume of our common stock.
In addition, the stock market in general, and the Nasdaq Global Market and biotechnology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance.
In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biopharmaceutical companies have experienced significant stock price volatility in recent years. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.
Our principal stockholders, directors and management own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.
Based on information available to us as of December 31,
20202023 our executive officers,
management, directors, 5% stockholders and their affiliates beneficially owned, as a group, approximately
67%64.8% of our voting stock.
Therefore, our officers, directors and 5% stockholders and their affiliates will have the ability to influence us through this ownership position and so long as they continue to beneficially own a significant amount of our outstanding voting stock. These stockholders may be able to determine all matters requiring stockholder approval and this concentration of ownership may deprive other stockholders from realizing the true value of our common stock. For example, these stockholders, acting together, may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals, offers for our common stock or other transactions or arrangements that you may believe are in your best interest as one of our stockholders.
Raising additional funds through debt or equity financing may be dilutive
or restrict our operations and raising funds through licensing may require us to relinquish rights to our technology or product candidates.
To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of those securities could result in substantial dilution for our current stockholders and the terms may include liquidation or other preferences that adversely affect the rights of our current stockholders. Existing stockholders may not agree with our financing plans or the terms of such financings. If we are unable to obtain additional funding on required timelines, we may be required to:
1. seek collaborators for one or more of our product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available;
2. relinquish or license on unfavorable terms our rights to technologies or product candidates that we otherwise would seek to develop or commercialize ourselves; or
3. significantly curtail one or more of our research or development programs or cease operations altogether. Additional funding may not be available to us on acceptable terms, or at all.
Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans, could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.
We expect that significant additional capital will be needed in the future to continue our planned operations. To the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. We may sell common stock, convertible securities, or other equity securities in one or more transactions at prices and in a manner, we determine from time to time. These sales may also result in material dilution to our existing stockholders, and new investors could gain rights superior to our existing stockholders.
Pursuant to our 20132023 equity incentive plan (2013(2023 plan), subject to board approval, our management is authorized to grant stock options and other equity-based awards to our employees, directors and consultants. The number of shares available for future grant under the 2013 plan will automatically increase each year until 2023 by 4% of all shares of our capital stock outstanding as of December 31 of the prior calendar year, subject to the ability of our Board of Directors to take action to reduce the size of the increase in any given year. As of December 31, 2020,2023, we had options to purchase 7,751,78911,142,986 shares outstanding under our equity compensation plans. In addition, we are also authorized to
grant equity awards, including stock options, to our employees, directors, and consultants, covering up to 11,479,09619,434,971 shares of our common stock, pursuant to our equity compensation plans. We plan to register the number of shares available for issuance or subject to outstanding awards under our equity compensation plans. If our Board of Directors elects to increase the number of shares available for future grant by the maximum amount each year, our stockholders may experience additional dilution, which could cause our stock price to fall.
If our internal control over financial reporting is not effective, we may not be able to accurately report our financial results or file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a decline in our stock price.
Effective internal control over financial reporting is necessary for us to provide reliable financial reports in a timely manner. If we fail to adequately staff our accounting and finance function to address the additional demands that will be placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act of 2002, or fail to maintain adequate internal control over financial reporting, it could prevent our management from concluding our internal control over financial reporting is effective and impair our ability to prevent material misstatements in our financial statements, which could cause our business to suffer.
As a large accelerated filer, we are subject to additional internal control requirements of the Sarbanes-Oxley Act of 2002.
Sales of a substantial number of shares of our common stock by our existing stockholders in the public market could cause our stock price to fall.
If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the trading price of our common stock could decline. In addition, a substantial number of shares of common stock are subject to outstanding options that are or will become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
Our net operating loss (NOL) carryforwards generated in tax years ending on or prior to December 31, 2017, are only permitted to be carried forward for 20 years under applicable U.S. tax law. Under the TCJA,Tax Cuts and Jobs Act of 2017 (TCJA), our federal NOLs generated in tax years ending after December 31, 2017, may be carried forward indefinitely, but the deductibility of such federal NOLs generated in tax years beginning after December 31, 2020,2021, is limited. It is uncertain if and to what extent various states will conform to the TCJA. In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50% change, by value, in its equity ownership over a three-year period, the corporation’s ability to use its pre-change NOL carryforwards and other pre-change U.S. tax attributes (such as research tax credits) to offset its post-change income or taxes may be limited. It is also possible that we have in the past
undergone, and in the future may undergo, ownership changes that could result in additional limitations on our net operating loss and tax credit carryforwards.
As a result, our pre-2018 NOL carryforwards may expire prior to being used. Similar provisions of state tax law may also apply to limit our use of accumulated state tax attributes. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed. As a result, if we earn net taxable income, we may be unable to use all or a material portion of our NOLs and other tax attributes, which could potentially result in increased future tax liability to us and adversely affect our future cash flows.
New federal and state income tax legislation may affect our current and future income tax liabilities.
The TCJA changed the income tax treatment of research and development expenses which may result in additional federal and state tax liabilities. For tax years ended in December 31, 2022 and subsequent years, research and development costs must be capitalized and amortized over a period of years; this has resulted in additional federal tax expense and liabilities to us in 2022 and 2023. Currently, there is proposed legislation in Congress that would retroactively restore the deduction of research and development expenses, which if enacted, would reduce our 2023 federal tax expense and liabilities by a material amount.
We do not intend to pay dividends on our common stock so any returns will be limited to the value of our stock.
We have never declared or paid any cash dividend on our common stock. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or
paying any cash dividends for the foreseeable future. Any return to stockholders will therefore be limited to the appreciation of their stock.
Provisions in our amended and restated certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for a third party to acquire us or increase the cost of acquiring us, even if doing so would benefit our stockholders or remove our current management.
Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders and may prevent attempts by our stockholders to replace or remove our current management. These provisions include:
| ● | authorizing the issuance of “blank check” preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval; |
| ● | prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders; |
| ● | eliminating the ability of stockholders to call a special meeting of stockholders; and |
| ● | establishing advance notice requirements for nominations for election to the Board of Directors or for proposing matters that can be acted upon at stockholder meetings. |
•authorizing the issuance of “blank check” preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval;
•prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders;
•eliminating the ability of stockholders to call a special meeting of stockholders; and
•establishing advance notice requirements for nominations for election to the Board of Directors or for proposing matters that can be acted upon at stockholder meetings.
These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our Board of Directors, which is responsible for appointing the members of our management. In addition, we are subject to Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with an interested stockholder for a period of three years following the date on which the stockholder became an interested stockholder, unless such transactions are approved by our Board of Directors. This provision could have the effect of delaying or preventing a change of control, whether or not it is desired by or beneficial to our stockholders. Further, other provisions of Delaware law may also discourage, delay, or prevent someone from acquiring us or merging with us. Any provision of our certificate of incorporation or bylaws or Delaware law that has the effect of delaying or deterring change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.
Requirements associated with being a public reporting company will continue to increase our costs significantly, as well as divert significant company resources and management attention.
We have been subject to the reporting requirements of the Exchange Act and the other rules and regulations of the Securities and Exchange Commission (SEC) since December 2013. Effective for the year-ended December 31, 2016, we became a large accelerated filer and are subject to additional internal control and SEC reporting obligations. Compliance with the various reporting and other requirements applicable to public reporting companies requires considerable time, attention of management, and financial resources.
Further, the listing requirements of The Nasdaq Global Market require that we satisfy certain corporate governance requirements relating to director independence, distributing annual and interim reports, stockholder meetings, approvals, and voting, soliciting proxies, conflicts of interest and a code of conduct. Our management and other personnel need to devote a substantial amount of time to ensure that we comply with all of these requirements. Moreover, the reporting requirements, rules and regulations increase our legal and financial compliance costs and also make some activities more time-consuming and costly. These reporting requirements, rules, and regulations, coupled with the increase in potential litigation exposure associated with being a public company, could also make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors or board committees or to serve as executive officers, or to obtain certain types of insurance, including directors’ and officers’ insurance, on acceptable terms.
In addition, being a public company could make it more difficult or more costly for us to obtain certain types of insurance, including directors’ and officers’ liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors, our Board committees, or as executive officers.
Any changes we make to comply with these obligations may not be sufficient to allow us to satisfy our obligations as a public company on a timely basis, or at all.
Investors' expectations of our performance relating to environmental, social and governance factors may impose additional costs and expose us to new risks.
There is an increasing focus from certain investors, employees, regulators and other stakeholders concerning corporate responsibility, specifically related to environmental, social and governance (ESG) factors. Some investors may use these factors to guide investment strategies and decisions. Complying with ESG standards and expectations may impose additional costs and expose us to new risks for not meeting investor and third-party expectations in meeting published ESG guidelines.
Risks Related to Our Intellectual Property
If we are unable to obtain, maintain and enforce intellectual property protection covering our products, others may be able to make, use or sell products substantially the same as ours, which could adversely affect our ability to compete in the market.
Our commercial success depends, in part, on our ability to obtain, maintain and enforce patents, trade secrets, trademarks and other intellectual property rights and to operate without having third parties infringe, misappropriate or circumvent the rights that we own or license. The value of many of our partnered licensing arrangements is based on the underlying intellectual property and related patents. If we are unable to obtain, maintain and enforce intellectual property protection covering our products or underlying technologies, others may be able to make, use or sell products that are substantially the same as ours without incurring the sizeable development and licensing costs that we have incurred, which would adversely affect our ability to compete in the market. As of December 31, 2020,2023, we held over 1,0001,500 issued patents and pending patent applications. We file patent applications in the United States, Canada, Japan, Europe and other major markets either directly or via the Patent Cooperation Treaty. Our ability to stop third parties from making, using, selling, offering to sell or importing our product candidates is dependent upon the extent to which we have rights under valid and enforceable patents or trade secrets that cover these activities. However, the patent positions of biopharmaceutical companies, including ours, can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in patents in these fields has emerged to date in the United States. The U.S. patent laws have recently changed, there have been changes regarding how patent laws are interpreted, and the U.S. Patent and Trademark Office (the PTO) has also implemented changes to the
patent system. Some of these changes are currently being litigated, and we cannot accurately determine the outcome of any such proceedings or predict future changes in the interpretation of patent laws or changes to patent laws which might be enacted into law. Those changes may materially affect our patents, our ability to obtain patents or the patents and applications of our collaborators and licensors. The patent situation in the biopharmaceutical industry outside the United States is even more uncertain. Therefore, there is no assurance that our pending patent applications will result in the issuance of patents or that we will develop additional proprietary products which are patentable. Moreover, patents issued or to be issued to us may not provide us with any competitive advantage. Our patent position is subject to numerous additional risks, including the following:
| 1. | we may fail to seek patent protection for inventions that are important to our success; |
| 2. | our pending patent applications may not result in issued patents; |
| 3. | we cannot be certain that we are the first to invent the inventions covered by pending patent applications or that we were the first to file such applications and, if we are not, we may be subject to priority disputes; |
| 4. | we may be required to disclaim part or all of the term of certain patents or all of the term of certain patent applications; |
| 5. | we may file patent applications but have claims restricted or we may not be able to supply sufficient data to support our claims and, as a result, may not obtain the original claims desired or we may receive restricted claims. Alternatively, it is possible that we may not receive any patent protection from an application; |
1.we may fail to seek patent protection for inventions that are important to our success;2.our pending patent applications may not result in issued patents;
3.we cannot be certain that we are the first to invent the inventions covered by pending patent applications or that we were the first to file such applications and, if we are not, we may be subject to priority disputes;
| 6. | we could inadvertently abandon a patent or patent application, resulting in the loss of protection of certain intellectual property rights in a certain country. We, our collaborators or, our patent counsel may take action resulting in a patent or patent application becoming abandoned which may not be able to be reinstated or if reinstated, may suffer patent term adjustments; |
| 7. | the claims of our issued patents or patent applications when issued may not cover our product candidates; |
| 8. | no assurance can be given that our patents would be declared by a court to be valid or enforceable or that a competitor’s technology or product would be found by a court to infringe our patents. Our patents or patent applications may be challenged by third parties in patent litigation or in proceedings before the PTO or its foreign counterparts, and may ultimately be declared invalid or unenforceable, or narrowed in scope; |
| 9. | there may be prior art of which we are not aware that may affect the validity or enforceability of a patent claim. There also may be prior art of which we are aware, but which we do not believe affects the validity or enforceability of a claim, which may, nonetheless, ultimately be found to affect the validity or enforceability of a claim; |
| 10. | third parties may develop products which have the same or similar effect as our products without infringing our patents. Such third parties may also intentionally circumvent our patents by means of alternate designs or processes or file applications or be granted patents that would block or hurt our efforts; |
| 11. | there may be dominating patents relevant to our product candidates of which we are not aware; |
| 12. | our patent counsel, lawyers or advisors may have given us, or may in the future give us incorrect advice or counsel. Opinions from such patent counsel or lawyers may not be correct or may be based on incomplete facts; |
| 13. | obtaining regulatory approval for biopharmaceutical products is a lengthy and complex process, and as a result, any patents covering our product candidates may expire before, or shortly after such product candidates are approved and commercialized; |
| 14. | the patent and patent enforcement laws of some foreign jurisdictions do not protect intellectual property rights to the same extent as laws in the United States, and many companies have encountered significant difficulties in protecting and defending such rights in foreign jurisdictions. If we encounter such difficulties or we are otherwise precluded from effectively protecting our intellectual property rights in foreign jurisdictions, our business prospects could be substantially harmed; and |
| 15. | we may not develop additional proprietary technologies that are patentable. |
5.we may file patent applications but have claims restricted or we may not be able to supply sufficient data to support our claims and, as a result, may not obtain the original claims desired or we may receive restricted claims. Alternatively, it is possible that we may not receive any patent protection from an application;6.we could inadvertently abandon a patent or patent application, resulting in the loss of protection of certain intellectual property rights in a certain country. We, our collaborators or, our patent counsel may take action resulting in a patent or patent application becoming abandoned which may not be able to be reinstated or if reinstated, may suffer patent term adjustments;
7.the claims of our issued patents or patent applications when issued may not cover our product candidates;
8.no assurance can be given that our patents would be declared by a court to be valid or enforceable or that a competitor’s technology or product would be found by a court to infringe our patents. Our patents or patent applications may be challenged by third parties in patent litigation or in proceedings before the PTO or its foreign counterparts, and may ultimately be declared invalid or unenforceable, or narrowed in scope;
9.there may be prior art of which we are not aware that may affect the validity or enforceability of a patent claim. There also may be prior art of which we are aware, but which we do not believe affects the validity or enforceability of a claim, which may, nonetheless, ultimately be found to affect the validity or enforceability of a claim;
10.third parties may develop products which have the same or similar effect as our products without infringing our patents. Such third parties may also intentionally circumvent our patents by means of alternate designs or processes or file applications or be granted patents that would block or hurt our efforts;
11.there may be dominating patents relevant to our product candidates of which we are not aware;
12.our patent counsel, lawyers or advisors may have given us, or may in the future give us incorrect advice or counsel. Opinions from such patent counsel or lawyers may not be correct or may be based on incomplete facts;
13.obtaining regulatory approval for biopharmaceutical products is a lengthy and complex process, and as a result, any patents covering our product candidates may expire before, or shortly after such product candidates are approved and commercialized;
14.the patent and patent enforcement laws of some foreign jurisdictions do not protect intellectual property rights to the same extent as laws in the United States, and many companies have encountered significant difficulties in protecting and defending such rights in foreign jurisdictions. If we encounter such difficulties or we are otherwise precluded from effectively protecting our intellectual property rights in foreign jurisdictions, our business prospects could be substantially harmed; and
15.we may not develop additional proprietary technologies that are patentable.
Any of these factors could hurt our ability to gain full patent protection for our products. Registered trademarks and trademark applications in the United States and other countries are subject to similar risks as described above for patents and patent applications, in addition to the risks described below.
Many of our product development partnership agreements are complex and may call for licensing or cross-licensing of potentially blocking patents, know-how or intellectual property. Due to the potential overlap of data, know-how and intellectual property rights there can be no assurance that one of our collaborators will not dispute our right to use, license or distribute data, know-how or other intellectual property rights, and this may potentially lead to disputes, liability or termination of a program. There are no assurances that our actions or the actions of our collaborators would not lead to disputes or cause us to default with other collaborators. For example, we may become involved in disputes with our collaborators relating to the ownership of intellectual property developed in the course of the partnership. We also cannot be certain that a collaborator will not challenge the validity or enforceability of the patents we license.
materially adversely affect our business and delay or impede the development and commercialization of any of our product candidates or products and could have a material adverse effect on our business, prospects, financial condition and results of operations.
Certain of our third-party manufactures are located outside the United States, and our ability to continue to receive drug material for our development candidates would be at-risk in the event of instability or geopolitical problems between the United States and the country's where these manufacturers are located.
Our existing partnerships are important to our business, and future partnerships may also be important to us. If we are unable to maintain any of these partnerships, or if these partnerships are not successful, our business could be adversely affected.
Because developing biologics products, conducting clinical trials, obtaining regulatory approval, establishing manufacturing capabilities and marketing approved products are expensive, we have entered into partnerships, and may seek to enter into additional partnerships, with companies that have more resources and experience than us, and we may become dependent upon the establishment and successful implementation of partnership agreements.
Our partnership and license agreements include those we have
announced with
JanssenJ&J, Genentech,
Novartis,Vir, Amgen,
MorphoSys,Incyte, Alexion and others. These partnerships and license agreements also have provided us with important funding for our development programs, and we expect to receive additional funding under these partnerships in the future. Our existing partnerships, and any future partnerships we enter into, may pose a number of risks, including the following:
| 1. | collaborators have significant discretion in determining the efforts and resources that they will apply to these partnerships. For example, in 2020, Amgen notified us of its decision to return the rights to AMG 424 to us under the terms of the Amgen Agreement, and in December 2018, Novartis notified us of its decision to return the rights to plamotamab to us under the terms of the Novartis Agreement; |
| 2. | our Novartis Agreement requires us to co-develop worldwide with Novartis our lead bispecific antibody candidate, vibecotamab, and share development costs. Such an arrangement may require us to incur substantial costs in excess of our available resources; |
| 3. | our Genentech Agreement requires that we fund 45% of worldwide development costs of XmAb306 and other IL-15 candidates. Such an arrangement may require us to incur substantial costs in excess of available resources; |
| 4. | collaborators may not pursue development and commercialization of any product candidates that achieve regulatory approval or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborators’ strategic focus or available funding, or external factors, such as an acquisition, that divert resources or create competing priorities; |
| 5. | collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing; |
| 6. | collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products or product candidates if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours, which may cause collaborators to cease to devote resources to the commercialization of our product candidates; |
| 7. | a collaborator with marketing and distribution rights to one or more of our product candidates that achieve regulatory approval may not commit sufficient resources to the marketing and distribution of such product or products; |
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1.collaborators have significant discretion in determining the efforts and resources that they will apply to these partnerships;2.our Janssen Agreement provides for cost-sharing on development costs for the bispecific candidate, plamotamab. Such an arrangement may require us to incur substantial costs in excess of our available resources;
3.collaborators may not pursue development and commercialization of any product candidates that achieve regulatory approval or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborators’ strategic focus or available funding, or external factors, such as an acquisition, that divert resources or create competing priorities;
4.collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;
| 8. | disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of development, might cause delays or termination of the research, development or commercialization of product candidates, might lead to additional responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would be time-consuming and expensive; |
| 9. | while we have generally retained the right to maintain and defend our intellectual property under our agreements with collaborators, certain collaborators may not properly maintain or defend certain of our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information; |
| 10. | collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; |
| 11. | collaborators may learn about our technology and use this knowledge to compete with us in the future; |
| 12. | results of collaborators’ preclinical or clinical studies could produce results that harm or impair other products using our XmAb technology platform; |
| 13. | there may be conflicts between different collaborators that could negatively affect those partnerships and potentially others; and |
| 14. | the number and type of our partnerships could adversely affect our attractiveness to future collaborators or acquirers. |
6.a collaborator with marketing and distribution rights to one or more of our product candidates that achieve regulatory approval may not commit sufficient resources to the marketing and distribution of such product or products;7.disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of development, might cause delays or termination of the research, development or commercialization of product candidates, might lead to additional responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would be time-consuming and expensive;
8.while we have generally retained the right to maintain and defend our intellectual property under our agreements with collaborators, certain collaborators may not properly maintain or defend certain of our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information;
9.collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability;
10.collaborators may learn about our technology and use this knowledge to compete with us in the future;
11.results of collaborators’ preclinical or clinical studies could produce results that harm or impair other products using our XmAb technology platform;
12.there may be conflicts between different collaborators that could negatively affect those partnerships and potentially others; and
13.the number and type of our partnerships could adversely affect our attractiveness to future collaborators or acquirers.
If our partnerships and license agreements do not result in the successful development and commercialization of products or if one of our collaborators terminates its agreement with us, we may not receive any future research and development funding or milestone or royalty payments under the arrangement. If we do not receive the funding we expect under these arrangements, our continued development of our product candidates could be delayed, and we may need additional resources to develop additional product candidates. All of the risks described in these risk factors relating to product development, regulatory approval and commercialization described in this Annual Report also apply to the activities of our collaborators and there can be no assurance that our partnerships and license agreements will produce positive results or successful products on a timely basis or at all.
Our partnership agreements generally grant our collaborators exclusive rights under certain of our intellectual property and may therefore preclude us from entering into partnerships with others relating to the same or similar compounds, indications or diseases. In addition, partnership agreements may place restrictions or additional obligations on our ability to license additional compounds in different indications, diseases or geographical locations. If we fail to comply with or breach any provision of a partnership agreement, a collaborator may have the right to terminate, in whole or in part, such agreement or to seek damages. Many of our collaborators also have the right to terminate the partnership agreement for convenience. If a partnership agreement is terminated, in whole or in part, we may be unable to continue the development and commercialization of the applicable product candidates, and even if we are able to do so, such efforts may be delayed and result in additional costs.
There is no assurance that a collaborator who is acquired by a third party would not attempt to change certain contract provisions that could negatively affect our partnership. The acquiring company may also not accept the terms or assignment of our contracts and may seek to terminate the agreements. Any one of our partners could breach covenants, restrictions and/or sub-license agreement provisions leading us into disputes and potential breaches of our agreements with other partners.
We may in the future determine to partner with additional pharmaceutical and biotechnology companies for development and potential commercialization of therapeutic products. We face significant competition in seeking appropriate collaborators. Our ability to reach a definitive agreement for a partnership will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed partnership
and the proposed collaborator’s evaluation of a number of factors. If we elect to fund and undertake development or commercialization activities on our own, we may need to obtain additional expertise and additional capital, which may not be available to us on acceptable terms or at all. If we fail to enter into partnerships and do not have sufficient funds or expertise to undertake the necessary development and commercialization activities, we may not be able to further develop our product candidates or bring them to market or continue to develop our product platform and our business, prospects, financial condition and results of operations may be materially and adversely affected.
We rely upon third-party contractors, and service providers for the execution of most aspects of our development programs. Failure of these collaborators to provide services of a suitable quality and within acceptable timeframes may cause the delay or failure of our development programs.
We outsource manufacturing, certain functions, testing and services to
contract research organizations (CROs),CROs, medical institutions and collaborators, and we rely on third parties for quality assurance, clinical monitoring, clinical data management and regulatory expertise. We also have engaged, and may in the future engage, a CRO to run all aspects of a clinical trial on our behalf. There is no assurance that such individuals or organizations will be able to provide the functions, tests, biologic supply or services as agreed upon or in a quality fashion and we could suffer significant delays in the development of our products or processes.
In some cases, there may be only one or few providers of such services, including clinical data management or manufacturing services. In addition, the cost of such services could be significantly increased over time. We rely on third parties and collaborators as mentioned above to enroll qualified patients and conduct, supervise and monitor our clinical trials. Our reliance on these third parties and collaborators for clinical development activities reduces our control over these activities. Our reliance on these parties, however, does not relieve us of our regulatory responsibilities, including ensuring that our clinical trials are conducted in accordance with GCP regulations and the investigational plan and protocols contained in the regulatory agency applications. In addition, these third parties may not complete activities on schedule or may not manufacture under GMP conditions. Preclinical or clinical studies may not be performed or completed in accordance with Good Laboratory Practices (GLP) regulatory requirements or our trial design. If these third parties or collaborators do not successfully carry out their contractual duties or meet expected deadlines, obtaining regulatory approval for manufacturing and commercialization of our product candidates may be delayed or prevented. We rely substantially on third-party data managers for our clinical trial data. There is no assurance that these third parties will not make errors in the design, management or retention of our data or data systems. There is no assurance these third parties will pass FDA or regulatory audits, which could delay or prohibit regulatory approval.
We rely on third parties to manufacture supplies of our preclinical and clinical product candidates. The development of such candidates could be stopped or delayed if any such third party fails to provide us with sufficient quantities of product or fails to do so at acceptable quality levels or prices or fails to maintain or achieve satisfactory regulatory compliance.
We do not currently have nor do we plan to acquire the infrastructure or capability internally to manufacture our clinical drug supplies for use in the conduct of our clinical trials, and we lack the resources and the capability to manufacture any clinical candidates on a clinical scale. Instead, we rely on our third-party manufacturing partners to manufacture our clinical drug supply. Any of our contract manufacturers may not perform as agreed, may be unable to comply with cGMP requirements and with FDA, state and foreign regulatory requirements or may terminate their respective agreements with us.
In addition, manufacturers are subject to ongoing periodic unannounced inspection by the FDA and other governmental authorities to ensure strict compliance with government regulations. We do not control the manufacturing processes of our third-party manufacturing partners, which include, among other things, quality control, quality assurance and the maintenance of records and documentation. If we were to experience an unexpected loss of supply, we could experience delays in our planned clinical trials as our third-party manufacturing partner would need to manufacture additional clinical drug supply and would need sufficient lead time to schedule a manufacturing slot. While there are other potential suppliers of clinical supplies of our biologics, the long transition periods necessary to switch manufacturers for any of our clinical drug supply would significantly delay our clinical trials and the commercialization of such products, if approved.
Risks Related Toto Our Industry
Clinical trials are expensive and take years to conduct and the outcome of such clinical trials is uncertain. Clinical trials may fail to prove our product candidates are safe and effective.
This could lead to delays, downsizing or termination of clinical development plans for any our product candidates.Each product candidate must receive regulatory approval and therefore must undergo rigorous and extensive preclinical studies and clinical trials to demonstrate safety and efficacy in patients. Clinical trials at any stage in development may fail to demonstrate the safety, efficacy or pharmacologic properties needed to be a viable product candidate in patients. Early clinical trials may fail to demonstrate the safety and pharmacokinetic characteristics needed to invest in larger later stage clinical studies. Later clinical studies that are larger may not demonstrate the desired safety and efficacy profile needed to be of benefit to patients. Additionally, regulatory authorities may determine that the data provided is not sufficient to grant marketing approval for our product candidates and may request additional data including additional clinical trials or reject product approval.
Adverse side effects or other safety risks associated with our product candidates could delay or preclude approval, cause us to suspend or discontinue clinical trials
and abandon product
candidates, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.candidates.
Conducting early clinical trials is complex and the outcomes are uncertain. Preclinical studies are performed to help inform human clinical trials, but human and animal studies are not comparable. Expected or unexpected undesirable side effects caused by our product candidates could result in the delay, suspension or termination of clinical trials by us, our collaborators, the FDA or other regulatory authorities for a number of reasons. If we elect or are required to delay, suspend or terminate any clinical trial of any product candidates that we develop, the commercial prospects of such product candidates will be harmed and our ability to generate product revenues from any of these product candidates will be delayed or eliminated. Serious adverse events observed in clinical trials could hinder or prevent market acceptance of the product candidate at issue. Any of these occurrences may harm our business, prospects, financial condition and results of operations significantly.
If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.
We may not be able to initiate or continue clinical trials for our product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or similar regulatory authorities outside the United States. In addition, some of our competitors have ongoing clinical trials for product candidates that treat the same indications as our product candidates, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’ product candidates.
Our inability to enroll a sufficient number of patients for any of our clinical trials could result in significant delays and could require us to abandon one or more clinical trials altogether. Enrollment delays in our clinical trials may result in increased development costs for our product candidates and in delays to commercially launching our product candidates, if approved, which would cause the value of our company to decline and limit our ability to obtain additional
financing.financing.
Our industry is subject to competition for skilled personnel and the challenges we face to identify and retain key personnel could impair our ability to effectively conduct and grow our operations.
Attracting and retaining the highly qualified management, scientific and medical personnel necessary for us to successfully implement our business strategy is extremely competitive in the biotechnology industry. Our industry is experiencing an increasing rate of competition in hiring and retaining employees and in turnover of management personnel. We depend heavily on our current management team, whose services are critical to the successful implementation of our product candidate development and regulatory strategies. In order to induce valuable employees to continue their employment with us, we have provided equity incentives that vest over time. The value to employees of
this equity is significantly affected by movements in our stock price that are beyond our control and may at any time be insufficient to counteract more lucrative offers from other companies.
Despite our efforts to retain valuable employees, members of our management team may terminate their employment with us at any time, with or without notice. Further, we do not maintain “key person” insurance for any of our executives or other employees. The loss of the services of any of our executive officers and our inability to find suitable replacements could harm our business, financial condition, prospects and ability to achieve the successful development or
commercialization of our product candidates. Our success also depends on our ability to continue to attract, retain and motivate highly skilled scientific and medical personnel at all levels.
Since 2016 we have been increasing the number of our employees and expanding the scope of our operations with a goal of advancing multiple clinical candidates into development. The increase in our number of employees places a significant strain on our management, operations, and financial resources, and we may have difficulty managing this growth. As we continue to grow our operations and advance our clinical programs into later stages of development, it will require us to recruit and retain employees with additional knowledge and skill sets and no assurance can be provided that we will be able to attract employees with the necessary skill set to assist in our growth. Many of the other biotechnology and pharmaceutical companies and academic institutions that we compete against for qualified personnel have greater financial and other resources, different risk profiles and a longer history in the industry than we do. We also may employ consultants or part-time and contract employees. There can be no assurance that these individuals are retainable. While we have been able to attract and retain skilled and experienced personnel and consultants in the past, no assurance can be given that we will be able to do so in the future.
The development and commercialization of biologic products is subject to extensive regulation, and we may not obtain regulatory approvals for any of our product candidates.
The clinical development, manufacturing, labeling, packaging, storage, recordkeeping, advertising, promotion, export, import, marketing and distribution and other possible activities relating to our current lead antibody product candidates, as well as any other antibody product candidate that we may develop in the future, are subject to extensive regulation in the United States and outside the US as biologics.
If we experience delays in obtaining approval, or if we fail to obtain approval of our product candidates, the commercial prospects for our product candidates may be harmed and our ability to generate revenues will be materially impaired which would adversely affect our business, prospects, financial condition and results of operations.
We face significant competition from other biotechnology and pharmaceutical companies and our operating results will suffer if we fail to compete effectively.
The biotechnology and pharmaceutical industries are intensely competitive. We have competitors both in the United States and internationally, including major multinational pharmaceutical companies, biotechnology companies, universities and other research institutions. Many of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing organizations and well-established sales forces. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors may succeed in developing, acquiring or licensing on an exclusive basis, drug products that are more effective or less costly than any product candidate that we are currently developing or that we may develop.
Competition in autoimmune disease and cancer drug development is intense, with hundreds of compounds in clinical trials by large multinational pharmaceutical companies. In addition, many currently marketed drugs are undergoing clinical testing in new indications in order to expand their use to new patient populations. Other companies, including many large international companies, are developing bispecific antibody technologies and checkpoint inhibitors. This includes products in preclinical and clinical development. Some of these agents have received marketing approval, and companies continue to conduct clinical trials to expand their currently approved indications. Alternative technologies, such as standard chemotherapy, cellular therapies and cancer vaccines, may also compete with our products for patients to conduct clinical trials and future potential market share.
Our ability to compete successfully will depend largely on our ability to leverage our experience in drug discovery and development to:
| 1. | discover and develop products that are superior to other products in the market; |
| 2. | attract qualified scientific, product development and commercial personnel; |
| 3. | obtain and maintain patent and/or other proprietary protection for our products and technologies; |
| 4. | obtain required regulatory approvals; and |
| 5. | successfully collaborate with pharmaceutical companies in the discovery, development and commercialization of new products. |
1.discover and develop products that are superior to other products in the market;
2.attract qualified scientific, product development and commercial personnel;
3.obtain and maintain patent and/or other proprietary protection for our products and technologies;
4.obtain required regulatory approvals; and
5.successfully collaborate with pharmaceutical companies in the discovery, development and commercialization of new products.
Established biopharmaceutical companies may invest heavily to accelerate discovery and development of products that could make our product candidates less competitive. In addition, any new product that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome price competition and to be commercially successful. Accordingly, our competitors may succeed in obtaining patent protection, receiving FDA approval or discovering, developing and commercializing medicines before we do, which would have a material adverse impact on our business. We will not be able to successfully commercialize our product candidates without establishing sales and marketing capabilities internally or through collaborators.
Our current and future relationships with healthcare professionals, principal investigators, consultants, customers and third-party payors in the United States and elsewhere may be subject, directly or indirectly, to applicable anti-kickback, fraud and abuse, false claims, physician payment transparency, health information privacy and security and other healthcare laws and regulations, which could expose us to penalties.
Healthcare providers, physicians and third-party payors in the United States and elsewhere will play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our current and future arrangements with healthcare professionals, principal investigators, consultants, customers and third-party payors may require us to comply with
to broadly applicable fraud and abuse and other healthcare laws, including, without limitation, the federal Anti-Kickback Statute and the federal civil False Claims Act, that may constrain the business or financial arrangements and relationships through which we sell, market and distribute any product candidates for which we obtain marketing approval. In addition, we may be subject to physician payment transparency laws and patient privacy and security regulation by the federal government and by the states and foreign jurisdictions in which we conduct our business.
Efforts to ensure that our future business arrangements with third parties will comply with applicable healthcare laws and regulations may involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, including, without limitation, damages, fines, imprisonment, disgorgement, exclusion from participation in government healthcare programs, such as Medicare and Medicaid, additional reporting requirements and/or oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations, as well as reputational harm, which could significantly harm our business.
Present and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the prices we may obtain.
Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been
significantly affected by major legislative initiatives. Healthcare reform measures, if approved, may result in more rigorous coverage criteria and lower reimbursement, and in additional downward pressure on the price that may be charged for any of our product candidates.
Even if we are able to commercialize any product candidates, our product candidates may be subject to unfavorable pricing regulations, third-party coverage and reimbursement policies or healthcare reform initiatives.
Our ability to commercialize any product candidates successfully will depend, in part, on the extent to which coverage and adequate reimbursement for our product candidates will be available from government payor programs at the federal and state levels, including Medicare and Medicaid, private health insurers, managed care plans and other third-party payors. If coverage and adequate reimbursement are not available or reimbursement is available only to limited levels, we may not be able to successfully commercialize any product candidates for which marketing approval is obtained.
The regulations that govern marketing approvals, pricing, coverage and reimbursement for new drugs and biological products vary widely from country to country. Current and future legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries
require approval of the sale price of a product before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay commercial launch of the product, possibly for lengthy time periods, and negatively impact the revenues able to be generated from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if our product candidates obtain marketing approval.
There can be no assurance that our product candidates, if they are approved for sale in the United States or in other countries, will be considered medically reasonable and necessary for a specific indication, that they will be considered cost-effective by third-party payors, that coverage or an adequate level of reimbursement will be available, or that third-party payors’ reimbursement policies will not adversely affect our ability to sell our product candidates profitably if they are approved for sale.
Our business involves the controlled use of hazardous materials and as such we are subject to environmental and occupational safety laws. Continued compliance with these laws may incur substantial costs and failure to maintain compliance could result in liability for damages that may exceed our resources.
Our research, manufacturing and development processes, and those of our third-party contractors and partners, involve the controlled use of hazardous materials. We and our manufacturers are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of such materials and certain waste products. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste products. The risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, we could be held liable for any damages that result, and any such liability could exceed our resources. We are not insured against this type of liability. We may be required to incur significant costs to comply with environmental laws and regulations in the future, and our operations, business or assets may be materially adversely affected by current or future environmental laws or regulations or any liability thereunder.
We may become subject to the risk of product liability claims.
We face an inherent risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk if we or our partners commercialize any products. Human therapeutic products involve the risk of product liability claims and associated adverse publicity. Currently, the principal risks we face relate to patients in our clinical trials, who may suffer unintended consequences. Claims might be made by patients, healthcare providers or pharmaceutical companies or others. For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during clinical testing, manufacturing, marketing, or sale. Any such product liability
claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability, and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates, if approved. Even successful defense would require significant financial and management resources.
Our intellectual property may be infringed upon by a third party.
Third parties may infringe one or more of our issued patents or trademarks. We cannot predict if, when or where a third party may infringe one or more of our issued patents or trademarks. To counter infringement, we may be required to file infringement claims, which can be expensive and time consuming. There is no assurance that we would be successful in a court of law in proving that a third party is infringing one or more of our issued patents or trademarks. Any claims we assert against perceived infringers could also provoke these parties to assert counterclaims against us, alleging that we infringe their intellectual property. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly and/or refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question, any of which may adversely affect our business. Even if we are successful in proving in a court of law that a third party is infringing one or more of our issued patents or trademarks there can be no assurance that we would be successful in halting their infringing activities, for example, through a permanent injunction, or that we would be fully or even partially financially compensated for any harm to our business. We may be forced to enter into a license or other agreement with the infringing
third party at terms less profitable or otherwise commercially acceptable to us than if the license or agreement were negotiated under conditions between those of a willing licensee and a willing licensor. We may not become aware of a third-party infringer within legal timeframes for compensation or at all, thereby possibly losing the ability to be compensated for any harm to our business. Such a third party may be operating in a foreign country where the infringer is difficult to locate and/or the intellectual property laws may be more difficult to enforce. Some third-party infringers may be able to sustain the costs of complex infringement litigation more effectively than we can because they have substantially greater resources. Any inability to stop third-party infringement could result in loss in market share of some of our products or even lead to a delay, reduction and/or inhibition of the development, manufacture or, sale of certain products by us. There is no assurance that a product produced and sold by a third-party infringer would meet our or other regulatory standards or would be safe for use. Such third-party infringer products could irreparably harm the reputation of our products thereby resulting in substantial loss in market share and profits.
We may not have or be able to obtain or maintain sufficient and affordable insurance coverage to cover product liability claims, and without sufficient coverage any claim brought against us could have a materially adverse effect on our business, financial condition or results of operations. We run clinical trials through investigators that could be negligent through no fault of our own and which could affect patients, cause potential liability claims against us and result in delayed or stopped clinical trials. We are required by contractual obligations to indemnify collaborators, partners, third-party contractors, clinical investigators, and institutions. These indemnifications could result in a material impact due to product liability claims against us and/or these groups. We currently carry at least $10.0 million in product liability insurance, which we believe is appropriate for our current clinical trials. Although we maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. We may also need to expand our insurance coverage as our business grows or if any of our product candidates is commercialized. We may not be able to maintain or increase insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.
We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged trade secrets of our employees’ former employers.Many of our employees were previously employed at universities or other life sciences companies, including our competitors or potential competitors. Although no claims against us are currently pending, we or our employees may be subject to claims that these employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights. A loss of key research personnel work product could hamper or prevent our ability to commercialize certain potential products, which could severely harm our business. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.
Our business could be negatively impacted by cyber securitycybersecurity threats and other disruptions, including the theft of our intellectual property, and could compromise our information and expose us to liability, which would cause our business and reputation to suffer.
We are increasingly dependent on information technology systems and infrastructure, including mobile technologies, to operate our business. In the ordinary course of our business, we use our data centers and our networks to store and access confidential and proprietary business information. The information includes, among other things, our intellectual property and proprietary information, the confidential information of our collaborators and licensees and the personally identifiable information of our employees, and the individually identified health information of patients participating in our clinical trials. It is important to our operations and business strategy that this electronic information remains secure and is perceived to be secure. The size and complexity of our information technology systems, and those of our partners and third-party vendors with whom we contract together with the volume of data we retain, make such systems potentially vulnerable to breakdown, malicious intrusion, security breaches and other
cyber-securitycybersecurity attacks.
