Xencor Inc [XNCR] Filings

10-Q 1 xncr-20240930.htm 10-Q xncr-20240930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_______________________________________________

FORM 10-Q

(Mark One)


			x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024


			o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

_______________________________________________

Commission file number: 001-36182

Xencor, Inc.

(Exact name of registrant as specified in its charter)


Delaware			20-1622502
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

465 North Halstead Street, Suite 200, Pasadena, CA			91107
(Address of principal executive offices)			(Zip Code)

(626) 305-5900

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

XNCR

The Nasdaq Global Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer x Accelerated filer o Non-accelerated filer o Smaller reporting company o Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:


Class						Outstanding at October 30, 2024
Common stock, par value $0.01 per share						69,982,030

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Xencor, Inc.

Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2024

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		Page

	SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS	3
PART I.	FINANCIAL INFORMATION	5
Item 1.	Financial Statements	5
	Consolidated Balance Sheets as of Sept ember 30, 2024 (unaudited) and December 31, 2023	5
	Consolidated Statements of Loss for the Three and Nine Months Ended September 30, 2024 and 2023 (unaudited)	6
	Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2024 and 2023 (unaudited)	7
	Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2024 and 2023 (unaudited)	8
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2024 and 2023 (unaudited)	9
	Notes to Consolidated Financial Statements (unaudited)	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	39

PART II.	OTHER INFORMATION	40
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 5.	Other Information	41
Item 6.	Exhibits	42

Signatures		43

In this report, unless otherwise stated or the context otherwise indicates, references to “Xencor,” “the Company,” “we,” “us,” “our” and similar references refer to Xencor, Inc. The Xencor logo is a registered trademark of Xencor, Inc. This report also contains registered marks, trademarks, and trade names of other companies. All other trademarks, registered marks and trade names appearing in this report are the property of their respective holders.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). You should not place undue reliance on these statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting the financial condition of our business. Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made and/or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth below under Part II, Item 1A, “Risk Factors” in this Quarterly Report. These statements, which represent our current expectations or beliefs concerning various future events, may contain words such as “may,” “will,” “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” the negative of such terms or other words indicating future results.

These forward-looking statements should, therefore, be considered in light of various important factors, including but not limited to, the following:

•the effects of inflation on our financial condition, results of operations, cash flows and performance;

•our ability to execute on our plans to research, develop and commercialize our product candidates;

•the success of our ongoing and planned clinical trials;

•the timing of and our ability to obtain and maintain regulatory approvals for our product candidates;

•our ability to identify additional products or product candidates with significant commercial potential that are consistent with our business objectives;

•our ability to receive research funding and achieve anticipated milestones under our collaborations;

•our partners' abilities to advance drug candidates into, and successfully complete, clinical trials;

•our ability to attract collaborators with development, regulatory, and commercialization expertise;

•the ability of our publicly announced preliminary clinical trial data to support continued clinical development and regulatory approval for specific treatments;

•our ability to protect our intellectual property position;

•the rate and degree of market acceptance and clinical utility of our products;

•costs of compliance and our failure to comply with new and existing governmental regulations;

•the capabilities and strategy of our suppliers and vendors including key manufacturers of our clinical drug supplies;

•significant competition in our industry;

•costs of litigation and the failure to successfully defend lawsuits and other claims against us;

•the potential loss or retirement of key members of management;

•our failure to successfully execute our growth strategy including any delays in our planned future growth;

•our failure to maintain effective internal controls; and

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•our ability to accurately estimate expenses, future revenues, capital requirements and needs for additional financing.

The factors, risks and uncertainties referred to above and others are more fully described under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and this Quarterly Report on Form 10-Q. Forward-looking statements should be regarded solely as our current plans, estimates and beliefs. We cannot guarantee future results, events, levels of activity, performance, or achievements. We do not undertake and specifically decline any obligation to update, republish or revise forward-looking statements to reflect future events or circumstances or to reflect the occurrences of unanticipated events.

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Xencor, Inc.