Information security risks have significantly increased in recent years in part due to the proliferation of new technologies and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties, including foreign state actors. We face various cyber securitycybersecurity threats, including cyber securitycybersecurity attacks to our
information technology infrastructure and attempts by others to gain access to our proprietary or sensitive information. A security breach or privacy violation that leads to disclosure or modification of or prevents access to personally identifiable information or other protected information could harm our reputation, compel us to comply with federal and/or state breach notification laws and foreign law equivalents, subject us to mandatory corrective action, require us to verify the correctness of database contents and otherwise subject us to liability under laws and regulations that protect personal data, resulting in increased costs or loss of revenue. Similarly, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Moreover, a security breach that exposes our confidential intellectual property could compromise our patent portfolio. Additionally, theft of our intellectual property or proprietary business information could require substantial expenditures to remedy. If we are unable to prevent such security breaches or privacy violations or implement satisfactory remedial measures, our operations could be disrupted, and we may suffer loss of reputation, financial loss and other regulatory penalties because of lost or misappropriated information. In addition, these breaches and other inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm of the type described above. Moreover, the prevalent use of mobile devices that access confidential information increases the risk of data security breaches, which could lead to the loss of confidential information, trade secrets or other intellectual property. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities.
The procedures and controls we use to monitor these threats and mitigate our exposure may not be sufficient to prevent
cyber securitycybersecurity incidents. The result of these incidents could have a material adverse effect on our business, financial condition and results of operations including disrupted operations, lost opportunities, misstated financial data, liability for stolen assets or information, increased costs arising from the implementation of additional security protective measures, litigation and reputational damage. Any remedial costs or other liabilities related to
cyber securitycybersecurity incidents may not be fully insured or indemnified by other means.
The increasing use of social media platforms presents new risks and challenges.
Social media is increasingly being used to communicate about our products, technologies and programs, and the diseases our product or product candidates are designed to treat. Social media practices in the biopharmaceutical industry continue to evolve and regulations relating to such use are not always clear. This evolution creates uncertainty and risk of noncompliance with regulations applicable to our business. For example, patients may use social media channels to comment on the effectiveness of a product or to report an alleged adverse event. When such disclosures occur, there is a risk that we fail to monitor and comply with applicable adverse event reporting obligations or we may not be able to defend ourselves or the public's legitimate interests in the face of the political and market pressures generated by social media due to restrictions on what we may say about our product or product candidates. There is also a risk of inappropriate disclosure of sensitive information or negative or inaccurate posts or comments about us on any social networking website. If any of these events were to occur or we otherwise fail to comply with applicable regulations, we could incur liability, face overly restrictive regulatory actions or incur other harm to our business.
Compliance with global privacy and data security requirements could result in additional costs and liabilities to us or inhibit our ability to collect and process data globally, and the failure to comply with such requirements could have a material adverse effect on our business, financial condition or results of operations.
The regulatory framework for the collection, use, safeguarding, sharing, transfer and other processing of information worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. For example, the EU’s General Data Protection Regulation (GDPR), imposes strict obligations on the processing of personal data, including personal health data, and the free movement of such data. The GDPR applies to any company established in the EU as well as any company outside the EU that processes personal data in connection with the offering of goods or services to individuals in the EU or the monitoring of their behavior.
As such, the GDPR will apply to us in connection with any clinical trials we conduct in the EU. The GDPR enhances data protection obligations for processors and controllers of personal data, including, for example, obligations relating to: processing health and other sensitive data; obtaining consent of individuals; providing notice to individuals regarding data processing activities; responding to data subject requests; taking certain measures when engaging third-party processors; notifying data subjects and regulators of data breaches; implementing safeguards to protect the security and confidentiality of personal data; and transferring personal data to countries outside the EU, including the U.S. The GDPR imposes substantial fines for breaches of data protection requirements, which can be up to four percent of global revenue or
20 million euros, whichever is greater, and it also confers a private right of action on data subjects for breaches of data protection requirements.
Transfers of personal information out of the European Union face a constantly shifting set of requirements, as courts in Europe have invalidated intergovernmental agreements and European regulators have required changes to standard contracting terms, which themselves do not fit all situations. As a result, significant uncertainty exists with respect to GDPR compliance and the attendant obligations going forward as the regulatory environment is rapidly developing. In addition, from January 1, 2021, companies have had to comply with both the GDPR and the GDPR as incorporated into United Kingdom national law, the latter regime having the ability to separately fine up to the greater of £17.5 million or 4% of global turnover. The EC has adopted an adequacy decision in favor of the United Kingdom, enabling data transfers from EU member states to the United Kingdom without additional safeguards. However, the UK adequacy decision will automatically expire in June 2025 unless the EC re-assesses and renews/extends that decision. Outside Europe, significant data privacy regulatory regimes exist in major markets including Brazil, India, China, and elsewhere. The ever-shifting landscape of global data privacy regulation requires significant investment and attention to avoid significant noncompliance liabilities. The GDPR and other changes in laws or regulations associated with the enhanced protection of certain types of sensitive data, such as healthcare data or other personal information from our clinical trials, could require us to change our business practices or lead to government enforcement actions, private litigation or significant penalties against us and could have a material adverse effect on our business, financial condition or results of operations.
Additionally,
California recently enacted legislation that has been dubbed the first “GDPR-like” law in the U.S. Known as the California Consumer Privacy Act (CCPA),
it createswhich took effect in January 2020, created new individual privacy rights for consumers (as that word is broadly defined in the law) and places increased privacy and security obligations on entities handling personal data of consumers or
households. The CCPA, which went into effect on January 1, 2020,households and requires covered companies to provide new disclosures to California consumers, and provides such consumers new ways to opt-out of certain sales of personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation.
Further, the California Privacy Rights Act (CPRA) revised and expanded the CCPA, adding additional data protection obligations on covered businesses, including additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data, and opt outs for certain uses of sensitive data. It also created a new California data protection agency authorized to issue substantive regulations and could result in increased privacy and information security enforcement. The
CCPA may increase ourCPRA is in full effect as of January 1, 2023, and similar laws passed in Virginia, Colorado, Connecticut, and Utah took effect in 2023. Additionally, Delaware, Indiana, Iowa, Montana, Oregon, Tennessee and Texas have adopted privacy laws, which take effect from July 1, 2024 through 2026. Further, Washington’s My Health My Data Act, taking effect July 1, 2024, imposes similar requirements specific to consumer health data. As a result, additional compliance
costsinvestment and potential
liability. Some observers have notedbusiness process changes may be required. In the event that
we are subject to or affected by HIPAA, the CCPA,
the CPRA or other domestic privacy and data protection laws, any liability from failure to comply with the requirements of these laws could
markadversely affect our financial condition. Additional legislation proposed at the
beginning offederal level and in other states, along with increased regulatory action, reflect a trend toward more stringent privacy legislation in the
U.S., which could increase our potential liability and adversely affect our business.United States.
We may be vulnerable to disruption, damage and financial obligation as a result of system failures.
Despite the implementation of security measures, any of the internal computer systems belonging to us, our collaborators or our third-party service providers are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failure. Any system failure, accident or security breach that causes interruptions in our own, in collaborators’ or in third-party service vendors’ operations could result in a material disruption of our drug discovery and development programs. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our or our partners’ regulatory approval efforts and significantly increase our costs in order to recover or reproduce the lost data. To the extent that any disruption or security breach results in a loss or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we may incur liability as a result, our drug discovery programs and competitive position may be adversely affected and the further development of our product candidates may be delayed. Furthermore, we may incur additional costs to remedy the damages caused by these disruptions or security breaches.
Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements and insider trading.
We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations, to provide accurate information to the FDA, to comply with manufacturing standards we have established, to comply with federal and state healthcare fraud and abuse laws and
regulations, or to report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We have adopted a Code of Business Conduct and Ethics, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us,
and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant civil, criminal, and administrative sanctions, and our reputation.
In addition, during the course of our operations our directors, executives, and employees may have access to material, nonpublic information regarding our business, our results of operations, or potential transactions we are considering. We may not be able to prevent a director, executive, or employee from trading in our common stock on the basis of, or while having access to, material, nonpublic information. If a director, executive, or employee was to be investigated or an action was to be brought against a director, executive, or employee for insider trading, it could have a negative impact on our reputation and our stock price. Such a claim, with or without merit, could also result in substantial expenditures of time and money, and divert attention of our management team from other tasks important to the success of our business.
Item
1B.1B. Unresolved Staff Comments.Item 1C. Cybersecurity
The Company's Board of Directors, in coordination with the Audit Committee of the Board of Directors (the Audit Committee), is responsible for overseeing the Company's risk management and information technology programs of which cybersecurity is a critical element. Management is responsible for the administration of the Company's cybersecurity policies, standards, procedures and practices. The Company's cybersecurity policies, standards, procedures, and practices are based on the Center for Internet Security (CIS) Critical Security Controls, a framework for companies to establish and evaluate cybersecurity policies, procedures and practices. The Company seeks to address material cybersecurity threats through a company-wide approach that addresses the confidentiality, integrity, and availability of the Company's information systems or the information that the Company collects and stores, by assessing, identifying and managing cybersecurity issues as they arise.
Cybersecurity Risk Management and Strategy
The Company's cybersecurity risk management strategy focuses on several issues:
Identification and Reporting: The Company has implemented a comprehensive approach to assessing, identifying and managing material cybersecurity threats and incidents. The Company's program includes controls and procedures to timely identify, classify and escalate certain cybersecurity incidents to provide management visibility and allow for direction from management as to the public disclosure and reporting of material incidents in a timely manner.
Technical Safeguards: The Company implements current information technologies to support its cybersecurity practices. These technologies are designed to protect the Company's information systems from cybersecurity threats and include: email and internet protection, firewall and network security, intrusion detection and prevention systems, anti-malware endpoint detection and response, security event monitoring and alerting, high availability and replication, system configuration and asset management , backup and restoration processes, vulnerability and patch management, identity and access management and data encryption. These technologies and controls are continuously evaluated and improved through vulnerability assessments and cybersecurity threat intelligence, as well as audits by third party specialists and certifications.
Incident Response and Recovery Planning: The Company has established and maintains a comprehensive incident response plan, designed to address the Company's response to a cybersecurity incident. Cross-functional members of the Company comprise the Incident response team to respond and disclose material incidents. The incident response plan
defines pre-incident activities and preparation, classification of incidents, response team internal and external contacts, process flow of the response team, escalation of incidents to outside entities and law enforcement and frequency of review of the incident response plan. The Company conducts regular tabletop exercises to test these plans and ensure personnel are familiar with their roles in a response scenario.
Third-Party Risk Management: The Company maintains a comprehensive, risk-based approach to identifying and overseeing material cybersecurity threats presented by third parties, including vendors, service providers, contractors, consultants and other external users of the Company’s systems, as well as the systems of third parties that could adversely impact our business in the event of a material cybersecurity incident affecting those third-party systems, including any outside auditors or consultants who advise on the Company’s cybersecurity systems. Third parties are regularly assessed to determine the need for cybersecurity auditing based on risk evaluation.
Education and Awareness: The Company provides regular, mandatory training and assessment for all levels of employees regarding cybersecurity threats as a means to equip the Company’s employees with effective tools to address cybersecurity threats, and to communicate the Company’s evolving information security policies, standards, processes, and practices.
The Company conducts periodic assessment and testing of the Company’s policies, standards, processes, and practices including audits by independent third party specialists in a manner intended to address cybersecurity threats and events. Policies are reviewed and revised on a frequent basis for relevance and to maintain compliance. The results of such assessments, audits, and reviews are evaluated by management and reported to the Audit Committee, and the Company adjusts its cybersecurity policies, standards, processes, and practices as necessary based on the information provided by these assessments, audits, and reviews.
Governance
The Board, in coordination with the Audit Committee, oversees the Company’s risk management and information technology programs, including the management of cybersecurity threats. The Audit Committee receives regular presentations and reports on developments in the cybersecurity space, including risk management practices, recent developments, evolving standards, vulnerability assessments, third-party and independent reviews, the threat environment, technological trends, and information security issues encountered by the Company’s peers and third parties. The Audit Committee also receive prompt and timely information regarding any cybersecurity risk that meets pre-established reporting thresholds, as well as ongoing updates regarding any such risk. On an annual basis, the Audit Committee discusses the Company’s approach to overseeing cybersecurity threats with the Company’s head of Information Technology and other members of senior management.
The head of IT, in coordination with senior management, including the CFO, works collaboratively across the Company to implement a program designed to protect the Company’s information systems from cybersecurity threats and to promptly respond to any material cybersecurity incidents in accordance with the Company’s incident response and recovery plans. To facilitate the success of the Company’s cybersecurity program, cross-functional teams throughout the Company address cybersecurity threats and respond to cybersecurity incidents. Through ongoing communications with these teams, the head of IT and senior management are informed about and monitor the prevention, detection, mitigation and remediation of cybersecurity threats and incidents in real time, and report such threats and incidents to the Audit Committee when appropriate.
Material Affects of Cybersecurity Incidents
Risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, have not materially affected and are not reasonably likely to materially affect the Company, including its business strategy, results of operations, or financial condition.
Item 2.
Properties.Properties.
Our principal laboratory and administrative facilities are currently located in Monrovia,Pasadena, California, which is located in the greater Los Angeles region. We currently lease 48,00083,083 square feet of laboratory and office space in Monrovia, California.Pasadena, California (the initial lease). The original lease wasbecame effective on August 1, 2022 and is for a term of 13 years. An additional 46,460 square feet of space adjacent to the existing space, is subject to a lease that begins on July 1, 2025 (the second lease). The second lease is for a term of 10 years and expires at the same time as the initial lease.
We also continue to lease 24,000 square feet underof office and lab at our previous facility in Monrovia, California pursuant to a lease that was set to expire in June 2020. expires December 31, 2025.
In
April and September 2020, we entered into amendments to the lease that extended the term under the original terms through October 2020. In November 2020, we entered into an amendment to the lease which extends the lease to December 2025.In July 2017, under a separate lease agreement,August 2023, we entered into a lease for an additional 24,0009,400 square feet of space in the same building. The lease includes a 64-month term for the additional 24,000 square feet with an option to renew for an additional five years at then market rates. The lease terms for the original space were not amended. In June 2017, we entered into a lease for 23,500 of office space in San Diego.Diego, California. The term of the lease term hasagreement began in September 2023 and expires in December 2027.
We previously leased 24,000 square feet of office space in San Diego, California pursuant to a 61-month term beginninglease which expired on December 31, 2023 and a 7,000-square floor office space in Monrovia, California pursuant to a lease that began August 20171, 2021 and includes an option to renew for an additional five years. expired on January 31, 2023.
We believe that our existing facilities are adequate to meet our current
needs and
that suitable additional alternative spaces will be available to meet future
needs on commercially reasonable terms.needs.
Item 3.
Legal Proceedings.Proceedings.
Item 4.
Mine Safety Disclosures.Disclosures.
Item
5. Market for Registrant’s Common Equity,Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock began trading on The Nasdaq Global Market on December 3, 2013 under the symbol “XNCR.” Prior to such time, there was no public market for our common stock. On February 16, 2021,15, 2024, the closing price for our common stock as reported on the Nasdaq Global Market was $50.09.$21.30.
As of February
16, 2021,15, 2024, we had
57,945,22561,120,272 shares of common stock outstanding held by approximately
185170 stockholders of record. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.
We have never declared or paid any cash dividends on our common stock. We currently intend to retain all available funds and any future earnings to support our operations and finance the growth and development of our business. We do not intend to pay cash dividends on our common stock for the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our Board of Directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements, contractual restrictions, business prospects and other factors our Board of Directors may deem relevant.
Securities Authorized for Issuance Under Equity Compensation Plans
Information about our equity compensation plans is incorporated herein by reference to Item 12 of Part III of this Annual Report.
The following graph shows a comparison from December 31,
20152018 through December 31,
20202023 of the cumulative total return for our common stock, the Nasdaq Biotechnology Index (NBI) and the Nasdaq Composite Index (CCMP). The graph assumes an initial investment of $100 on December 31,
20152018 and assumes reinvestment of the full amount of all dividends, if any. The comparisons in the graph are not intended to forecast or be indicative of possible future performance of our common stock.
The performance graph shall not be deemed to be incorporated by reference by means of any general statement incorporating by reference this Form 10-K into any filing under the Securities Act of 1933, as amended or the Exchange Act, except to the extent that we specifically incorporate such information by reference, and shall not otherwise be deemed filed under such acts.
Recent Sales of Unregistered Securities
There were no sales of unregistered securities during the year ended December 31, 2020.
None.Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Item
6. Selected Financial Data.The selected financial data set forth below as of December 31, 2020, and 2019, and for the years ended December 31, 2020, 2019, and 2018, are derived from our audited financial statements included elsewhere in this Annual Report. This information should be read in conjunction with those financial statements and notes thereto and with “Management’s[Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
” The selected financial data set forth below as of December 31, 2017 and 2016 are derived from our audited financial statements that are contained in reports previously filed with the SEC, not included herein. Periods prior to 2018 have been revised to reflect the adoption of Accounting Standards Codification Topic 606 (ASC 606) related to changes in standards for revenue recognition. (Amounts are in thousands, except share and per share amounts). | | | | | | | | | | | | | | | |
| | Year Ended |
| | December 31, |
| | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
Statement of Operations: | | | | | | | | | | | | | | | |
Revenues | | $ | 122,694 | | $ | 156,700 | | $ | 40,603 | | $ | 46,150 | | $ | 109,020 |
Operating expenses: | | | | | | | | | | | | | | | |
Research and development | | | 169,802 | | | 118,590 | | | 97,501 | | | 71,772 | | | 51,872 |
General and administrative | | | 29,689 | | | 24,286 | | | 22,472 | | | 17,501 | | | 13,108 |
Total operating expenses | | | 199,491 | | | 142,876 | | | 119,973 | | | 89,273 | | | 64,980 |
Income (loss) from operations | | | (76,797) | | | 13,824 | | | (79,370) | | | (43,123) | | | 44,040 |
Other income (expenses) | | | | | | | | | | | | | | | |
Interest income, net | | | 7,264 | | | 13,619 | | | 9,086 | | | 4,181 | | | 2,070 |
Other income (expense) | | | 200 | | | (256) | | | (125) | | | (7) | | | 6 |
Total other income, net | | | 7,464 | | | 13,363 | | | 8,961 | | | 4,174 | | | 2,076 |
Net income (loss) before tax | | | (69,333) | | | 27,187 | | | (70,409) | | | (38,949) | | | 46,116 |
Income tax expense (benefit) | | | — | | | 312 | | | — | | | (463) | | | 991 |
Net income (loss) attributable to common stockholders | | $ | (69,333) | | $ | 26,875 | | $ | (70,409) | | $ | (38,486) | | $ | 45,125 |
Other comprehensive income (loss) | | | | | | | | | | | | | | | |
Net unrealized gain (loss) on marketable securities | | | (1,087) | | | 2,132 | | | 837 | | | (367) | | | (925) |
Comprehensive income (loss) | | $ | (70,420) | | $ | 29,007 | | $ | (69,572) | | $ | (38,853) | | $ | 44,200 |
| | | | | | | | | | | | | | | |
Net income (loss) per share attributed to common stockholders (1): | | | | | | | | | | | | | | | |
Basic | | $ | (1.21) | | $ | 0.48 | | $ | (1.31) | | $ | (0.82) | | $ | 1.09 |
Diluted | | $ | (1.21) | | $ | 0.46 | | $ | (1.31) | | $ | (0.82) | | $ | 1.07 |
Weighted average shares of common stock used in computed net income (loss) attributable to common stockholders: | | | | | | | | | | | | | | | |
Basic | | | 57,212,737 | | | 56,531,439 | | | 53,942,116 | | | 46,817,756 | | | 41,267,329 |
Diluted | | | 57,212,737 | | | 58,467,880 | | | 53,942,116 | | | 46,817,756 | | | 42,388,867 |
| (1) | See Note 1 to our Annual Financial Statements appearing elsewhere in this document for a description of the method used to calculate basic and diluted income (loss) per common share. |
| | | | | | | | | | | | | | | |
| | As of December 31, |
| | (in thousands) |
| | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
Balance Sheet Data: | | | | | | | | | | | | | | | |
Cash, cash equivalents and marketable securities | | $ | 604,033 | | $ | 601,308 | | $ | 530,469 | | $ | 363,328 | | $ | 403,476 |
Working capital | | | 516,611 | | | 491,847 | | | 261,874 | | | 158,229 | | | 50,720 |
Patents, licenses, and other intangible assets, net | | | 15,977 | | | 14,421 | | | 11,969 | | | 11,148 | | | 10,362 |
Total assets | | | 703,244 | | | 670,250 | | | 576,732 | | | 390,202 | | | 429,263 |
Deferred revenue | | | 92,615 | | | 47,131 | | | 40,079 | | | 60,118 | | | 80,168 |
Total stockholders’ equity | | $ | 572,444 | | $ | 593,201 | | $ | 521,681 | | $ | 316,464 | | $ | 337,933 |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis together with “Item 6. Selected Financial Data” and our financial statements and related notes included elsewhere in this Annual Report. The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those expressed or implied in any forward-looking statements as a result of various factors, including those set forth under the caption “Item 1A. Risk Factors.”
“Risk Factors” in Item 1A, and other documents we file with the Securities and Exchange Commission. Historical results are not necessarily indicative of future results.
We are a clinical-stage biopharmaceutical company focused on discovering and developing engineered
monoclonal antibody
and cytokine therapeutics to treat patients with cancer and
autoimmuneother serious diseases, who have unmet medical needs. We are advancing a broad portfolio of clinical-stage
XmAb® drug candidates from our proprietary
XmAb®Fc technology platforms. We
also use our protein engineering capabilities to increase our understanding of protein structure and interactions and to design new
XmAbFc technologies and
XmAb development candidates with improved properties. In
contrastaddition to
conventional approachesengineering protein-target interactions, our approach to
antibodyprotein design
which focus onincludes engineering Fc domains, the
segmentparts of antibodies that interact
with target antigens, our protein engineering efforts and the XmAb technologies are focused on the Fc domain, the part of an antibody that interacts with multiple segments of the immune system and
controlscontrol antibody structure. The Fc domain is constant and interchangeable among antibodies, and our engineered Fc domains
the XmAb technology, can be readily substituted for natural Fc domains.
Our protein engineering capabilities and XmAbFc technologies enable us and our partners to develop XmAb antibodies and other types of biotherapeutic drug candidates with improved properties and function,functionality, which can provide innovative approaches to treating disease and potential clinical advantage over other treatment options. For example, our capabilities have enabled us to developwe developed an antibody scaffold to rapidly create novel bispecificmulti-specific antibodies that bind two or more different targets simultaneously, creating entirely new biological mechanisms. Other applications of our XmAbprotein engineering technologies enhance antibody performance by increasing immune inhibitory activity, improving cytotoxicity, extending circulating half-life and
stabilizing novel protein structures, such as engineered cytokines.
Currently, there are twoThree marketed
drugs thatXmAb medicines have been developed with our
XmAbprotein engineering technologies.
Refer to Part I, Item 1, "XmAb Bispecific Technologies" and "Other XmAb Fc Technologies" in the description of our business included in this Annual Report on Form 10-K for a discussion of our core Fc technology platforms.
COVID-19
Strategic Portfolio Prioritization
We are closely monitoringfocused on developing targeted T cell-engaging bispecific antibodies, which we believe hold great potential for the COVID-19 pandemictreatment of patients with solid tumors, and continue to evaluate its impact on all aspects of our business, including how it will affect our partners, collaborations, supply chains and research and development operations. While the pandemic did not significantly disrupt our business during the year ended December 31, 2020, the evolving nature of the pandemic prevents us from reasonably predicting how the pandemic will affect our financial condition, results of operations and cash flows due to numerous uncertainties. These uncertainties include the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impacts and the direct
and indirect economic effects of the pandemic and containment measures, among others. Many states, including California, where we are headquartered and where our principal place of business is located, and cities therein have instituted quarantines, restrictions, rules and guidelines that affect the continued operation of businesses. Other countries and states where we conduct manufacturing of our drug product, testing activities and clinical sites where patients are enrolledbeginning in our clinical trials have enacted similar restrictions that could affect our ability to conduct our drug candidate development and clinical operations.
The potential impacts on our business, revenue, clinical studies and research and development activities of the COVID-19 pandemic include:
| ● | Business: Our broad protein engineering capabilities and technologies are uniquely suited to provide us with opportunities to identify and enhance compounds that may target the novel coronavirus and potentially treat patients with COVID-19. Our partner Vir Biotechnology, Inc. is evaluating VIR-7831, an antibody that targets the SARS-CoV-2 virus in a Phase 3 study. VIR-7831 incorporates our Xtend Fc technology for longer duration of action. VIR-7832, which also targets the SARS-CoV-2 virus, also incorporates Xtend technology and is in the preclinical stages of development. |
| ● | Revenue: We receive upfront payments, milestone payments and royalties from licensing our XmAb technologies and drug candidates. The COVID-19 pandemic has not adversely affected our ability to generate revenues for the year ended December 31, 2020. During the year, we received $165 million from our partnerships and collaborations including those with MorphoSys, Alexion, Gilead, Janssen, Aimmune and Omeros. |
Our ability to earn revenue from these and other partnerships is dependent on the ability of our partners to generate sales from products, such Ultomiris® and Monjuvi®, the ability of our partners to advance their programs through regulatory approval, and the ability of our partners to advance our partnered programs into later stages of development, which provide us with potential milestone payments. If the pandemic continues for an extended period and adversely affects the sales or clinical, development and regulatory progress of partnered programs, the amount of revenue we could earn would be adversely affected.
| ● | Clinical studies: We are currently enrolling patients in six clinical programs, and our partner Genentech is enrolling patients in the Phase 1 study of our co-development program XmAb306 (also known as RG6323). Many partners are also enrolling patients in clinical trials with drug candidates that incorporate one or more of our XmAb technologies. Although the COVID-19 pandemic has not materially affected the development of our clinical programs for the year ended December 31, 2020, some of our clinical programs temporarily experienced slower patient enrollment, and the initiations of new studies for certain programs have been delayed as a result of the COVID-19 pandemic. These delays have not broadly affected the status of our portfolio programs and have been limited to specific trials and specific sites. Many clinical sites have delayed starting new clinical trials and others have postponed enrollment to address the pandemic. |
| ● | Research and development activities: We require all non-laboratory employees to work remotely, and we have implemented additional health, safety and environmental procedures for all onsite laboratory research employees. We believe we provide a safe and healthy environment for our onsite employees who have been able to continue research operations, following an initial period of reduced onsite activities while new policies and procedures were developed and implemented. As of December 31, 2020, these activities have continued without interruption from the pandemic. |
Our development activities include initiating a Phase 1 study of XmAb564 in healthy volunteers and conducting IND-enabling studies for XmAb819. Several other bispecific antibody and cytokine programs are in earlier stages of development. During the third quarter of 2020,2023, we began aligning our portfolio to prioritize these programs, which include XmAb819 (ENPP3 x CD3), XmAb808 (B7-H3 x CD28) and XmAb541 (CLDN6 x CD3). We have also narrowed the manufacturersclinical development plan for our dual checkpoint inhibitor, vudalimab (PD-1 x CTLA-4), in treating patients with advanced prostate and non-small lung cell cancers. In the first half of 2024, we plan to conclude the Phase 1 studies evaluating our drug supplies notified usXmAb564 and XmAb662 cytokines and pause further development of critical shortagesboth programs, pending review of materials used in their manufacturing processes duedata emerging from competitive programs.
We also have implemented measures to pandemic-related reallocationalign resources with our strategic plan for a focused pipeline and to strengthen our financial position. In November 2023, we entered into a royalty transaction with OMERS Life Sciences, through which we received $215.0 million for selling portions of resources. The shortages will not affectfinancial interests on sales of marketed XmAb medicines. In the fourth quarter of 2023, we agreed with Genentech to convert our current clinical programs asdevelopment cost and profit-sharing arrangement into a royalty and milestone payment-based arrangement. Our cost-sharing obligations will continue to June 1, 2024, and Genentech will be responsible for all development thereafter. To align our internal resources with our focused development pipeline and current plans, we have sufficient drug supply to continueimplemented reductions in our workforce, which have impacted approximately 10% of positions at the ongoing trials without interruption. However, the shortagescompany.
As of December 31, 2023, we had $697.4 million in cash, cash equivalents and marketable debt securities, and based on our current plans and projections, we estimate this will provide necessary funding into 2027.have extended the development timelines of early-stage development candidates, including XmAb819, by three to six months based on current information from our vendors. The development timelines for additional early-stage programs and ongoing clinical programs could be affected if the supply interruption extends longer than current estimates.
Advancements in ourOur Clinical Portfolio of XmAb Bispecific Antibodies and CytokineDrug Candidates
Our modular XmAb bispecific technology and protein engineering capabilities enable us to rapidly advance multiple drug candidates into clinical development. We and our partners are currently enrolling Phase 1
or Phase 2 studies for
seventen wholly owned or co-development candidates to treat patients with many different types of cancer and
autoimmune diseases, and an
eighth,eleventh, to be developed for patients with
autoimmune disease,advanced ovarian cancer and other solid tumors, is
expectedplanned to enter clinical development in
early 2021.Plamotamab (CD20 x CD3): At the ASH Annual Meeting in December 2019, we presented preliminary safety and anti-tumor activity from the Phase 1 dose-escalation study of plamotamab in B-cell malignancies, including from patients with relapsed or refractory NHL. The early results indicated that plamotamab was generally well tolerated and demonstrated encouraging clinical activity as a monotherapy. We are currently enrolling patients in the ongoing monotherapy dose-escalation study and plan to initiate additional studies in 2021.
In November 2020, we entered a strategic clinical collaboration with MorphoSys AG to investigate the chemotherapy-free triple combination of plamotamab, tafasitamab and lenalidomide in patients with relapsed or refractory DLBCL, first-line DLBCL and relapsed or refractory FL. Plamotamab, which redirects T cells to tumors, and tafasitamab, a CD19-directed XmAb antibody, combine powerful and distinct immune pathways, and this collaboration is designed to generate new clinical insights and accelerate development timelines for the program. MorphoSys and Incyte will provide tafasitamab for the studies, which we will sponsor and fund. Tafasitamab is co-commercialized in the U.S. by MorphoSys and Incyte and is marketed as Monjuvi. Monjuvi, the second product with XmAb technology to be approved for commercial marketing, was approved by the U.S. FDA in July 2020.
XmAb717 (PD-1 x CTLA-4): In November 2020, we presented updated data from the Phase 1 study of XmAb717 in patients with multiple types of advanced solid tumors at the Annual Meeting of SITC. Five cohorts in the expansion portion of the study enrolled patients with melanoma, RCC, NSCLC, CRPC and other cancers without approved checkpoint therapies. XmAb717 was generally well-tolerated, and the most common treatment-related adverse events were irAEs; however, rates of irAEs, including colitis, were lower than typically observed with CTLA-4 blockade. The efficacy analysis included evaluable patients at the recommended dose level, 10.0 mg/kg. A complete response was observed in a patient with melanoma, and partial responses were observed in multiple tumor types, including melanoma, RCC, NSCLC, CRPC and ovarian cancer. The objective response rate across cohorts was 19%. Across the expansion cohorts, approximately half of evaluable patients had at least 10% tumor shrinkage from baseline assessments, and nearly all these reductions occurred in patients with prior checkpoint inhibitor treatment. The median duration of response was 119 days at the time of the data cut off, and 24 patients remained on treatment as of September 30, 2020.
Of nine patients with prostate cancer who had baseline and follow-up PSA assessments, one achieved a PSA reduction of greater than 50 percent. Two additional patients achieved reductions of greater than 30 percent, one of whom had an unconfirmed partial response by RECIST. Six of these nine patients remained on therapy as of the cut-off date. In the first half of 2021, we plan2024.
Vudalimab (PD-1 x CTLA-4): Vudalimab is a bispecific antibody that targets PD-1 and CTLA-4, two immune checkpoint receptors, to initiate a Phase 1b study of XmAb717selectively activate the tumor microenvironment, and it is being developed for patients with certain molecular subtypesmetastatic castration-resistant prostate cancer (mCRPC) and patients with locally advanced or metastatic non-small cell lung cancer. Data from a Phase 1 study that enrolled heavily pretreated patients with multiple solid tumor types indicated that vudalimab was generally well-tolerated with encouraging clinical activity.
We are conducting a Phase 2 study of
CRPC,vudalimab in patients with mCRPC, as a monotherapy or in combination
depending on the subtype,with chemotherapy for patients with aggressive variant prostate cancer, as these patients represent a high unmet medical need.
Vibecotamab (CD123 x CD3): In December 2020, we presented updated data from the Phase 1 study of vibecotamab in patients with relapsed or refractory AML at the ASH Annual Meeting. While CRS was the most common adverse event, the majority was observed in the first dose and was generally manageable with premedication. The efficacy analysis included evaluable patients who received a dose of at least 0.75 mcg/kg, completed at least the first cycle of treatment and had at least one post-treatment disease assessment. Two patients achieved CR, and three patients achieved a CR with incomplete hematologic recovery. Additionally, two patients reached a morphologic leukemia-free state, and one patient experienced partial remission, as assessed by the investigator. The ORR was 15%. Responses
appeared to be associated with lower baseline disease burden, indicated by patients with lower blast percentages and lower PD1 expression on CD8+ and CD4+ T cells. Seven responders had a baseline blast count less than or equal to 25% blasts in bone marrow. The ORR increased to 26% when using this threshold to define the population with low disease burden for the analyses. We are continuing the dose escalation study and are reviewing data with our partner, Novartis, in planning additional studies of vibecotamab.
Tidutamab (SSTR2 x CD3): In October 2020, we presented initial dose-escalation data from the ongoingalso conducting a second Phase 12 study in patients with NET. Tidutamab wasclinically-defined high-risk mCRPC. As previously disclosed, in the fourth quarter of 2023, cohorts for patients with advanced gynecologic malignancies were closed to enrollment, and we do not intend further development in advanced gynecologic malignancies. In the mCRPC cohort, vudalimab monotherapy has been generally well tolerated and associated with response to treatment in multiple patients who have visceral or lymph node metastases. As of a data cutoff of February 7, 2024, 14 patients with clinically defined high-risk mCRPC have been enrolled into the vudalimab monotherapy cohort for treatment. Vudalimab has been administered every 3 weeks at the recommended dose identified for the expansion portiona 1000 mg (<80 kg) or 1200 mg (> 80 kg) flat dose. As of the study. Peripheral blood biomarkers indicated tidutamab induced acutedata cutoff, 3 of 12 evaluable patients have a confirmed partial response per RECIST 1.1 guidelines, and sustained T-cell activation at this1 patient has an unconfirmed partial response. Of the evaluable patients, 3 patients have experienced greater than 90% reductions in prostate specific antigen (PSA) from baseline. Treatment emergent adverse events have led to dose modifications for 8 patients and a dose-dependent increase in proliferation and activation markerstreatment discontinuation for 2 patients. One Grade 5 adverse event of CD8+ T cellsautoimmune hepatitis was observed, which is consistentdeemed treatment related; there have been no known
additional cases of Grade 5 autoimmune hepatitis among three clinical studies of vudalimab with tidutamab’s mechanismmore than 230 patients treated.
In the fourth quarter of
action. The best overall response was stable disease in the analysis to describe clinical activity, and the median duration of treatment was approximately seven months. Completion of enrollment and longer follow-up are required to evaluate progression-free survival and the clinical utility of tidutamab for patients with NETs, which are an indolent, slow-growing tumor type. Considering the biomarker analysis from this study and tidutamab’s encouraging safety profile,2023, we
plan to initiate an additional clinical study for patients with Merkel cell carcinoma and small cell lung cancer, SSTR2-expressing tumor types known to be responsive to immunotherapy, in early 2021.XmAb306/RO7310729 (IL15/IL15Rα-Fc Cytokine):In March 2020, Genentech dosed the first patient in a Phase 1 dose-escalation1b/2 study evaluating XmAb306, our first cytokine candidate,vudalimab as a single agentfirst-line treatment in patients with locally advanced or metastatic non-small cell lung cancer.
XmAb819 (ENPP3 x CD3): XmAb819 is a first-in-class, tumor-targeted, T-cell engaging XmAb 2+1 bispecific antibody in development for patients with renal cell carcinoma (RCC). XmAb819 engages the immune system and activates T cells for highly potent and targeted tumor cells expressing ENPP3, an antigen highly expressed on kidney cancers. ENPP3 is a differentially expressed target, with high level expression in RCC and low level expression on normal tissues. With two tumor-antigen binding domains and one T-cell binding domain, our XmAb 2+1 format enables antibodies to bind more avidly to, and selectively kill, tumor cells with higher antigen density, potentially sparing normal cells. We are conducting a Phase 1 study evaluating XmAb819 in patients with advanced clear cell RCC.
XmAb808 (B7-H3 x CD28): XmAb808 is a tumor-selective, co-stimulatory XmAb 2+1 bispecific antibody designed to bind to the broadly expressed tumor antigen B7-H3 and selectively to the CD28 T-cell co-receptor, only when bound to tumor cells. We are conducting a Phase 1 study of XmAb808 in combination with atezolizumab forpembrolizumab in patients with advanced solid tumors. XmAb306
XmAb541 (CLDN6 x CD3): XmAb541 is a bispecific antibody that targets Claudin-6 (CLDN6) and CD3. CLDN6 is a tumor-associated antigen in ovarian cancer and other solid tumors. The XmAb 2+1 multivalent format used in XmAb541 enables greater selectivity for CLDN6 over similar Claudin family members, such as CLDN9, CLDN3 and CLDN4. The investigational new drug (IND) application for XmAb541 has been allowed to proceed by the FDA, and we plan to initiate a Phase 1 study in the first half of 2024.
XmAb564 (IL2-Fc Cytokine): XmAb564 is a wholly owned, monovalent, interleukin-2 Fc (IL-2-Fc) fusion protein engineered to selectively activate and expand regulatory T cells (Tregs) for the potential treatment of patients with autoimmune diseases. XmAb564 is engineered with reduced binding affinity for IL-2's beta receptor and increased binding affinity for its alpha receptor. Results from a Phase 1a clinical study of XmAb564, presented at the European Congress of Rheumatology (EULAR) in May 2023, indicate a single dose of XmAb564, administered subcutaneously in healthy volunteers, was well tolerated and generated durable, dose-dependent and selective expansion of Tregs. We have been conducting a randomized, double-blind, placebo-controlled Phase 1b clinical study to evaluate the safety and tolerability of multiple ascending doses of XmAb564, administered subcutaneously in patients with atopic dermatitis or psoriasis. We plan to conclude the Phase 1b study in the first half of 2024 and pause further development of XmAb564 until after assessment of future data from competitor programs in this class and review of safety and biomarker data in the Phase 1b study.
XmAb662 (IL12-Fc Cytokine): XmAb662 is a potency-reduced interleukin-12 Fc (IL12-Fc) fusion protein engineered to increase anti-tumor activity and immunogenicity in the tumor microenvironment by promoting high levels of interferon gamma secretion from T cells and NK cells. In preclinical testing, Xencor’s engineered IL12-Fc fusions demonstrated an improved pharmacokinetic profile and therapeutic window compared to a native IL12-Fc fusion, with superior exposure, a more gradual dose response and more sustained interferon gamma response. XmAb662 demonstrated significant anti-tumor activity, along with increases in NK cells, T cells, serum IP-10 and interferon gamma, which were further enhanced when combined with an anti-PD-1 antibody. We have been conducting a Phase 1 study to evaluate XmAb662 in patients with advanced solid tumors. We plan to conclude the Phase 1 study in the first half of 2024 and pause further development of XmAb662 until after assessment of future data from competitor programs in this class and review of safety and biomarker data in the Phase 1 study.
Co-development Programs
Plamotamab (CD20 x CD3): Plamotamab is a bispecific antibody that targets CD20, an antigen on B-cell tumors, and CD3, an activating receptor on T cells. In October 2021, we entered a global collaboration and license agreement with Janssen Biotech, Inc., a Johnson & Johnson company, to advance plamotamab and XmAb CD28 bispecific antibody combinations for the treatment of patients with B-cell malignancies, which expands our strategy to develop multiple highly active chemotherapy-free regimens across B-cell cancers. J&J received worldwide exclusive development and commercial rights, and we will collaborate with Janssen on further clinical development of plamotamab, with us paying 20% of costs. Under the collaboration, we will develop B-cell targeted CD28 bispecific antibodies to selectively enhance T-cell cytotoxic activity in combination with plamotamab.
In a Phase 1 study, intravenous plamotamab monotherapy was well tolerated and demonstrated encouraging clinical activity in heavily pretreated patients at the recommended intravenous Phase 2 dose. In the fourth quarter of 2023, we completed enrolling patients in subcutaneous dose escalation cohorts of this study.
Efbalropendekin alfa (IL15/IL15Rα-Fc Cytokine):Efbalropendekin alfa (XmAb306) is a reduced-potency IL15/IL15Rα-Fc fusion protein that incorporates our Xtend extended half-life technology, and we are co-developing this program as well as other potential IL-15 programs, in collaboration with Genentech. We retainGenentech, a member of the right to perform clinical studies with XmAb306, as well as with other collaboration programs developed in combination with other therapeutic agents, subject to certain restrictions and at our sole expense.Roche Group. Genentech has dosed cohorts of theis conducting a Phase 1 study of XmAb306efbalropendekin as a single agent and in combination with atezolizumab and at least one additional combination study is currently being planned.XmAb564 (IL2-Fc Cytokine): XmAb564 is a wholly owned IL2-Fc fusion that we intend to develop for the treatment of patients with autoimmune diseases. In January 2021, the IND application for XmAb564 was allowed by the FDA, and we plan to initiate a Phase 1 study in healthy volunteers in early 2021.
XmAb698 (CD38 x CD3): In 2015, Amgen licensed rights to our preclinical CD38 x CD3 bispecific antibody program and developed AMG 424, which they evaluated in a Phase 1 study. Amgen terminated the program in the second quarter of 2020, indicating it was stopped for adverse events that were likely CD38 target related. Under the terms of the agreement, the rights to the CD38 program, including AMG 424, reverted to us. A new study is currently being planned to start later this year, for the program, which we have renamed XmAb698.
Additional wholly owned XmAb bispecific antibody programs in Phase 1 clinical studies include XmAb841 (CTLA-4 x LAG-3) and XmAb104 (PD-1 x ICOS). We continue enrolling patients with advanced solid tumors and is also conducting Phase 1 studies, evaluating efbalropendekin in patients with relapsed/refractory multiple myeloma, either in combination with daratumumab (anti-CD38 antibody) or in combination with cevostamab (FcRH5 x CD3 bispecific antibody). In the fourth quarter of 2023, we agreed with Genentech to these studies.
convert our current development cost and profit-sharing arrangement into a royalty and milestone payment-based arrangement. Pursuant to the terms of the amended agreement with Genentech, effective June 1, 2024, Genentech will assume sole responsibility over all clinical, regulatory and commercial activities. We will be eligible for up to $600.0 million in milestones and tiered royalties on approved sales from low double-digit to mid-teen percentages range.
Advancements Expanding XmAb Bispecific Platforms
We conduct further research into the function and application of antibody Fc domains in order to expand the scope of our XmAb technology platforms and identify additional XmAb drug candidates.
We use the modularity of our XmAb bispecific Fc technology to build bispecific antibodies and cytokinesantibody-based therapeutics in a variety of formats, and we recently introduced CD3such as T cell engaging bispecific antibodies of a mixed valency format, the XmAb 2+1 bispecific antibody. XmAb 2+1 bispecific antibodies may preferentially kill tumor cells with high target expression, which may be especially beneficial in designing antibodies that target solid tumors. This selectivity potentially empowers T cell engaging bispecifics (e.g., CD3, bispecificsCD28) to address an expanded set of tumor antigens. Our leadFour clinical-stage programs utilize our XmAb 2+1 format: XmAb819, XmAb808, xaluritamig and ASP2138. We plan to initiate a Phase 1 study for an additional XmAb 2+1 bispecific antibody candidate, is XmAb819, a first-in-class ENPP3XmAb541 (CLDN6 x CD3 bispecific antibody. ENPP3 is a tumor-associated antigenCD3), which we are developing for patients with ovarian cancer and other solid tumors, in renal cell carcinoma (RCC) and exhibits low level expression on normal tissues. We presented preclinical data from this program and two other XmAb 2+1 bispecific antibody programs at the AACR Virtual Annual Meeting II in June 2020, and we plan to submit an IND application for XmAb819 in 2021.first half of 2024.
Additionally, we have engineered CD28 bispecific antibodies to provide conditional CD28 co-stimulation of T cells, activating them when bound to tumor cells. Targeted CD28 bispecific antibodies may provide conditional co-stimulation of T cells, for example, to T cells recognizing neoantigens or in concert with CD3 T-cell engaging bispecific antibodies. OurIn addition to our first clinical-stage CD28 program, XmAb808, our CD28 platform is also the subject of our collaborationtwo collaborations with Janssen Biotech, Inc., announcedJ&J. JNJ-9401 and JNJ-1493 are clinical-stage XmAb bispecific antibodies that J&J is developing in December 2020, whereprostate cancer and B-cell malignancies, respectively, and both entered clinical development during the fourth quarter of 2023.
In April 2023, we are creating and characterizingpresented emerging data from research-stage engineered CD28 bispecific antibody candidates againstantibodies targeting the solid tumor antigens CEACAM5, ENPP3, mesothelin, STEAP1 and Trop-2 in a prostate tumor target specified by Janssen. We are also advancing our wholly owned CD28 candidates including our lead candidate, a B7-H3 x CD28 bispecific antibody designed to be evaluatedposter at the American Association for the treatment of patients with a range of solid tumors, and it is currently advancing through preclinical development. WeCancer Research (AACR) Annual Meeting.
In November 2023, we presented
preclinicalemerging data from
the CD28 programresearch-stage programs that highlighted several of our platform technologies at the
SITC Annual Meeting
in November 2020.of the Society for Immunotherapy of Cancer, with poster presentations with data from IL18-Fc and PD1 x IL18-Fc cytokine programs and data from our multi-specific NK cell engager platform.
Progress Across Partnerships
A key part of our business strategy is to leverage our protein engineering capabilities, XmAb technologies and drug candidates with partnerships, collaborations and licenses. Through these arrangements we generate revenues in the form of upfront payments, milestone payments and royalties. For partnerships for our drug candidates, we aim to retain a major economic interest in the form of keeping major geographic commercial rights; profit-sharing; co-development options; and the right to conduct studies with drug candidates developed in the collaboration. The types of arrangements that we have entered with partners include product licenses, novel bispecific antibody collaborations, technology licensing agreements and strategic collaborations.
Product licenses are arrangements in which we have internally developed drug candidates and, based on a strategic review, licensed partial or full rights to third parties to continue development and potential commercialization. We seek partners that can provide infrastructure and resources to successfully develop our drug candidates, have a track record of successfully developing and commercializing medicines, or have a portfolio of development-stage candidates and commercialized medicines which could potentially be developed in rational combinations with our drug candidates.
The
U.S. FDA approved
MonjuviMonjuvi® (tafasitamab-cxix)
, the second product with XmAb technology to be approved for commercial marketing, under accelerated approval in July 2020. Monjuvi is a CD19-directed cytolytic antibody indicated in combination with lenalidomide for the treatment of
certain adult patients with relapsed or refractory
diffuse large B-cell lymphoma (DLBCL) not otherwise specified, including DLBCL
arising from low grade lymphoma, and
itwho are not eligible for autologous stem cell transplant (ASCT). This indication is approved under accelerated approval based on overall response rate. Continued approval for this indication may be contingent upon verification and description of clinical benefit in a confirmatory trial(s). In August 2021, the European Commission granted conditional marketing authorization for Minjuvi® (tafasitamab) in combination with lenalidomide, followed by tafasitamab monotherapy, for the treatment of adult patients with relapsed or refractory diffuse large B-cell lymphoma (DLBCL) who are not eligible for autologous stem cell transplantation (ASCT). Tafasitamab was created and initially developed by us.
MonjuviTafasitamab is
co-commercializedmarketed by Incyte Corporation under the brand name Monjuvi in the U.S.
and under the brand name Minjuvi in Europe and Canada. Incyte has exclusive commercialization rights to tafasitamab outside the U.S. Monjuvi® and Minjuvi® are registered trademarks of Incyte. In February 2024, Incyte acquired exclusive global development and commercialization rights to tafasitamab. In November 2023, we entered into a royalty purchase agreement (Monjuvi Royalty Sale Agreement) with OCM Life Sciences Portfolio LP (OMERS). Under the terms of the Monjuvi Royalty Sale Agreement, we received $22.5 million upon closing in exchange for royalties earned from our MorphoSys license after July 1, 2023. The aggregate Monjuvi royalties to be received by
MorphoSys and Incyte. The European Marketing Authorization Application for tafasitamab is currently under review byOMERS have a fixed cap of 130% of the
European Medicines Agency.purchase price after which the royalties revert to us. In
2020,2023, we
earned a totalrecognized royalty revenue of
$37.5 million in regulatory milestones and royalties of $1.5$8.7 million on net sales of Monjuvi.
In February 2020, we granted Aimmune Therapeutics, Inc., subsequently acquired by Nestlé S.A., an exclusive worldwide license to develop and commercialize the investigational humanized monoclonal antibody XmAb7195, which has been renamed AIMab7195. Aimmune indicated plans to develop AIMab7195 as an adjunctive treatment with its pipeline of oral immunotherapies to explore treatment outcomes in patients with food allergies. Nestlé is solely responsible for costs related to the development and potential commercialization of AIMab7195, and additional studies of AIMab7195 are planned. In 2020, Xencor received an upfront payment of $9.6 million in cash and Aimmune stock.
In October 2020, a second IL-15 cytokine candidate, which is engineered with a target-specific binding arm, was approved for further preclinical exploration under our Genentech collaboration. As a Collaboration Product under the agreement, we share in 45% of development and commercialization costs, while Genentech will pay for commercial launch costs, and we will receive a 45% share of net profits from sales from all collaboration products, while also sharing in the net losses at the same percentage rate. We are eligible to receive up to $180.0 million in clinical milestone payments for this candidate.
In November 2020,2021, we entered into an agreement with a newly formed, privately held biotechnology companyZenas BioPharma (Cayman) Limited (Zenas), to which we licensed the exclusive worldwide rights to develop and commercialize three preclinical-stage Fc-engineered drug candidates for autoimmune disease: XmAb6755, XPro9523obexelimab, a bifunctional antibody that targets CD19 with its variable domain and XmAb10717. These programs incorporate an Xtenduses our XmAb Immune Inhibitor Fc Domain,Domain. Zenas issued a Cytotoxic Fc Domain, or both. We receivedwarrant giving us the right to acquire additional Zenas equity, such that our total equity in Zenas would be 15% of its fully diluted capitalization following the closing of Zenas’ next round of equity financing, subject to certain requirements. In November 2022, Zenas completed a 15% equity interest in the company,financing transaction and we will alsoreceived additional shares in Zenas in exchange for the warrant. The total shares received increases our ownership in Zenas to 15% of the fully diluted shares outstanding. We are eligible to receive royaltiesup to $470.0 million based on net salesthe achievement of approved products in thecertain clinical development, regulatory and commercial milestones and are eligible to receive tiered, mid-single digit to mid-teen percentage range.
percent royalties upon commercialization of obexelimab, dependent on geography. In January 2023, Zenas initiated a Phase 3 study of obexelimab in patients with immunoglobulin G4-related disease (IgG4-RD) and dosed the second patient in the study in April 2023, and we received additional preferred stock in Zenas as a development milestone in the second quarter of 2023. The additional preferred stock has a fair market value of $10.0 million, and we recorded the milestone payment as revenue for the nine months ended September 30, 2023. In 2023, Zenas also initiated a Phase 2 study of obexelimab in patients with warm autoimmune hemolytic anemia (wAIHA).
Novel
Bispecific Antibody CollaborationsNovel bispecific antibody collaborations are arrangements in which our partner seeks to create a bispecific antibody using one or more of our XmAb bispecific technologies. Our partners provide an antibody or a tumor-associated antigen, and we conduct limited research and development to create potential bispecific antibody candidates for further development and commercialization by our partners.
Xaluritamig (AMG 509) is a STEAP1 x CD3 2+1 bispecific antibody that our partner Amgen is advancing for the treatment of patients with prostate cancer. The XmAb 2+1 multivalent format enables higher binding capability for STEAP1 expressing cells. Amgen is currently completing enrollment in a Phase 1 study of xaluritamig in patients with mCRPC. In October 2023 at the European Society for Medical Oncology (ESMO) Congress, encouraging interim clinical results from the study were presented during an oral proffered paper session, which we believe validates the potential of the XmAb 2+1 format.
In November 2020, we entered an agreement with Janssen Biotech, Inc.,J&J, focused on the discovery of XmAb bispecific antibodies against CD28, an immune co-stimulatory receptor on T cells, and an undisclosedPSMA, a prostate tumor target, for the potential treatment of patients with prostate cancer. Additionally, we have a right to access select, predefined agents from Janssen’s J&J’s
portfolio of clinical-stage drug candidates and commercialized medicines to evaluate potential combination therapies in prostate cancer with agents in our own pipeline, subject to some limitations.
JanssenJ&J has the same right with our portfolio to evaluate potential combination therapies in prostate cancer, as well. The ability to study combinations of therapies from both companies’ prostate cancer portfolios leverages our broad clinical pipeline and
Janssen's leadingJ&J's prostate cancer therapeutics portfolio. In
2020,the third quarter of 2023, J&J submitted an IND for JNJ-9401, a PSMA x CD28 bispecific antibody developed under the collaboration, and we received a
$50$7.5 million
upfront payment from Janssen.development milestone. In 2020,the fourth quarter of 2023, J&J dosed the first patient in a Phase 1 study of JNJ-9401, and we received a $2.5$10.0 million milestone payment related to ourdevelopment milestone.
In October 2021, we entered into a second collaboration agreement with
Astellas Pharma, Inc., which has advanced an XmAb bispecific candidate into IND enabling studies. Under our March 2019 agreement with Astellas, we applied our XmAb bispecific Fc technologyJ&J to
an antigen pair provided by Astellascreate and
generatedcharacterize CD28 bispecific antibody candidates
for further development by Astellas.against B-cell targets. In
2019, we completed deliverythe first quarter of
2023, J&J selected a bispecific CD28 candidate under the
bispecific candidates to Astellasagreement for further development, and
potential commercialization.we received a $5.0 million research milestone. In the third quarter of 2023, J&J submitted a CTA for JNJ-1493, a CD20 x CD28 bispecific antibody developed under the collaboration, and we received a $7.5 million development milestone. In the fourth quarter of 2023, J&J began dosing patients in a Phase 1 study of JNJ-1493 and selected two additional CD28 bispecific antibody candidates under the agreement, and we received a $10.0 million development milestone and $7.5 million in research milestones.
Other XmAb bispecific antibodies being developed by our partners include
Amgen's AMG 509,Astellas’ ASP2138, a
STEAP1CLDN18.2 x CD3 XmAb 2+1 bispecific antibody, which
being evaluatedis in
a Phase 1
study forstudies to treat patients with
prostate cancer,gastric/GEJ adenocarcinomas and pancreatic adenocarcinoma and an undisclosed
bispecific antibody candidate being developed by Novartis, which is also in Phase 1 development.
Technology
License AgreementsWe enter into technology licensing agreements in which we license access to one or more of our XmAb Fc technologies on a restricted basis, typically to an XmAb Cytotoxic Fc Domain and/or the Xtend Fc Domain. Our partners are responsible for all research, development and commercialization activities of the drug candidates. The plug-and-play nature of XmAb technologies allows us to license access to our platforms with limited or no internal research and development activities.
Alexion’s
UltomirisUltomiris® uses Xtend Fc technology for longer half-life. Ultomiris has received marketing authorizations
from regulatory agencies in
the U.S., Europe and Japanglobal markets for the treatment of
adult patients with paroxysmal nocturnal hemoglobinuria (PNH)
and, for
certain patients with atypical hemolytic uremic syndrome (aHUS)
and for certain patients with generalized myasthenia gravis (gMG). Alexion is also evaluating Ultomiris in a broad
late-stage development program across
many indicationsadditional hematology and neurology indications. In May 2023, Ultomiris was approved in
neurologythe EU and
nephrology.Japan for the treatment of certain adult patients with neuromyelitis optica spectrum disorder (NMOSD). In
2020,November 2023, we entered into a royalty purchase agreement (Ultomiris Royalty Sale Agreement) with OMERS. Under the terms of the Ultomiris Royalty Sale Agreement, we received $192.5 million upon closing in exchange for a portion of royalties and the milestone earned from our Alexion license after July 1, 2023. In 2023, we earned
$16.2$38.6 million in royalties and
$10.0a $20.0 million
in sales-basedsales milestone
payments from Alexion.
In January 2020, we entered an agreementinto a Technology License Agreement with Gilead Sciences, Inc., under (Gilead) in which we provided Gilead has accessan exclusive license to our Cytotoxic Fc and Xtend Fc technologies for antibody candidates. In the third quarter, Gilead initiated a Phase 2 study including two antibody candidates developed with our Fc technologies, teropavimab and zinlirvimab, and we received $6.0 million in milestones.
In August 2020, we entered into a Technology License Agreement with Omeros Corporation (Omeros) in which we provided Omeros a non-exclusive license to our Xtend and Cytotoxic XmAb Fc technologies for developingtechnology. In the third quarter of 2023, Omeros initiated a Phase 2 study of OMS906, which incorporates Xtend Fc technology, and commercializing elipovimab (GS-9722), Gilead’s effector-enhanced broadly neutralizing anti-HIV antibody, as well as up to three additional anti-HIV antibodies. In 2020, Gilead exercised all three options. Gilead has advanced elipovimab and GS-9723 into Phase 1 clinical studies. In 2020, we received $13.5a $5.0 million in upfront and option payments from Gilead.milestone.
In March 2020, we entered a second agreement with Vir Biotechnology, Inc., under which Vir has non-exclusive access to our Xtend Fc technology to extend the half-life of novel antibodies beingVir investigated as potential treatments for patients with COVID-19, as well as prophylactic use against infection fromCOVID-19. In May 2021, the SARS-CoV-2 virus. Vir has commenced a Phase 3 clinical study of VIR-7831FDA granted EUA to sotrovimab for the early treatment of mild-to-moderate COVID-19 in adults and pediatric patients who are(12 years of age and older weighing at least 40 kg) with positive results of direct severe SARS-CoV-2 viral testing, and at high risk for progression to severe COVID-19, including hospitalization or death. Sotrovimab has also obtained emergency authorization, temporary authorization or marketing approval (under the brand name Xevudy®) for early treatment of hospitalization and has indicated plansCOVID-19 in more than 30 countries. In March 2022, the FDA deauthorized sotrovimab’s use in all U.S. regions due to initiate a clinical study of VIR-7832increases in the near future.
proportion of COVID-19 cases caused by non-susceptible new variants. As the SARS-CoV-2 virus has mutated, our royalty revenue from the sales of sotrovimab has diminished significantly. In August 2020,2023, we entered into an agreement with Omeros Corporation, under which we provided Omeros a non-exclusive license to access our Xtend Fc technology, an exclusive license to apply Xtend Fc technology to an identified antibody and options to apply Xtend Fc technology to three additional antibodies. In 2020, we received an upfront payment of $5.0earned $2.2 million in royalties from Omeros.
Vir.
In December 2020, we entered into an agreement with
MiRagenViridian Therapeutics, Inc.,
(Viridian) in which we provided
MiRagenViridian a non-exclusive license to our Xtend Fc technology and an exclusive license to apply our Xtend Fc technology to antibodies targeting IGF-1R.
MiRagen subsequently changed its nameWe received common stock in Viridian as an upfront payment. Xtend Fc technology was not applied to Viridian
Therapeutics, Inc. We received an upfront payment of 322,407 shares of Viridian common stock valued at $6.0 million.Strategic Collaborations
We enter into strategic collaborations where we can create synergies between our partners' strengthsantibodies, and assets and our own protein engineering capabilities, XmAb technologies and XmAb drug candidates. Through these arrangements we seek to create new drug candidates, investigate novel combination therapies and potentially identify additional indications for our portfolio of XmAb drug candidates.
In July 2020, we entered an agreement with Atreca, Inc., to research, develop and commercialize novel CD3 bispecific antibodies as potential therapeutics in oncology. We are conducting a three-year research program in which Atreca will provide antibodies against novel tumor targets through its discovery platform from which we will engineer XmAb bispecific antibodies that bind to the CD3 receptor on T cells. Up to two joint programs are eligible to be mutually selected for further development and commercialization, with each partner sharing 50% of costs and profits. Each company has the option to lead development, regulatory and commercialization activities for one of the two joint programs. In addition,2023 the agreement allows each partner the option to pursue up to two programs independently, with a mid- to high-single digit percent royalty payable on net sales to the other partner.
In September 2020, we entered an agreement with The University of Texas MD Anderson Cancer Center, under which we will design and execute new investigator-sponsored clinical studies with our portfolio of XmAb drug candidates. We are committing $10.0 million in funding and supporting these studies over an initial five-year term.
In November 2020, we entered the clinical collaboration with MorphoSys and Incyte to investigate the combination of plamotamab, tafasitamab and lenalidomide in patients with relapsed or refractory DLBCL, first-line DLBCL and relapsed or refractory follicular lymphoma (FL).
was terminated.
In December
2020,2021, we entered into a second agreement with
MD AndersonViridian for a non-exclusive license to
develop novel CD3 bispecificcertain antibody
therapeuticslibraries developed by us, for
which the
potential treatment of patients with cancer. MD Anderson will workterm has ended. We received additional common stock in Viridian as an upfront payment. Under the agreement, Viridian received a one-year research license to
identify and develop potentialreview the antibodies and
we will apply its our Fc bispecific technology to create therapeutic candidates. MD Anderson will then conduct and fund all preclinical activities to advance candidates toward clinical studies. We have certain exclusive options to license worldwide rights to develop and commercialize potential new medicines arising from the
collaboration.agreement expired in 2023.
Refer to Part IV, Item 15, Note 10, "Collaboration and Licensing Agreements" of the notes to our consolidated financial statements included in this Annual Report on Form 10-K for a description of the key terms of our arrangements.
Financial Operations Overview
Our revenues to date have been generated primarily from our collaboration agreements, our product licensing agreements, and our technology licensing agreements. Revenue recognized from our collaboration and product licensing agreements includes non-refundable upfront payments, milestone payments and royalties on net sales of approved products while revenue from our technology licensing agreements includes upfront payments, option payments to obtain commercial licenses, milestone payments and royalties on net sales of approved products. Since our inception through December 31,
2020,2023, we have generated
$545.6 million$1.2 billion in revenues under the various product development partnership and technology license arrangements. Several of our product development partnership and technology license agreements provide us the opportunity to earn future milestone payments, royalties on product sales and option exercise payments.
In 2023, we sold a portion of the rights to received royalties under our MorphoSys and Alexion arrangements for $215.0 million.
Summary of Collaboration and Licensing Revenue by Partner
The following is a comparison of collaboration, product licensing, and technology licensing revenue for the years ended December 31,
2020, 20192023 and
20182022 (in millions):
| | | | | | | | | | |
| | Year Ended | |
| | December 31, | |
| | 2020 | | 2019 | | 2018 | |
Aimmune | | $ | 9.6 | | $ | — | | $ | — | |
Amgen | | | — | | | 5.0 | | | 0.6 | |
Alexion | | | 26.2 | | | 13.0 | | | 20.0 | |
Astellas | | | 3.5 | | | 14.0 | | | — | |
Genentech | | | 3.5 | | | 113.9 | | | — | |
Gilead | | | 13.5 | | | — | | | — | |
MiRagen/Viridian | | | 6.0 | | | — | | | — | |
MorphoSys | | | 39.0 | | | — | | | — | |
Novartis | | | — | | | 10.0 | | | 20.0 | |
Omeros | | | 5.0 | | | — | | | — | |
Vir | | | 0.3 | | | 0.8 | | | — | |
Private BioCo | | | 16.1 | | | — | | | — | |
Total | | $ | 122.7 | | $ | 156.7 | | $ | 40.6 | |
| | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 |
Alexion | $ | 58.6 | | | $ | 29.4 | |
Astellas | — | | | 5.0 | |
Gilead | 6.0 | | | — | |
Janssen | 77.8 | | | 7.0 | |
MorphoSys | 8.7 | | | 7.8 | |
Omeros | 5.0 | | | — | |
Vir | 2.2 | | | 115.4 | |
| | | |
Zenas | 10.0 | | | — | |
Total | $ | 168.3 | | | $ | 164.6 | |
Research and Development Expenses
The following is a comparison of research and development expenses for the years ended December 31,
2020, 2019,2023 and
20182022 (in millions):
| | | | | | | | | |
| | Year Ended |
| | December 31, |
| | 2020 | | 2019 | | 2018 |
External research and development expenses | | $ | 94.2 | | $ | 52.2 | | $ | 48.2 |
Internal research and development expenses | | | 54.7 | | | 43.4 | | | 36.5 |
Stock based compensation | | | 20.9 | | | 23.0 | | | 12.8 |
Total | | $ | 169.8 | | $ | 118.6 | | $ | 97.5 |
| | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 |
External research and development expenses | $ | 119.7 | | | $ | 89.0 | |
Internal research and development expenses | 99.4 | | | 79.0 | |
Stock-based compensation | 34.5 | | | 31.6 | |
Total | $ | 253.6 | | | $ | 199.6 | |
Internal research and development expenses consist primarily of salaries, benefits, related personnel costs, supplies, and allocated overhead including facility costs. External research and development expenses include preclinical testing costs, clinical trial costs and fees paid to external service providers. External service providers include contract research organizations (CRO)CROs and contract manufacturing organizations (CMO)(CMOs) to conduct clinical trials, manufacturing and process development, IND-enabling toxicology testing and formulation of clinical drug supplies. We expense research and development expenses as incurred. We account for nonrefundable advance payments for goods and services that will be used in future research and development activities as expense when the service has been performed or when the goods have been received. We estimate contract manufacturing, preclinical study and clinical trial expenses based on the services performed pursuant to the contracts with manufacturing, research institutions and clinical research organizations that manufacture and conduct and manage preclinical studies and clinical trials on our behalf based on the actual time and expenses incurred by them. We accrue expenses related to clinical trials based on the level of patient enrollment and activity according to the related agreement. We monitor patient enrollment levels and related activity to the extent reasonably possible and adjust estimates accordingly. Our estimates of clinical trial expense have fluctuated on a period-to-period basis due to changes in the stage of the clinical trials and patient enrollment levels. We expect to experience a continuing pattern of fluctuations in clinical trial expenses as current clinical trials are completed and as we initiate additional and later stage clinical trials. To date, we have not experienced significant differences between our periodic estimates of clinical trial expense and the actual costs incurred. We expect changes in future clinical trial expenses to be driven by changes in service provider costs and changes in clinical stage and patient enrollment.
We expect that our future research and development expenses will increase overspending levels in recent years if we are successful in advancing our current clinical-stage drug candidates or any of our preclinical programs into later stages of clinical development. The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time-consuming. We or our partners may never succeed in achieving marketing approval for any of our product candidates. Numerous factors may affect the probability of success for each product candidate, including preclinical data, clinical data, competition, manufacturing capability, approval by regulatory authorities and commercial viability.
Our research and development operations are conducted such that design, management and evaluation of results of all of our research and development is performed internally, while the execution of certain phases of our research and development programs, such as toxicology studies in accordance with Good Laboratory Practices (GLP), and manufacturing in accordance with current Good Manufacturing Practices (cGMP),cGMP, is accomplished using CROs and CMOs. We account for research and development costs on a program-by-program basis except in the early stages of research and discovery, when costs are often devoted to identifying preclinical candidates and improving our discovery platform and technologies, which are not necessarily allocable to a specific development program. We assign costs for such activities to distinct projects for preclinical pipeline development and new technologies. We allocate research management, overhead, commonly used laboratory supplies and equipment, and facility costs based on the percentage of time of full-time research personnel efforts on each program.
The following is a comparison of research and development expenses for the years ended December 31, 2020, 20192023 and 20182022 (in millions):
| | | | | | | | | | |
| | Year Ended | |
| | December 31, | |
| | 2020 | | 2019 | | 2018 | |
Product programs: | | | | | | | | | | |
Obexelimab (XmAb5871) | | $ | 2.9 | | $ | 17.5 | | $ | 23.0 | |
| | | | | | | | | | |
Bispecific programs: | | | | | | | | | | |
CD3 programs: | | | | | | | | | | |
Vibecotamab* | | | 12.4 | | | 11.6 | | | 9.3 | |
Plamotamab | | | 33.8 | | | 12.3 | | | 5.6 | |
Tidutamab | | | 14.9 | | | 11.4 | | | 7.8 | |
XmAb819 (ENPP3 x CD3) | | | 7.4 | | | 0.5 | | | — | |
Total CD3 programs | | | 68.5 | | | 35.8 | | | 22.7 | |
| | | | | | | | | | |
Tumor microenvironment (TME) activator programs: | | | | | | | | | | |
XmAb717 | | | 26.4 | | | 13.0 | | | 8.7 | |
XmAb104 | | | 13.3 | | | 7.8 | | | 14.5 | |
XmAb841 | | | 10.6 | | | 7.4 | | | 9.9 | |
Total TME activator programs | | | 50.3 | | | 28.2 | | | 33.1 | |
| | | | | | | | | | |
Cytokine programs: | | | | | | | | | | |
XmAb306/RG6323* | | | 12.0 | | | 17.0 | | | 7.7 | |
XmAb564 | | | 15.4 | | | 5.0 | | | — | |
Total cytokine programs | | | 27.4 | | | 22.0 | | | 7.7 | |
| | | | | | | | | | |
Subtotal bispecific programs | | | 146.2 | | | 86.0 | | | 63.5 | |
| | | | | | | | | | |
Other, research and early stage programs | | | 20.7 | | | 15.1 | | | 11.0 | |
| | | | | | | | | | |
Total research and development expenses | | $ | 169.8 | | $ | 118.6 | | $ | 97.5 | |
| | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 |
Product programs: | | | |
| | | |
Bispecific programs: | | | |
CD3 programs: | | | |
Plamotamab* | $ | 16.5 | | | $ | 19.8 | |
XmAb819 (ENPP3 x CD3) | 18.2 | | | 10.5 | |
XmAb541 (CLDN6 X CD3) | 20.4 | | | 7.1 | |
Total CD3 programs | 55.1 | | | 37.4 | |
| | | |
CD28 program: | | | |
XmAb808 (B7H3 x CD3) | 16.7 | | | 17.7 | |
| | | |
Tumor micro environment (TME) activator programs: | | | |
Vudalimab | 44.2 | | | 22.8 | |
XmAb104 | 24.2 | | | 21.3 | |
Total TME activators programs | 68.4 | | | 44.1 | |
| | | |
Subtotal bispecific programs | 140.2 | | | 99.2 | |
| | | |
Cytokine programs: | | | |
XmAb306/RG6323 programs* | 14.1 | | | 13.2 | |
XmAb564 | 24.1 | | | 17.2 | |
XmAb662 (IL-12-Fc) | 12.8 | | | 15.5 | |
Total cytokine programs | 51.0 | | | 45.9 | |
| | | |
Other, research and early stage programs | 51.7 | | | 30.8 | |
| | | |
Wind down costs of terminated programs (1) | 10.7 | | | 23.7 | |
| | | |
Total research and development expenses | $ | 253.6 | | | $ | 199.6 | |
*Includes net
paymentsreimbursements to and
reimbursements from our partners pursuant to agreements that include cost-sharing arrangements.
(1)Research and development expenses include wind down costs of programs that terminated in prior periods including the vibecotamab, tidutamab, and XmAb841 programs.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation related to our executive, finance, business development, and support functions. Other general and administrative expenses include intellectual property costs, facility costs, and professional fees for auditing, tax and legal services.
For the
yearsyear ended December 31,
2020, 2019 and 2018,2023, other income, net, consists primarily of interest income from
our investmentsmarketable debt securities during the
years.year, while for the year ended December 31, 2022, other income, net, consists primarily of unrealized gains on equity securities during the year.
Critical Accounting Policies, Significant Judgments, and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of our financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements and
accompanying notes. Actual results could differ materially from those estimates. Our management believes judgment is involved in determining revenue recognition, the fair value-based measurement of stock-based compensation, the fair value estimate of marketable securities, the capitalization and recoverability of intellectual property costs, valuation of deferred tax assets and accruals. Our management evaluates estimates and assumptions as facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ from these estimates and assumptions, and those differences could be material to the financial statements. If our assumptions change, we may need to revise our estimates, or take other corrective actions, either of which may also have a material adverse effect on our statements of operations, liquidity and financial condition.
While our significant accounting policies are described in more detail in Note 1 to our financial statements included elsewhere in this Annual Report, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements.
We have, to date, earned revenue from research and development collaborations, which may include research and development services, licenses of our internally developed technologies, licenses of our internally developed drug candidates, or combinations of these.
The terms of our license and research and development and collaboration agreements generally include non-refundable upfront payments, research funding, co-development reimbursements, license fees, and milestone and other contingent payments to us for the achievement of defined collaboration objectives and certain clinical, regulatory and sales-based events, as well as royalties on sales of any commercialized products.
The terms of our licensing agreements include non-refundable upfront fees, contractual payment obligations for the achievement of pre-defined preclinical, clinical, regulatory and sales-based events by our partners. The licensing agreements also include royalties on sales of any commercialized products by our partners.
In certain transactions for licensing of our technologies or our product candidates, we may receive an equity interest from our partners as full or partial consideration for an upfront payment due under the arrangement. We record the initial equity at its fair value and mark the value to market quarterly for publicly traded securities and review for impairment for equity that is not publicly traded on a national exchange.
Sale of Future Royalties
In November 2023, we entered into the sale of a portion of our royalties due us under the Alexion Agreement (the Ultomiris Royalty Sale Agreement) and a portion of our royalties due us under the MorphoSys Agreement (the Monjuvi Royalty Sale Agreement) and received upfront proceeds of $192.5 million and $22.5 million, respectively.
We evaluated the Ultomiris Royalty Sale Agreement under Accounting Standards Codification (ASC) 470 - Debt (ASC 470) and determined that the upfront payment should be accounted for as deferred income as none of the criteria for classification as debt had been met. We apply the "unit-of-revenue" method of recognizing income in the consolidated statements of income (loss) and such amounts are included in royalty revenue. For the three months ended December 31, 2023, we recorded $6.2 million of non-cash royalty revenue related to the royalty sale.
We evaluated the Monjuvi Royalty Sale Agreement under ASC 470 and determined that the upfront payment should be accounted for as a liability in the consolidated balance sheet. The upfront proceeds will be amortized using the effective interest rate method over the estimated life of the related expected royalty stream. The liability and related interest expense are based on our current estimates of future royalties to be paid over the life of the agreement. We will periodically assess the expected royalty payments and to the extent the future estimates or timing of such payments are materially different than the previous estimates, we will prospectively recognize related interest expense. Royalty revenue will be recognized as earned on net sales of Monjuvi/Minjuvi and payments made to the purchaser will be a reduction to the liability when paid. For the three months ended December 31, 2023, we recorded $2.1 million of non-cash royalty revenue related to the royalty sale. For further discussion, refer to Note 11- Sale of Future Royalties in the accompanying notes to the consolidated financial statements included in Part II, Item 8. Consolidated Financial Statements and Supplementary Data. Capitalized Intellectual Property Costs
We capitalize and amortize third-party intellectual property costs such as amounts paid to outside patent counsel for filing, prosecuting and obtaining patents for our internally developed technologies and product candidates, to the extent such patents are deemed to have probable future economic benefit. We also capitalize amounts paid to third parties for licenses that we acquire for intellectual property or for research and development purposes where the technology has alternative uses. The net capitalized patents, licenses, and other intangible assets as of December 31,
20202023 and
2019 was $16.02022 were $18.7 million and
$14.4$18.5 million, respectively. We believe that these costs should be capitalized as the intellectual property portfolio creates the underlying property right to our technologies and product candidates and supports the upfront payments, licensing fees, milestone payments and royalties made by our collaboration partners for licensing our technologies and product candidates.
We begin amortization of capitalized patent costs during the period that we obtain a patent relating to the capitalized cost over the shorter of the patent life or the estimated economic useful life. Capitalized licensing costs are amortized beginning in the period that access to the license or technology is available and is amortized over the shorter of the license term or the estimated economic useful life of the licensed asset. Such amortization is recorded as general and administrative expenses.
On a regular basis we review the capitalized intellectual property portfolio and determine if there have been changes in the scientific or patent landscape that leads us to decide to abandon an in-process patent application or abandon a previously issued patent. While we confer with outside patent counsel, the decision to continue prosecuting
certain patent claims or abandon other claims are made by us based on our judgment and existing knowledge of our technology, current U.S. and foreign patent authority rulings and expected rulings, and scientific advances and patent filings by competitors operating in our technology or drug development field. We record an expense for the write-off of capitalized intangible assets in the period that the decision to abandon a claim or license is made. We also review the carrying value of capitalized licensing costs on a regular basis to determine if there have been any changes to the useful life or estimated amortization period over which the costs should be amortized. We recorded a charge for abandoned intangible assets of $0.5 million, $0.2$1.3 million and $0.2$1.5 million for the years ended December 31, 2020, 20192023 and 2018,2022, respectively. Such charges are reflected as general and administrative expenses.
We determine if there has been an impairment of our intangible assets which include the capitalized patent and licensing costs whenever events such as recurring operating losses or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.
Accrued Research and Development Expenses
As part of the process of preparing our financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing contracts and purchase orders, reviewing the terms of our license agreements, communicating with our applicable personnel to identify services that have been performed on our behalf, and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost. The majority of our service providers invoice us monthly in arrears for services performed. We make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. Examples of estimated accrued research and development expenses include fees to:
| ● | CROs and other service providers in connection with clinical studies; |
| ● | contract manufacturers in connection with the production of and testing of clinical trial materials; and |
| ● | vendors in connection with preclinical development activities. |
•CROs and other service providers in connection with clinical studies;
•contract manufacturers in connection with the production of and testing of clinical trial materials; and
•vendors in connection with preclinical development activities.
We base our expenses related to clinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and
contract research organizationsCROs that conduct and manage clinical studies on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract, and may result in uneven payment flows and expense recognition. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing these costs, we estimate the time period over which services will be performed for which we have not been invoiced and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual accordingly. Our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in our reporting changes in estimates in any particular period.
Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income in the period that such tax rate changes are enacted. The measurement of a deferred tax asset is reduced, if necessary, by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. Financial statement recognition of a tax position taken or expected to be taken in a tax return is determined based on a more-likely-than not threshold of that position being sustained. If the tax position meets this threshold, the benefit to be recognized is measured as the largest amount that is more than 50% likely to be realized upon ultimate settlement. Our policy is to record interest and penalties related to uncertain tax positions as a component of
income tax expense. We have concluded that there are no material uncertain tax positions and have not recorded an income tax expense or liability for uncertain tax positions as of December 31, 2020.
2023.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (TCJA) was enacted into law, which beginning in 2018, made several changes to U.S. corporate income tax provisions including a reduction in the U.S. corporate rate from a maximum rate of 35% to 21% effective January 1, 2018. The TCJA also allowed net operating losses
(NOLs) incurred after January 1, 2018 to be carried forward
indefinitely.indefinitely subject to limitations on the amount of NOLs that could be applied against taxable income each year. The other material change in our tax provision from the TCJA is eliminationalso requires capitalization of the U.S. corporate alternative minimum tax (AMT) systemcertain research and allowance for a tax refund for AMT credit carryovers as of December 31, 2017, which do not expire. We received a tax refund of $0.8 million in each of 2019 and 2020 related to federal AMT credit carryovers.
development expenses beginning effective January 1, 2022.
We recorded net deferred tax assets of
$106.0$158.1 million as of December 31,
2020,2023, which was fully offset by a valuation allowance due to uncertainties surrounding our ability to realize these tax benefits. The deferred tax assets are primarily comprised of deferred revenue,
capitalized research and development expenses, federal and state tax net operating loss (NOL) carryforwards and research and development tax credit carryforwards. As of December 31,
2020,2023, we had cumulative net operating loss carryforwards for federal income tax purposes of approximately
$213.6$54.2 million;
$68.0 millionall of such losses were incurred prior to December 31,
2017 and $145.6 million were incurred in the years ending on or after December 31, 2018.2017. We also had available tax credit carryforwards of
$26.7$33.6 million for federal tax purposes. We had cumulative state tax loss carryforwards at December 31,
20202023 of
$161.4$158.8 million, and available state tax credit carryforwards of approximately
$14.3$24.8 million, which can be carried forward to offset future taxable income, if any.