Consolidated Balance Sheets

(in thousands, except share and per share data)


	September 30, 2024		December 31, 2023
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	29,031	$	53,790
Marketable debt securities	435,043		497,725
Marketable equity securities	78,903		42,210
Accounts receivable	10,205		11,290
Prepaid expenses and other current assets	20,146		18,145
Total current assets	573,328		623,160
Property and equipment, net	62,400		66,124
Patents, licenses, and other intangible assets, net	17,919		18,663
Restricted cash	385		380
Marketable debt securities - long term	290,274		145,512
Marketable equity securities - long term	—		64,210

Right of use (ROU) asset	38,831		33,995
Other assets	498		648
Total assets	$	983,635	$	952,692
Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	18,770	$	13,914
Accrued expenses	25,407		23,564
Income tax payable	—		5,782
Lease liabilities	2,181		3,435

Deferred income	37,865		31,682
Debt	7,749		6,332
Total current liabilities	91,972		84,709
Lease liabilities, net of current portion	66,489		59,025
Deferred income, net of current portion	94,107		125,183
Debt, net of current portion	10,169		14,642
Total liabilities	262,737		283,559
Commitments and contingencies
Stockholders’ equity
Preferred stock, $0.01 par value: 10,000,000 authorized shares; -0- issued and outstanding shares at September 30, 2024 and December 31, 2023	—		—
Common stock, $0.01 par value: 200,000,000 authorized shares at September 30, 2024 and December 31, 2023; 69,963,447 issued and outstanding at September 30, 2024 and 60,998,191 issued and outstanding at December 31, 2023	701		611
Additional paid-in capital	1,364,846		1,131,266
Accumulated other comprehensive income	1,800		1,291
Accumulated deficit	(643,511)		(464,372)
Total stockholders’ equity attributable to Xencor, Inc.	723,836		668,796
Non-controlling interest	(2,938)		337
Total stockholders’ equity	720,898		669,133
Total liabilities and stockholders’ equity	$	983,635	$	952,692

See accompanying notes.

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Xencor, Inc.

Consolidated Statements of Loss

(unaudited)

(in thousands, except share and per share data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023

Revenue
Collaborations, milestones, and royalties	$	10,710	$	59,164	$	40,475	$	123,649
Operating expenses
Research and development	58,226		64,941		176,630		190,553
General and administrative	14,767		12,493		46,300		38,107
Total operating expenses	72,993		77,434		222,930		228,660
Loss from operations	(62,283)		(18,270)		(182,455)		(105,011)

Other income (expense)
Interest income	7,537		5,023		23,766		11,693
Interest expense	(795)		(7)		(2,716)		(21)
Other (expense) income, net	(10)		8		(14)		(14)
Impairment on equity securities	—		—		(20,430)		—
Gain (loss) on equity securities, net	9,254		(11,023)		(448)		(13,633)
Total other income (expense), net	15,986		(5,999)		158		(1,975)

Loss before income tax expense	(46,297)		(24,269)		(182,297)		(106,986)
Income tax expense	—		—		117		—
Net loss	(46,297)		(24,269)		(182,414)		(106,986)

Net loss attributable to non-controlling interest	(1,154)		—		(3,275)		—
Net loss attributable to Xencor, Inc.	$	(45,143)	$	(24,269)	$	(179,139)	$	(106,986)

Basic and diluted net loss per common share attributable to Xencor, Inc.	$	(0.71)	$	(0.40)	$	(2.87)	$	(1.77)


Basic and diluted weighted average common shares outstanding	64,022,547		60,621,534		62,310,045		60,387,163

See accompanying notes.

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Xencor, Inc.

Consolidated Statements of Comprehensive Loss

(unaudited)

(in thousands, except share and per share data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023

Net loss	(46,297)		(24,269)		(182,414)		(106,986)
Other comprehensive income
Net unrealized gain on marketable debt securities	2,452		1,151		510		6,244
Comprehensive loss	(43,845)		(23,118)		(181,904)		(100,742)
Comprehensive loss attributable to non-controlling interest	(1,154)		—		(3,275)		—
Comprehensive loss attributable to Xencor, Inc.	$	(42,691)	$	(23,118)	$	(178,629)	$	(100,742)

See accompanying notes.