Our federal net operating loss carryforwards incurred prior to January 1, 2018 expire starting in
2026;2027; state net operating loss carryforwards expire starting in 2035; and federal tax credit carryforwards
begin to expire starting in
2020. Approximately $0.3 million of federal tax credits will expire if unused from 2020 through 2024.No income tax expense or benefit was recorded for the year ended December 31, 2020. 2034.
We recorded
ana federal income tax expense of
$0.3$5.8 million
related to state AMTand $0.7 million for the
yearyears ended December 31,
2019,2023 and
no income tax expense or benefit was recorded for the year ended December 31, 2018.2022, respectively.
Valuation of Stock-Based Compensation
We record the fair value of stock options and shares issued under our Employee Stock Purchase Plan (ESPP) to employees as of the grant date as compensation expense over the service period, which is generally the vesting period. For non-employees, we also record the fair value of stock options as of the grant date as compensation expense over the service period. We then periodically re-measure the awards to reflect the current fair value at each reporting period until the non-employee completes the performance obligation or the date on which a performance commitment is reached. Expense is recognized over the related service period.
We calculate the fair value of stock-based compensation awards using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires the use of subjective assumptions, including volatility of our common stock, the expected term of our stock options, the risk-free interest rate for a period that approximates the expected term of our stock options and the fair value of the underlying common stock on the date of grant.
Common Stock Options Fair Value
We recognize stock-based compensation expense in accordance with the provisions of ASC Topic 718, Compensation—Stock Compensation. The use of a Black-Scholes model requires us to apply judgment and make assumptions and estimates that include the following: | ● | Expected Volatility—Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. |
67
•Expected Volatility—Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period.•Expected Dividend Yield—We have never declared or paid dividends and have no plans to do so in the foreseeable future.
•Risk-Free Interest Rate—This is the U.S. Treasury rate for the week of each option grant during the year, having a term that most closely resembles the expected life of the option.
•Expected Term—This is the period of time that the options granted are expected to remain unexercised. Options granted have a maximum term of ten years and we have estimated the expected life of the option term to be between six and eight years. We use a simplified method to calculate the average expected term for employee awards.
| ● | Expected Dividend Yield—We have never declared or paid dividends and have no plans to do so in the foreseeable future. |
| ● | Risk-Free Interest Rate—This is the U.S. Treasury rate for the week of each option grant during the year, having a term that most closely resembles the expected life of the option. |
| ● | Expected Term—This is the period of time that the options granted are expected to remain unexercised. Options granted have a maximum term of ten years and we have estimated the expected life of the option term to be between six and eight years. We use a simplified method to calculate the average expected term for employee awards. |
Results of Operations
The discussion that follows includes a comparison of our results of operations and liquidity and capital resources for the years ended December 31, 2023 and 2022. For a comparison of our results of operations and financial condition for the years ended December 31, 2022 and 2021. see “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2022 Annual report on Form 10-K, filed with the SEC on February 27, 2023.
Comparison of the Years Ended December 31,
20202023 and
20192022
The following table summarizes our results of operations for the years ended December 31,
20202023 and
20192022 (in millions):
| | | | | | | | | | |
| | Year ended | |
| | December 31, | |
| | 2020 | | 2019 | | Change | |
Revenues: | | | | | | | | | | |
Research collaboration | | $ | 4.5 | | $ | 16.3 | | $ | (11.8) | |
Milestone | | | 50.2 | | | 23.2 | | | 27.0 | |
Licensing | | | 50.2 | | | 112.2 | | | (62.0) | |
Royalties | | | 17.8 | | | 5.0 | | | 12.8 | |
Total revenues | | | 122.7 | | | 156.7 | | | (34.0) | |
Operating expenses: | | | | | | | | | | |
Research and development | | | 169.8 | | | 118.6 | | | 51.2 | |
General and administrative | | | 29.7 | | | 24.3 | | | 5.4 | |
Total operating expenses | | | 199.5 | | | 142.9 | | | 56.6 | |
Other income, net | | | 7.5 | | | 13.4 | | | (5.9) | |
Income tax expense | | | — | | | 0.3 | | | (0.3) | |
Net income (loss) | | $ | (69.3) | | $ | 26.9 | | $ | (96.2) | |
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2023 | | 2022 | | Change |
Revenues: | | | | | |
Research collaboration | $ | 30.3 | | | $ | 7.0 | | | $ | 23.3 | |
Milestone | 88.5 | | | 5.5 | | | 83.0 | |
| | | | | |
Royalties | 49.5 | | | 152.1 | | | (102.6) | |
Total revenues | 168.3 | | | 164.6 | | | 3.7 | |
Operating expenses: | | | | | |
Research and development | 253.6 | | | 199.6 | | | 54.0 | |
General and administrative | 53.4 | | | 47.5 | | | 5.9 | |
Total operating expenses | 307.0 | | | 247.1 | | | 59.9 | |
Other income, net | 18.2 | | | 28.0 | | | (9.8) | |
Income tax expense | 5.8 | | | 0.7 | | | 5.1 | |
Net loss | (126.3) | | | (55.2) | | | (71.1) | |
Net loss attributable to non-controlling interest | (0.2) | | | — | | | (0.2) | |
Net loss attributable to Xencor, Inc. | $ | (126.1) | | | $ | (55.2) | | | $ | (70.9) | |
Research collaboration revenues in
20202023 and
2019 represent2022 are primarily revenue recognized under our
Genentech and Astellas agreements.second Janssen agreement. Milestone payments increased by $27.0$83.0 million in 2020 over 20192023 from 2022 amounts primarily due to receiving milestones received from Alexion, Astellas,Gilead, J&J, Omeros, and MorphoSysZenas in 20202023, compared to milestones received from Amgen, Alexion, and NovartisAstellas in 2019.
Licensing revenues in 2020 primarily consist of revenues recognized from various technology and product license agreements entered throughout the year, and licensing revenues in 2019 primarily consist of revenues recognized from our Genentech agreement.
2022. Royalty revenues for 2020 represent revenue recognized from our Alexion and MorphoSys agreements while2023 are lower than royalty revenues in 2019 represent royalties2022 primarily due to a decrease in royalty revenue from our Alexion agreement.
Vir.Research and Development Expenses
The following table summarizes our research and development expenses for the years ended December 31,
20202023 and
20192022 (in millions):
| | | | | | | | | | |
| | Year Ended | |
| | December 31, | |
| | 2020 | | 2019 | | Change | |
Product programs: | | | | | | | | | | |
Obexelimab (XmAb5871) | | $ | 2.9 | | $ | 17.5 | | $ | (14.6) | |
| | | | | | | | | | |
Bispecific programs: | | | | | | | | | | |
CD3 programs: | | | | | | | | | | |
Vibecotamab* | | | 12.4 | | | 11.6 | | | 0.8 | |
Plamotamab | | | 33.8 | | | 12.3 | | | 21.5 | |
Tidutamab | | | 14.9 | | | 11.4 | | | 3.5 | |
XmAb819 (ENPP3 x CD3) | | | 7.4 | | | 0.5 | | | 6.9 | |
Total CD3 programs | | | 68.5 | | | 35.8 | | | 32.7 | |
| | | | | | | | | | |
Tumor microenvironment (TME) activator programs: | | | | | | | | | | |
XmAb717 | | | 26.4 | | | 13.0 | | | 13.4 | |
XmAb104 | | | 13.3 | | | 7.8 | | | 5.5 | |
XmAb841 | | | 10.6 | | | 7.4 | | | 3.2 | |
Total TME activator programs | | | 50.3 | | | 28.2 | | | 22.1 | |
| | | | | | | | | | |
Cytokine programs: | | | | | | | | | | |
XmAb306/RG6323* | | | 12.0 | | | 17.0 | | | (5.0) | |
XmAb564 | | | 15.4 | | | 5.0 | | | 10.4 | |
Total cytokine programs | | | 27.4 | | | 22.0 | | | 5.4 | |
| | | | | | | | | | |
Subtotal bispecific programs | | | 146.2 | | | 86.0 | | | 60.2 | |
| | | | | | | | | | |
Other, research and early stage programs | | | 20.7 | | | 15.1 | | | 5.6 | |
| | | | | | | | | | |
Total research and development expenses | | $ | 169.8 | | $ | 118.6 | | $ | 51.2 | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | Change |
Product programs: | | | | | |
| | | | | |
Bispecific programs: | | | | | |
CD3 programs: | | | | | |
Plamotamab* | $ | 16.5 | | | $ | 19.8 | | | $ | (3.3) | |
XmAb819 (ENPP3 x CD3) | 18.2 | | | 10.5 | | | 7.7 | |
XmAb541 (CLDN6 X CD3) | 20.4 | | | 7.1 | | | 13.3 | |
Total CD3 programs | 55.1 | | | 37.4 | | | 17.7 | |
| | | | | |
CD28 program: | | | | | |
XmAb808 (B7H3 x CD3) | 16.7 | | | 17.7 | | | (1.0) | |
| | | | | |
Tumor micro environment (TME) activator programs: | | | | | |
Vudalimab | 44.2 | | | 22.8 | | | 21.4 | |
XmAb104 | 24.2 | | | 21.3 | | | 2.9 | |
Total TME activators programs | 68.4 | | | 44.1 | | | 24.3 | |
| | | | | |
Subtotal bispecific programs | 140.2 | | | 99.2 | | | 41.0 | |
| | | | | |
Cytokine programs: | | | | | |
XmAb306/RG6323 programs* | 14.1 | | | 13.2 | | | 0.9 | |
XmAb564 | 24.1 | | | 17.2 | | | 6.9 | |
XmAb662 (IL-12-Fc) | 12.8 | | | 15.5 | | | (2.7) | |
Total cytokine programs | 51.0 | | | 45.9 | | | 5.1 | |
| | | | | |
Other, research and early stage programs | 51.7 | | | 30.8 | | | 20.9 | |
| | | | | |
Wind down costs of terminated programs (1) | 10.7 | | | 23.7 | | | (13.0) | |
| | | | | |
Total research and development expenses | $ | 253.6 | | | $ | 199.6 | | | $ | 54.0 | |
*Includes net reimbursements
to and from our partners pursuant to agreements that include cost-sharing arrangements.
(1)Research and development expenses include wind down costs of programs that terminated in prior periods including the vibecotamab, tidutamab, and XmAb841 programs.
Research and development expenses increased by
$51.2$54.0 million in
20202023 over
20192022 amounts
as we continueprimarily due to
expand our pipeline of bispecific antibody and cytokine candidates. Increased research and development spending in 2020 was driven by increased spending on our
plamotamab, XmAb819, XmAb717bispecific development programs including XmAb541, vudalimab, and
XmAb564 programsearly research and
was partially offset by lower spending on our obexelimab program during the year.development programs.
General and Administrative Expenses
General and administrative expenses increased by
$5.4$5.9 million in
20202023 over
20192022 amounts primarily due to
an increaseincreases in
staffing, professional expensesgeneral and
administrative compensation costs and additional spending on
intellectual property and licenses.professional fees.
Other income, net decreased by $5.9$9.8 million in 2020 over 20192023 from 2022 amounts reflecting decreasesdue to a net decrease in unrealized gain from equity securities, partially offset by an increase in interest income earned onfrom our investmentsinvestment in marketable securities, due to declining in interest rates in 2020.
debt securities.Comparison of the Years Ended December 31, 2019 and 2018
The following table summarizes our results of operations for the year ended December 31, 2019 and 2018 (in millions):
| | | | | | | | | | |
| | Year Ended | |
| | December 31, | |
| | 2019 | | 2018 | | Change | |
Revenues: | | | | | | | | | | |
Research collaboration | | $ | 16.3 | | $ | 20.1 | | $ | (3.8) | |
Milestone | | | 23.2 | | | 20.5 | | | 2.7 | |
Licensing | | | 112.2 | | | — | | | 112.2 | |
Royalties | | | 5.0 | | | — | | | 5.0 | |
Total revenues | | | 156.7 | | | 40.6 | | | 116.1 | |
Operating expenses: | | | | | | | | | | |
Research and development | | | 118.6 | | | 97.5 | | | 21.1 | |
General and administrative | | | 24.3 | | | 22.5 | | | 1.8 | |
Total operating expenses | | | 142.9 | | | 120.0 | | | 22.9 | |
Other income, net | | | 13.4 | | | 9.0 | | | 4.4 | |
Income tax benefit | | | 0.3 | | | — | | | 0.3 | |
Net income (loss) | | $ | 26.9 | | $ | (70.4) | | $ | 97.3 | |
Revenues
Research collaboration revenues in 2019 represent revenue recognized under our Genentech and Astellas agreements while the research collaboration revenues in 2018 represent revenue recognized under our Novartis Agreement.
Milestone payments increased by $2.7 million in 2019 over 2018 amounts primarily due to receiving contractual milestones in 2019 from Amgen, Alexion and Novartis compared to contractual milestones received primarily from Alexion in 2018.
Licensing revenues in 2019 primarily consist of revenues recognized from our Genentech agreement.
Royalty revenues for 2019 represent royalty revenue recognized from our Alexion agreement.
Research and Development Expenses
The following table summarizes our research and development expenses for the years ended December 31, 2019 and 2018 (in millions):
| | | | | | | | | |
| | Year Ended |
| | December 31, |
| | 2019 | | 2018 | | Change |
Product programs: | | | | | | | | | |
Obexelimab (XmAb5871) | | $ | 17.5 | | $ | 23.0 | | $ | (5.5) |
| | | | | | | | | |
Bispecific programs: | | | | | | | | | |
CD3 programs: | | | | | | | | | |
Vibecotamab* | | | 11.6 | | | 9.3 | | | 2.3 |
Plamotamab | | | 12.3 | | | 5.6 | | | 6.7 |
Tidutamab | | | 11.4 | | | 7.8 | | | 3.6 |
XmAb819 (ENPP3 x CD3) | | | 0.5 | | | — | | | 0.5 |
Total CD3 programs | | | 35.8 | | | 22.7 | | | 13.1 |
| | | | | | | | | |
Tumor microenvironment (TME) activator programs: | | | | | | | | | |
XmAb717 | | | 13.0 | | | 8.7 | | | 4.3 |
XmAb104 | | | 7.8 | | | 14.5 | | | (6.7) |
XmAb841 | | | 7.4 | | | 9.9 | | | (2.5) |
Total TME activator programs | | | 28.2 | | | 33.1 | | | (4.9) |
| | | | | | | | | |
Cytokine programs: | | | | | | | | | |
XmAb306/RG6323* | | | 17.0 | | | 7.7 | | | 9.3 |
XmAb564 | | | 5.0 | | | — | | | 5.0 |
Total cytokine programs | | | 22.0 | | | 7.7 | | | 14.3 |
| | | | | | | | | |
Subtotal bispecific programs | | | 86.0 | | | 63.5 | | | 22.5 |
| | | | | | | | | |
Other, research and early stage programs | | | 15.1 | | | 11.0 | | | 4.1 |
| | | | | | | | | |
Total research and development expenses | | $ | 118.6 | | $ | 97.5 | | $ | 21.1 |
*Includes net payments from our partners pursuant to agreements that include cost-sharing arrangements.
Research and development expenses increased by $21.1 million in 2019 over 2018 amounts as we continue to expand our pipeline of bispecific antibody and cytokine candidates. Increased spending on our CD3 bispecific and our cytokine programs offset reduced spending on our TME activator candidates during the year.
General and Administrative Expenses
General and administrative expenses increased by $1.8 million in 2019 over 2018 amounts primarily due to an increase in facility costs, staffing and intellectual property costs.
Other Income, Net
Other income, net increased by $4.4 million in 2019 over 2018 amounts reflecting additional interest income earned on our investments in marketable securities, which is due to higher investment balances as a result of our upfront proceeds received from our Genentech and Astellas agreements in March 2019.
Liquidity and Capital Resources
Since our inception, our operations have been primarily financed through proceeds from public
offering,offerings, private sales of our equity, and payments received under our collaboration and development partnerships and licensing arrangements. We have devoted our resources to funding research and development programs, including discovery research, preclinical and clinical development activities.
We have incurred substantial operating losses since our inception, and we expect to continue to incur operating losses into the foreseeable future as we advance the ongoing development of our bispecific antibody and cytokine product candidates, evaluate opportunities for the potential clinical development of our other preclinical programs, and continue our research efforts.
In 2023, we received a total of
$165$111.7 million in
upfrontmilestone payments
milestones and royalties in connection with licensing of our technologies and products.
In March 2019, we received a total of $135.0 million in upfront payment in connection with our Genentech and Astellas collaboration agreements.
In March 2018, we completed the sale of 8,395,000 shares of common stock which included shares that we issued pursuant the underwriters’ exercise of their over-allotment option pursuant to a follow-on public offering. We received net proceeds of $245.5 million, after deducting underwriters’ discounts and offering expenses.
At December 31,
2020,2023, we had
$604.0$697.4 million of cash, cash equivalents, and marketable debt securities compared to
$601.3$584.5 million at December 31,
2019.2022. We expect to continue to receive additional payments from our collaborators for research and development services rendered, additional milestone, contingent payments, opt-in and royalty payments. Our ability to receive milestone payments and contingent payments from our partners is dependent upon either our ability or our partners’ abilities to achieve certain levels of research and development activities and is therefore uncertain at this time.
We have not generated any revenue from product sales and do not expect to do so until we obtain regulatory approval and commercialize one or more of our product candidates.
As we are currently inAt the
earlycurrent stage of our clinical
stages of development
programs, it will be some time before we expect to achieve this, and it is uncertain that we ever will. We expect that our operating expenses will continue to increase in connection with ongoing as well as additional planned clinical and preclinical development of product candidates in our pipeline. We expect to continue our collaboration arrangements and will look for additional collaboration and licensing opportunities.
Although it is difficult to predict our funding requirements, based upon our current operating plan, we believe that our existing cash, cash equivalents and marketable securities, together with interest thereon and expected milestone and royalty payments will be sufficient to fund our operations into 2024.2027. We have based these estimates on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect.
The following table sets forth the primary sources and uses of cash and cash equivalents for each of the periods presented below (in thousands):
| | | | | | | | | | |
| | Year Ended December 31, | |
| | 2020 | | 2019 | | 2018 | |
Net cash provided by (used in): | | | | | | | | | | |
Operating activities | | $ | (5,004) | | $ | 64,374 | | $ | (79,756) | |
Investing activities | | | 100,192 | | | (50,970) | | | (164,767) | |
Financing activities | | | 18,044 | | | 10,662 | | | 254,241 | |
Net increase in cash and cash equivalents | | $ | 113,232 | | $ | 24,066 | | $ | 9,718 | |
| | | | | | | | | | | |
| Year ended December 31, |
| 2023 | | 2022 |
Net cash provided by (used in): | | | |
Operating activities | $ | 85,111 | | | $ | 24,485 | |
Investing activities | (111,065) | | | (119,725) | |
Financing activities | 26,182 | | | 5,702 | |
Net increase (decrease) in cash and cash equivalents | $ | 228 | | | $ | (89,538) | |
Operating Activities
Net cash used by operating activities for the year ended December 31, 2020 reflects that upfront and milestone payments and royalties received in the year funded a majority of the operating expenses incurred during the year.
Net cash provided by operating activities for the year ended December 31,
20192023 and 2022 reflects
upfrontmilestone and
milestoneroyalty payments,
including sale of a portion of future royalties under the Ultomiris Royalty Sale Agreement in 2023, received
during the year in excess of operating
expenses, while net cash used in operations for the years ended December 31, 2018 reflects operating expenses in excess of milestone payments primarily for advancing our pipeline of bispecific antibody candidates during such years.expenses.
Investing activities consist primarily of proceeds from maturities of marketable securities offset by purchases of marketable securities available-for-sale, acquisition of intangible assets and purchases of property and equipment. In
2020,2023, we
redeemed $114.0purchased $89.8 million of marketable securities, net of
$643.7 million of purchase. In 2019, we purchased $39.9 million of marketable securities, net of $456.9$693.1 million of proceeds from sales and maturities. In
2018,2022, we purchased
$155.7$81.3 million
inof marketable securities, net of
$222.1$306.6 million of proceeds from
salesales and maturities. We acquired
$3.2 million, $3.7$2.8 million and
$1.9$4.9 million of intangible assets in the years ended December 31,
2020, 20192023 and
2018,2022, respectively. We purchased
$10.5 million, $7.4$18.4 million and
$7.2$38.5 million of capital equipment for the years ended December 31,
2020, 20192023 and
20182022, respectively.
The increase in capital expenditure in 2020 comparedWe also converted a $5.0 million convertible note to
2019 and 2018 is primarily due to facility improvementsequity investment for
our laboratory facilities.the year ended December 31, 2022.
Net cash provided by financing activities during the year ended December 31,
2020 and 20192023 consists primarily of cash from the sale of future royalties under the Monjuvi Royalty Sale Agreement. Net cash provided by financing activities during the year ended December 31, 2022 consists primarily of cash from stock option exercises and the sales of shares under the
ESPP.Employee Stock Purchase Plan (ESPP). Net cash provided by financing activities increased during the year ended December 31, 2018 consists2023 from amounts reported for 2022 primarily of netfrom proceeds received from our March 2018 follow-on public offering and cash from stock option exercises and the sale of shares under the ESPP.
future royalties.
Contractual Obligations and CommitmentsThe following table summarizes our contractual obligations at December 31, 2020 (in thousands):
| | | | | | | | | | | | | | | | |
| | Payments due by period | |
| | | | | Less | | | | | | | | More | |
| | | | | than | | 1 - 3 | | 3 - 5 | | than | |
| | Total | | 1 year | | Years | | Years | | 5 years | |
Operating lease obligation relating to facilities (1) | | $ | 6,645 | | $ | 2,428 | | $ | 2,800 | | $ | 1,417 | | $ | — | |
(1) | Consists of operating leases on our corporate headquarters in Monrovia, CA encompassing two floors of 24,000 square feet each |
| that expire in December 2025 and September 2022, respectively, and on our San Diego, CA offices encompassing 24,000 square feet that expires in August 2022. |
We are obligated to make future payments to third parties under in-license agreements, including sublicense fees, royalties, and payments that become due and payable on the achievement of certain development and commercialization milestones. We have also entered into agreements with third partythird-party vendors which will require us to make future payments upon the delivery of goods and services in future periods.
In
February 2015,April 2021, we entered into a license agreement with BIO-TECHNE Corporation (BIO-TECHNE) for a non-exclusive license to
a certain
recombinant monoclonal antibody
technology including monoclonal antibodies which recognizereactive with human
somatostatin receptor 2 (SSTR2)Claudin-6 protein (CLDN6).
The variable domain of thisThis antibody is
incorporatedbeing developed in our
tidutamab drug candidate.XmAb541 program. Under this license agreement, we may be required to make
$3.8$30.6 million in additional contingent payments which include
$800,000 of clinical milestones and $3.0 million of regulatory milestones, in addition to royalties upon commercial sales of products of less than 1%. We made an upfront payment of $200,000 in connection with this license and made a Phase 1 milestone payment of $100,000 in 2018. We have not made any additional milestone payments under this arrangement.We entered into a second agreement with BIO-TECHNE, effective February 2018, for a non-exclusive license to a certain recombinant monoclonal antibody reactive with human programmed death protein, PD-1. Under this license agreement, we may be required to make $22.0 million in additional contingent payments which include $1.5$1.8 million of clinical milestones, $4.5$4.8 million of regulatory milestones and milestones on the achievement of certain sales of $16.0$24.0 million, in addition to royalties upon commercial sales of products of 1%0.5%. We made an upfront payment in connection with this license in 20192021 and have not made any additional payments under this license agreement.
In November 2015, we entered into a worldwide exclusive commercial license agreement with Selexis SA to develop and commercialize products produced from the Selexis cell line that was manufactured in connection with our vibecotamab drug candidate. We made an upfront payment of 50,000 Swiss Francs (CHF) in connection with the license and may be required to make CHF 1.7 million in additional contingent obligations which include CHF 500,000 in development milestones, CHF 400,000 in regulatory milestones and CHF 800,000 in sales milestones, in addition to royalties upon commercial sales of products of less than 1%. During 2016, we made a CHF 100,000 milestone payment in connection with an IND submission. There were no additional milestone payments made under this license agreement.
In February 2016, we entered into a worldwide exclusive commercial license agreement with Selexis SA to develop and commercialize products produced from the Selexis cell line that was manufactured in connection with our plamotamab drug candidate. In connection with the license, we may be required to make CHF 1.7 million in additional contingent obligations which include CHF 500,000 in development milestones, CHF 400,000 in regulatory milestones and
CHF 800,000 in sales milestones, in addition to royalties upon commercial sales of products of less than 1%.
During 2016,In 2022, we
maderecorded a
milestone of CHF
100,000 milestone payment in connection with an IND submission. There were no additional milestone payments made under this license agreement.200,000 upon initiation of Phase 2.
In December 2017, we entered into worldwide exclusive commercial license agreements with Selexis to develop and commercialize products produced from the Selexis cell line that was manufactured for each of our bispecific antibody and cytokine drug candidates:
tidutamab, XmAb717, XmAb841, XmAb104,vudalimab, XmAb306, XmAb564 and XmAb819. The terms for each agreement are identical and for each licensed cell line we may be required to make up to CHF 1.4 million in total development, regulatory and sales milestones which include CHF 425,000 in development milestones, CHF 340,000 in regulatory milestones and CHF 680,000 in sales milestones. In addition, we may be obligated to pay royalties upon commercial sales of approved products of less than 1%. In
2018, we made three milestone payments of CHF 85,000 each in connection with three separate IND submissions. In 2019, we made a milestone payment of CHF 75,000 in connection with an IND submission, and in 2020, we recorded a milestone payment due of CHF 75,000 in connection with an IND submission.
In December 2012,2021, we recorded a milestone payment due of CHF 170,000 upon an initiation of Phase 2.
In September 2020, we entered into an agreement with MD Andersen in which we agreed to provide up to $10.0 million in funding over a Cross-License Agreementfive-year period in exchange for MD Andersen conducting clinical studies with MedImmune, LLC (MedImmune) for a non-exclusive license to certain MedImmune patents related to half-life technology. Under the terms ofour drug candidates. In December 2021, we amended the agreement to extend it an additional year at the same level of funding.
In August 2022 and in December 2022, we entered into agreements with Caris to license novel targets identified from their technology platform. The terms for the agreements provide that we may be obligated to make contingent payments in connection with the use of our Xtend™ technology, including use
by us in ourpay development, candidatesregulatory and also for use by our licensees. These contingent payments total $250,000 per program and include $150,000 in clinical milestones and $100,000 in regulatory milestones. In addition, we may be obligated to make contingent payments for tiered sales milestones for each target we elect to license in addition to royalties on the salenet sales of approved products from $20,000 per year to $1.0 million per year. Our obligations to make payments under this agreement expire in December 2021. We made milestone payments under this agreement of $125,000, $75,000 and $375,000 for 2018, 2019 and 2020, respectively.
approve products.
As the amount and timing of sublicense fees and the achievement and timing of these milestones are not probable and estimable, such commitments have not been included on our balance sheet or in the contractual obligations and commitment tables above.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements.
New Accounting Pronouncements
Item
7A.7A. Quantitative and Qualitative Disclosures About Market RiskOur primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. Due to the short-term duration of our investment portfolio and the low risk profile of our investments, an immediate 10.0% change in interest rates would not have a material effect on the fair market value of our portfolio. Accordingly, we would not expect our operating results or cash flows to be affected to any significant degree by the effect of a sudden change in market interest rates on our investment portfolio.
We do not believe that our cash, cash equivalents and marketable securities have significant risk of default or illiquidity. While we believe our cash, cash equivalents and marketable securities do not contain excessive risk, we cannot provide absolute assurance that in the future our investments will not be subject to adverse changes in market value. In addition, we maintain significant amounts of cash and cash equivalents at one or more financial institutions that are in excess of federally insured limits.
Inflation generally affects us by increasing our cost of labor and clinical trial costs. We do not believe that inflation has had a material effect on our results of operations during the periods presented.
Item
8. Financial Statements and Supplementary DataData
Financial Statements
| | | | | |
Audited Financial Statements for the Years Ended December 31, 2021, 2020 2019 and 2018:2019: | |
|
| | 76
|
| | 79
|
| |
| | 80
|
| | 81
|
| | 82
|
| | 83
|
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of
Xencor, Inc.
Opinion on the Financial Statements
We have audited the accompanying
consolidated balance sheets of Xencor, Inc.
and its subsidiary (the Company) as of December 31,
20202023 and
2019,2022, the related
consolidated statements of
income (loss), comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31,
2020,2023, and the related notes to the
consolidated financial
statements.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,
20202023 and
2019,2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31,
2020,2023, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020,2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated February 23, 2021,28, 2024, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
auditsaudit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
The critical audit matter communicated below is a matter arising from the
current-periodcurrent period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements; and (2) involved our especially challenging, subjective or complex judgments. The communication of
the critical audit matter
doesdid 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
opinionopinions on the critical audit matter or on the accounts or disclosures to which
it relates.they relate.
Revenue Recognition—Collaboration
Judgement and
Licensing AgreementsComplexity of Accounting for the Sale of Future Royalty Streams
As discusseddescribed in Note 1011 to the financial statements, the Company entered into collaboration and licensing agreements duringevaluated the year ended December 31, 2020. These contracts contain multiple performance obligations. Management’s identificationup-front payment received from the sale of the performance obligations requires significant judgment, including whetherUltomiris (Alexion) Agreement classified as deferred revenue and evaluated the performance obligations are distinct and capable of being distinct, which requires management to evaluate whether the customer can benefitup-front payment received from the good or servicesale of the Monjuvi (Morphosys) Agreement classified as debt under ASC 470. When the sale of future revenue is accounted for as debt, the company continues to recognize revenue based on its own, or togetherthe terms of the contract with other resources readily available to the customer. Management applies significant judgmentlicensee. When the sale is accounted for as deferred revenue, the company recognizes revenue using the units of revenue method. We identified the related audit effort in evaluating management’s judgements in determining the revenue recognition for these collaboration and licensing contracts includingfactors that would indicate whether the identification of and accounting for all performance obligations and the calculation of the standalone 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 datatransaction should be recorded as well as an estimate of future profitability. For each performance obligation identified, the Company recognizesdebt or deferred 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 auditingmatter.
The principal consideration for our determination that the
identificationjudgement and
complexity of accounting for
performance obligations,the sale of future royalty streams under the Ultomiris and
Monjuvi agreements was a critical audit matter is that the
calculation ofrelated audit effort in evaluating management’s judgements in determining the
SSP for each performance obligation,factors that would indicate whether the transaction should be recorded as debt or deferred revenue required significant audit effort and a high degree of auditor judgment and subjectivity to perform our audit procedures and evaluate the audit evidence obtained.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. Our
audit procedures
included, among others (i) obtaining an understanding of the relevant controls related to the
Company’s collaborationevaluation of the classification of up front payments and
licensing contracts includedtested such controls for design and operating effectiveness (ii) obtaining information regarding 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. |
nature and extent of the Royalty Purchase Agreement; (iii) obtaining an understanding detailing the transaction and accounting treatment; and (iv) assessing management’s classification under both agreements, including utilization of a subject matter expert.
/s/ RSM US LLP
We have served as the Company’s auditor since 2015.
/s/ RSM US LLP
Los Angeles, California
February
23, 2021
28, 2024
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of
Opinion on
the Internal Control Over Financial Reporting
We have audited Xencor, Inc.’s and its subsidiary (the Company) internal control over financial reporting as of December 31, 2020,2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020,2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the
accompanying consolidated balance sheets of the Company as of December 31,
20202023 and
2019,2022, the related
consolidated statements of
income (loss), comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31,
2020,2023, and the related notes to the consolidated financial statements (collectively, the financial statements) of the Company and our report dated February
23, 2021,28, 2024 expressed an unqualified opinion.
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
Company’scompany’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Los Angeles, California
February
23, 202128, 2024
Consolidated Balance
SheetsSheets
(in thousands, except share and per share data)
| | | | | | | |
| | December 31, | |
| | 2020 | | 2019 | |
| | | | | | |
Assets | | | | | | | |
Current assets | | | | | | | |
Cash and cash equivalents | | $ | 163,544 | | $ | 50,312 | |
Marketable securities | | | 434,156 | | | 479,470 | |
Equity securities | | | 5,303 | | | — | |
Accounts receivable | | | 11,443 | | | 21,574 | |
Income tax receivable | | | — | | | 502 | |
Contract asset | | | 12,500 | | | — | |
Prepaid expenses and other current assets | | | 10,726 | | | 6,547 | |
Total current assets | | | 637,672 | | | 558,405 | |
Property and equipment, net | | | 21,682 | | | 15,805 | |
Patents, licenses, and other intangible assets, net | | | 15,977 | | | 14,421 | |
Marketable securities - long term | | | 1,030 | | | 71,526 | |
Equity securities - long term | | | 16,071 | | | — | |
Income tax receivable | | | — | | | 402 | |
Right of use asset | | | 10,600 | | | 9,380 | |
Other assets | | | 212 | | | 311 | |
Total assets | | $ | 703,244 | | $ | 670,250 | |
Liabilities and stockholders’ equity | | | | | | | |
Current liabilities | | | | | | | |
Accounts payable | | $ | 8,954 | | $ | 10,189 | |
Accrued expenses | | | 17,603 | | | 8,995 | |
Lease liabilities | | | 1,889 | | | 2,169 | |
Deferred revenue | | | 92,615 | | | 45,205 | |
Total current liabilities | | | 121,061 | | | 66,558 | |
Lease liabilities, net of current portion | | | 9,739 | | | 8,565 | |
Deferred revenue, net of current portion | | | — | | | 1,926 | |
Total liabilities | | | 130,800 | | | 77,049 | |
Commitments and contingencies (see note 9) | | | | | | | |
Stockholders’ equity | | | | | | | |
Preferred stock, $0.01 par value: 10,000,000 authorized shares; -0- issued and outstanding shares at December 31, 2020 and 2019 | | | — | | | — | |
Common stock, $0.01 par value: 200,000,000 authorized shares; 57,873,444 issued and outstanding shares at December 31, 2020 and 56,902,301 issued and outstanding at December 31, 2019 | | | 580 | | | 569 | |
Additional paid-in capital | | | 937,525 | | | 887,873 | |
Accumulated other comprehensive income | | | 74 | | | 1,161 | |
Accumulated deficit | | | (365,735) | | | (296,402) | |
Total stockholders’ equity | | | 572,444 | | | 593,201 | |
Total liabilities and stockholders’ equity | | $ | 703,244 | | $ | 670,250 | |
| | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
| | | |
Assets | | | |
Current assets | | | |
Cash and cash equivalents | $ | 53,790 | | | $ | 53,942 | |
Marketable debt securities | 497,725 | | | 526,689 | |
Marketable equity securities | 42,210 | | | 42,431 | |
Accounts receivable | 11,290 | | | 28,997 | |
| | | |
Prepaid expenses and other current assets | 18,145 | | | 23,283 | |
Total current assets | 623,160 | | | 675,342 | |
Property and equipment, net | 66,124 | | | 59,183 | |
Patents, licenses, and other intangible assets, net | 18,663 | | | 18,500 | |
Restricted cash | 380 | | | — | |
Marketable debt securities - long term | 145,512 | | | 3,826 | |
Equity securities | 64,210 | | | 54,383 | |
| | | |
Right of use asset | 33,995 | | | 34,419 | |
Other assets | 648 | | | 613 | |
Total assets | $ | 952,692 | | | $ | 846,266 | |
Liabilities and stockholders’ equity | | | |
Current liabilities | | | |
Accounts payable | $ | 13,914 | | | $ | 10,088 | |
Accrued expenses | 23,564 | | | 18,728 | |
Income tax payable | 5,782 | | | — | |
Lease liabilities | 3,435 | | | 4,708 | |
Deferred revenue | — | | | 30,320 | |
Deferred income | 31,682 | | | — | |
Debt | 6,332 | | | — | |
Total current liabilities | 84,709 | | | 63,844 | |
Lease liabilities, net of current portion | 59,025 | | | 54,926 | |
Deferred income, net of current portion | 125,183 | | | — | |
Debt, net of current portion | 14,642 | | | — | |
Total liabilities | 283,559 | | | 118,770 | |
Commitments and contingencies (see note 9) | | | |
Stockholders’ equity | | | |
Preferred stock, $0.01 par value: 10,000,000 authorized shares; -0- issued and outstanding shares at December 31, 2023 and 2022 | — | | | — | |
Common stock, $0.01 par value: 200,000,000 authorized shares; 60,998,191 issued and outstanding shares at December 31, 2023 and 59,997,713 issued and outstanding at December 31, 2022 | 611 | | | 601 | |
Additional paid-in capital | 1,131,266 | | | 1,072,132 | |
Accumulated other comprehensive income | 1,291 | | | (6,952) | |
Accumulated deficit | (464,372) | | | (338,285) | |
Total stockholders’ equity attributable to Xencor, Inc.
| 668,796 | | | 727,496 | |
Non-controlling interest | 337 | | | — | |
Total stockholders' equity | 669,133 | | | 727,496 | |
Total liabilities and stockholders’ equity | $ | 952,692 | | | $ | 846,266 | |
See accompanying notes to the financial statements.
Consolidated Statements of
Comprehensive Income (Loss)(Loss)
(in thousands, except share and per share data)
| | | | | | | | | | |
| | Year ended December 31, | |
| | 2020 | | 2019 | | 2018 | |
Revenue | | | | | | | | | | |
Collaborations, licenses, milestones and royalties | | $ | 122,694 | | $ | 156,700 | | $ | 40,603 | |
Operating expenses | | | | | | | | | | |
Research and development | | | 169,802 | | | 118,590 | | | 97,501 | |
General and administrative | | | 29,689 | | | 24,286 | | | 22,472 | |
Total operating expenses | | | 199,491 | | | 142,876 | | | 119,973 | |
Income (loss) from operations | | | (76,797) | | | 13,824 | | | (79,370) | |
Other income (expense) | | | | | | | | | | |
Interest income, net | | | 7,264 | | | 13,619 | | | 9,086 | |
Other income (expense) | | | 200 | | | (256) | | | (125) | |
Total other income, net | | | 7,464 | | | 13,363 | | | 8,961 | |
| | | | | | | | | | |
Income (loss) before income tax | | | (69,333) | | | 27,187 | | | (70,409) | |
Income tax expense | | | — | | | 312 | | | — | |
Net income (loss) | | | (69,333) | | | 26,875 | | | (70,409) | |
Other comprehensive income (loss) | | | | | | | | | | |
Net unrealized gain (loss) on marketable securities available-for-sale | | | (1,087) | | | 2,132 | | | 837 | |
Comprehensive income (loss) | | $ | (70,420) | | $ | 29,007 | | $ | (69,572) | |
| | | | | | | | | | |
Net income (loss) per share attributable to common stockholders: | | | | | | | | | | |
Basic | | $ | (1.21) | | $ | 0.48 | | $ | (1.31) | |
Diluted | | $ | (1.21) | | $ | 0.46 | | $ | (1.31) | |
Weighted average shares used to compute net income (loss) per share attributable to common stockholders: | | | | | | | | | | |
Basic | | | 57,212,737 | | | 56,531,439 | | | 53,942,116 | |
Diluted | | | 57,212,737 | | | 58,467,880 | | | 53,942,116 | |
See accompanying notes to the financial statements.
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2023 | | 2022 | | 2021 |
Revenue | | | | | |
Collaborations, licenses, milestones, and royalties | $ | 168,338 | | | $ | 164,579 | | | $ | 275,111 | |
Operating expenses | | | | | |
Research and development | 253,598 | | | 199,563 | | | 192,507 | |
General and administrative | 53,379 | | | 47,489 | | | 38,837 | |
Total operating expenses | 306,977 | | | 247,052 | | | 231,344 | |
Income (loss) from operations | (138,639) | | | (82,473) | | | 43,767 | |
Other income (expense) | | | | | |
Interest income, net | 18,626 | | | 4,817 | | | 849 | |
Other expense, net | (31) | | | (286) | | | (1,274) | |
Gain (loss) on equity securities, net | (395) | | | 23,434 | | | 39,289 | |
Total other income, net | 18,200 | | | 27,965 | | | 38,864 | |
| | | | | |
Income (loss) before income tax | (120,439) | | | (54,508) | | | 82,631 | |
Income tax expense | 5,811 | | | 673 | | | — | |
Net income (loss) | (126,250) | | | (55,181) | | | 82,631 | |
| | | | | |
Net loss attributable to non-controlling interest | (163) | | | — | | | — | |
Net income (loss) attributable to Xencor, Inc. | $ | (126,087) | | | $ | (55,181) | | | $ | 82,631 | |
| | | | | |
Net income (loss) per common share attributable to Xencor, Inc.: | | | | | |
Basic | $ | (2.08) | | | $ | (0.93) | | | $ | 1.42 | |
Diluted | $ | (2.08) | | | $ | (0.93) | | | $ | 1.37 | |
Weighted average common shares used to compute net income (loss) per share attributable to Xencor, Inc. | | | | | |
Basic | 60,503,283 | | 59,652,461 | | 58,379,641 |
Diluted | 60,503,283 | | 59,652,461 | | 60,495,455 |
Xencor, Inc.
Statements of Stockholders’ Equity
(in thousands, except share data)
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | Accumulated | | | | | | |
| | | | | | | Additional | | Other | | | | | Total |
| ��� | Common Stock | | Paid | | Comprehensive | | Accumulated | | Stockholders’ |
Stockholders’ Equity | | Shares | | Amount | | in-Capital | | | Income | | Deficit | | Equity |
Balance, December 31, 2017 | | 47,002,488 | | | 470 | | | 570,670 | | | (1,808) | | | (252,868) | | | 316,464 |
Sale of common stock, net of issuance cost | | 8,395,000 | | | 84 | | | 245,420 | | | — | | | — | | | 245,504 |
Issuance of common stock upon exercise of stock awards | | 824,731 | | | 8 | | | 7,609 | | | — | | | — | | | 7,617 |
Issuance of common stock under the Employee Stock Purchase Plan | | 57,323 | | | 1 | | | 1,119 | | | — | | | — | | | 1,120 |
Comprehensive loss | | — | | | — | | | — | | | 837 | | | (70,409) | | | (69,572) |
Stock-based compensation | | — | | | — | | | 20,548 | | | — | | | — | | | 20,548 |
Balance, December 31, 2018 | | 56,279,542 | | | 563 | | | 845,366 | | | (971) | | | (323,277) | | | 521,681 |
Issuance of common stock upon exercise of stock awards | | 543,887 | | | 5 | | | 9,264 | | | — | | | — | | | 9,269 |
Issuance of common stock under the Employee Stock Purchase Plan | | 67,561 | | | 1 | | | 1,392 | | | — | | | — | | | 1,393 |
Issuance of restricted stock units | | 11,311 | | | — | | | — | | | | | | | | | — |
Comprehensive income | | — | | | — | | | — | | | 2,132 | | | 26,875 | | | 29,007 |
Stock-based compensation | | — | | | — | | | 31,851 | | | — | | | — | | | 31,851 |
Balance, December 31, 2019 | | 56,902,301 | | | 569 | | | 887,873 | | | 1,161 | | | (296,402) | | | 593,201 |
Issuance of common stock upon exercise of stock awards | | 858,470 | | | 9 | | | 16,608 | | | — | | | — | | | 16,617 |
Issuance of common stock under the Employee Stock Purchase Plan | | 50,318 | | | 1 | | | 1,426 | | | — | | | — | | | 1,427 |
Issuance of restricted stock units | | 62,355 | | | 1 | | | (1) | | | — | | | — | | | — |
Comprehensive loss | | — | | | — | | | — | | | (1,087) | | | (69,333) | | | (70,420) |
Stock-based compensation | | — | | | — | | | 31,619 | | | — | | | — | | | 31,619 |
Balance, December 31, 2020 | | 57,873,444 | | $ | 580 | | $ | 937,525 | | $ | 74 | | $ | (365,735) | | $ | 572,444 |
See accompanying notes to the financial statements.
Consolidated Statements of
Cash FlowsComprehensive Income (Loss)
(in thousands)
| | | | | | | | | | |
| | Year ended December 31, | |
| | 2020 | | 2019 | | 2018 | |
Cash flows from operating activities | | | | | | | | | | |
Net income (loss) | | $ | (69,333) | | $ | 26,875 | | $ | (70,409) | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | | | | | | | |
Depreciation and amortization | | | 5,794 | | | 4,298 | | | 3,251 | |
Amortization of premium on marketable securities | | | (272) | | | (4,321) | | | (394) | |
Stock-based compensation | | | 31,619 | | | 31,851 | | | 20,548 | |
Abandonment of capitalized intangible assets | | | 535 | | | 221 | | | 239 | |
Loss on disposal of assets | | | 4 | | | 8 | | | 102 | |
Loss (gain) on sale of marketable securities available-for-sale | | | (153) | | | — | | | 74 | |
Equity received in connection with license agreement | | | (26,660) | | | — | | | — | |
Cash redemption of equity received in connection with license agreement | | | 5,390 | | | — | | | — | |
Change in fair value of equity security | | | (105) | | | — | | | — | |
| | | | | | | | | | |
Changes in operating assets and liabilities: | | | | | | | | | | |
Accounts receivable | | | 10,131 | | | (11,321) | | | (9,045) | |
Interest receivable | | | 1,190 | | | (387) | | | (535) | |
Prepaid expenses and other current assets | | | (4,170) | | | 3,828 | | | (4,769) | |
Income tax receivable | | | 895 | | | 704 | | | (84) | |
Contract asset and deposits | | | (12,401) | | | — | | | (46) | |
Accounts payable | | | (1,235) | | | 6,392 | | | (3,072) | |
Accrued expenses | | | 8,608 | | | (667) | | | 4,182 | |
Deferred rent | | | — | | | (1,513) | | | 398 | |
Income tax payable | | | — | | | — | | | (157) | |
Lease liabilities and ROU assets | | | (325) | | | 1,354 | | | — | |
Deferred revenue | | | 45,484 | | | 7,052 | | | (20,039) | |
Net cash provided by (used in) operating activities | | | (5,004) | | | 64,374 | | | (79,756) | |
Cash flows from investing activities | | | | | | | | | | |
Proceeds from sale and maturities of marketable securities available-for-sale | | | 757,617 | | | 456,923 | | | 222,125 | |
Proceeds from sale of property and equipment | | | 1 | | | — | | | 9 | |
Purchase of marketable securities | | | (643,658) | | | (496,855) | | | (377,840) | |
Purchase of intangible assets | | | (3,229) | | | (3,685) | | | (1,935) | |
Purchase of property and equipment | | | (10,539) | | | (7,353) | | | (7,212) | |
Proceeds from repayment of loan receivable | | | — | | | — | | | 86 | |
Net cash provided by (used in) investing activities | | | 100,192 | | | (50,970) | | | (164,767) | |
Cash flows from financing activities | | | | | | | | | | |
Proceeds from issuance of common stock upon exercise of stock awards | | | 16,617 | | | 9,269 | | | 7,617 | |
Proceeds from issuance of common stock from Employee Stock Purchase Plan | | | 1,427 | | | 1,393 | | | 1,120 | |
Proceeds from issuance of common stock | | | — | | | — | | | 260,245 | |
Common stock issuance costs | | | — | | | — | | | (14,741) | |
Net cash provided by financing activities | | | 18,044 | | | 10,662 | | | 254,241 | |
Net increase in cash and cash equivalents | | | 113,232 | | | 24,066 | | | 9,718 | |
Cash and cash equivalents, beginning of year | | | 50,312 | | | 26,246 | | | 16,528 | |
Cash and cash equivalents, end of year | | $ | 163,544 | | $ | 50,312 | | $ | 26,246 | |
Supplemental disclosures of cash flow information | | | | | | | | | | |
Cash paid for: | | | | | | | | | | |
Interest | | $ | 15 | | $ | 11 | | $ | 16 | |
Taxes | | $ | — | | $ | 400 | | $ | 233 | |
Supplemental Schedule of Noncash Investing Activities | | | | | | | | | | |
Net unrealized gain (loss) on marketable securities available-for-sale | | $ | (1,087) | | $ | 2,132 | | $ | 837 | |
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2023 | | 2022 | | 2021 |
Net income (loss) | $ | (126,250) | | | $ | (55,181) | | | $ | 82,631 | |
Other comprehensive income (loss): | | | | | |
Net unrealized gain (loss) on marketable debt securities available-for-sale | 8,243 | | | (5,442) | | | (1,584) | |
Comprehensive income (loss) | (118,007) | | | (60,623) | | | 81,047 | |
Comprehensive income (loss) attributable non-controlling interest | (163) | | | — | | | — | |
Comprehensive income (loss) attributable to Xencor, Inc. | $ | (117,844) | | | $ | (60,623) | | | $ | 81,047 | |
Xencor, Inc.
Consolidated Statements of Stockholders’ Equity
(in thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional Paid in-Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Deficit | | Non-Controlling Interest | | Total Stockholders’ Equity |
Stockholders’ Equity | | Shares | | Amount | | | | | |
Balance, December 31, 2020 | | 57,873,444 | | $ | 580 | | | $ | 937,525 | | | $ | 74 | | | $ | (365,735) | | | — | | | $ | 572,444 | |
Sale of common stock | | 748,062 | | 7 | | | 28,913 | | | — | | | — | | | — | | | 28,920 | |
Issuance of common stock upon exercise of stock awards | | 520,240 | | 5 | | | 12,276 | | | — | | | — | | | — | | | 12,281 | |
Issuance of common stock under the Employee Stock Purchase Plan | | 62,257 | | 1 | | | 1,836 | | | — | | | — | | | — | | | 1,837 | |
Issuance of restricted stock units | | 151,555 | | 2 | | | (2) | | | | | | | — | | | — | |
Comprehensive income (loss) | | — | | — | | | — | | | (1,584) | | | 82,631 | | | — | | | 81,047 | |
Stock-based compensation | | — | | — | | | 36,975 | | | — | | | — | | | — | | | 36,975 | |
Balance, December 31, 2021 | | 59,355,558 | | 595 | | | 1,017,523 | | | (1,510) | | | (283,104) | | | — | | | 733,504 | |
| | | | | | | | | | | | | | |
Issuance of common stock upon exercise of stock awards | | 195,485 | | 2 | | | 3,608 | | | — | | | — | | | — | | | 3,610 | |
Issuance of common stock under the Employee Stock Purchase Plan | | 105,597 | | 1 | | | 2,091 | | | — | | | — | | | — | | | 2,092 | |
Issuance of restricted stock units | | 341,073 | | 3 | | | (3) | | | — | | | — | | | — | | | — | |
Comprehensive loss | | — | | — | | | — | | | (5,442) | | | (55,181) | | | — | | | (60,623) | |
Stock-based compensation | | — | | — | | | 48,913 | | | — | | | — | | | — | | | 48,913 | |
Balance, December 31, 2022 | | 59,997,713 | | 601 | | | 1,072,132 | | | (6,952) | | | (338,285) | | | — | | | 727,496 | |
Issuance of common stock upon exercise of stock awards | | 344,383 | | 3 | | | 3,409 | | | — | | | — | | | — | | | 3,412 | |
Issuance of common stock under the Employee Stock Purchase Plan | | 98,029 | | 1 | | | 1,976 | | | — | | | — | | | — | | | 1,977 | |
Issuance of restricted stock units | | 558,066 | | 6 | | | (6) | | | — | | | — | | | — | | | — | |
Contribution from non-controlling interest owners | | — | | — | | | — | | | — | | | — | | | 500 | | | 500 | |
Comprehensive income (loss) | | — | | — | | | — | | | 8,243 | | | (126,087) | | | (163) | | | (118,007) | |
Stock-based compensation | | — | | — | | | 53,755 | | | — | | | — | | | — | | | 53,755 | |
Balance, December 31, 2023 | | 60,998,191 | | $ | 611 | | | $ | 1,131,266 | | | $ | 1,291 | | | $ | (464,372) | | | $ | 337 | | | $ | 669,133 | |
See accompanying notes to the financial statements.
Xencor, Inc.
Consolidated Statements of ContentsCash Flows
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2023 | | 2022 | | 2021 |
Cash flows from operating activities | | | | | |
Consolidated net income (loss) | $ | (126,250) | | | $ | (55,181) | | | $ | 82,631 | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | | |
Depreciation and amortization | 11,498 | | | 8,799 | | | 7,491 | |
Amortization of premium (accretion of discount) on marketable securities | (13,635) | | | 127 | | | 3,160 | |
Stock-based compensation | 53,755 | | | 48,913 | | | 36,975 | |
Abandonment of capitalized intangible assets | 1,267 | | | 1,510 | | | 934 | |
Loss on disposal of assets | 1,379 | | | 145 | | | 462 | |
| | | | | |
Equity received in connection with license agreement | (10,000) | | | (5,397) | | | (22,379) | |
Equity received in connection with sale of financial assets | — | | | — | | | (3,300) | |
| | | | | |
Change in fair value of equity securities | 395 | | | (23,434) | | | (20,988) | |
Equity securities impairment | — | | | 138 | | | 762 | |
Noncash interest expense | 681 | | | — | | | — | |
| | | | | |
Changes in operating assets and liabilities: | | | | | |
Accounts receivable and contract assets | 17,707 | | | 37,387 | | | (42,441) | |
Interest receivable from marketable debt securities | (1,028) | | | (530) | | | 655 | |
Prepaid expenses and other assets | 5,103 | | | 634 | | | (13,592) | |
Income tax | 5,782 | | | — | | | — | |
Accounts payable | 3,826 | | | (3,913) | | | 5,047 | |
Accrued expenses | 4,836 | | | (715) | | | 1,840 | |
Lease liabilities and ROU assets | 3,250 | | | 22,976 | | | 1,211 | |
Deferred revenue | (30,320) | | | (6,974) | | | (55,321) | |
Deferred income | 156,865 | | | — | | | — | |
Net cash provided by (used in) operating activities | 85,111 | | | 24,485 | | | (16,853) | |
Cash flows from investing activities | | | | | |
Proceeds from sale and maturities of marketable debt securities available-for-sale | 693,090 | | | 306,607 | | | 485,152 | |
Proceeds from sale of property and equipment | 1 | | | — | | | 19 | |
Purchase of marketable securities | (782,905) | | | (387,928) | | | (509,597) | |
Purchase of intangible assets | (2,803) | | | (4,910) | | | (2,682) | |
Purchase of property and equipment | (18,448) | | | (38,494) | | | (13,299) | |
Conversion (purchase) of convertible note | — | | | 5,000 | | | (5,000) | |
Exercise of stock options | — | | | — | | | (842) | |
Net cash used in investing activities | (111,065) | | | (119,725) | | | (46,249) | |
Cash flows from financing activities | | | | | |
Proceeds from issuance of common stock upon exercise of stock awards | 3,412 | | | 3,610 | | | 12,281 | |
Proceeds from issuance of common stock from Employee Stock Purchase Plan | 1,977 | | | 2,092 | | | 1,837 | |
Proceeds from issuance of common stock | — | | | — | | | 28,920 | |
Proceeds from sale of future royalties | 20,293 | | | — | | | — | |
Proceeds from non-controlling interest | 500 | | | — | | | — | |
Net cash provided by financing activities | 26,182 | | | 5,702 | | | 43,038 | |
Net increase (decrease) in cash, cash equivalents, and restricted cash | 228 | | | (89,538) | | | (20,064) | |
Cash, cash equivalents, and restricted cash, beginning of year | 53,942 | | | 143,480 | | | 163,544 | |
Cash, cash equivalents, and restricted cash, end of year | $ | 54,170 | | | $ | 53,942 | | | $ | 143,480 | |
Supplemental disclosures of cash flow information | | | | | |
Cash paid for: | | | | | |
Interest | $ | 22 | | | $ | 13 | | | $ | 14 | |
Taxes | — | | | 700 | | | — | |
Supplemental schedule of noncash activities | | | | | |
Net unrealized gain (loss) on marketable securities available-for-sale | $ | 8,243 | | | $ | (5,442) | | | $ | (1,584) | |
Addition of right-of-use asset | 2,462 | | | $ | 6,155 | | | $ | 24,047 | |
See accompanying notes to the financial statements.
1. Summary of Significant Accounting Policies
Xencor, Inc. (we, us, our, or the Company) was incorporated in California in 1997 and reincorporated in Delaware in September 2004. We are a clinical-stage biopharmaceutical company focused on discovering and developing engineered monoclonal
bispecific antibody and cytokine therapeutics to treat patients with cancer and autoimmune diseases who have unmet medical needs. We create our product candidates using our proprietary XmAb technology platforms, which focus on the portion of an antibody that interacts with multiple segments of the immune system, referred to as the Fc domain, which is constant and interchangeable among antibodies. Our engineered Fc domains, the XmAb technology, can increase antibody immune inhibition, improve cytotoxicity, extend half-life and most recently are used to create bispecific antibodies and cytokines.
Our operations are based in
Monrovia,Pasadena, California and San Diego, California.
Consolidation and Basis of Presentation
The Consolidated Financial Statements include the accounts of Xencor, Inc. and its subsidiary Gale Therapeutics Inc., which was incorporated in December 2023. Since we own less than 100% of Gale, the Company records net loss attributable to non-controlling interests in its consolidated statements of income (loss) equal to the percentage of the economic or ownership interests retained in Gale by the non-controlling party.
The Company’s
consolidated financial statements as of December 31,
2020, 2019,2023, 2022, and
20182021 and for the years then ended have been prepared in accordance with accounting principles generally accepted in the United States (U.S.).
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of AmericaGAAP requires management to make
certain estimates and assumptions that affect the
reported amounts
reported in the financial statements and accompanying notes. Significant estimates include useful lives of
long-lived assets,
the periods over which certainliabilities, revenues and expenses,
will be recognizedother comprehensive gain (loss) and the related disclosures. On an ongoing basis, management evaluates its estimates, including
collaboration revenue recognized from non-refundable upfront licensing payments, the amount of non-cash compensation costsestimates related to
share-based payments to employeesits accrued clinical trial and
non-employeesmanufacturing development expenses, stock-based compensation expense, evaluation of intangible assets, investments, leases and
other assets for evidence of impairment, fair value measurements, and contingencies. Significant estimates in these financial statements include estimates made for royalty revenue, accrued research and development expenses, stock-based compensation expenses, intangible assets, incremental borrowing rate for right-of-use asset and lease liability, estimated standalone selling price of performance obligations, estimated time for completing delivery of performance obligations under certain arrangements, the
period over which these costs are expensed.likelihood of recognizing variable consideration, the carrying value of equity instruments without a readily determinable fair value, and recoverability of deferred tax assets.
Recent Accounting Pronouncements
Pronouncements
adopted in 2020Not yet Effective January 1, 2020,
In June 2022, the Company adoptedFinancial Accounting Standards Board (FASB) issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as well as ASU No, 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses. The standard amends guidance on reporting credit losses for assets held at amortized cost basis and also provides an available-for-sale (AFS) debt security impairment model that is a modified version of the other-than-temporary-impairment (OTTI) model. The AFS debt security impairment model no longer allows consideration of the length of time during which the fair value has been less than its amortized cost when determining whether a credit loss exists. The adoption of this standard did not have any impact on the Company’s financial statements.Effective January 1, 2020, the Company adopted ASU No. 2018-13, 2022-03,
Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement which modifies the disclosures for transfers between Level 1 and Level 2 of the fair value hierarchy, modifies the Level 3 disclosure requirements for non-public entities and requires additional disclosure for Level 3 fair value hierarchy. The adoption of this standard did not have any impact on the Company’s financial statements.Effective January 1, 2020, the Company adopted ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606, which provides guidance on howEquity Securities Subject to assess whether certain transactions between collaborative arrangement participants should be accounted for within the revenue recognition standard. The adoption of this standard did not have any impact on the Company’s financial statements.
Pronouncements not yet effective
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,s, which is effective for fiscal years beginning on and after December 15, 2020,2023, and interim periods within those fiscal years. The standard removes specific exceptions toclarifies that a contractual restriction on the general principlessale of an equity security is not considered part of the unit of account of the equity security and is not considered in Topic 740 and simplifies the accounting for income taxes.measuring fair value. The Company does not anticipate that the standard will have a significant impact on its financial statements.
In January 2020,December 2023, the FASB issued ASU No. 2020-01,2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures, 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 amendment is effective for fiscal years beginning on and after December 15, 2020.2024, and interim periods within those fiscal years. The standard provides more transparency about income tax information through improvements to income tax
disclosures primarily related to the rate reconciliation and income taxes paid information.The Company does not anticipate that the standard will have a significant impact on its financial statements.
Variable Interest Entity
A Variable Interest Entity (VIE) is a legal entity that, by design, 1) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties, 2) has equity investors that lack the power to direct the entity's activities, 3) has investors with limited obligation to absorb expected losses, or 4) has investors who do not have the right to receive the residual returns of the entity. The primary beneficiary of a VIE is the party with the controlling financial interest and has the power to direct the activities of the VIE that most significantly impact the entity's economic performance and has the obligation to absorb losses of the VIE, or the right to receive benefits of the VIE that could be potentially significant to the VIE.
On December 19, 2023 we entered into the Gale License and Gale Services Agreements. See Note 10, We consolidated Gale's financial statements in which we have direct controlling financial interest based on the VIE model. We consider all the facts and circumstances, including our role in establishing Gale and our ongoing rights and responsibilities to assess where we have the power to direct the activities of Gale. In October 2020,general, the FASB issued ASU No. 2020-10, Codification Improvements, which amendsparties that make the most significant decisions affecting the VIE and have the right to remove those decision-makers unilaterally or by majority vote are deemed to have the power to direct the activities of a varietyVIE.
At Gale's inception, we determined whether we were the primary beneficiary and if Gale should be consolidated based on facts and circumstances. Under the rules of topicsdetermining whether an entity is a VIE, we determined that Gale is a VIE and we are the primary beneficiary.
Liability Related to the Sale of Future Royalties
We record a liability related to the sale of future Monjuvi royalties as debt, amortized under the effective interest rate method over the estimated life of the Monjuvi Royalty Sale Agreement. See Note 11. The amortization of the liability related to the sale of future royalties is based on our current estimate of future royalty payments. Royalty revenue will be recognized as earned, and the payments made will be a reduction of the liability when paid. Non-Cash Interest Expense on the Liability Related to the Sale of Future Royalties
The total expected royalty payments less the net proceeds received will be recorded as non-cash interest expense over the life of the liability. Interest is imputed on the unamortized portion using the effective interest method and expense is recorded based on the timing of the payments received over the term of the Monjuvi Royalty Sale Agreement. The actual interest rate will be affected by the timing of royalty payments made and changes in the Accounting Standards Codificationforecasted revenue.
Deferred Income Related to improve consistencythe Sale of Future Royalties
We record a liability related to the sale of future Ultomiris royalties as deferred income, amortized under the units-of-revenue method by computing a ratio of the proceeds received to the total expected payments over the term of the Ultomiris Royalty Sale Agreement. See Note 11. The amortization of the liability related to the sale of future royalties is based on our current estimate of future royalty payments. Royalty revenue will be recognized as earned and clarify guidance. The amendment is effective for fiscal years beginning after December 15, 2020. The Company is currently evaluating the amendment and does not anticipate that itpayments made will have an impact on its financial statements.be a reduction of the liability when paid.
We have, to date, earned revenue from research and development collaborations, which may include research and development services, licenses of our internally developed technologies, licenses of our internally developed drug candidates, or combinations of these.
The terms of our license, research and development, and collaboration agreements generally include non-refundable upfront payments, research funding, co-development payments and reimbursements, license fees, and milestone and other contingent payments to us for the achievement of defined collaboration objectives and certain clinical, regulatory and sales-based events, as well as royalties on sales of any commercialized products.
The terms of our licensing agreements include non-refundable upfront fees, annual licensing fees, and contractual payment obligations for the achievement of pre-defined preclinical, clinical, regulatory and sales-based events by our partners. The licensing agreements also include royalties on sales of any commercialized products by our partners.
We recognize revenue through the five-step process in accordance with ASCAccounting Standards Codification (ASC) 606, Revenue Recognitionfrom Contracts with Customers, when control of the promised goods or services is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
Deferred revenue arises from payments received in advance of the culmination of the earnings process. We have classified deferred revenue for which we stand ready to perform within the next 12 months as a current liability. We recognize deferred revenue as revenue in future periods when the applicable revenue recognition criteria have been met. There was no deferred revenue reported at December 31, 2023. The total amountsamount reported as deferred revenue were $92.6 million and $47.1was $30.3 million at December 31, 20202022.
Accounts Receivable
Accounts receivable primarily consists of royalty and
2019, respectively.milestone revenues receivable from our license and collaboration agreements, as well as receivables arising from cost-sharing development activities. Pursuant to the Ultomiris and Monjuvi Royalty Sale Agreements, a portion of the proceeds we received from the purchasers related to the sale of accounts receivable on royalty and milestone revenue earned at September 30, 2023. Payments for these receivables were paid directly to the purchasers prior to the year-ended December 31, 2023. We did not record an allowance for doubtful accounts at December 31, 2023 or 2022 due to an immaterial allowance as a result of our evaluation of credit risk under ASC 326. We expect to collect all receivables within the terms, which are generally between 30 and 60 days.
Research and Development Expenses
Research and development expenses include costs we incur for our own and for our collaborators’ research and development activities. Research and development costs are expensed as incurred. These costs consist primarily of salaries and benefits, including associated stock-based compensation, laboratory supplies, facility costs, and applicable overhead expenses of personnel directly involved in the research and development of new technology and products, as
well as fees paid to other entities that conduct certain research and development activities on our behalf. We estimate preclinical study and clinical trial expenses based on the services performed pursuant to the contracts with research institutions and clinical research organizations that conduct and manage preclinical studies and clinical trials on our behalf based on the actual time and expenses incurred by them.they incurred. Further, we accrue expenses related to clinical trials based on the level of patient enrollment and activity according to the related agreement. We monitor patient enrollment levels and related activity to the extent reasonably possible and adjust estimates accordingly.
We capitalize acquired research and development technology licenses and third-party contract rights where such assets have an alternative use and amortize the costs over the shorter of the license term or the expected useful life. We review the license arrangements and the amortization period on a regular basis and adjust the carrying value or the amortization period of the licensed rights if there is evidence of a change in the carrying value or useful life of the asset.
Cash and Cash Equivalents
We consider cash equivalents to be only those investments which are highly liquid, readily convertible to cash and which mature within three months from the date of purchase.
Restricted Cash
As of December 31, 2023, we had an outstanding letter of credit (LOC) collateralized by a money market account of $0.4 million, to the benefit of the landlord related to the Company’s San Diego facility lease. The terms of the lease provide that the amount of the LOC will be reduced on a ratable basis over the term of the lease. The original amount of the LOC was classified as long-term restricted cash as of December 31, 2023.
Marketable Debt and Equity Securities
The Company has an investment policy that includes guidelines on acceptable investment securities, minimum credit quality, maturity parameters, and concentration and diversification. The Company invests its excess cash primarily in marketable debt securities issued by investment grade institutions.
The Company considers its marketable debt securities to be available-for-sale and does not intend to sell these securities, and it is not more likely than not the Company will be required to sell the securities before recovery of the amortized cost basis. These assets are carried at fair value and any impairment losses and recoveries related to the underlying issuer’s credit standing are recognized within other income (expense), while non-credit related impairment losses and recoveries are recognized within accumulated other comprehensive income (loss). There were
0no impairment losses or recoveries recorded for the years ended in December 31,
20202023 and
2019,2022, respectively. Accrued interest on marketable debt securities is included in marketable securities’ carrying value. Accrued interest was
$1.4$2.3 million and
$2.7$1.3 million at December 31,
20202023 and
2019,2022, respectively. Each reporting period, the Company reviews its portfolio of marketable debt securities, using both quantitative and qualitative factors, to determine if each security’s fair value has declined below its amortized cost basis.
During the years ended December 31, 2023 and 2022, the Company recorded an unrealized gain of $8.2 million and an unrealized loss of $5.4 million, respectively, in its portfolio of marketable debt securities. The unrealized loss was due to the changing interest rate environment and is not due to changes in the credit quality of the underlying securities. The unrealized gain and loss were recorded in other comprehensive income (loss) for the years then ended.
The Company receives equity securities in connection with certain licensing transactions with its partners. These investments in an equity security are carried at fair value with changes in fair value recognized each period and reported within other income (expense). For equity securities with a readily determinable fair value, the Company remeasures these equity investments at each reporting period until such time that the investment is sold or disposed. If the Company sells an investment, any realized gains or losses on the sale of the securities will be recognized within other income (expense) in the Statement of Comprehensive Income (Loss) in the period of sale.
The Company also has
an investmentinvestments in
an equity
securitysecurities without a readily determinable fair value, where the Company elects the measurement alternative to record at
itstheir initial cost minus impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
The Company did not record an impairment charge for the year ended December 31, 2023. During the year ended December 31, 2022, the Company recorded an impairment charge of $0.1 million in connection with equity securities without a readily determinable fair value.
During the years ended December 31, 2023 and 2022, the Company recorded a net loss of $0.4 million and net gain of $23.4 million, respectively, in connection with its equity investments.
Cash, cash equivalents, restricted cash, and marketable debt securities are financial instruments that potentially subject the Company to concentrations of risk. We invest our cash in corporate debt securities and U.S. sponsored agencies with strong credit ratings. We have established guidelines relative to diversification and maturities that are designed to help ensure safety and liquidity. These guidelines are periodically reviewed to take advantage of trends in yields and interest rates.
Cash, and cash equivalents, and restricted cash are maintained at financial institutions, and at times, balances may exceed federally insured limits. We have never experienced any losses related to these balances. Amounts on deposit in excess of federally insured limits at December 31, 20202023 and 20192022 approximated $163.3$53.8 million and $50.0$53.6 million, respectively.
We have payables with 1 two service providerproviders that represent 49%38% of our total payables and with 2two service providers that represented 48%45% of our total payables at December 31, 20202023 and 2019,2022, respectively. We rely on 3six 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, 20202023 or 2019.2022.
We have receivables with three customers and service providers that represent 76% of our total receivables and with four customers and service providers that represent 91% of our total receivables at December 31, 2023 and 2022,
respectively. The receivables are related to cost share reimbursement and royalty revenues from our licensing and collaboration agreements. No other customer accounted for more than 10% of total receivables at December 31, 2023 or 2022.
Fair Value of Financial Instruments
Our financial instruments primarily consist of cash and cash equivalents, marketable debt securities, accounts receivable, accounts payable, and accrued expenses. Marketable debt securities and cash equivalents are carried at fair value. The fair value of
a financial instrument is the amount that would be received in an asset sale or paid to transfer a liability in an orderly transaction between unaffiliated market participants. The fair value of the other financial instruments closely approximate their fair value due to their short maturities.
The Company accounts for recurring and non-recurring fair value measurements in accordance with FASB Accounting Standards Codification (ASC)ASC 820, Fair Value Measurements and Disclosures (ASC 820). ASC 820 defines fair value, establishes a fair value hierarchy for assets and liabilities measured at fair value, and requires expanded disclosure about fair value measurements. The ASC 820 hierarchy ranks the quality of reliable inputs, or assumptions, used in the determination of fair value and requires assets and liabilities carried at fair value to be classified and disclosed in one of the following three categories:
Level 1—Fair value is determined by using unadjusted quoted prices that are available in active markets for identical assets or liabilities.
Level 2—Fair value is determined by using inputs other than Level 1 quoted prices that are directly or indirectly observable. Inputs can include quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in markets that are not active. Related inputs can also include those used in valuation or other pricing models, such as interest rates and yield curves that can be corroborated by observable market data.
Level 3—Fair value is determined by inputs that are unobservable and not corroborated by market data. Use of these inputs involves significant and subjective judgments to be made by the reporting entity –e.g.– e.g. determining an appropriate discount factor for illiquidity associated with a given security.
The Company measures the fair value of financial assets using the highest level of inputs that are reasonably available as of the measurement date. The assets recorded at fair value are classified within the hierarchy as follows for the periods reported (in thousands):
| | | | | | | | | | | | |
| | December 31, 2020 |
| | Total | | | | | | | | | |
| | Fair Value | | Level 1 | | Level 2 | | Level 3 |
| | | | | | | | | | | | |
Money Market Funds in Cash and Cash Equivalents | | $ | 158,937 | | $ | 158,937 | | $ | — | | $ | — |
Corporate Securities | | | 119,833 | | | — | | | 119,833 | | | — |
Government Securities | | | 315,353 | | | — | | | 315,353 | | | — |
Equity Securities with Readily Determinable Fair Value | | | 5,303 | | | 5,303 | | | — | | | — |
Equity Securities without Readily Determinable Fair Value | | | 16,071 | | | — | | | — | | | 16,071 |
| | $ | 615,497 | | $ | 164,240 | | $ | 435,186 | | $ | 16,071 |
| | | | | | | | | | | | |
| | December 31, 2019 |
| | Total | | | | | | | | | |
| | Fair Value | | Level 1 | | Level 2 | | Level 3 |
| | | | | | | | | | | | |
Money Market Funds in Cash and Cash Equivalents | | $ | 32,009 | | $ | 32,009 | | $ | — | | $ | — |
Corporate Securities | | | 281,751 | | | — | | | 281,751 | | | — |
Government Securities | | | 269,245 | | | — | | | 269,245 | | | — |
| | $ | 583,005 | | $ | 32,009 | | $ | 550,996 | | $ | — |
| | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Total Fair Value | | Level 1 | | Level 2 |
| | | | | |
Money Market Funds in Cash and Cash Equivalents | $ | 25,520 | | | $ | 25,520 | | | $ | — | |
Corporate Securities | 228,723 | | | — | | | 228,723 | |
Government Securities | 414,514 | | | — | | | 414,514 | |
| | | | | |
| $ | 668,757 | | | $ | 25,520 | | | $ | 643,237 | |
| | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Total Fair Value | | Level 1 | | Level 2 |
| | | | | |
Money Market Funds in Cash and Cash Equivalents | $ | 40,967 | | | $ | 40,967 | | | $ | — | |
Corporate Securities | 200,626 | | | — | | | 200,626 | |
Government Securities | 329,889 | | | — | | | 329,889 | |
| | | | | |
| $ | 571,482 | | | $ | 40,967 | | | $ | 530,515 | |
The Company holds equity securities without readily determinable
Our policy is to record transfers of assets between Level 1 and Level 2 at their fair
valuevalues as of
the end of each reporting period, consistent with the date of the determination of fair value. During the years ended December 31,
2020. The Company elects the measurement alternative to record at its initial cost minus impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.2023 and 2022, there were no transfers between Level 1 and Level 2.
Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Expenditures for repairs and maintenance are charged to expense as incurred, while renewals and improvements are capitalized. Useful lives by asset category are as follows:
| | | | | |
| | |
|
Computers, software and equipment | | 3 - 5 years |
|
Furniture and fixtures | | 5 - 7 years |
|
Leasehold improvements | | 5 - 7 years or remaining |
|
| |
| lease term, whichever is less |
|
Patents, Licenses, and Other Intangible Assets
The cost of acquiring licenses is capitalized and amortized on the straight-line basis over the shorter of the term of the license or its estimated economic life, ranging from
51 to
2520 years. Third-party costs incurred for acquiring patents are capitalized. Capitalized costs are accumulated until the earlier of the period that a patent is issued, or we abandon the patent claims. Cumulative capitalized patent costs are amortized on a straight-line basis from the date of issuance over the shorter of the patent term or the estimated useful economic life of the patent, ranging from
132 to
2027 years. Our senior management, with advice from outside patent counsel, assesses
3three primary criteria to determine if a patent will be capitalized initially: i) technical feasibility, ii) magnitude and scope of new technical function covered by the patent compared to the company’s existing technology and patent portfolio, particularly assessing the value added to our product candidates or licensing business, and iii) legal issues, primarily assessment of patentability and prosecution cost. We review our intellectual property on a regular basis to determine if there are changes in the estimated useful life of issued patents and if any capitalized costs for unissued patents should be abandoned. Capitalized patent costs related to abandoned patent filings are charged off in the period of the decision to abandon. During
2020, 20192023, 2022, and
2018,2021, we abandoned previously capitalized patent and licensing related charges of
$0.5$1.3 million,
$0.2$1.5 million, and
$0.2$0.9 million, respectively.
The carrying amount and accumulated amortization of patents, licenses, and other intangibles is as follows (in thousands):
| | | | | | | |
| | December 31, | |
| | 2020 | | 2019 | |
Patents, definite life | | $ | 12,038 | | $ | 10,597 | |
Patents, pending issuance | | | 8,432 | | | 7,266 | |
Licenses and other amortizable intangible assets | | | 2,560 | | | 2,510 | |
Nonamortizable intangible assets (trademarks) | | | 399 | | | 399 | |
Total gross carrying amount | | | 23,429 | | | 20,772 | |
Accumulated amortization—patents | | | (5,791) | | | (4,912) | |
Accumulated amortization—licenses and other | | | (1,661) | | | (1,439) | |
Total intangible assets, net | | $ | 15,977 | | $ | 14,421 | |
| | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
Patents, definite life | $ | 15,340 | | | $ | 14,535 | |
Patents, pending issuance | 9,723 | | | 9,328 | |
Licenses and other amortizable intangible assets | 4,007 | | | 3,908 | |
Nonamortizable intangible assets (trademarks) | 399 | | | 399 | |
Total gross carrying amount | 29,469 | | | 28,170 | |
Accumulated amortization—patents | (8,663) | | | (7,781) | |
Accumulated amortization—licenses and other | (2,143) | | | (1,889) | |
Total intangible assets, net | $ | 18,663 | | | $ | 18,500 | |
Amortization expense for patents, licenses, and other intangible assets was
$1.1$1.3 million,
$0.9$1.4 million, and
$0.9$1.2 million for the years ended December 31,
2020, 20192023, 2022, and
2018,2021, respectively.
Future amortization expense for
patent,patents, licenses, and other intangible assets recorded as of December 31,
2020,2023, and for which amortization has commenced, is as follows:
| | | | |
| | Year ended | |
| | December 31, | |
| | (in thousands) | |
2021 | | $ | 947 | |
2022 | | | 906 | |
2023 | | | 829 | |
2024 | | | 667 | |
2025 | | | 589 | |
Thereafter | | | 3,208 | |
Total | | $ | 7,146 | |
| | | | | |
| Year ended December 31, |
| (in thousands) |
2024 | $ | 1,076 | |
2025 | 1,059 | |
2026 | 961 | |
2027 | 908 | |
2028 | 776 | |
Thereafter | 3,760 | |
Total | $ | 8,540 | |
The above amortization expense forecast is an estimate. Actual amounts of amortization expense may differ from estimated amounts due to additional intangible asset acquisitions, impairment of intangible assets, accelerated amortization of intangible assets, and other events. As of December 31, 2020,2023, the Company has $8.4$9.7 million of intangible assets which are in-process and have not been placed in service, and accordingly amortization on these assets has not commenced.
Management reviews long-lived assets which include fixed assets and amortizable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.
We did not recognize a loss from impairment for the years ended December 31,
2020, 20192023, 2022, or
2018.2021.
We account for income taxes in accordance with accounting guidance which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.
We assess our income tax positions and record tax benefits for all years subject to examination based upon our evaluation of the facts, circumstances, and information available at the reporting date. For those tax positions where there is greater than 50% likelihood that a tax benefit will be sustained, we have recorded the largest amount of tax benefit that may potentially be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where there is a 50% or less likelihood that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. We did not have any material uncertain tax positions at December 31,
20202023 or
2019.2022.
Our policy is to recognize interest and penalties on taxes, if any, as a component of income tax expense.
The Tax Cuts and Jobs Act of 2017 (TCJA) enacted on December 22, 2017 included several key provisions impacting the accounting for and reporting of income taxes. The most significant provisions reduced the U.S. corporate statutory tax rate from 35% to 21%, eliminated the corporate Alternative Minimum Tax (AMT) system, and made changes to the carryforward of net operating losses beginning on January 1, 2018. The TCJA changed the income tax reform provided for a refundtreatment of unused AMT carryforwards forresearch and development expenses requiring such costs to be capitalized and amortized over several years beginning after December 31, 2017.
effective January 1, 2022. We
received an incomerecorded a federal tax
refund duringexpense of $5.8 million and $0.7 million for the years ended December 31,
20202023 and
2019 of $0.8 million each year related to our federal AMT carryforwards.2022, respectively.
We recognize compensation expense using a fair-value-based method for costs related to all share-based payments, including stock options, restricted stock units (RSUs), and shares issued under our Employee Stock Purchase Plan (ESPP). Stock-based compensation cost related to employees and directors is measured at the grant date, based on the fair-value-based measurement of the award using the Black-Scholes method, and is recognized as expense over the requisite service period on a straight-line basis. We account for forfeitures when they occur. We recorded stock-based compensation and expense for stock-based awards to employees, directors, and consultants of approximately
$31.6$53.8 million,
$31.9$48.9 million, and
$20.5$37.0 million for the years ended December 31,
2020, 20192023, 2022, and
20182021, respectively.