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Xencor, Inc.

Consolidated Statements of Stockholders’ Equity

(unaudited)

(in thousands, except share data)


	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Non-Controlling Interest		Total Stockholders’ Equity
Stockholders’ Equity	Shares	Amount
Balance, December 31, 2023	60,998,191	$	611	$	1,131,266	$	1,291	$	(464,372)	$	337	$	669,133
Issuance of common stock upon exercise of stock awards	152,682	1		1,786		—		—		—		1,787
Issuance of restricted stock units	483,812	5		(5)		—		—		—		—
Comprehensive loss	—	—		—		(1,445)		(68,033)		(676)		(70,154)
Stock-based compensation	—	—		11,421		—		—		—		11,421
Balance, March 31, 2024	61,634,685	$	617	$	1,144,468	$	(154)	$	(532,405)	$	(339)	$	612,187

Issuance of common stock upon exercise of stock awards	10,213	—		140		—		—		—		140
Issuance of restricted stock units	67,160	1		(1)		—		—		—		—
Issuance of common stock under the Employee Stock Purchase Plan	53,996	1		929		—		—		—		930
Comprehensive loss	—	—		—		(498)		(65,963)		(1,445)		(67,906)
Stock-based compensation	—	—		17,190		—		—		—		17,190
Balance, June 30, 2024	61,766,054	$	619	$	1,162,726	$	(652)	$	(598,368)	$	(1,784)	$	562,541

Sale of common stock and pre-funded warrants, net of issuance cost	8,093,712	81		189,098		—		—		—		189,179
Issuance of common stock upon exercise of stock awards	59,254	1		684		—		—		—		685
Issuance of restricted stock units	44,427	—		—		—		—		—		—
Comprehensive income (loss)	—	—		—		2,452		(45,143)		(1,154)		(43,845)
Stock-based compensation	—	—		12,338		—		—		—		12,338
Balance, September 30, 2024 (unaudited)	69,963,447	$	701	$	1,364,846	$	1,800	$	(643,511)	$	(2,938)	$	720,898


	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Non-Controlling Interest		Total Stockholders’ Equity
Stockholders’ Equity	Shares	Amount
Balance, December 31, 2022	59,997,713	$	601	$	1,072,132	$	(6,952)	$	(338,285)	$	—	$	727,496
Issuance of common stock upon exercise of stock awards	34,388	—		924		—		—		—		924
Issuance of restricted stock units	349,499	4		(4)		—		—		—		—
Comprehensive income (loss)	—	—		—		3,327		(60,763)		—		(57,436)
Stock-based compensation	—	—		12,599		—		—		—		12,599
Balance, March 31, 2023	60,381,600	$	605	$	1,085,651	$	(3,625)	$	(399,048)	$	—	$	683,583

Issuance of common stock upon exercise of stock awards	145,003	1		676		—		—		—		677
Issuance of restricted stock units	18,148	—		—		—		—		—		—
Issuance of common stock under the Employee Stock Purchase Plan	55,309	1		1,241		—		—		—		1,242
Comprehensive income (loss)	—	—		—		1,765		(21,954)		—		(20,189)
Stock-based compensation	—	—		13,563		—		—		—		13,563
Balance, June 30, 2023	60,600,060	$	607	$	1,101,131	$	(1,860)	$	(421,002)	$	—	$	678,876

Issuance of common stock upon exercise of stock awards	34,743	—		356		—		—		—		356
Issuance of restricted stock units	31,097	—		—		—		—		—		—
Comprehensive income (loss)	—	—		—		1,151		(24,269)		—		(23,118)
Stock-based compensation	—	—		12,896				—		—		12,896
Balance, September 30, 2023 (unaudited)	60,665,900	$	607	$	1,114,383	$	(709)	$	(445,271)	$	—	$	669,010

See accompanying notes.

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Xencor, Inc.

Consolidated Statements of Cash Flows

(unaudited)

(in thousands)


	Nine Months Ended September 30,
	2024		2023
Cash flows from operating activities
Net loss	$	(182,414)	$	(106,986)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	9,113		8,270
Accretion of discount on marketable debt securities	(13,504)		(8,211)
Stock-based compensation	40,949		39,058
Equity received in connection with license agreements	—		(10,000)
Abandonment of capitalized intangible assets	2,179		797
Gain on sale of marketable debt securities	(3)		—
Change in fair value of equity securities	448		13,633
Impairment on equity securities	20,430		—
Non-cash interest expense	2,682		—
Loss on disposal of assets	6		1,380
Changes in operating assets and liabilities:
Accounts receivable	1,085		(26,003)
Interest receivable from marketable debt securities	(3,131)		113
Prepaid expenses and other assets	(1,851)		1,592
Accounts payable	4,856		4,879
Accrued expenses	1,843		5,744
Income taxes	(5,782)		—
Lease liabilities and ROU assets	1,374		737
Deferred revenue	—		(21,098)
Deferred income	(24,893)		—
Net cash used in operating activities	(146,613)		(96,095)
Cash flows from investing activities
Purchase of marketable securities	(540,844)		(444,480)
Sale of equity securities	6,639		—

Purchase of patents, licenses, and other intangible assets	(2,396)		(2,077)
Purchase of property and equipment	(4,433)		(17,468)
Proceeds from maturities of marketable securities	465,941		556,090
Proceeds from sale of marketable securities	9,969		—
Net cash (used in) provided by investing activities	(65,124)		92,065
Cash flows from financing activities
Proceeds from issuance of common stock and pre-funded warrants	201,256		—
Common stock and pre-funded warrants issuance costs	(12,077)		—
Proceeds from issuance of common stock upon exercise of stock awards	2,612		1,957
Proceeds from issuance of common stock under the Employee Stock Purchase Plan	930		1,242
Reduction of liability for sale of future royalties	(5,738)		—
Net cash provided by financing activities	186,983		3,199
Net decrease in cash, cash equivalents, and restricted cash	(24,754)		(831)
Cash, cash equivalents, and restricted cash, beginning of period	54,170		53,942
Cash, cash equivalents, and restricted cash, end of period	$	29,416	$	53,111

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	Nine Months Ended September 30,
	2024		2023
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest	$	31	$	21
Income taxes	$	6,100	$	—
Supplemental disclosures of non-cash activities
Unrealized gain on marketable debt securities	$	510	$	6,244
ROU assets obtained	$	7,166	$	2,462

Reconciliation of cash, cash equivalents, and restricted cash reported in the balance sheets
Cash and cash equivalents	$	29,031	$	52,733
Restricted cash	385		378
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	29,416	$	53,111

See accompanying notes.

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Xencor, Inc.

Notes to Financial Statements

(unaudited)

September 30, 2024

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated interim financial statements for Xencor, Inc. (the Company, Xencor, we or us) have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information. The consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) that the management of the Company believes are necessary for a fair presentation of the periods presented. The preparation of consolidated interim financial statements requires the use of management’s estimates and assumptions that affect reported amounts of assets and liabilities at the date of the consolidated interim financial statements and the reported revenues and expenditures during the reported periods. These interim financial results are not necessarily indicative of the results expected for the full fiscal year or for any subsequent interim period.

The accompanying unaudited consolidated interim financial statements and related notes should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 2023 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on February 29, 2024.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Xencor, Inc. and Gale Therapeutics Inc. (Gale), a variable interest entity (VIE) in which we are the primary beneficiary. Since we own less than 100% of Gale, the Company records net loss attributable to non-controlling interests in its consolidated statements of loss equal to the percentage of the economic or ownership interests retained in Gale by the non-controlling party.

In determining whether we are the primary beneficiary of a VIE, we apply a qualitative approach that determines whether we have (1) the power to direct the activities of the VIE that most significantly impact the entity's economic performance and (2) the obligation to absorb losses of, or the right to receive benefits from the VIE that could potentially be significant to the VIE. We continuously assess whether we are the primary beneficiary of Gale as changes to existing relationships or future transactions may result in us consolidating or deconsolidating Gale.