Included in the 2020, 2019, and 2018 balances for total compensation expense is $0.8 million, $0.7 million and $0.7 million, respectively, relating to our ESPP.
Net Income (Loss) Per Share
Basic net income (loss) per common share attributable to Xencor is computed by dividing the net income (loss) attributable to Xencor by the weighted-average number of common shares outstanding during the period without consideration of common stock equivalents. Diluted net income (loss) per common share attributable to Xencor is computed by dividing the net income (loss) attributable to Xencor by the weighted-average number of common stock equivalents outstanding for the period. Potentially dilutive securities consisting of stock issuable pursuant to outstanding options and restricted stock units (RSUs), and stock issuable pursuant to the 2013 Employee Stock Purchase Plan (ESPP) are not included in the per common share calculation in periods when the inclusion of such shares would have an anti-dilutive effect.
Basic and diluted net income (loss) per common share attributable to Xencor is computed as follows:
Basic net income (loss) per common share is computed by dividing the net income or loss attributable to Xencor by the weighted-average number of common shares outstanding during the period.
Potentially dilutive securities were included
in the calculation of diluted net income per common share calculationattributable to Xencor for 2019. We included 1,923,310 options to purchase shares of common stock2021. In 2023 and 13,131 shares of RSUs in the calculation of the weighted-average common shares outstanding used in computing diluted net income per common share. We excluded 1,022,623 shares of options and RSUs from the calculation for 2019 because the inclusion of such shares would have had an antidilutive effect.
In 2020 and 2018,2022, we excluded all options and awards from the calculations because we reported net losses in the periods,period, and the inclusion of such shares would have had an antidilutive effect.
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| (in thousands, except share and per share data) |
Basic | | | | | |
Numerator: | | | | | |
Net income (loss) attributable to Xencor, Inc. | $ | (126,087) | | | $ | (55,181) | | | $ | 82,631 | |
Denominator: | | | | | |
Weighted-average common shares outstanding | 60,503,283 | | | 59,652,461 | | | 58,379,641 | |
Basic net income (loss) per common share attributable to Xencor, Inc. | $ | (2.08) | | | $ | (0.93) | | | $ | 1.42 | |
| | | | | |
Diluted | | | | | |
Numerator: | | | | | |
Net income (loss) attributable to Xencor, Inc. | $ | (126,087) | | | $ | (55,181) | | | $ | 82,631 | |
Denominator: | | | | | |
Weighted average number of common shares outstanding used in computing basic net income (loss) per common share | 60,503,283 | | | 59,652,461 | | | 58,379,641 | |
Dilutive effect of employee stock options, RSUs, and ESPP | — | | | — | | | 2,115,814 | |
Weighted-average number of common shares outstanding used in computing diluted net income (loss) per common share | 60,503,283 | | | 59,652,461 | | | 60,495,455 | |
Diluted net income (loss) per common share attributable to Xencor, Inc. | $ | (2.08) | | | $ | (0.93) | | | $ | 1.37 | |
| | | | | | | | | | |
| | Year Ended December 31, | |
| | 2020 | | 2019 | | 2018 | |
|
| | (in thousands, except share and per share data) | |
Basic | | | | | | | | | | |
Numerator: | | | | | | | | | | |
Net income (loss) attributable to common stockholders for basic net income (loss) per share | | $ | (69,333) | | $ | 26,875 | | $ | (70,409) | |
Denominator: | | | | | | | | | | |
Weighted-average common shares outstanding | | | 57,212,737 | | | 56,531,439 | | | 53,942,116 | |
Basic net income (loss) per common share | | $ | (1.21) | | $ | 0.48 | | $ | (1.31) | |
Diluted | | | | | | | | | | |
Numerator: | | | | | | | | | | |
Net income (loss) attributable to common stockholders for diluted net income (loss) per share | | $ | (69,333) | | $ | 26,875 | | $ | (70,409) | |
Denominator: | | | | | | | | | | |
Weighted average number of common shares outstanding used in computing basic net income (loss) per common share | | | 57,212,737 | | | 56,531,439 | | | 53,942,116 | |
Dilutive effect of employee stock options and ESPP | | | — | | | 1,936,441 | | | — | |
Weighted-average number of common shares outstanding used in computing diluted net income (loss) per common share | | | 57,212,737 | | | 58,467,880 | | | 53,942,116 | |
Diluted net income (loss) per common share | | $ | (1.21) | | $ | 0.46 | | $ | (1.31) | |
For the years ended December 31, 2023 and 2022, all outstanding potentially dilutive securities were excluded from the calculation as the effect of including such securities would have been anti-dilutive. For the year ended December 31, 2021, we excluded 1,196,268 shares of options and RSUs from the calculation of diluted net income per common share because the inclusion of such shares would have had an anti-dilutive effect.
The Company determines its segment reporting based upon the way the business is organized for making operating decisions and assessing performance. The Company has only
1one operating segment related to the development of pharmaceutical
products.products.
2. Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss). For the years ended December 31,
20202023, 2022, and
2019,2021, the only component of other comprehensive income (loss) is net unrealized
gainsgain (loss) on marketable debt securities. There were no material reclassifications out of accumulated other comprehensive loss during the year ended December 31,
2020.
2023.3. Marketable Debt and Equity Securities
The Company’s marketable debt securities held as of December 31,
20202023 and
20192022 are summarized below:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
(in thousands) | | | | | | | |
Money Market Funds | $ | 25,520 | | | $ | — | | | $ | — | | | $ | 25,520 | |
Corporate Securities | 228,382 | | | 342 | | | (1) | | | 228,723 | |
Government Securities | 413,553 | | | 1,037 | | | (76) | | | 414,514 | |
| $ | 667,455 | | | $ | 1,379 | | | $ | (77) | | | $ | 668,757 | |
| | | | | | | |
Reported as | | | | | | | |
Cash and cash equivalents | | | | | | | $ | 25,520 | |
Marketable securities | | | | | | | 643,237 | |
Total investments | | | | | | | $ | 668,757 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
(in thousands) | | | | | | | |
Money Market Funds | $ | 40,967 | | | $ | — | | | $ | — | | | $ | 40,967 | |
Corporate Securities | 201,752 | | | — | | | (1,126) | | | 200,626 | |
Government Securities | 335,705 | | | 3 | | | (5,819) | | | 329,889 | |
| $ | 578,424 | | | $ | 3 | | | $ | (6,945) | | | $ | 571,482 | |
| | | | | | | |
Reported as | | | | | | | |
Cash and cash equivalents | | | | | | | $ | 40,967 | |
Marketable securities | | | | | | | 530,515 | |
Total investments | | | | | | | $ | 571,482 | |
| | | | | | | | | | | | |
| | December 31, 2020 |
| | | | | Gross | | Gross | | | |
| | Amortized | | Unrealized | | Unrealized | | |
| | Cost | | Gains | | Losses | | Fair Value |
(in thousands) | | | | | | | | | | | | |
Money Market Funds | | $ | 158,937 | | $ | — | | $ | — | | $ | 158,937 |
Corporate Securities | | | 119,782 | | | 57 | | | (6) | | | 119,833 |
Government Securities | | | 315,319 | | | 37 | | | (3) | | | 315,353 |
| | $ | 594,038 | | $ | 94 | | $ | (9) | | $ | 594,123 |
| | | | | | | | | | | | |
Reported as | | | | | | | | | | | | |
Cash and cash equivalents | | | | | | | | | | | $ | 158,937 |
Marketable securities | | | | | | | | | | | | 435,186 |
Total investments | | | | | | | | | | | $ | 594,123 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | December 31, 2019 |
| | | | | Gross | | Gross | | | |
| | Amortized | | Unrealized | | Unrealized | | |
| | Cost | | Gains | | Losses | | Fair Value |
(in thousands) | | | | | | | | | | | | |
Money Market Funds | | $ | 32,009 | | $ | — | | $ | — | | $ | 32,009 |
Corporate Securities | | | 281,586 | | | 195 | | | (30) | | | 281,751 |
Government Securities | | | 268,239 | | | 1,006 | | | — | | | 269,245 |
| | $ | 581,834 | | $ | 1,201 | | $ | (30) | | $ | 583,005 |
| | | | | | | | | | | | |
Reported as | | | | | | | | | | | | |
Cash and cash equivalents | | | | | | | | | | | $ | 32,009 |
Marketable securities | | | | | | | | | | | | 550,996 |
Total investments | | | | | | | | | | | $ | 583,005 |
The maturities of the Company’s marketable debt securities as of December 31,
20202023 are as follows:
| | | | | | |
| | Amortized | | Estimated |
| | Cost | | Fair Value |
(in thousands) | | | | | | |
Mature in one year or less | | $ | 434,071 | | $ | 434,156 |
Mature after one year through five years | | | 1,030 | | | 1,030 |
| | $ | 435,101 | | $ | 435,186 |
| | | | | | | | | | | |
| Amortized Cost | | Estimated Fair Value |
(in thousands) | | | |
Mature in one year or less | $ | 497,326 | | | $ | 497,725 | |
Mature within two years | 144,609 | | | 145,511 | |
| $ | 641,935 | | | $ | 643,236 | |
The unrealized losses on available-for-sale investments and their related fair values as of December 31, 20202023 and 20192022 are as follows:
| | | | | | | | | | | | |
| | December 31, 2020 |
| | Less than 12 months | | 12 months or greater |
| | | Fair value | | | Unrealized losses | | | Fair value | | | Unrealized losses |
(in thousands) | | | | | | | | | | | | |
Corporate Securities | | $ | 15,843 | | $ | (6) | | $ | — | | $ | — |
Government Securities | | | 40,802 | | | (3) | | | — | | | — |
| | $ | 56,645 | | $ | (9) | | $ | — | | $ | — |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | December 31, 2019 |
| | Less than 12 months | | 12 months or greater |
| | | Fair value | | | Unrealized losses | | | Fair value | | | Unrealized losses |
(in thousands) | | | | | | | | | | | | |
Corporate Securities | | $ | 46,303 | | $ | (24) | | $ | 13,992 | | $ | (6) |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Less than 12 months | | 12 months or greater |
| Fair value | | Unrealized losses | | Fair value | | Unrealized losses |
(in thousands) | | | | | | | |
Corporate Securities | $ | 8,073 | | | $ | (1) | | | $ | — | | | $ | — | |
Government Securities | 66,546 | | | (77) | | | — | | | — | |
| $ | 74,619 | | | $ | (78) | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Less than 12 months | | 12 months or greater |
| Fair value | | Unrealized losses | | Fair value | | Unrealized losses |
(in thousands) | | | | | | | |
Corporate Securities | $ | 132,658 | | | $ | (1,121) | | | $ | 3,826 | | | $ | (5) | |
Government Securities | 324,933 | | | (5,819) | | | — | | | — | |
| $ | 457,591 | | | $ | (6,940) | | | $ | 3,826 | | | $ | (5) | |
The unrealized losses from the listed securities are due to a change in the interest rate environment and not a change in the credit quality of the securities.
For
The Company’s equity securities include securities with a readily determinable fair value. These investments are carried at fair value with changes in fair value recognized each period and reported within other income (expense). Equity securities with a readily determinable fair value and their fair values (in thousands) as of December 31, 2023 and 2022 are as follows:
| | | | | | | | | | | |
| Fair Value December 31, 2023 | | Fair Value December 31, 2022 |
Astria Common Stock | $ | 5,360 | | | $ | 9,529 | |
INmune Common Stock | 21,231 | | | 11,954 | |
Viridian Common Stock | 15,619 | | | 20,948 | |
| $ | 42,210 | | | $ | 42,431 | |
The Company also has an investment in an equity security without a readily determinable fair value. The Company elects the measurement alternative to record these investments at their initial cost and evaluates such investments at each reporting period for evidence of impairment or observable price changes in orderly transactions for the identical or a similar investment of the same issuer. During the year ended December 31, 2020,2022, the Company recorded an impairment
charge of $0.1 million related to the Astria preferred stock. Equity securities without a readily determinable fair value and their carrying values (in thousands) as of December 31, 2023 and 2022 are as follows:
| | | | | | | | | | | |
| Carrying Value December 31, 2023 | | Carrying Value December 31, 2022 |
Astria Preferred Stock | $ | — | | | $ | 174 | |
Zenas Preferred Stock | 64,210 | | | 54,209 | |
| $ | 64,210 | | | $ | 54,383 | |
In 2018, the Company received common and preferred stock in Astria (formerly Quellis Biosciences, Inc.) in connection with a licensing transaction. In January 2023, the Company exchanged its preferred shares for additional shares of common stock in Astria. The common stock has a readily determinable fair value, and difference in the fair value of the common stock and the carrying value of the preferred stock has been recorded as a gain in equity securities for the year ended December 31, 2023. The Company accounts for the shares in Astria common stock at their fair value each reporting period and the adjustment in the fair value of the Astria common stock has been recorded in unrealized gain (loss) on equity securities for the year ended December 31, 2023.
The Company records its investment in the shares of Astria preferred stock as an equity interest without a readily determinable fair value. The Company elected to record the original shares of preferred stock at their initial cost and to review the carrying value for impairment or other changes in carrying value at each reporting period. The Company subsequently recorded impairment charges of $0.1 million and $0.8 million related to its investment in Astria’s preferred stock in 2022 and 2021, respectively.
In 2017, the Company received shares of Aimmune common stock of INmune Bio, Inc. (INmune) and MiRagenan option to acquire additional shares of INmune’s common stock in connection with a licensing transaction. In June 2021, the AimmuneCompany entered into an Option Cancellation Agreement with INmune and MiRagen Agreements (both as defined below). Aimmunereceived $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 redeemedrecorded in gain (loss) on equity securities for cash within the same year; MiRagenyear ended December 31, 2023.
In December 2021, the Company received shares of common stock isof Viridian Therapeutics, Inc. (Viridian) in connection with the Viridian Agreement. In December 2022, the Company received additional shares of common stock of Viridian in connection with the Second Viridian Agreement (defined below). The shares of Viridian common stock are classified as equity securities with a readily determinable fair value and the adjustment in the fair value of the shares of Viridian common stock was recorded in gain (loss) on equity securities for the year ended at December 31, 2020. For the year ended December 31,2023.
In 2020, the Company also received an equity of a private companyinterest in Zenas BioPharma (Cayman) Limited (Zenas), in connection with a licensing agreement.the Zenas Agreement (defined below). The Company electselected the measurement alternative to carry the investmentZenas equity at cost minus impairment, plus or minus changes resulting from observable price changes in orderly transactions for thean identical or a similar investment of the same issuer. There has not been anyIn 2021, the Company received a warrant to receive equity from Zenas in connection with the Second Zenas Agreement (defined below). In 2021, the Company purchased a convertible promissory note from Zenas. In 2022, the Zenas warrant was exchanged for additional equity in Zenas. In 2022, the convertible note and accrued interest through the conversion date were exchanged for equity shares in Zenas. During 2022, the Company recognized an unrealized gain of $21.9 million from the warrant exchange and the conversion of the promissory note. In 2023, Zenas initiated a Phase 3 trial and we received a milestone of additional equity in Zenas with a fair value of $10.0 million. The Company recorded the additional equity at its fair value. During the year ended December 31, 2023, there was no impairment or observable price changes related to this investment. We did not hold any
Unrealized gains and losses recognized on equity securities
in our investment portfolio(in thousands) during the year ended December 31,
2019.Net gains2023 and losses during the year ended December 31, 2020 and 20192022 consist of the following:
| | | | | | |
| | Year Ended December 31, |
| | 2020 | | 2019 |
|
| | |
Net gains recognized on equity securities | | $ | 105 | | $ | — |
Less: net gains recognized on equity securities redeemed | | | 801 | | | — |
Unrealized losses recognized on equity securities | | $ | (696) | | $ | — |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| | | | | |
Net (losses) gains recognized on equity securities | $ | (395) | | | $ | 23,434 | | | $ | 39,289 | |
Less: net gains recognized on equity securities redeemed | — | | | — | | | 18,301 | |
Unrealized (losses) gain recognized on equity securities | $ | (395) | | | $ | 23,434 | | | $ | 20,988 | |
4. Sale of Additional Common Stock
In March 2018, we completed
Under the saleterms of 8,395,000the Stock Purchase Agreement (defined below), Johnson & Johnson Innovation, JJDC, Inc. (JJDC), purchased $25.0 million of newly issued unregistered shares of commonsthe Company’s common stock, which includedpriced at a 30-day volume-weighted average price of $33.4197 per share as of October 1, 2021. The Company issued 748,062 shares weof common stock to JJDC on November 12, 2021. The issued shares are subject to customary resale restrictions pursuant to our underwriters’ exerciseRule 144 of their over-allotment option pursuant to a follow-on financing. We received net proceedsthe Securities Act of $245.5 million, after underwriters’ discounts and offering expenses.
1933.5. Property and Equipment
Property and equipment consist of the following:
| | | | | | | |
| | December 31, | |
| | 2020 | | 2019 | |
|
| | (in thousands) | |
Computers, software and equipment | | $ | 31,229 | | $ | 21,087 | |
Furniture and fixtures | | | 527 | | | 492 | |
Leasehold and tenant improvements | | | 6,957 | | | 6,831 | |
| | | 38,713 | | | 28,410 | |
Less accumulated depreciation and amortization | | | (17,031) | | | (12,605) | |
| | $ | 21,682 | | $ | 15,805 | |
| | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
| (in thousands) |
Computers, software and equipment | $ | 49,782 | | | $ | 45,159 | |
Furniture and fixtures | 158 | | | 539 | |
Leasehold and tenant improvements | 52,410 | | | 41,774 | |
Total gross carrying amount | 102,350 | | | 87,472 | |
Less accumulated depreciation and amortization | (36,226) | | | (28,289) | |
Total property and equipment, net | $ | 66,124 | | | $ | 59,183 | |
Leasehold and tenant improvements consist primarily of leasehold construction at our new Pasadena headquarters.
Depreciation expense related to property and equipment in
2020, 20192023, 2022, and
20182021 was
$4.7$10.1 million,
$3.4$7.4 million, and
$2.4$6.3 million, respectively.
Our effective tax rate differs from the statutory federal income tax rate, primarily as a result of the changes in valuation allowance.
The provision for current federal income taxes for the years ended December 31, 2023 and 2022 were $5.8 million and $0.7 million, respectively. There was
0no provision for taxes for the years ended December 31,
2020 and December 31, 2018. The2021. There is no state income tax provision for
income taxes for the
yearyears ended December 31,
2019 was $0.3 million, which represents the current state alternative minimum tax for the year.2023, 2022 and 2021, respectively.
A reconciliation of the federal statutory income tax to our effective income tax is as follows (in thousands):
| | | | | | | | | | |
| | Year Ended | |
| | December 31, | |
| | 2020 | | 2019 | | 2018 | |
Federal statutory income tax | | $ | (14,559) | | $ | 5,709 | | $ | (14,795) | |
State and local income taxes | | | (4,659) | | | 2,549 | | | (4,767) | |
Research and development credit | | | (9,669) | | | (6,747) | | | (6,170) | |
Stock-based compensation | | | 529 | | | 1,927 | | | 444 | |
State credit | | | — | | | 1,725 | | | — | |
Other | | | 56 | | | (301) | | | 414 | |
Net change in valuation allowance | | | 28,302 | | | (4,550) | | | 24,874 | |
Income tax provision (benefit) | | $ | — | | $ | 312 | | $ | — | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Federal statutory income tax | $ | (25,258) | | | $ | (11,447) | | | $ | 17,352 | |
State and local income taxes | (569) | | | (615) | | | 783 | |
Research and development credit | (15,821) | | | (9,366) | | | (10,492) | |
Stock-based compensation | 3,131 | | | 3,384 | | | 2,424 | |
Foreign-derived intangible income | (1,188) | | | (1,449) | | | — | |
Other | 417 | | | (74) | | | 95 | |
Change in state rate | 234 | | | 44 | | | 2,599 | |
Net change in valuation allowance | 44,865 | | | 20,196 | | | (12,761) | |
Income tax provision | $ | 5,811 | | | $ | 673 | | | $ | — | |
The tax effect of temporary differences that give rise to a significant portion of the deferred tax assets and liabilities at December 31, 20202023 and 20192022 is presented below (in thousands):
| | | | | | | |
| | December 31, | |
| | 2020 | | 2019 | |
Deferred income tax assets | | | | | | | |
Net operating loss carryforwards | | $ | 56,182 | | $ | 36,891 | |
Research credits | | | 38,047 | | | 28,415 | |
Depreciation | | | 137 | | | 334 | |
Unrealized loss on securities | | | 195 | | | — | |
Accrued compensation | | | 8,464 | | | 4,788 | |
Deferred revenue | | | 11,925 | | | 11,215 | |
State taxes | | | — | | | 64 | |
Gross deferred income tax assets | | | 114,950 | | | 81,707 | |
Valuation allowance | | | (105,995) | | | (77,389) | |
Net deferred income tax assets | | | 8,955 | | | 4,318 | |
Deferred income tax liabilities | | | | | | | |
Patent costs | | | (4,219) | | | (3,736) | |
Equity investment | | | (4,497) | | | — | |
Licensing costs | | | (194) | | | (229) | |
Capitalized legal costs | | | (21) | | | (26) | |
Unrealized gain on securities | | | (24) | | | (327) | |
Gross deferred income tax liabilities | | | (8,955) | | | (4,318) | |
Net deferred income tax asset | | $ | — | | $ | — | |
| | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
Deferred income tax assets | | | |
Net operating loss carryforwards | $ | 22,466 | | | $ | 32,898 | |
Research credits | 53,198 | | | 54,825 | |
Unrealized (gain) loss on securities | (278) | | | 1,573 | |
Capitalized lease assets | 6,161 | | | 5,564 | |
Accrued compensation | 18,172 | | | 14,484 | |
Deferred revenue | 34,405 | | | 3,225 | |
Capitalized research and development costs | 45,783 | | | 21,338 | |
Gross deferred income tax assets | 179,907 | | | 133,907 | |
Valuation allowance | (158,099) | | | (115,010) | |
Net deferred income tax assets | 21,808 | | | 18,897 | |
Deferred income tax liabilities | | | |
Patent costs | (2,218) | | | (2,885) | |
Licensing costs | (136) | | | (124) | |
Capitalized legal costs | (6) | | | (9) | |
Depreciation | (10,664) | | | (6,532) | |
Unrealized gain on securities | (8,784) | | | (9,347) | |
Gross deferred income tax liabilities | (21,808) | | | (18,897) | |
Net deferred income tax asset | $ | — | | | $ | — | |
The Tax Cuts and Jobs Act of 2017 (TCJA) was enacted in December 2017 and made substantial changes in the U.S. tax system. One ofThe significant changes made by the changes was elimination ofTCJA include a reduction in the AMT tax system for corporations and allowance of anmaximum corporate income tax refund for AMT tax credit carryforwards as ofrate and the requirement that research and development costs incurred after December 31, 2017.2021 to be capitalized and amortized over several years. We have received an income tax refund of $0.8 million and $0.8 millionrecorded a deferred asset for each year ended December 31, 20202023 and 20192022, respectively. for U.S. AMT credit carryforwards.such capitalized research and development costs. We have net deferred tax assets relating primarily to capitalized research and development costs, net operating loss carryforwards and research and development tax credit carryforwards. Due to the uncertainty surrounding the realization of the benefits of our deferred tax assets in future tax periods, we have placed a valuation allowance against our deferred tax assets at December 31, 20202023 and 2019.2022. The Company recognizes valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. The Company’s net deferred income tax asset is not more likely than not to be realized due to the lack of sufficient sources of future taxable
income and cumulative losses that have resulted over the years. During the year ended December 31,
2020,2023, the valuation allowance increased by
$28.6$43.1 million. The Company’s tax years starting in
20162019 through
20192022 remain open to potential examination by the U.S. and state taxing authorities due to carryforwards of net operating
losses.losses and income tax credits.
As of December 31,
2020,2023, we had cumulative net operating loss carryforwards for federal and state income tax purposes of
$213.6$54.2 million and
$161.4$158.8 million, respectively, and available tax credit carryforwards of approximately
$26.7$33.6 million for federal income tax purposes and
$14.3$24.8 million for state income tax purposes, which can be carried forward to offset future taxable income, if any.
TheAll of the federal net operating loss carryforwards
consist of $68.0 million of losseswere incurred prior to January 1, 2018, which are subject to carryforward
limitationslimitations. To the extent allowed by law, taxing authorities may examine prior periods where net operating losses were carried forwards and
$145.6 millionwere claimed and offset against current year taxable income, and make adjustments up to the amount of
losses incurred after January 1, 2018, which may be carried forward indefinitely.the net operating loss carryforward amount.
Our federal net operating loss carryforwards expire starting in 2026,2027, state net operating loss carryforwards expire starting in 2035, and federal tax credit carryforwards beganbegin to expire in 2019. A total of $0.03 million in federal tax credits expired in 2019, and an additional $0.3 million will expire over the next five years if not utilized.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.
7. Stock-Based Compensation
Our
In 2013 , our Board of Directors and the requisiteour stockholders previously approved the 2010 Equity Incentive Plan (the 2010 Plan). In October 2013, our Board of Directors approved the 2013 Equity Incentive Plan (the 2013 Plan), and in November 2013 our stockholders approved the 2013 Plan.. The 2013 Plan provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, performance cash awards, and other stock awards. The 2013 Plan had a ten-year term and would expire on December 3, 2023.
In June 2023, the Board and shareholders approved the 2023 Equity Incentive Plan (the 2023 Plan), which became effective as of December 2, 2013, the date of the pricing of the Company’s initial public offering. As of December 2, 2013, weJune 14, 2023. We suspended the 20102013 Plan, and 0no additional awardsaward may be granted under the 20102013 Plan. AnyThe 2023 Plan reserve consists of 3,000,000 shares and the remaining available shares from the 2013 Plan as of the effective date of the 2023 Plan. In addition, any shares of common stock covered by awards granted under the 20102013 Plan that terminate on or after December 2, 2013June 14, 2023 by expiration, forfeiture, cancellation, or other means without the issuance of such shares will be added to the 2023 Plan reserve.
The 2013 Plan
reserve.As of December 31, 2020,provided for an automatic increase in the total number of shares of common stock available for issuance under the 2013 Plan was 11,479,096. Unless otherwise determined by the Board, beginning January 1, 2014, and continuing until the expiration of the 2013 Plan, the total number of shares of common stock available for issuance under the 2013 Plan will automatically increase annually on January 1 by 4% of the total number of issued and outstanding shares of common stock as of December 31 of the immediately preceding year. On January 1, 2020,2023, pursuant to approval by the Board, the total number of shares of common stock available for issuance under the 2013 Plan was increased by 1,138,0462,399,908 shares. The 2023 Plan does not include a provision for an automatic increase in shares, which is included in the number of shares available for issuance above. also known as an Evergreen provision.
As of December 31,
2020,2023, the total number of shares of common stock available for issuance under the 2023 Plan was 19,434,971, which includes 16,932,548 shares of common stock that were available for issuance under the Prior Plans as of the effective date of the 2023 Plan. As of December 31, 2023, a total of
10,572,83916,616,038 options have been granted under the 2013
Plan and 2023 Plan.
As of December 31, 2020,2023, the Company has awarded 453,7872,994,168 RSUs to certain employees pursuant to the 2013 Plan and 2023 Plan. Vesting of these awards will be in 3annually over equal annual installments, either a two or three-year vesting period, and is contingent on continued employment terms. The fair value of these awards is determined based on the intrinsic value of the stock on the date of grant and will be recognized as stock-based compensation expense over the requisite service period. In November 2013, our Board of Directors and stockholders approved the 2013 Employee Stock Purchase Plan
(ESPP)(2013 ESPP), which became effective as of December 5, 2013. Under the ESPP our employees may elect to have between 1-15% of their compensation withheld to purchase shares of the Company’s common stock at a discount. The ESPP had an initial two-year term that
includes 4included four six-month purchase periods, and employee withholding amounts
maycould be used to purchase Company stock during each six-month purchase period. The initial two-year term ended in December 2015 and, pursuant to the provisions of the ESPP,
the secondsubsequent two-year
termterms began automatically upon the end of the
initialprevious term. The total number of shares that can be purchased with the withholding amounts are based on the lower of 85% of the Company’s common stock price at the initial offering date or 85% of the Company’s stock price at each purchase date.
We have reserved a
As of December 31, 2023, the total number of 581,286 shares of common stock available for issuance under the ESPP. Unless otherwise determined by our Board, beginning on January 1, 2014, and continuing untilESPP is 1,041,340. Under the expiration of the2013 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,Pursuant to approval by our board, the total number of shares of common stock available for issuance under the ESPP was automatically increased by 313,545599,977 shares which is included in the number of shares reserved for issuance above. Pursuant to approval by our board, there were 0 increases in the number of authorized shares in the ESPP in years from 2015 to 2020. on January 1, 2023.
As of December 31, 2020,2023, we have issued a total of 467,595733,478 shares of common stock under the ESPP.
Total employee, director and non-employee stock-based compensation expense recognized was as follows:
| | | | | | | | | | |
| | Year Ended | |
| | December 31, | |
(in thousands) | | 2020 | | 2019 | | 2018 | |
General and administrative | | $ | 10,769 | | $ | 8,854 | | $ | 7,699 | |
Research and development | | | 20,850 | | | 22,997 | | | 12,849 | |
| | $ | 31,619 | | $ | 31,851 | | $ | 20,548 | |
| | | | | | | | | | |
| | Year Ended | |
| | December 31, | |
(in thousands) | | 2020 | | 2019 | | 2018 | |
Stock options | | $ | 26,045 | | $ | 30,502 | | $ | 19,537 | |
ESPP | | | 804 | | | 687 | | | 744 | |
RSUs | | | 4,770 | | | 662 | | | 267 | |
| | $ | 31,619 | | $ | 31,851 | | $ | 20,548 | |
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
(in thousands) | | 2023 | | 2022 | | 2021 |
General and administrative | | $ | 19,239 | | | $ | 17,281 | | | $ | 12,813 | |
Research and development | | 34,516 | | | 31,632 | | | 24,162 | |
| | $ | 53,755 | | | $ | 48,913 | | | $ | 36,975 | |
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
(in thousands) | | 2023 | | 2022 | | 2021 |
Stock options | | $ | 29,345 | | | $ | 29,758 | | | $ | 27,909 | |
ESPP | | 1,243 | | | 1,174 | | | 992 | |
RSUs | | 23,167 | | | 17,981 | | | 8,074 | |
| | $ | 53,755 | | | $ | 48,913 | | | $ | 36,975 | |
Information with respect to stock options outstanding is as follows:
| | | | | | | | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 | | 2021 |
Exercisable options | 7,761,829 | | 6,679,948 | | 5,576,430 |
Weighted average exercise price per share of exercisable options | $ | 28.79 | | | $ | 26.99 | | | $ | 24.15 | |
Weighted average grant date fair value per share of options granted during the year | $ | 15.98 | | | $ | 15.45 | | | $ | 21.65 | |
Options available for future grants | 6,801,945 | | 3,622,319 | | 3,597,371 |
Weighted average remaining contractual life | 6.03 | | 6.30 | | 6.65 |
| | | | | | | | | | |
| | December 31, | |
| | 2020 | | 2019 | | 2018 | |
Exercisable options | | | 4,668,179 | | | 3,950,965 | | | 3,058,659 | |
Weighted average exercise price per share of exercisable options | | $ | 21.75 | | $ | 17.79 | | $ | 15.12 | |
Weighted average grant date fair value per share of options granted during the year | | $ | 16.96 | | $ | 20.74 | | $ | 18.06 | |
Options available for future grants | | | 3,346,092 | | | 3,975,160 | | | 3,576,574 | |
Weighted average remaining contractual life | | | 7.00 | | | 7.32 | | | 7.51 | |
The following table summarizes stock option activity for the years ended December 31, 20202023 and 2019:2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| Number of Shares | | Weighted- Average Exercise Price (Per Share)(1) | | Weighted- Average Remaining Contractual Term (in years) | | Aggregate Intrinsic Value (in thousands)(2) |
Balances at December 31, 2020 | 7,751,789 | | $ | 26.23 | | | 7.00 | | $ | 134,941 | |
Options granted | 1,827,234 | | 41.22 | | | | | |
Options forfeited | (382,454) | | 36.15 | | | | | |
Options exercised(3) | (520,240) | | 23.61 | | | | | |
Balances at December 31, 2021 | 8,676,329 | | 29.11 | | | 6.65 | | $ | 100,057 | |
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 | |
Options granted | 2,080,732 | | 30.02 | | | | | |
Options forfeited | (676,005) | | 33.19 | | | | | |
Options exercised(3) | (344,383) | | 9.91 | | | | | |
Balances at December 31, 2023 | 11,142,986 | | $ | 29.60 | | | 6.03 | | $ | 9,977 | |
As of December 31, 2023 | | | | | | | |
Options vested and expected to vest | 11,142,986 | | $ | 29.60 | | | 6.03 | | $ | 9,977 | |
Exercisable | 7,761,829 | | $ | 28.79 | | | 4.90 | | $ | 9,907 | |
(1) | | | | | | | | | | | |
| | | | | | | Weighted- | | | | |
| | | | Weighted- | | Average | | | | |
| | | | Average | | Remaining | | | | |
| | | | Exercise | | Contractual | | Aggregate | |
| | Number of | | Price | | Term | | Intrinsic Value | |
| | Shares | | (Per Share)(1) | | (in years) | | (in thousands)(2) | |
Balances at December 31, 2018 | | 5,966,928 | | | 19.71 | | 7.51 | | $ | 99,273 | |
Options granted | | 2,142,228 | | | 35.80 | | | | | | |
Options forfeited | | (390,950) | | | 32.23 | | | | | | |
Options exercised(3) | | (543,887) | | | 17.04 | | | | | | |
Balances at December 31, 2019 | | 7,174,319 | | | 24.03 | | 7.32 | | $ | 79,116 | |
Options granted | | 1,679,324 | | | 33.08 | | | | | | |
Options forfeited | | (243,384) | | | 32.93 | | | | | | |
Options exercised(3) | | (858,470) | | | 19.36 | | | | | | |
Balances at December 31, 2020 | | 7,751,789 | | $ | 26.23 | | 7.00 | | $ | 134,941 | |
As of December 31, 2020 | | | | | | | | | | | |
Options vested and expected to vest | | 7,751,789 | | $ | 26.23 | | 7.00 | | $ | 134,941 | |
Exercisable | | 4,668,179 | | $ | 21.75 | | 5.91 | | $ | 102,120 | |
The weighted average exercise price per share is determined using exercise price per share for stock options.(1) | The weighted average exercise price per share is determined using exercise price per share for stock options.(2) |
(2) | The aggregate intrinsic value is calculated as the difference between the exercise price of the option and the fair value of our common stock for in-the-money options at December 31, 2020 and 2019. |
(3) | The total intrinsic value of stock options exercised was $16.3 million, $11.5 million and $23.6 million for the years ended December 31, 2020, 2019 and 2018 respectively. |
The stock options outstanding and exercisable by exercise price at December 31, 2020 are as follows:
2023 and 2022.
(3) | | | | | | | | | | | | | |
Stock Options Outstanding | | Stock Options Exercisable | |
| | | | Weighted- | | | | | | | | | |
| | | | Average | | | | | | | | | |
| | | | Remaining | | Weighted- | | | | Weighted- | |
Range of | | | | Contractual | | Average | | | | Average | |
Exercise | | Number of | | Term | | Exercise Price | | Number of | | Exercise Price | |
Prices | | Shares | | (in years) | | Per Share | | Shares | | Per Share | |
$4.25 – $10.28 | | 153,038 | | 2.68 | | $ | 4.29 | | 153,038 | | $ | 4.29 | |
$10.52 – $15.78 | | 1,639,702 | | 4.30 | | $ | 13.10 | | 1,638,717 | | $ | 13.10 | |
$15.91 – $23.87 | | 1,980,437 | | 6.53 | | $ | 22.75 | | 1,654,609 | | $ | 22.67 | |
$23.96 – $35.94 | | 2,330,771 | | 8.65 | | $ | 31.80 | | 530,056 | | $ | 30.12 | |
$35.99 – $53.99 | | 1,647,841 | | 8.34 | | $ | 37.63 | | 691,759 | | $ | 37.51 | |
| | 7,751,789 | | 7.00 | | $ | 26.23 | | 4,668,179 | | $ | 21.75 | |
The total intrinsic value of stock options exercised was $4.8 million, $1.6 million, and $9.2 million for the years ended December 31, 2023, 2022 and 2021 respectively.
We estimated the fair value of employee and non-employee awards using the Black-Scholes valuation model. The fair value of employee stock options is being amortized on a straight-line basis over the requisite service period of the awards. Management estimates the probability of non-employee awards being vested based upon an evaluation of the non-employee achieving their specific performance goals.
Options are issued at the fair market value of our stock on the date of grant.
The fair value of employee stock options was estimated using the following weighted average assumptions for the years ended December 31,
2020, 20192023, 2022 and
2018:2021:
| | | | | | | | | | | | | | | | | |
| Options |
| 2023 | | 2022 | | 2021 |
Common stock fair value per share | $20.14 - 36.02 | | $19.74- 38.08 | | $30.65 - 49.47 |
Expected volatility | 49.75% - 52.48% | | 51.51% - 54.36% | | 53.91% - 56.82% |
Risk-free interest rate | 3.50% - 4.55% | | 1.57% - 4.34% | | 0.47% - 1.33% |
Expected dividend yield | — | | — | | — |
Expected term (in years) | 6.00 - 6.59 | | 6.00 - 7.65 | | 6.00 - 7.65 |
| | | | | | | | | | |
| | Options | |
| | 2020 | | 2019 | | 2018 | |
Common stock fair value per share | | $ | 20.69 - 45.91 | | $ | 29.96 - 44.19 | | $ | 21.80 - 43.16 | |
Expected volatility | | | 52.93% - 58.95% | | | 60.67% - 61.33% | | | 70.97% - 73.10% | |
Risk-free interest rate | | | 0.29% - 1.71% | | | 1.37% - 2.60% | | | 2.29% - 3.10% | |
Expected dividend yield | | | — | | | — | | | — | |
Expected term (in years) | | | 5.23 - 7.65 | | | 5.23 - 6.59 | | | 5.23 - 6.08 | |
| | | | | | | |
| | ESPP | |
| | 2020 | | 2019 | | 2018 | |
Expected term (years) | | 0.5 - 2.0 | | 0.5 - 2.0 | | 0.5 - 2.0 | |
Expected volatility | | 50.77% - 66.37% | | 50.77% - 71.37% | | 57.04% - 71.37% | |
Risk-free interest rate | | 0.09% - 1.65% | | 1.47% - 2.70% | | 1.47% - 2.70% | |
Expected dividend yield | | — | | — | | — | |
| | | | | | | | | | | | | | | | | |
| ESPP |
| 2023 | | 2022 | | 2021 |
Expected term (years) | 0.5 - 2.0 | | 0.5 - 2.0 | | 0.5 - 2.0 |
Expected volatility | 38.24% - 55.72% | | 43.19% - 55.72% | | 46.08% - 66.37% |
Risk-free interest rate | 0.13% - 5.39% | | 0.13% - 4.72% | | 0.04% - 1.65% |
Expected dividend yield | — | | — | | — |
The expected term of stock options represents the average period the stock options are expected to remain outstanding. The expected stock price volatility for our stock options for the years ended December 31,
20202023, 2022, and
20192021 was determined using a blended volatility by examining the historical volatility for industry peer companies and the volatility of our stock from the effective date that our shares were publicly traded on a national stock exchange.
For the year ended December 31, 2018, expected stock volatility was determined by examining the historical volatilities for industry peers and adjusting for differences in our life cycle and financing leverage. Industry peers consist of several public companies in the biopharmaceutical industry.We determined the average expected life of stock options based on the anticipated time period between the measurement date and the exercise date by examining the option holders’ past exercise patterns.
The risk-free interest rate assumption is based on the U.S. Treasury instruments, for which the term was consistent with the expected term of our stock options.
The expected dividend assumption is based on our history and expectation of dividend payouts. We have not paid dividends and did not have any dividend payout at December 31, 2020.
2023.
The following table summarizes RSU activity for the years ended December 31,
2020:
| | | | | |
| | | | Weighted- |
| | | | Average |
| | | | Grant Date |
| | Number of | | Fair Value |
| | Shares | | (Per Unit) |
Unvested at December 31, 2018 | | 33,933 | | $ | 27.64 |
Granted | | 71,566 | | | 36.68 |
Vested | | (11,311) | | | 27.64 |
Forfeited | | (4,182) | | | 31.12 |
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 |
2023:
| | | | | | | | | | | |
| Number of Shares | | Weighted- Average Grant Date Fair Value (Per Unit) |
Unvested at December 31, 2020 | 358,825 | | $ | 33.04 | |
Granted | 670,700 | | 39.11 | |
Vested | (151,555) | | 32.76 | |
Forfeited | (51,822) | | 36.68 | |
Unvested at December 31, 2021 | 826,148 | | $ | 37.79 | |
Granted | 875,330 | | 29.45 | |
Vested | (341,073) | | 37.37 | |
Forfeited | (127,854) | | 33.66 | |
Unvested at December 31, 2022 | 1,232,551 | | $ | 32.41 | |
Granted | 994,351 | | 30.33 | |
Vested | (558,066) | | 33.61 | |
Forfeited | (178,796) | | 31.64 | |
Unvested at December 31, 2023 | 1,490,040 | | $ | 30.66 | |
As of December 31,
20202023 and
2019,2022, the unamortized compensation expense related to unvested stock options was
$48.9$49.2 million and
$51.1$52.6 million, respectively. The remaining unamortized compensation expense will be recognized over the next
2.542.39 years. At December 31, 20202023 and 2019,2022, the unamortized compensation expense was $0.9$1.8 million and $1.4$1.2 million respectively under our ESPP. The remaining unamortized expense will be recognized over the next 0.941.94 years. At December 31, 20202023 and 2019,2022, the unamortized compensation expense related to unvested restricted stock units was $8.5$29.6 million and $2.5$28.3 million, respectively. The remaining unamortized compensation expense will be recognized over the next 2.131.90 years.
The Company leases office and laboratory space in Monrovia, CACalifornia under atwo separate leases; one lease that expired in June 2020. In April 2020January 2023, and a second lease will expire in September 2020, the Company entered into amendments to theDecember 2025. The second lease to extend the term of the lease under the original terms through October 2020. In November 2020, the Company entered into an amended lease for the space, which includes a 62-month term with an option to renew
for an additional five years at then market rates.
InJuly 2017, The initial lease expired in January 2023, and the Company
entered into an amended lease agreement 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 assesseshas assessed that it is
likelyunlikely to exercise
both options of the lease term
extensions.The Company also leased office spaceextension option for the second lease that will expire in San Diego, CA through July 2020 which included an option to renewDecember 2025. For the year ended December 31, 2023, there were no ROU assets obtained in exchange for an additional five years. Thenew operating lease expired and the Company did not exercise its option to extend the lease.
liabilities.
The Company leases additional office space in San Diego, CA throughCalifornia under a lease that expired December 31, 2023.
In August 2023, the Company entered into a Sublease Agreement for office space in San Diego, California. The term of the Sublease Agreement begins in September 2023 and ends in December 2027. For the year ended December 31, 2023, ROU assets obtained in exchange for new operating lease liabilities were $2.5 million. In connection with the Sublease Agreement, the Company provided a $0.4 million Letter of Credit (LOC) to the landlord. The Letter of Credit will decline ratably over the term of the lease. In connection with the LOC, Company entered into a Cash Collateral Agreement for $0.4 million, which is classified as restricted cash in the Consolidated Balance Sheets.
In June 2021, the Company entered into an 18-month lease for office space in Monrovia, California. The lease began August 1, 2021 and terminated January 31, 2023. For the year ended December 31, 2023, there were no ROU assets obtained in exchange for new operating lease liabilities.
In June 2021, the Company entered into an Agreement of Lease (the Halstead Lease) relating to 129,543 rentable square feet, for laboratory and office space, in Pasadena, California. The term of the Halstead Lease became effective in two phases. The first phase commenced on July 14, 2021 and encompasses 83,083 square feet while the second phase commences no later than July 1, 2025 and encompasses an additional 46,460 square feet. The term of the Halstead Lease is 13 years from the first phase commencement date. The Company received delivery of the first phase premises on July 1, 2021 and completed construction of office, laboratory, and related improvements in 2023. The Company placed the new facility into service in February 2023. The Halstead Lease provides the Company with improvement allowances of up to $17.0 million and $3.3 million in connection with the Phase 1 and Phase 2 building improvements, respectively. The initial base monthly rent is $386,336, or $4.65 per square foot, and includes increases of three percent annually. The Company will also be responsible for its proportionate share of operating expenses, tax expense, and utility costs.
In July 2021, the Halstead Lease was amended to clarify the start date of the new lease to August 1, 2022 and to amend other provisions of the Halstead Lease to reflect the new start date of the lease. In August 2022,
the Halstead lease was amended to increase the amount of the tenant allowance by $5.0 million with
an option to extend for an additional five years.a corresponding increase in total rental payments. The Company
assesses that it is
unlikelyeligible to
exercise the option to extendreceive total tenant allowance under the lease
term.for the phase 1 space of $22.0 million and the initial base rent is increased to $416,246, or $5.01 per square foot. The second phase premises was made available on December 1, 2022. For the year ended December 31, 2023, there were no ROU assets obtained in exchange for new operating lease liabilities.
The Company’s lease agreements do not contain any residual value guarantees or restrictive covenants. As of December 31, 2020, the Company did not have additional operating leases that have not yet commenced.
The following table reconciles the undiscounted cash flows for the operating leases at December 31, 20202023 to the operating lease liabilities recorded on the balance sheet (in thousands):
| | | |
Years ending December 31, | | |
2021 | | $ | 2,429 |
2022 | | | 2,269 |
2023 | | | 1,415 |
2024 | | | 1,436 |
2025 | | | 1,396 |
Thereafter | | | 5,342 |
Total undiscounted lease payments | | | 14,287 |
Less: Imputed interest | | | (2,659) |
Present value of lease payments | | $ | 11,628 |
| | | |
Lease liabilities - short-term | | $ | 1,889 |
Lease liabilities - long-term | | | 9,739 |
Total lease liabilities | | $ | 11,628 |
| | | | | |
Years ending December 31, | |
2024 | $ | 6,128 | |
2025 | 8,022 | |
2026 | 9,238 | |
2027 | 9,560 | |
2028 | 9,076 | |
Thereafter | 66,435 | |
Total undiscounted lease payments | 108,459 | |
Less: Tenant allowance | (3,252) | |
Less: Imputed interest | (42,747) | |
Present value of lease payments | $ | 62,460 | |
| |
Lease liabilities - short-term | $ | 3,435 | |
Lease liabilities - long-term | 59,025 | |
Total lease liabilities | $ | 62,460 | |
The following table summarizes lease costs,
cash, and
cashother disclosures for the years ended December 31,
20202023, 2022, and
20192021 (in thousands):
| | | | | | |
| | Year Ended |
| | December 31, |
| | 2020 | | 2019 |
| | | | | | |
Operating lease cost | | $ | 2,503 | | $ | 2,596 |
Variable lease cost | | | 150 | | | 80 |
Total lease costs | | $ | 2,653 | | $ | 2,676 |
| | | | | | |
Cash paid for amounts included in | | | | | | |
the measurement of lease liabilities | | $ | 2,233 | | $ | 1,929 |
Rent expense for the year ended December 31, 2018 was $2.5 million.
The 2020 lease amendments to the Monrovia, CA lease are lease modifications. Non-cash activities involving right of use assets related to the lease modification were $3.1 million.
At December 31, 2020 and 2019, the weighted-average remaining lease terms for operating leases were 7.4 years and 5.5 years, respectively, and the weighted average discount rates for operating leases were both 5.5%.
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| | | | | |
Operating lease cost | $ | 8,459 | | | $ | 6,588 | | | $ | 4,342 | |
Variable lease cost | 906 | | | 506 | | | 58 | |
Total lease costs | $ | 9,365 | | | $ | 7,094 | | | $ | 4,400 | |
Cash paid for amounts included in | | | | | |
the measurement of lease liabilities | $ | 3,253 | | | $ | 2,869 | | | $ | 2,773 | |
Weighted-average remaining lease term | | | | | |
—operating leases (in years) | 11.0 | | 12.0 | | 12.3 |
Weighted-average discount rate | | | | | |
—operating leases | 8.9 | % | | 8.9 | % | | 5.8 | % |
9. Commitments and Contingencies
From time to time, the Company may be subject to various litigation and related matters arising in the ordinary course of business. The Company does not believe it is currently subject to any material matters where there is at least a reasonable possibility that a material loss may be incurred.
We are obligated to make future payments to third parties under in-license agreements, including sublicense fees, royalties, and payments that become due and payable on the achievement of certain development and commercialization milestones. As the amount and timing of sublicense fees and the achievement and timing of these milestones are not probable and estimable, such commitments have not been included on our balance sheet. We have also entered into agreements with third party vendors which will require us to make future payments upon the delivery of goods and services in future periods.
In the normal course of business, we indemnify certain employees and other parties, such as collaboration partners and other parties that perform certain work on behalf of, or for the Company or take licenses to our technologies. We have agreed to hold these parties harmless against losses arising from our breach of representations or covenants, intellectual property infringement or other claims made against these parties in performance of their work with us.
These agreements typically limit the time within which the party may seek indemnification by us and the amount of the claim. It is not possible to prospectively determine the maximum potential amount of liability under these indemnification agreements since we have not had any prior indemnification claims on which to base the calculation. Further, each potential claim would be based on the unique facts and circumstances of the claim and the particular provisions of each agreement. We are not aware of any potential claims and we did not record a liability as of December 31,
20202023 and
2019.2022.
10. Collaboration and Licensing Agreements
Following is a summary description of the material revenue arrangements, including arrangements that generated revenue in the period ended December 31,
2020, 2019,2023, 2022, and
2018.2021. The revenue reported for each agreement has been adjusted to reflect the adoption of ASC 606 for each period presented.
Alexion Pharmaceuticals, Inc.
In January 2013, the Company entered into an option and license agreement with Alexion Pharmaceuticals, Inc. (Alexion). Under the terms of the agreement, the Company granted to Alexion an exclusive research license, with limited sublicensing rights, to make and use our Xtend technology. Alexion exercised its rights to include our technology in ALXN1210, which is now marketed as Ultomiris.
The Company is eligible to receive royalties based on a percentage of net sales of such products sold by Alexion, its affiliates, or its sub licensees, which percentage is in the low single digits. Alexion’s royalty obligations continue on a product-by-product and country-by-country basis until the expiration of the last-to-expire valid claim in a licensed patent covering the applicable product in such country.
In 2022 and 2021, the Company recorded royalty revenue of $29.4 million and $22.2 million, respectively in connection with reported net sales of Ultomiris by Alexion.
In 2023, Alexion completed certain sales milestones for Ultomiris, and the Company received a milestone payment of $20.0 million and recorded royalty revenue of $38.6 million on net sales.
On November 3, 2023, the Company entered into the Ultomiris Royalty Sale Agreement with OMERS, in which OMERS acquired the rights to certain royalties associated with the existing license relating to Ultomiris in exchange for an upfront payment of $192.5 million. Included in the proceeds is $29.5 million of accounts receivable the Company sold for royalties and milestone receivable recorded at September 30, 2023. For the year ended December 31, 2023, the Company earned and recognized $38.6 million in royalty revenue, $6.2 million of which was non-cash royalty revenue under the Ultomiris Royalty Sale Agreement
The total revenue recognized under this arrangement was $58.6 million, $29.4 million, and $22.2 million for the years ended December 31, 2023, 2022, and 2021, respectively. As of December 31, 2023, there is no receivable and no deferred revenue related to this agreement.
Astellas Pharma Inc.
Effective March 2019, the Company entered into a Research and License Agreement (Astellas Agreement) with Astellas Pharma Inc. (Astellas) pursuant to which the Company and Astellas conducted a discovery program to characterize compounds and products for development and commercialization. Under the Astellas Agreement, Astellas was granted a worldwide exclusive license, with the right to sublicense products in the field created by the research activities.
The Company received an upfront payment and is eligible to receive development, regulatory and sales milestones. If commercialized, the Company is eligible to receive royalties on net sales that range from the high-single to low-double digit percentages.
Astellas has advanced an antibody that was delivered into development, and we received a milestone related to the candidate in 2020. Astellas advanced the candidate into Phase 1 studies in 2022 and we received a $5.0 million milestone. No revenue was recognized for the year ended December 31, 2023 or 2021.The Company recognized $5.0 million of revenue for the year ended December 31, 2022 under the agreement. There is no deferred revenue as of December 31, 2023.
Astria Therapeutics, Inc.
In May 2018, the Company entered into an agreement with Quellis, pursuant to which the Company provided Quellis a non-exclusive license to its Xtend Fc technology. The Company received an equity interest in Quellis and is eligible to receive development, regulatory and sales milestones. The Company is also eligible to receive royalties in the mid-single digit percentage range on net sales of approved products.
In January 2021, Quellis merged into Astria (formerly Catabasis), and the Company received common stock and preferred stock of Aastria in exchange for its equity in Quellis. The Company recognized an increase in the fair value of its equity interest for the exchange of shares, which was recorded as unrealized gain for the three months ended March 31, 2021. In June 2021, a portion of the Company’s preferred stock in Astria was converted to common stock. The remaining Astria preferred stock was converted to common stock in 2023. The Company recorded an impairment charge of $0.1 million and $0.8 million for its investment in Astria preferred stock for the year ended December 31, 2022 and 2021, respectively.
The Company recognized unrealized (loss) gain of $(4.3) million, $6.1 million, and $4.5 million related to its equity interest in Astria for the years ended December 31, 2023, 2022, and 2021 respectively. There is no deferred revenue as of December 31, 2023 related to this agreement.
Genentech, Inc., and F. Hoffmann-La Roche Ltd.
In February 2019, the Company entered into a collaboration and license agreement (the Genentech Agreement) with Genentech, Inc. and F. Hoffman-La Roche Ltd (collectively, Genentech) for the development and commercialization of novel IL-15 collaboration products (Collaboration Products), including XmAb306, the Company’s IL-15/IL15Rα-Fc candidate.
Under the terms of the Genentech Agreement, Genentech received an exclusive worldwide license to XmAb306 and we share in 45% of development and commercialization costs of Collaboration Products, and we are eligible to share in 45% of net profits and losses from the sale of approved products. However, in the fourth quarter of 2023, we agreed with Genentech to convert our current development cost and profit-sharing arrangement into a royalty and milestone payment-based arrangement. Pursuant to the terms of the amended agreement with Genentech, effective June 1, 2024, Genentech will assume sole responsibility over all clinical, regulatory and commercial activities. We are eligible to receive up to $600.0 million in milestones, including $115.0 million in development milestones, $185.0 million in regulatory milestones and $300.0 million in sales-based milestones and tiered royalties ranging from low double-digit to mid-teens percentages.
The Company determined that the transaction price of the Genentech Agreement at inception was $120.0 million consisting of the upfront payment, and allocated the transaction price to each of the separate performance obligations using the relative standalone selling price with $111.7 million allocated to the license to XmAb306, $4.1 million allocated to the additional program and $4.2 million allocated to the research services.
The Company recognized the $111.7 million allocated to the license when it satisfied its performance obligation and transferred the license to Genentech in March 2019, and the $8.3 million allocated to the research activities was recognized over a period of time through the end of the research term or the time that a program is delivered to Genentech. The research term expired in the first half of 2021, and the balance in deferred revenue related to the Genentech Agreement was recognized as the Company is no longer required to render services.
No revenue was recognized for the years ended December 31, 2023, and 2022. For the year ended December 31, 2021, we recognized $2.5 million of income from the Genentech Agreement. As of December 31, 2023, there was a $3.3
million payable related to cost-sharing development activities during the fourth quarter of 2023. There is no deferred revenue as of December 31, 2023.
Gilead Sciences, Inc.
In January 2020, the Company entered into a Technology License Agreement (the Gilead Agreement) with Gilead Sciences, Inc. (Gilead), in which the Company provided Gilead an exclusive license to its Cytotoxic Fc and Xtend Fc technologies for an initial identified antibody and options for up to three additional antibodies directed to the same molecular target. Gilead is responsible for all development and commercialization activities for all target candidates. The Company received an upfront payment and is eligible to receive development, regulatory and, sales milestones for each product incorporating the antibodies selected. In addition, the Company is eligible to receive royalties in the low-single digit percentage range on net sales of approved products.
The Company recognized $6.0 million in milestone revenue for the year ended December 31, 2023. No revenue was recognized for the years ended December 31, 2022 and 2021. There is no deferred revenue as of December 31, 2023 related to this agreement.
INmune Bio, Inc.
In October 2017, the Company entered into a License Agreement (the INmune Agreement) with INmune. Under the terms of the INmune Agreement, the Company provided INmune with an exclusive license to certain rights to a proprietary protein, XPro1595. In connection with the agreement the Company received shares of INmune common stock and an option to acquire additional shares of INmune. The Company also received a second option to acquire additional shares of INmune common stock with a designee appointed by us serving on the board of directors of INmune.
The Company initially recorded its equity interest in INmune, including its option to acquire additional INmune shares, at cost pursuant to ASC 323.
In June 2021, the Company entered into the First Amendment to License Agreement (the Amended INmune Agreement) and an Option Cancellation Agreement (the Option Agreement) with INmune.The Option Agreement provided for the sale of the initial option to INmune for the total consideration of $18.3 million which includes $15.0 million in cash and additional shares of INmune common stock. The Company recorded a realized gain of $18.3 million according to ASC 860, Transfer and Servicing, and recorded the additional shares of INmune common stock according to ASC 321, Investments – Equity Securities.
During 2021, the Company determined that it should no longer record its investment in INmune under the equity method and recorded its investment in INmune pursuant to ASC 321. The Company adjusted the carrying value of this investment by recognizing an unrealized gain of $27.8 million as other income during 2021.
During 2021, the Company exercised its second to purchase additional shares of INmune common stock for $0.8 million, and the Company recognized an unrealized gain of $2.0 million, which consists of $1.1 million of fair value of the option and $0.9 million gain on the purchase.
For the year ended December 31, 2023, the Company recorded $9.3 million of unrealized gain related to its investment in INmune. For the year ended December 31, 2022, the Company recorded $7.3 million of unrealized loss related to its investment in INmune. For the year ended December 31, 2021, the Company recorded $15.1 million of unrealized gain and $18.3 million of realized gain related to its investment in INmune. No revenue was recognized for the years ended December 31, 2023, 2022, or 2021.
Janssen Biotech, Inc.
, a Johnson & Johnson company
J&J Agreement
In November 2020, the Company entered into a Collaboration and License Agreement (the JanssenJ&J Agreement) with Janssen Biotech, Inc. (Janssen), a Johnson & Johnson company, pursuant to which Xencor and Janssen will conductJ&J conducted research and development activities to discover novel CD28 bispecific antibodies for the treatment of prostate cancer. Janssen and Xencor will conducttogether with J&J conducted 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
JanssenJ&J maintaining exclusive worldwide rights to develop and commercialize Licensed Products identified from the research activities.
Under the
JanssenJ&J Agreement, the Company
will conductconducted research activities and apply its bispecific Fc technology to antibodies targeting prostate cancer provided by
Janssen.J&J. Upon completion of the research activities Janssen will have a candidate selection option to advance an identified candidate for development and commercialization. The activities will be conducted under a research plan agreed to by both parties.
JanssenJ&J will assume full responsibility for development and commercialization of the CD28 bispecific antibody candidate. Pursuant to the
JanssenJ&J 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. If commercialized, the Company is eligible to receive royalties on net sales that range from the high-single to low-double digit percentages.
Pursuant to the
JanssenJ&J Agreement, upon development of a bispecific candidate by
JanssenJ&J through proof of concept, we have the right to opt-in to fund 20% of development costs and to perform 30% of detailing efforts in the U.S. If we exercise this right, we will be eligible to receive tiered royalties in the low-double digit to mid-teen percentage range.
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.
J&J.
The Company
will recognizerecognized the $50.0 million transaction price as it
satisfiessatisfied its performance obligation to deliver CD28 bispecific antibodies to
Janssen.J&J. The Company
will recognizerecognized revenue related to the performance obligation over the expected period of time to complete and deliver the CD28 bispecific antibodies to
JanssenJ&J using the expected input method which considers an estimate of the Company’s efforts to complete the research activities outlined in the
JanssenJ&J Agreement.
NaN
In November 2021, the Company completed its performance obligations under the research activities and delivered CD28 bispecific antibodies to J&J. In December 2021, J&J selected a bispecific CD28 candidate for further development, and we received a milestone of $5.0 million. For the year ended December 31, 2021 the Company recognized as revenue the $50.0 million transaction price in connection with the completion of the research activities and the $5.0 million milestone for selection of an antibody candidate by J&J. No revenue was recognized under this
arrangement for the year ended December 31, 2020, and there is $50.0 million in deferred revenue as of December 31, 2020 related to our obligation to complete research activities and deliver CD28 bispecific antibodies under the Janssen Agreement.Aimmune Therapeutics, Inc.
On February 4, 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; and |
| ● | 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.
The Company recognized $9.6 million of revenue related to the agreement for the year ended December 31, 2020.2022. In 2023, J&J completed filing of regulatory submission for a CD28 candidate and initiated Phase 1 clinical trial, and the Company received $17.5 million in milestone payments. For the year ended December 31, 2023, the Company recognized $17.5 million in milestones under the J&J Agreement. There is 0no deferred revenue as ofrelated to the Agreement at December 31, 2020 related to this agreement.
Genentech
In February 2019,2023.
Second J&J Agreement
On October 1, 2021, the Company entered into a
collaborationsecond Collaboration and
license agreementLicense Agreement (the
GenentechSecond J&J Agreement) with
Genentech, Inc. and F. Hoffman-La Roche Ltd (collectively, Genentech) forJ&J pursuant to which 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 receivedCompany granted J&J an exclusive worldwide license to XmAb306develop, manufacture, and other Collaboration Products, including any new IL-15 programs identified duringcommercialize plamotamab, the Company’s CD20 x CD3 development candidate, and pursuant to which Xencor and J&J will conduct research and development activities to discover novel CD28 bispecific antibodies. The parties will conduct joint research collaboration. Genentechactivities for up to a two-year period to discover XmAb bispecific antibodies against CD28 and undisclosed B cell tumor-targets with J&J receiving exclusive worldwide rights, subject to certain Xencor will jointly collaborateopt-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 worldwide development of XmAb306 and potentially other Collaboration Products.
TheNovember 5, 2021.
Pursuant to the Second J&J Agreement, the Company received a $120.0 millionan upfront payment of $100.0 million and is eligible to receive up to an aggregate of $160.0$1,187.5 million in clinical milestone payments for XmAb306 and up to $180.0milestones which include $289.4 million in development milestones, $378.1 million in regulatory milestones and $520.0 million in sales milestones. Under the terms of the Stock Purchase Agreement, Johnson & Johnson Innovation, JJDC, Inc. (JJDC), agreed to purchase $25.0 million of newly issued unregistered shares of the Company’s common stock, priced at a 30-day volume-weighted average price of $33.4197 per share as of October 1, 2021. The Company issued JJDC 748,062 shares of its common stock which had a fair market value of $28.9 million when the shares were transferred.
The Company will collaborate with J&J on further clinical milestone payments for each new Collaboration Product. development of plamotamab with J&J and share development costs with J&J paying 80% and the Company paying 20% of certain development costs.
The Company is alsogenerally responsible for conducting research activities under the Second J&J Agreement, and J&J is generally responsible for all development, manufacturing, and commercialization activities for CD28 Licensed Antibodies that are advanced.
Under the Second J&J Agreement, the Company granted J&J an exclusive worldwide right to its plamotamab program and the Company will conduct research activities and apply its CD28 bispecific Fc technology to antibodies targeting B-cells. Upon completion of the research activities J&J will have options to advance up to four identified candidates for development and commercialization. The activities will be conducted under a research plan agreed to by both parties. J&J will assume full responsibility for development and commercialization of the CD28 bispecific antibody candidate. If commercialized, the Company is eligible to receive
45% share ofroyalties on 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.
Under the Genentech Agreement, the Company and Genentech will conduct joint research activities for a two-year period to identify and discover additional IL-15 candidates developedthat range from the Company’s cytokine and bispecific technologies. The two-year research term may be extended an additional year if both parties agree. The Company and Genentech are each responsible for their own costs in conducting the research activities. The Company is eligible for clinical milestone payments for new Collaboration Products identified from the research efforts.
high-single to low-double digit percentages.
The Company evaluated the GenentechSecond J&J 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 808.606. We have determined that GenentechJ&J is a customer for purposes of the delivery of specific performance obligations under the GenentechSecond Janssen Agreement and applied the provisions of ASC 606 to the transaction.
The Company identified the following performance obligations under the GenentechSecond Janssen Agreement:
(i)the license of XmAb306to the plamotamab program, and
(ii)research services during a two-year period to identifycreate up to potentially 9 additional IL-15four CD28 bispecific candidates each a separate research program and a separate performance obligation. targeting B-cell antigens.
The Company determined that the license and
each of the
potential research
programsservices are separate performance obligations because they are capable of being distinct and are distinct in the context of the
GenentechSecond J&J 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 each potential additional IL-15 candidate and research program were separate standalone performance obligations. The Genentech Agreement provides an outline of an integrated research plan for the programs to be conducted by the 2 companies, and the research activities are 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$58.5 million using the adjusted market assessment approach considering similar collaboration and license agreements and transactions. The standalone selling price for the research
activities for all 9 of the potential IL-15 programsservices to be performed during the research term was determined to be
$8.5$37.6 million using the
expected costmarket approach which was derived from the Company’s experience and information from providing similar research
activities to other parties.services.
The Company determined that the transaction price of the
GenentechSecond J&J Agreement at inception was
$120.0$96.1 million consisting of the
$100.0 million upfront
payment.payment reduced by the $3.9 million discount on the proceeds received from the sale of Company common stock to J&J. The potential milestones are not included in the transaction price as these are contingent on future events and the Company would not recognize these in revenue until it is not probable that these would not result in significant reversal of revenue amounts in future periods. The Company will re-assess the transaction price at each reporting period and when event outcomes are resolved or changes in circumstances occur.
The Company allocated the transaction price to each of the separate performance obligations using the relative standalone selling price with
$111.7$58.5 million allocated to the license to
XmAb306, $4.1 million allocated to the
additionalplamotamab program and
$4.2$37.6 million allocated to the research services.
The Company recognized the $111.7$58.5 million allocated to the license when it satisfied its performance obligation and transferred the license to GenentechJ&J in March 2019.November 2021. The license was transferred upon the effective date of the Genentech Agreement, and the $8.3$37.6 million allocated to the research activitiesservices is being recognized over a period of time through the end of the research term orthat services are rendered as we determine that the time thatinput method is the appropriate approach to recognize income for such services. The Company completed its performance obligations under the research agreement in December 2023.
During 2023, J&J exercised its options on three CD28 candidates developed under the collaboration, and it completed regulatory submissions for a program is deliveredselected candidate and initiated a Phase 1 study for it. During the year ended December 31, 2023, we received $30.0 million in milestone revenue and recognized $30.3 million in revenue related to Genentech.completion of the research services. A total of $3.5$30.3 million, $7.0 million, and $2.2$0.3 million of revenue related to the research activitiesservices was recognized in each of the years ended December 31, 2023, 2022, and 2021, respectively.
The Company recognized $77.8 million, $7.0 million, and $113.8 million of revenue related to the two J&J agreements for the years ended December 31,
20202023, 2022, and
December 31, 2019,2021, respectively.
For the years ended December 31, 2020 and December 31, 2019, we recognized $3.5 million and $113.9 million of income, respectively from the Genentech Agreement. As of December 31, 2020,2023, there iswas a $3.2$2.9 million payablereceivable related to cost-sharing development activities during the fourth quarter of 2020.2023. There is $2.5 millionno in deferred revenue as of December 31, 2020 which reflects2023 related to our obligation to performcomplete research services during the remaining research term.
Astellas
Effective March 29, 2019, the Company entered into a Researchactivities and License Agreement (Astellas Agreement) with Astellas Pharma Inc. (Astellas) pursuant to which the Company and Astellas will conduct a discovery program to characterize compounds and products for development and commercialization. Under the Astellas Agreement, Astellas was granted a worldwide exclusive license, with the right to sublicense products in the field created by the research activities.
Pursuant to the Astellas Agreement, the Company applied itsdeliver CD28 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. The activities were conducted under a research plan agreed to by both parties to the Astellas Agreement. 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. If commercialized, the Company is eligible to receive royalties on net sales that range from the high-single to low-double digit percentages.
We evaluated the Astellas Agreement under ASC 606 and identified the performance obligations under the Agreement to be (i) delivery of bispecific antibodies to Astellas from the antigen provided by Astellas and (ii) research activities against the bispecific antibodies as outlined in the research plan.
The Company determined the standalone selling price of the bispecific deliverable to be $17.1 million and the standalone selling price for the research activities to be performed was determined to be $1.4 million.
The Company determined that the transaction price of the Astellas Agreement is $17.5 million consisting of the upfront payment and an initial milestone of $2.5 million for Astellas initiating an IND enabling study. The additional milestones are not included in the transaction price as these are contingent on future events, and the Company would not recognize these in revenue until it is not probable that these would not result in significant reversal of revenue amounts in future periods. The Company will re-assess the transaction price at each reporting period and when event outcomes are resolved or changes in circumstances occur.
The Company allocated the transaction price to each of the separate performance obligations using the relative standalone selling price with $16.1 million allocated to delivery of the bispecific antibodies and the remainder of $1.4 million was allocated to the research activities.
The Company recognized the $13.6 million allocated to the bispecific antibodies when it satisfied its performance obligation to Astellas 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.
We recognized $3.5 million and $14.0 million of revenue under this arrangement for the years ended December 31, 2020 and December 31, 2019, respectively. There is a $2.5 million contract asset recorded at December 31, 2020 related to a milestone. There is 0 and $1.0 million in deferred revenue as of December 31, 2020 and December 31, 2019, respectively.
Second J&J Agreement.
Novartis
In June 2016, the Company entered into a Collaboration and License Agreement (Novartis Agreement) with Novartis Institutes for BioMedical Research, Inc. (Novartis), to develop and commercialize bispecific and other Fc engineered antibody drug candidates using the Company’s proprietary XmAb technologies and drug candidates. Pursuant to the Novartis Agreement:
| ● | The Company granted Novartis certain exclusive rights to research, develop and commercialize XmAb14045 (vibecotamab) and XmAb13676 (plamotamab), 2 development stage products that incorporate the Company’s bispecific Fc technology; |
| ● | The Company will apply its bispecific technology in up to 4 target pair antibodies identified by Novartis (each a Global Discovery Program); and |
| ● | The Company will provide Novartis with a non-exclusive license to certain of its Fc technologies to apply against up to 10 targets identified by Novartis. |
MorphoSys AG/Incyte CorporationIn 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.
We completed delivery of a Global Discovery Program in 2017 and delivery of a second Global Discovery Program in 2018. 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 each product candidate under each of the Global Discovery Programs.
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 a discovery program to Novartis in 2017 and recognized $20.1 million of revenue in the period of delivery. In the third quarter of 2018, the Company delivered a second discovery program to Novartis and recognized an additional $20.0 million of revenue. In the third quarter of 2019, Novartis received notice of approval for an investigational new study (IND) from the Food and Drug Administration (FDA) for an application submitted for a Global Discovery Program, and we recognized $10.0 million of revenue.
During the year ended December 31, 2019 and 2018, the Company recognized $10.0 million and $20.0 million of revenue respectively. NaN revenue was recognized during the year ended December 31, 2020. There is a receivable of $0.9 million and $12.2 million as of December 31, 2020 and December 31, 2019, respectively, related to the arrangement, and we have recorded $40.1 million in deferred revenue as of December 31, 2020 related to the arrangement.
Amgen Inc.
In September 2015, the Company entered into a research and license agreement (the Amgen Agreement) with Amgen Inc. (Amgen) to develop and commercialize bispecific antibody product candidates using the Company’s proprietary XmAb® bispecific Fc technology. Under the Amgen Agreement, the Company granted an exclusive license to Amgen to develop and commercialize bispecific drug candidates from the Company’s preclinical CD38 Program. The Company also agreed to apply its bispecific technology to 5 previously identified Amgen provided targets (each a Discovery Program). The Company received a $45.0 million upfront payment and milestones totaling $15.5 million from Amgen and is eligible to receive up to $255.0 million in future development, regulatory and sales milestones in total for programs in development and is eligible to receive royalties on any global net sales of products.
Amgen will assume full responsibility for development and commercialization of product candidates under each of the Discovery Programs.
The Company evaluated the Amgen Agreement under ASC 606 and determined that it is a customer and that delivery of the CD38 Program and each of the 5 Discovery Programs represent the performance obligations under the contract.
The Company determined the transaction price at inception is the $45.0 million upfront payment to be allocated to the performance obligations. The Amgen Agreement includes variable consideration for potential future milestones and royalties that were contingent on future success factors for development programs. The Company used the “most likely” method to determine the variable consideration. In 2019, the Company recognized a $5.0 million milestone related to 1 of the Discovery Programs. NaN other 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 and as uncertain events are resolved or other changes in circumstances occur.
The Company completed performance obligations under the Amgen Agreement. 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 years ended December 31, 2019 and 2018, the Company recognized $5.0 million and $0.6 million in revenue, respectively, under this arrangement. NaN revenue was recognized for the year ended December 31, 2020. As of December 31, 2020, there was 0 deferred revenue related to the arrangement.
MorphoSys AG
In June 2010, the Company entered into a Collaboration and License Agreement with MorphoSys AG (MorphoSys), which was subsequently amended in March 2012 and in 2020. The agreement provides MorphoSys with an exclusive worldwide license to the Company’s patents and know-how to research, develop, and commercialize the Company’s XmAb5574 product candidate (subsequently renamed MOR208 and tafasitamab) with the right to sublicense under certain conditions. If certain developmental, regulatory, and sales milestones are achieved, the Company is eligible to receive future milestone payments and royalties.
On November 3, 2023, the Company entered into the Monjuvi Royalty Sale Agreement with OMERS, pursuant to which OMERS acquired the rights to certain royalties earned after July 1, 2023 associated with the existing license relating to Monjuvi in exchange for an upfront payment of $22.5 million. The upfront payment included $2.2 million of accounts receivable we recorded as a royalty receivable at September 30, 2023. The payment for the receivable was received by OMERS.
In February 2024, Incyte Corporation acquired exclusive global development and commercialization rights to tafasitamab.
The Company recognized a total of $37.5$8.7 million and $7.8 million of royalty revenue on net sales of Monjuvi for the years ended December 31, 2023 and 2022. Of the $8.7 million royalty revenue earned in 2023, $2.1 million was non-cash royalty revenue from the Monjuvi Royalty Sale Agreement.The Company recognized a total of $12.5 million of milestone revenue related to regulatory submission and approval of MorphoSys’ tafasitamab in the U.S., now Monjuvi,clinical studies and royalties of $1.5$5.9 million on net sales of Monjuvi for the year ended December 31, 2020. There were 0 revenues recognized under this arrangement for the years ended December 31, 2019 and 2018.2021. As of December 31, 2020,2023, the Company has 0no deferred revenue related to this agreement and has recorded a receivable of $1.2$2.1 million for royalties due.Alexion Pharmaceuticals,
Novartis Institute for Biomedical Research, Inc.
In January 2013,June 2016, the Company entered into an optiona Collaboration and License Agreement (Novartis Agreement) with Novartis Institutes for BioMedical Research, Inc. (Novartis), to develop and commercialize bispecific and other Fc engineered antibody drug candidates using the Company’s proprietary XmAb technologies and drug candidates. Pursuant to the Novartis Agreement:
•The Company granted Novartis certain exclusive rights to research, develop and commercialize XmAb14045 (vibecotamab) and,
•The Company will provide Novartis with a non-exclusive license agreementto certain of its Fc technologies to apply against up to ten targets identified by Novartis.
In August 2021, Novartis notified the Company it was terminating its rights with Alexion Pharmaceuticals, Inc. (Alexion).respect to the vibecotamab program, which became effective in February 2022. Under the termsNovartis Agreement, Novartis is responsible for its share of vibecotamab development costs through August 2022.
We completed delivery of two Global Discovery Programs under the Agreement.
Under ASC 606, revenue is recognized at the time that the Company’s performance obligation for each Global Discovery is completed upon delivery of each discovery program to Novartis. The Company delivered two discovery programs to Novartis and recognized $40.1 million of revenue in the period that each program was delivered. The Company’s obligations to provide research services under the Agreement for additional Global Discovery Programs expired in 2021, and we recognized $40.1 million of research revenue from deferred revenue.
In June 2021, Novartis selected an Fc candidate and received a non-exclusive license to the Company’s Fc technology. Novartis will assume full responsibility for development and commercialization of the
agreement, the Company granted to Alexion an exclusive research license, with limited sublicensing rights, to make and use our Xtend technology. Alexion exercised its rights to include our technology in ALXN1210, which is now marketed as Ultomiris.licensed Fc product candidate. The Company is eligible to receive contractual milestones for certain development, regulatoryclinical, and commercial achievements, and the Company is also entitled to receive royalties based on a percentage of net sales of such products sold by Alexion, its affiliates or its sub licensees, which percentage is in the low single digits. Alexion’s royalty obligations continue on a product-by-product and country-by-country basis until the expiration of the last-to-expire valid claim in a licensed patent covering the applicable product in such country.
In 2018, Alexion completed certain regulatory submissions and regulatory approvals for Ultomiris, and the Company received $20.0 million in milestone payments.
In 2019, Alexion completed certain regulatory submissions for Ultomiris, and the Company received a total of $8.0 million in milestone payments. During 2019, the Company also recorded royalty revenue of $5.0 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.
The total revenue recognized under this arrangement was $26.2 million, $13.0 million, and $20.0 million for the years ended December 31, 2020, 2019, and 2018, respectively. As of December 31, 2020, there is a receivable of $8.8 million, and there is 0 deferred revenue related to this agreement.
Gilead Sciences, Inc.
In January 2020, the Company entered into a Technology License Agreement (the Gilead Agreement) with Gilead Sciences, Inc. (Gilead), in which the Company provided Gilead an exclusive license to its Cytotoxic Fc and Xtend Fc technologies for an initial identified antibody and options for up to 3 additional antibodies directed to the
same molecular target. Gilead is responsible for all development and commercialization activities for all target candidates. The Company received an upfront payment 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. In addition, the Company is eligible to receive royalties in the low-single digit percentage range on net sales of approved products.
Inproducts for the second quarter of 2020, Gilead exercised options on 3 additional antibody compounds,licensed Fc candidate. During the year ended December 31, 2021, Novartis advanced the Fc candidate into development and in April 2020, we received a total of $7.5 million in payment of the 3 options.
The Company evaluated the Gilead 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:
| ● | non-exclusive license to its Cytotoxic Fc and Xtend Fc technologies; and |
| ● | options for 4 exclusive commercial licenses to incorporate the licensed technologies on approved target compounds. |
The Company considered the licenses as functional intellectual property as Gilead has the right to use the technologies at the time that the Company transfers such rights. Each of the 4 options is considered a separate performance obligation as the arrangement does not confer material rights to the options without payment of the option exercise fee. Gilead will benefit from each option upon exercise of each of the 4 options and payment of each option fee as Gilead has access to each technology at inception of the arrangement and the rights are transferred upon payment of each option fee.
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 3 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,initiated clinical studies and the Company will review this conclusion and update at each reporting period.
The Company allocated $3.5 million of the transaction price to the licenses to the cytotoxic Fc and Xtend Fc technologies and recognized income for the licenses at inception of the arrangement when Gilead began benefiting access to them. The Company allocated $2.5 million to the initial option exercise which was effective at inception of the arrangement and payment of the upfront amount, and the Company allocated $7.5 million to the 3 remaining options which became effective in April 2020 when Gilead paid the option fees.
The Company recognized $13.5$3.0 million of revenue related to the Gilead Agreement formilestones.
No revenue was recognized during the years ended December 31, 2023 and 2022. During the year ended December 31,
2020.2021, the Company recognized $43.1 million of revenue. There is
0no receivable and no deferred revenue as of December 31,
20202023 related to
this agreement.the arrangement.
In August 2020, the Company entered into a Technology License Agreement (the Omeros Agreement) with Omeros Corporation (Omeros), in which the Company provided Omeros a non-exclusive license to its Xtend Fc technology, an exclusive license to apply its Xtend technology to an initial identified antibody and options to apply its Xtend technology to 3three additional antibodies. 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. In addition, the Company is eligible to receive royalties in the mid-single digit percentage range on net sales of approved products.