Use of Estimates

The preparation of consolidated interim financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, other comprehensive income (loss) and the related disclosures. On an ongoing basis, management evaluates its estimates, including estimates related to its accrued clinical trial and manufacturing development expenses, stock-based compensation expense, evaluation of intangible assets, investments, leases and other assets for evidence of impairment, fair value measurements, and contingencies. Significant estimates in these consolidated interim financial statements include estimates made for royalty revenue, accrued research and development expenses, stock-based compensation expenses, intangible assets, incremental borrowing rate for right-of-use asset and lease liability, estimated standalone selling price of performance obligations, estimated time for completing delivery of performance obligations under certain arrangements, the likelihood of recognizing variable consideration, the carrying value of equity instruments without a readily determinable fair value, and recoverability of deferred tax assets.

Reclassifications

Certain prior year amounts in the consolidated financial statements and the notes thereto have been reclassified to conform to the current period's presentation. These reclassifications did not affect the prior period's total assets, liabilities, stockholders' equity, net loss or cash flows. During the nine months ended September 30, 2024, we adopted a change in

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presentation on our consolidated statements of loss to include loss from disposal of fixed assets in operating expenses. The prior period has been revised to reflect this change in the presentation.

Intangible Assets

The Company maintains definite-lived intangible assets related to certain capitalized costs of acquired licenses and third-party costs incurred in establishing and maintaining its intellectual property rights to its platform technologies and development candidates. These assets are amortized over their useful lives, which are estimated to be the remaining patent life or the contractual term of the license. The straight-line method is used to record amortization expense. The Company assesses its intangible assets for impairment if indicators are present or changes in circumstances suggest that impairment may exist. There was no impairment charge recorded for the three and nine months ended September 30, 2024 and 2023.

The Company capitalizes certain in-process intangible assets that are then abandoned when they are no longer pursued or used in current research activities. We abandoned $1.4 million and $2.2 million of in-process intangible assets during the three and nine months ended September 30, 2024, respectively. We abandoned $0.2 million and $0.8 million of in-process intangible assets during the three and nine months ended September 30, 2023, respectively.

Marketable Debt and Equity Securities

The Company has an investment policy that includes guidelines on acceptable investment securities, minimum credit quality, maturity parameters, and concentration and diversification. The investment policy limits the maturity of any individual security to a maximum of 36 months. The average maturity of securities in the portfolio as of September 30, 2024 is less than 12 months. The Company invests its excess cash primarily in marketable debt securities issued by investment grade institutions.

The Company considers its marketable debt securities to be available-for-sale because it is not more likely than not that the Company will be required to sell the securities before recovery of the amortized cost. These assets are carried at fair value and any impairment losses and recoveries related to the underlying issuer’s credit standing are recognized within other income (expense), while non-credit related impairment losses and recoveries are recognized within accumulated other comprehensive income (loss). There were no impairment losses or recoveries recorded for the three and nine months ended September 30, 2024 and 2023. Accrued interest on marketable debt securities is included in the marketable securities’ carrying value. Each reporting period, the Company reviews its portfolio of marketable debt securities, using both quantitative and qualitative factors, to determine if each security’s fair value has declined below its amortized cost basis. During the three and nine months ended September 30, 2024, the Company recorded an unrealized gain of $2.5 million and $0.5 million, respectively, in its portfolio of marketable debt securities. During the three and nine months ended September 30, 2023, the Company recorded a net unrealized gain of $1.2 million and $6.2 million, respectively. The unrealized gain is due to the changing interest rate environment. The net unrealized gain is recorded in other comprehensive income for the three and nine months ended September 30, 2024 and 2023.

The Company receives equity securities in connection with certain licensing transactions with its partners. These investments in equity securities are carried at fair value with changes in fair value recognized each period and reported within other income (expense). For equity securities with a readily determinable fair value, the Company remeasures these equity investments at each reporting period until such time that the investment is sold or disposed. If the Company sells an investment, any realized gain or loss on the sale of the securities will be recognized within other income (expense) in the consolidated statements of loss in the period of sale.