The Company evaluatedDuring 2023, Omeros advanced a candidate that incorporates the Omeros 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:
| ● | non-exclusive license to itsCompany's Xtend Fc technologies; and |
| ● | options for 4 exclusive commercial licenses to incorporate the licensed technologies on approved target compounds. |
The Company considered the license as functional intellectual property as Omeros has the right to use the technology at the time that the Company transfers such rights. Each of the 4 options is consideredinto a separate performance obligation as the arrangement does not confer material rights to the options without payment of the option exercise fee. Omeros will benefit from each option upon exercise of each of the 4 options and payment of each option fee as Omeros has access to each technology at inception of the arrangement and the rights are transferred upon payment of each option fee.
The total transaction price is $5.0 million, which includes the upfront payment. The milestone payments are variable consideration to which the Company applied the “most likely amount” method and concluded at inception of the Omeros Agreement it is unlikely that the Company will collect such payments. The milestone payments were not included in the transaction pricePhase 2 study, and the Company will review this conclusion and update at each reporting period.
The Company allocated $2.0received a $5.0 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 Omeros began benefiting access to it. The Company allocated $3.0 million to the initial option exercise which was effective at inception of the arrangement.
milestone. The Company recognized $5.0$5.0 million of revenue related to the Omeros Agreement for the year ended December 31, 2020.2023. There was no revenue recognized for the years ended December 31, 2022 and 2021. There is 0no deferred revenue as of December 31, 20202023 related to this agreement.
MiRagen Therapeutics, Inc./Viridian Therapeutics, Inc.
In December 2020, we entered into a Technology License Agreement (MiRagen Agreement) with MiRagen Therapeutics, Inc. (MiRagen), in which we provided MiRagen a non-exclusive license to our Xtend Fc technology and an exclusive license to apply our Xtend Fc technology to antibodies targeting IGF-1R. MiRagen subsequently changed its name to Viridian Therapeutics, Inc. 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. We are also eligible to receive royalties in the mid-single digit percentage range on net sales of approved products.
The Company evaluated the MiRagen 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 MiRagen 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 MiRagen 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 MiRagen Agreement it is unlikely that the Company will collect such payments. The milestone payments were not included in the transaction price, and the Company will review this conclusion and update at each reporting period.
The Company allocated $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 MiRagen began benefiting access to it. The Company recognized $6.0 million of revenue related to the MiRagen Agreement for the year ended December 31, 2020. There is 0 deferred revenue as of December 31, 2020 related to this agreement.
Private Biotech Company License Agreement
In November 2020, the Company entered into a License Agreement with a newly formed, privately held biotechnology company (Private BioCo) pursuant to which the Company granted Private BioCo exclusive worldwide rights to develop and commercialize to 3 preclinical-stage Fc-engineered drug candidates: XmAb6755, XPro9523 and XmAb10717. Under the Agreement, Private BioCo will be responsible for all further development and commercialization activities for XmAb6755, XPro9523 and XmAb10717. The Company received a 15% equity interest in Private BioCo with a fair value of $16.1 million, and the Company is eligible to receive royalties on net sales of approved products in the mid-single digit to mid-teen percentage range.
Under the License Agreement, Private BioCo received exclusive worldwide rights to manufacture, develop and commercialize XmAb6755, XPro9523 and XmAb10717. They also received the rights to all data, information and research materials related to the three preclinical stage programs.
The Company evaluated the License 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:
| ● | exclusive license to the XmAb6755, XPro9523 and XmAb10717 drug candidates; and |
| ● | rights to material, data, and information that the Company had accumulated in connection with conducting preclinical activities for each of the three programs and intellectual property filings and information. |
The Company considered the licenses as functional intellectual property as Private BioCo has the right to use each of XmAb6755, XPro9523 and XmAb10717 at the time that the Company transfers such rights. The rights to the preclinical programs’ data are not considered to be separate from the license to programs as Private BioCo cannot benefit from the license without the supporting data and documentation.
The total transaction price is $16.1 million, which includes the upfront payment of 15% of the equity of Private BioCo at its fair value at the date of the Agreement. The License Agreement includes variable consideration for potential future royalties that were contingent on future success factors for the licensed programs. The Company used the “most likely amount” method to determine the variable consideration. NaN of the royalties were included in the transaction price. The Company will re-evaluate the transaction price in each reporting period as uncertain events are resolved or other changes in circumstances occur.
The Company determined the transaction price at inception of the License Agreement and allocated it to the performance obligation, delivery of the XmAb6755, XPro9523 and XmAb10717 licenses.
The Company completed delivery of its performance obligations in December 2020. The licenses to XmAb6755, XPro9523, and XmAb10717 were transferred to Private BioCo at inception of the Agreement, and the related research data and documentation was transferred to Private BioCo in December 2020.
The Company recognized $16.1 million of revenue related to the agreement for the year ended December 31, 2020. There is 0 deferred revenue as of December 31, 2020 related to this agreement.
INmune Bio, Inc.
In October 2017, the Company entered into a License Agreement with INmune Bio, Inc. (INmune). Under the terms of the agreement, the Company provided INmune with an exclusive license to certain rights to a proprietary protein, XPro1595. Under the agreement the Company received an upfront payment of $100,000, 1,585,000 shares of INmune common stock and an option to purchase an additional 10% interest of the fully diluted shares of INmune for $10.0 million. The Company is eligible to receive a percentage of sublicensing revenue received for XPro1595 and also royalties in the mid-single digit percent range on the sale of approved products.
In 2018, INmune filed a registration statement on a Form S-1 with the Securities and Exchange Commission (SEC) which was declared effective by the SEC on December 19, 2018.
Under ASC 606, the Company determined that the performance obligation under the agreement was the license to XPro1595, and performance occurred at the effective date of the agreement. The total consideration under the agreement was determined to be $100,000 as the equity interest, and the option at inception of the Agreement had an insignificant fair value. The Company recognized $100,000 as revenue related to the agreement for the year ended December 31, 2017 and did not recognize any revenue related to the agreement for the years ended December 31, 2020, 2019, or 2018. There is 0 deferred revenue as of December 31, 2020 related to this agreement. The INmune shares are recorded at cost on the Company’s balance sheet as of December 31, 2020.
Vir Biotechnology, Inc.
In 2019, the Company entered into a Patent License Agreement (the Vir Agreement) with Vir Biotechnology,
Inc. (Vir) pursuant to which the Company provided a non-exclusive license to its Xtend technology for up to
2two targets.
Under the terms of the Vir Agreement, the Company received an upfront payment and is eligible to receive total milestones of $155.0 million which include $5.0 million of development milestones, $30.0 million of regulatory milestones and $120.0 million of sales milestones. In addition, the Company is eligible to receive royalties on the net sales of approved products in the low-single digits.The Company evaluated the Vir Agreement and determined that the single performance obligation was access to a non-exclusive license to certain patents of the Company which were transferred to Vir upon execution of the Vir Agreement in July 2019.
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.
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 investigatingdeveloped 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.range.Vir and its marketing partner, GSK, began recording sales for sotrovimab beginning in June 2021. In 2023, 2022, and 2021, we recognized royalty revenue of
$2.2 million,$114.9 million, and $52.2 million, respectively related to this agreement. In June 2021, Vir initiatedannounced its plan to initiate a Phase 32 study with a licensed antibody to treat patients with COVID-19for VIR-3434 and subsequently completed dosing of the first patient in 2020.such study in July 2021. The Company determined thatrecorded a
$0.5 million contract asset in connection with this milestone event, and the Secondpayment was received in August 2021. In October 2022, Vir Agreement was a modificationcompleted dosing of the original agreement,first patient in Phase 2 study for VIR-2482, and the transfer of the license occurred at inception of the Vir Agreement. The total consideration under the arrangement did not changeCompany recorded $0.5 million revenue in connection with the Second Vir Agreement as the Company will potentially receive additional royalty revenue which is variable consideration and is not included in the transaction price.this milestone event.
The Company recognized $0.3$2.2 million, $115.4 million, and $0.8$52.7 million of license and milestone revenuerevenues related to the agreement for the years ended December 31, 20202023, 2022, and 2019,2021, respectively. There is 0no deferred revenue as of December 31, 20202023 related to this agreement. As of December 31, 2023, the Company has recorded a receivable of $0.6 million for royalties due related to this agreement.
Viridian Therapeutics, Inc.Revenue Earned
The $122.7 million, $156.7shares of Viridian common stock originally valued at $6.0 million and $40.6are eligible to receive development, regulatory and sales milestones. We are also eligible to receive royalties in the mid-single digit percentage range on net sales of approved products.
The Company allocated $6.0 million of the transaction price to the licenses to the Xtend Fc technology and recognized income for the licenses at inception of the arrangement when Viridian began benefiting access to it.
During 2023, Viridian terminated the license agreement.
In December 2021, we entered into a second Technology License Agreement (Second Viridian Agreement) with Viridian for a non-exclusive license to certain antibody libraries developed by us. Under the Second Viridian Agreement,
Viridian received a one-year research license to review the antibodies and the right to select up to three antibodies for further development. We received an upfront payment shares of Viridian common stock originally valued at $7.5 million and are eligible to receive up to $24.8 million in milestones, which include $1.8 million in development milestones, $3.0 million in regulatory milestones and $20.0 million in sales milestones in addition to royalties on net sales of approved products under the Second Viridian Agreement.
The Company evaluated the Second Viridian Agreement under the revenue recognition standard ASC 606 and identified the following performance obligation that it deemed to be distinct at the inception of the contract:
•non-exclusive license to certain antibody libraries created by the Company
The Company considered the license as functional intellectual property as Viridian has the right to use the materials and license at the time that the Company transfers such rights.
The total transaction price is $7.5 million, which includes the upfront payment of Viridian common stock at their fair value at the date of the Agreement. The milestone payments are variable consideration to which the Company applied the “most likely amount” method and concluded at inception of the Viridian Agreement it is unlikely that the Company will collect such payments. The milestone payments were not included in the transaction price, and the Company will review this conclusion and update at each reporting period.
The Company allocated $7.5 million of the transaction price to the licenses to the antibody libraries and recognized income for the licenses at inception of the arrangement when Viridian received the materials and began accessing them.
In 2023, the research term under the second Viridian license expired.
No revenue related to the Viridian Agreement was recognized for the years ended December 31, 2023 and 2022. The Company recognized $7.5 million of revenue related to the Viridian Agreement for the year ended December 31, 2021. There is no deferred revenue as of December 31, 2023 related to this agreement.
Zenas BioPharma, Inc.
In November 2020, the Company entered into a License Agreement (Zenas Agreement) with Zenas BioPharma (Cayman) Limited, now Zenas BioPharma, Inc., (Zenas) pursuant to which the Company granted Zenas exclusive worldwide rights to develop and commercialize three preclinical-stage Fc-engineered drug candidates: XmAb6755, Xpro9523, and XmAb10171. The Company received an upfront payment in equity in Zenas with a fair value of $16.1 million and the Company is eligible to receive royalties on net sales of approved products in the mid-single digit to mid-teen percentage range.
In November 2021, the Company entered into a second License Agreement (Second Zenas Agreement) with Zenas, in which we licensed the exclusive worldwide rights to develop and commercialize the Company’s obexelimab (XmAb5871) drug candidate. The Company received a warrant to acquire additional equity in Zenas with a fair value of $14.9 million, and the Company is eligible to receive royalties on net sales of approved products in the mid-single digit to mid-teen percentage range.
The total transaction price is $14.9 million, which includes the upfront payment of a warrant to acquire up to 15% of the equity of Zenas in connection with a future financing at its fair value at the date of the Second Zenas Agreement. The Second Zenas Agreement includes variable consideration for potential future royalties that were contingent on future success factors for the licensed programs. The Company used the “most likely amount” method to determine the variable consideration. None of the royalties were included in the transaction price. The Company will re-evaluate the transaction price in each reporting period as uncertain events are resolved or other changes in circumstances occur.
The Company determined the transaction price at inception of the Second Zenas Agreement and allocated it to the performance obligation, delivery of the obexelimab license.
The Company completed delivery of its performance obligations in December 2021. The licenses to obexelimab were transferred to Zenas at inception of the Second Zenas Agreement, and the related research data and documentation was transferred to Zenas in December 2021.
In 2021, the Company purchased a convertible promissory note from Zenas which would automatically convert to equity in a financing transaction.
In November 2022, Zenas completed a financing transaction, pursuant to which a warrant to purchase Zenas equity that was held by the Company was automatically exercised, and a convertible note issued to the Company by Zenas was automatically converted with both converting into shares of Zenas’ preferred stock. After the financing transaction, we continued to record our investment in Zenas at fair value adjusted at each reporting period for impairment or other evidence of change in value. The equity shares in Zenas received from exercise of the warrant and conversion of the notes have an estimated fair value of $34.5 million and $7.7 million, respectively. As a result of the Zenas financing transaction, the estimated fair value of our investment in equity securities increased by $17.9 million. In 2022, this amount has been recorded in other income.
In 2023, Zenas initiated a Phase 3 study with obexelimab, and we received additional equity in Zenas as a milestone payment. We recorded milestone revenue of $10.0 million, which is the fair value of the equity shares at the date of issuance.
No revenue was recognized for the year ended December 31, 2022. The Company recognized $10.0 million and $14.9 million of revenue related to the two Zenas Agreements for the years ended December 31, 2023 and 2021, respectively. There is no deferred revenue as of December 31, 2023 related to this agreement.
Technology License Agreement and Services Agreement with Gale Therapeutics Inc.
In the fourth quarter of 2023, the Company formed a subsidiary, Gale Therapuetics Inc. (Gale), to develop novel drug candidates with its Fc technologies. On December 19, 2023, the Company entered into the Gale License Agreement and the Gale Services Agreement with Gale. Under the Gale License Agreement, Gale received an exclusive license to certain preclinical candidates and related Xencor technologies. The Company also has an option on future compounds Gale will develop. Under the Gale Services Agreement, the Company will provide research and development services as well as accounting and administrative support. Pursuant to the Gale Agreement, the Company acquired a majority stake in Gale. The Company is deemed to be the primary beneficiary of Gale, a VIE, and they are under common control; therefore, the assets, liabilities and non-controlling interests of Gale are initially recorded at their previous carrying amounts, with no adjustment to current fair values and no gain or loss is recognized. The value of the preclinical assets and technology had no value on Xencor's financial statements, and the license to Gale at inception had no carrying value. The Company would not recognize license revenue related to the transfer for the year ended December 31, 2023. Total charges under the Services Agreement during 2023 of $1.0 million have been eliminated in consolidation.
Revenue Earned
The $168.3 million, $164.6 million, and $275.1 million of revenue recorded for the years ended December 31,
2020, 20192023, 2022, and
2018,2021, respectively, were earned principally from the following licensees (in millions):
| | | | | | | | | | |
| | Year Ended | |
| | December 31, | |
| | 2020 | | 2019 | | 2018 | |
Aimmune | | $ | 9.6 | | $ | — | | $ | — | |
Amgen | | | — | | | 5.0 | | | 0.6 | |
Alexion | | | 26.2 | | | 13.0 | | | 20.0 | |
Astellas | | | 3.5 | | | 14.0 | | | — | |
Genentech | | | 3.5 | | | 113.9 | | | — | |
Gilead | | | 13.5 | | | — | | | — | |
MiRagen/Viridian | | | 6.0 | | | — | | | — | |
MorphoSys | | | 39.0 | | | — | | | — | |
Novartis | | | — | | | 10.0 | | | 20.0 | |
Omeros | | | 5.0 | | | — | | | — | |
Vir | | | 0.3 | | | 0.8 | | | — | |
Private BioCo | | | 16.1 | | | — | | | — | |
Total | | $ | 122.7 | | $ | 156.7 | | $ | 40.6 | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Alexion | 58.6 | | | 29.4 | | | 22.2 | |
Astellas | — | | | 5.0 | | | — | |
Genentech | — | | | — | | | 2.5 | |
Gilead | 6.0 | | | — | | | — | |
Janssen | 77.8 | | | 7.0 | | | 113.8 | |
MorphoSys | 8.7 | | | 7.8 | | | 18.4 | |
Novartis | — | | | — | | | 43.1 | |
Omeros | 5.0 | | | — | | | — | |
Vir | 2.2 | | | 115.4 | | | 52.7 | |
Viridian | — | | | — | | | 7.5 | |
Zenas | 10.0 | | | — | | | 14.9 | |
Total | $ | 168.3 | | | $ | 164.6 | | | $ | 275.1 | |
The table below summarizes the disaggregation of revenue recorded for the years ended December 31,
2020, 20192023, 2022, and
20182021 (in millions):
| | | | | | | | | |
| | Year Ended |
| | December 31, |
| | 2020 | | 2019 | | 2018 |
Research collaboration | | $ | 4.5 | | $ | 16.3 | | $ | 20.1 |
Milestone | | | 50.2 | | | 23.2 | | | 20.5 |
Licensing | | | 50.2 | | | 112.2 | | | — |
Royalties | | | 17.8 | | | 5.0 | | | — |
Total | | $ | 122.7 | | $ | 156.7 | | $ | 40.6 |
A portion of our revenue is earned from collaboration partners outside the United States. Non-U.S. revenue is denominated in U.S. dollars. A breakdown of our revenue from U.S. and non-U.S. sources for the years ended December 31, 2020, 2019 and 2018 is as follows (in millions):
| | | | | | | | | | |
| | Year Ended | |
| | December 31, | |
| | 2020 | | 2019 | | 2018 | |
U.S. Revenue | | $ | 64.1 | | $ | 142.7 | | $ | 40.6 | |
Non-U.S. Revenue | | | 58.6 | | | 14.0 | | | — | |
Total | | $ | 122.7 | | $ | 156.7 | | $ | 40.6 | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Research collaboration | $ | 30.3 | | | $ | 7.0 | | | $ | 93.0 | |
Milestone | 88.5 | | | 5.5 | | | 21.0 | |
Licensing | — | | | — | | | 80.8 | |
Royalties | 49.5 | | | 152.1 | | | 80.3 | |
Total | $ | 168.3 | | | $ | 164.6 | | | $ | 275.1 | |
Remaining Performance Obligations and Deferred Revenue
Our
There is no remaining performance obligations are delivery of 2 additional Global Discovery Programsobligation under the Novartis Agreement and conductingCompany's arrangements as of December 31, 2023. The Company's performance obligation as of December 31, 2022 was completing research activities pursuant to research plans under the Genentech and Janssen Agreements.Second J&J Agreement. As of December 31, 2020 and 2019,2022, we have deferred revenue of $92.6 million and $47.1 million, respectively.$30.3 million. All of the deferred revenue was classified as short term as of December 31, 20202022, as ourthe Company’s obligations to perform research services are due on demand when requested by Novartis, Genentech and JanssenJ&J under the respective Agreements.Second J&J Agreement.
11. Sale of Future Royalties
Ultomiris Royalty Sale Agreement
On November 3, 2023, the Company and OMERS entered into the Ultomiris Royalty Sale Agreement. Pursuant to the Ultomiris Royalty Sale Agreement, OMERS acquired the rights to a portion of royalties and milestones earned after July 1, 2023 associated with the existing license relating to Ultomiris® (ravulizumab) in exchange for an upfront payment of $192.5 million.
Pursuant to the Ultomiris Royalty Sale Agreement and subject to the Company’s existing license with Alexion, OMERS has acquired the right to receive: (i) 100% of royalties payable on past and potential sales related to Ultomiris® that occur from July 1, 2023 through December 31, 2025; (ii) up to $35.0 million annually in royalties on potential sales
related to Ultomiris® that occur from January 1, 2026 through December 31, 2028 with any royalties in excess of $35.0 million reverting to the Company; (iii) up to $12.0 million annually in royalties on potential sales related to Ultomiris® that occur from and after January 1, 2029, with any royalties in excess of $12.0 million reverting to the Company; and (iv) $18.0 million of a certain potential sales based milestone payment pursuant to the existing license with Alexion. OMERS will pay an additional $12.0 million in 2024 to the Company if certain potential sales based milestones have been reached.
The Company determined that $29.5 million of the upfront payment is for a recorded receivable for royalties and a milestone earned in the third quarter of 2023 and $163.0 million is for the sale of future royalties. The Company evaluated the arrangement and determined that the proceeds from the sale of future royalties should be recorded as deferred income on the balance sheets as none of the criteria for classification as debt had been met in accordance with ASC 470. The Company records the non-cash royalty revenue under the “units-of-revenue” method in the consolidated statements of income (loss). For the year ended December 31, 2023, the Company recognized $6.2 million of non-cash royalty revenue.
Monjuvi Royalty Sale Agreement
On November 3, 2023, the Company and OMERS entered into the Monjuvi Royalty Sale Agreement. Pursuant to the Monjuvi Royalty Sale Agreement, OMERS acquired the rights to a portion of royalties earned after July 1, 2023 associated with the existing license relating to Monjuvi®/Minjuvi® (tafasitamab-cxix) in exchange for an upfront payment of $22.5 million.
Pursuant to the Monjuvi Royalty Sale Agreement and subject to the Company’s existing license with MorphoSys, OMERS has acquired the right to receive up to $29.3 million in royalties earned after July 1, 2023 related to sales of Monjuvi®/Minjuvi®, with any royalties in excess of $29.3 million paid to OMERS reverting to the Company.
The Company determined that $2.2 million of the upfront payment is for a recorded receivable for royalties earned in the third quarter of 2023 and $20.3 million is from the sale of future royalties. The Company evaluated the arrangement and determined that the proceeds from the sale of future royalties should be classified as debt according to ASC 470. As of December 31, 2019, $45.22023, the estimated effective rate under the agreement was 21.1%. The Company will reassess the estimate of total future royalty payment and prospectively adjust the imputed interest rate and related amortization if the estimate is materially different. For the year ended December 31, 2023, the Company recognized $2.1 million of deferrednon-cash royalty revenue was classified as current liabilities as ourand $0.7 million of non-cash interest expense.
111
The following table shows the activity within debt for the year ended December 31, 2023 (in thousands): | | | | | |
| December 31, 2023 |
| |
Beginning balance of debt related to sale of future royalties | $ | — | |
Proceeds from sale of future royalties | 20,293 | |
Royalties paid to OMERS | — | |
Non-cash interest expense recognized | 681 | |
Ending balance of debt related to sale of future royalties | $ | 20,974 | |
| |
Debt - short-term | 6,332 | |
Debt - long-term | 14,642 | |
Total debt | $ | 20,974 | |
obligations to perform services are due on demand when requested by Novartis and Astellas under the Novartis and Astellas Agreements, respectively. A total of $1.9 million of deferred liability is classified as long-term for the obligation to perform research services to Genentech under the Genentech Agreement after one year.
11.12. 401(k) Plan
We have a 401(k)-plan plan covering all full-time employees. Employees may make pre-tax contributions up to the maximum allowable by the Internal Revenue Code. Effective January 1, 2018, the Company contributes 100% of the first 1% of participating employees’ contribution and 50% of the next 5% of participating employees’ contribution, for a maximum of 3.5% employer contribution. Effective March 31, 2020, the Company contributes 100% of the first 1% of participating employees’ contribution and 50% of the next 6% of participating employees’ contribution, for a maximum of 4.0% of employer contribution. Participants are immediately vested in their employee contributions; employer contributions are vested over a three-year period with one-thirdone-third for each year of a participating employee’s service.
Employer contributions made for the years ended December 31,
2020, 2019,2023, 2022, and
20182021 were
$0.8$1.7 million,
$0.6$1.4 million, and
$0.5$1.1 million, respectively.
12. Condensed Quarterly Financial Data (unaudited)
The following table contains selected unaudited financial data for each quarter of 2020 and 2019. The unaudited information should be read in conjunction with the Company’s financial statements and related notes included elsewhere in this Annual Report. The Company believes that the following information reflects all normal recurring adjustments necessary for a fair presentation of the information for the periods presented. The operating results for any quarter are not necessarily indicative of results for any future period.
Quarterly Financial Data (in thousands, except per share data):
| | | | | | | | | | | | | |
| | 2020 Quarter Ended | |
| | March 31, | | June 30, | | September 30, | | December 31, | |
Total revenue | | $ | 32,385 | | $ | 13,089 | | $ | 35,366 | | $ | 41,854 | |
Loss from operations | | | (8,777) | | | (37,600) | | | (16,722) | | | (13,698) | |
Net loss | | | (8,074) | | | (35,018) | | | (12,550) | | | (13,691) | |
Basic net loss per common share | | | (0.14) | | | (0.61) | | | (0.22) | | | (0.24) | |
Diluted net loss per common share | | | (0.14) | | | (0.61) | | | (0.22) | | | (0.24) | |
| | | | | | | | | | | | | |
| | 2019 Quarter Ended | |
| | March 31, | | June 30, | | September 30, | | December 31, | |
Total revenue | | $ | 111,939 | | $ | 19,485 | | $ | 21,760 | | $ | 3,516 | |
Income (loss) from operations | | | 78,244 | | | (19,572) | | | (14,276) | | | (30,572) | |
Net income (loss) | | | 80,045 | | | (16,034) | | | (10,224) | | | (26,912) | |
Basic net income (loss) per common share | | | 1.42 | | | (0.28) | | | (0.18) | | | (0.47) | |
Diluted net income (loss) per common share | | | 1.38 | | | (0.28) | | | (0.18) | | | (0.47) | |
Item
9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem
9A.9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2020.2023. The term "disclosure controls and procedures,"procedures" as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 20202023 at the reasonable assurance level.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended). Our management, Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31,
2020.2023. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (COSO) in Internal Control—Integrated Framework. Based on that assessment and using the COSO criteria, our management, Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31,
2020,2023, our internal control over financial reporting was effective.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during the
yearquarter ended December 31,
2020,2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations of Controls
Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. Controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with the policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Attestation in Internal Control over Financial Reporting
RSM US LLP, our independent registered public accounting firm, has audited our financial statements for the year ended December 31,
20202023 and has issued an audit report on the effectiveness of the Company’s internal control over financial reporting as of December 31,
2020,2023, which is included in Item 8 of this Annual Report.
Item
9B.9B. Other Information
During the fiscal quarter ended December 31, 2023, none of our directors or officers (as defined in Section 16 of the Securities Exchange Act of 1934, as amended) adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement,” as defined in Item 408(a) of Regulation S-K.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not
applicable.Applicable.
Item
10.10. Directors, Executive Officers and Corporate GovernanceWe have adopted a code of ethics for directors, officers (including our principal executive officer, principal financial officer and principal accounting officer) and employees, known as the Code of Business Conduct and Ethics. The Code of Business Conduct and Ethics is available on our website at http:https://www.xencor.com under the Corporate Governance section of our Investor Relations page. We will promptly disclose on our website (i) the nature of any amendment to the policy that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and (ii) the nature of any waiver, including an implicit waiver, from a provision of the policy that is granted to one of these specified individuals that is required to be disclosed pursuant to SEC rules and regulations, the name of such person who is granted the waiver and the date of the waiver. The other information required by this item and not set forth
belowabove will be set forth in our
20212024 Annual Meeting of Stockholders (Proxy Statement) to be filed with the SEC within 120 days after the end of the fiscal year ended December 31,
20202023 and is incorporated herein by reference.
Audit Committee
Item 11. Executive Compensation
The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference.
Item
11. Executive Compensation12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference.
Item
12. Security Ownership of13. Certain Beneficial Owners and ManagementRelationships and Related Stockholder MattersTransactions, and Director Independence
The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference.
Item
13. Certain Relationships14. Principal Accounting Fees and Related Transactions, and Director IndependenceServices
The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The information required by this item will be set forth in the Proxy Statement and is incorporated herein by reference.
Item 15.15. Exhibits, Financial Statement Schedules
1.Financial Statements. We have filed the following documents as part of this Annual Report:
2.Financial Statement Schedules. All schedules have been omitted because they are not applicable or required, or the information required to be set forth therein is included in the Financial Statements or notes thereto included in Item 8 of this Annual Report on Form 10-K.
3.Exhibits.Exhibits.
| | | | | | | | |
Exhibit Number | | Description |
Exhibit Number 3.1 | |
Description
|
3.1
|
| Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the SEC on December 11, 2013). |
|
|
|
3.2 | |
| Second Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K,Company's 10-K filed with the SEC on December 11, 2013)February 27, 2023). |
|
|
|
4.1 | |
| Form of Common Stock Certificate of the Company (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1, as amended (File No. 333-191689), originally filed with the SEC on October 25, 2013). |
|
|
|
4.2* | |
| Third Amended and Restated Investor Rights Agreement, dated June 26, 2013, among the Company and certain of its stockholders incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-1, as amended (File No. 333-191689), originally filed with the SEC on October 11, 2013). |
|
|
|
4.3 | |
| Description of the Common Stock of the Company (incorporated by reference to Exhibit 4.3 to the Company’s Form 10-K filed with the SEC on February 25, 2020). |
|
|
|
10.1* | |
| Form of Indemnity Agreement between the Company and its directors and officers (incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-1, as amended (File No. 333-191689), originally filed with the SEC on October 11, 2013). |
|
|
|
10.2* | |
| Xencor, Inc. 2010 Equity Incentive Plan, as amended, and Form of Stock Option Grant Notice, Option Agreement and Form of Notice of Exercise (incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form S-1, as amended (File No. 333-191689), originally filed with the SEC on October 11, 2013). |
|
|
|
10.3* | |
| Xencor, Inc. 2013 Equity Incentive Plan and Form of Stock Option Agreement and Form of Stock Option Grant Notice thereunder (incorporated by reference to Exhibit 10.3 to the Company’s Registration Statement on Form S-1, as amended (File No. 333-191689), originally filed with the SEC on October 11, 2013). |
| | |
10.4* | |
|
|
10.4*
|
| Xencor, Inc. 2013 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.4 to the Company’s Registration Statement on Form S-1, as amended (File No. 333-191689), originally filed with the SEC on October 11, 2013). |
|
|
|
10.5* | |
| Second Amended and Restated Executive Employment Agreement, dated January 1, 2007, by and between the Company and Dr. Bassil I. Dahiyat (incorporated by reference to Exhibit 10.6 to the Company’s Registration Statement on Form S-1, as amended (File No. 333-191689), originally filed with the SEC on October 11, 2013). |
|
|
|
10.6* | |
| Amended and Restated Executive Employment Agreement, dated September 4, 2013, by and between the Company and Dr. Bassil I. Dahiyat (incorporated by reference to Exhibit 10.12 to the Company’s Registration Statement on Form S-1, as amended (File No. 333-191689), originally filed with the SEC on October 11, 2013). |
|
|
|
10.7* | |
| Amended and Restated Severance Agreement, dated September 5, 2013, by and between the Company and Dr. John R. Desjarlais (incorporated by reference to Exhibit 10.14 to the Company’s Registration Statement on Form S-1, as amended (File No. 333-191689), originally filed with the SEC on October 11, 2013). |
|
|
|
10.8* | |
| Amended and Restated Change in Control Agreement, dated September 5, 2013, by and between the Company and John J. Kuch (incorporated by reference to Exhibit 10.15 to the Company’s Registration Statement on Form S-1, as amended (File No. 333-191689), originally filed with the SEC on October 11, 2013). |
| | | | | | | | |
|
|
|
10.9† | |
| Collaboration and License Agreement, dated June 27, 2010, by and between the Company and MorphoSys AG (incorporated by reference to Exhibit 10.19 to the Company’s Registration Statement on Form S-1, as amended (File No. 333-191689), originally filed with the SEC on October 11, 2013). |
|
|
|
10.10† | |
| First Amendment to the Collaboration and License Agreement, dated March 23, 2012, by and between the Company and MorphoSys AG (incorporated by reference to Exhibit 10.20 to the Company’s Registration Statement on Form S-1, as amended (File No. 333-191689), originally filed with the SEC on October 11, 2013). |
|
|
|
10.11† 10.11 | |
| Cross-License Agreement, dated December 19, 2012, by and between the Company and MedImmune, LLC (incorporated by reference to Exhibit 10.26 to the Company’s Registration Statement on Form S-1, as amended (File No. 333-191689), originally filed with the SEC on October 11, 2013).
|
|
|
|
10.12
|
| Lease dated January 1, 2015 by and between the Company and BF Monrovia, LLC (incorporated by reference to Exhibit 99.1 to the Company’s Form 8-K filed with the SEC on January 5, 2015). |
|
|
|
10.13 10.12 | |
| Amendment to Lease dated January 27, 2015 by and between the Company and BF Monrovia, LLC. (incorporated by reference to Exhibit 10.27 to the Company’s Form 10-K filed with the SEC on February 20, 2015). |
|
|
|
10.14† 10.13† | |
| Research and License Agreement effective September 15, 2015 between the Company and Amgen Inc., (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed with the SEC on November 4, 2015). |
|
|
|
10.15* 10.14* | |
| Severance Agreement, dated May 26, 2016 by and between the Company and Bassil Dahiyat (incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q filed with the SEC on August 3, 2016). |
|
|
|
10.16* 10.15* | |
| Severance Agreement, dated May 26, 2016 by and between the Company and John Kuch (incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q filed with the SEC on August 3, 2016). |
| | |
10.16* | |
|
|
10.17*
|
| Severance Agreement, dated May 26, 2016 by and between the Company and John Desjarlais (incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q filed with the SEC on August 3, 2016). |
|
|
|
10.18† 10.17† | |
| Collaboration and License Agreement, dated June 26, 2016, by and between the Company and Novartis Institutes for BioMedical Research, Inc. (incorporated by reference to Exhibit 10.6 to the Company's Form 10-Q filed with the SEC on August 3, 2016). |
|
|
|
10.29† 10.18† | |
| Amendment No. 1, dated September 21, 2016, to the Collaboration and License Agreement by and between the Company and Novartis Institutes for BioMedical Research, Inc. (incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q filed with the SEC on November 2, 2016).
|
| 10.20
| |
10.19 | |
| Office Lease, dated June 21, 2017, by and among the Company and PRII High Bluffs LLC and Collins Corporate Center Partners, LLC (incorporated by reference to Exhibit 99.1 to the Company’s Form 8-K filed with the SEC on June 26, 2017).
|
| 10.21
| |
10.20 | |
| Second Amendment to Lease, dated July 5, 2017, by and between the Company and 111 Lemon Investors LLC (incorporated by reference to Exhibit 99.1 to the Company’s Form 8-K filed with the SEC on July 10, 2017).
|
| 10.22†
| |
10.21† | |
| Collaboration and License Agreement, dated February 4, 2019, by and between the Company and Genentech, Inc. and F. Hoffman-La Roche LTD (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed with the SEC on May 9, 2019). |
|
|
|
10.23* 10.22* | |
| Xencor, Inc. Amended and Restated Non-Employee Director Compensation Policy (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed with the SEC on November 5, 2019).
|
|
|
|
10.24*
|
| Employment Agreement dated August 5, 2019 by and between the Company and Celia Eckert (incorporated by reference to Exhibit 10.33 to the Company’s Form 10-K filed with the SEC on February 25, 2020). |
|
|
|
| | | | | | | | |
10.25* 10.23 | |
| Employment Agreement dated November 13, 2019 by and between the Company and Dr. Allen Yang, M.D., Ph.D. (incorporated by reference to Exhibit 10.34 to the Company’s Form 10-K filed with the SEC on February 25, 2020).
|
|
|
|
10.26
|
| Third Amendment to Lease, dated April 30, 2020, by and between the Company and 111 Lemon Investors LLC (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed with the SEC on August 5, 2020). |
|
|
|
10.27 10.24 | |
| Xencor, Inc. Amended and Restated Non-Employee Director Compensation Policy (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed with the SEC on November 6, 2020).
|
|
|
|
10.28
|
| Fourth Amendment to Lease, dated September 30, 2020, by and between the Company and 111 Lemon Investors LLC (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q filed with the SEC on November 6, 2020). |
|
|
|
10.29 10.25 | |
| First Amendment to the Research and License Agreement, dated November 22, 2019, by and between the Company and Amgen Inc. (incorporated by reference to Exhibit 10.29 to the Company’s Form 10-K filed with the SEC on February 23, 2021). |
|
|
|
10.30 10.26 | |
| Amendment to the Cross-License Agreement, dated January 2, 2020, by and between the Company and MedImmune, LLC.
|
|
|
|
10.31
|
| Second Amendment to the License Agreement, dated January 8, 2020, by and between the Company and MorphoSys AG.AG (incorporated by reference to Exhibit 10.31 to the Company’s Form 10-K filed with the SEC on February 23, 2021). |
|
|
|
| 10.32
| |
10.27 | |
| Third Amendment to the License Agreement, dated July 13, 2020, by and between the Company and MorphoSys AG.AG (incorporated by reference to Exhibit 10.32 to the Company’s Form 10-K filed with the SEC on February 23, 2021). |
|
|
|
10.33 10.28 | |
| Fifth Amendment to Lease, dated October 31, 2020, by and between the Company and 111 Lemon Investors LLC.LLC (incorporated by reference to Exhibit 10.33 to the Company’s Form 10-K filed with the SEC on February 23, 2021). |
|
|
|
10.34 10.29 | |
| Collaboration and License Agreement, dated December 4, 2020, by and between the Company and Janssen Biotech, Inc. (incorporated by reference to Exhibit 10.34 to the Company’s Form 10-K filed with the SEC on February 23, 2021). |
| | |
10.30 | | |
|
| 23.1
| |
10.31* | | |
| | |
10.32 | | |
| | |
10.33 | | |
| | |
10.34 | | |
| | |
10.35† | | |
| | |
10.36 | | |
| | |
10.37 | | |
| | |
| 101.INS
| |
97# | | |
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101.INS | | XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document.
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101.SCH | | | XBRL Taxonomy Extension Schema Document.
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101.CAL | | | XBRL Taxonomy Extension Schema Document.
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101.DEF | | | XBRL Taxonomy Extension Definition Linkbase Document.
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101.LAB | | | XBRL Taxonomy Extension Label Linkbase Document.
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101.PRE | | | XBRL Taxonomy Extension Presentation Linkbase Document. |
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104 | | | 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
______________________________
# Filed herewith
† We have received confidential treatment for certain portions of this agreement, which have been omitted and filed separately with the SEC pursuant to Rule 406 under the Securities Act of 1933, as amended.
* Indicates management contract or compensatory plan.
** These certifications are being furnished solely to accompany this annual report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Item
16. Form 10-K SummaryNone.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | |
| | Xencor, Inc. |
|
| |
Date: February 28, 2024 | By:
| /s/ BASSIL I. DAHIYAT, PH.D. |
| Date: February 23, 2021
| By:
/s/ Bassil I. Dahiyat, Ph.D.
|
| | Bassil I. Dahiyat, Ph.D.
President & Chief Executive Officer |
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Bassil I. Dahiyat, Ph.D. and John J. Kuch, and each of them, his true and lawful attorneys-in-fact, each with full power of substitution, for him in any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact or their substitute or substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
| | | | | | | | | | | | | | |
Signature | | Title | | Title
Date
| Date
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/s/ BASSIL I. DAHIYAT, PH.D.PH.D. | | | Director, President & Chief Executive Officer (Principal Executive Officer) | | | February 23, 2021 28, 2024 |
Bassil I. Dahiyat, Ph.D. | |
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/s/ JOHN J. KUCH | | | Sr. Vice President & Chief Financial Officer (Principal Financial and Accounting Officer) | | | February 23, 2021 28, 2024 |
John J. Kuch | |
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/s/ A. BRUCE MONTGOMERY, M.D. | | Director | | Director
| February 23, 2021 28, 2024 |
A. Bruce Montgomery, M.D. | |
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/s/ KURT GUSTAFSON | | Director | | Director
| February 23, 2021 28, 2024 |
Kurt Gustafson | |
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/s/ YUJIRO S. HATA
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| Director
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| February 23, 2021
|
Yujiro S. Hata
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/s/ KEVIN C. GORMAN, PH.D.PH.D. | | Director | | Director
| February 23, 2021 28, 2024 |
Kevin C. Gorman, Ph.D. | |
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/s/ RICHARD RANIERI | | Director | | Director
| February 23, 2021 28, 2024 |
Richard Ranieri | |
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/s/ ELLEN G. FEIGAL, M.D. | | Director | | Director
| February 23, 2021 28, 2024 |
Ellen G. Feigal, M.D. | |
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/s/ DAGMAR ROSA-BJORKESON | | Director | | Director
| February 23, 2021 28, 2024 |
Dagmar Rosa-Bjorkeson | | | | |
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/s/ BARBARA KLENCKE
| | Director | | February 28, 2024 |
Barbara Klnecke | | | | |