The Company also had an investment in equity securities without a readily determinable fair value, where the Company elected the measurement alternative to record the investment at its initial cost minus impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. There is no impairment charge for the three months ended September 30, 2024. There was an impairment charge of $20.4 million recorded for the nine months ended September 30, 2024 in connection with the valuation of equity securities without a readily determinable fair value. There was no impairment charge recorded for the three and nine months ended September 30, 2023. Following the closing of Zenas' initial public offering on September 16, 2024, the Company no longer holds an investment in equity securities without a readily determinable fair value. See Note 5.

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Liability Related to the Sale of Future Revenues

We treat 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 Monjuvi royalties is based on our current estimate of future royalty payments. Royalty revenue will be recognized as earned and the payments made will be a reduction of the liability when paid.

Non-cash Interest Expense on the Liability Related to the Sale of Future Royalties

The total expected royalty payments less the net proceeds received are recorded as non-cash interest expense over the life of the liability. Interest is imputed on the unamortized portion using the effective interest method and is recorded based on the timing of the payments received over the term of the Monjuvi Royalty Sale Agreement. The actual interest rate will be affected by the timing of the royalty payments and changes in the forecasted revenue.

Deferred Income Related to the Sale of Future Revenues

We treat 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 the payments made will be a reduction of the liability when paid.

Recent Accounting Pronouncements

There have been no material changes in recently issued or adopted accounting standards from those disclosed in the Company's 2023 Annual Report on Form 10-K. The Company has reviewed all recently issued accounting pronouncements and does not believe they will have a material impact on our results of operations, financial condition or cash flows.

There have been no other material changes to the significant accounting policies previously disclosed in the Company’s 2023 Annual Report on Form 10-K.

2. Fair Value of Financial Instruments

Financial instruments included in the financial statements include cash and cash equivalents, marketable debt and equity securities, accounts receivable, accounts payable, and accrued expenses. Marketable debt securities, equity securities, and cash equivalents are carried at fair value. The fair value of the other financial instruments closely approximates their fair value due to their short-term maturities.

The Company accounts for recurring and non-recurring fair value measurements in accordance with FASB Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures (ASC 820). ASC 820 defines fair value, establishes a fair value hierarchy for assets and liabilities measured at fair value, and requires expanded disclosure about fair value measurements. The ASC 820 hierarchy ranks the quality of reliable inputs, or assumptions, used in the determination of fair value and requires assets and liabilities carried at fair value to be classified and disclosed in one of the following three categories:

Level 1—Fair value is determined by using unadjusted quoted prices that are available in active markets for identical assets or liabilities.

Level 2—Fair value is determined by using inputs other than Level 1 quoted prices that are directly or indirectly observable. Inputs can include quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in markets that are not active. Related inputs can also include those used in valuation or other pricing models, such as interest rates and yield curves that can be corroborated by observable market data.

Level 3—Fair value is determined by inputs that are unobservable and not corroborated by market data. Use of these inputs involves significant and subjective judgments to be made by the reporting entity – e.g., determining an appropriate discount factor for illiquidity associated with a given security.

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The Company measures the fair value of financial assets using the highest level of inputs that are reasonably available as of the measurement date. The assets recorded at fair value are classified within the hierarchy as follows for the periods reported (in thousands):


	September 30, 2024 (unaudited)						December 31, 2023
	Total Fair Value		Level 1		Level 2		Total Fair Value		Level 1		Level 2
Money Market Funds	$	21,028	$	21,028	$	—	$	25,520	$	25,520	$	—
Corporate Securities	161,643		—		161,643		228,723		—		228,723
Government Securities	563,674		—		563,674		414,514		—		414,514
	$	746,345	$	21,028	$	725,317	$	668,757	$	25,520	$	643,237

Our policy is to record transfers of assets between Level 1 and Level 2 at their fair values as of the end of each reporting period, consistent with the date of the determination of fair value. During the three and nine months ended September 30, 2024 and 2023, there were no transfers between Level 1 and Level 2.

3. Net Loss Per Common Share

Basic net loss per common share is computed by dividing the net loss attributable to Xencor by the weighted-average number of common shares outstanding during the period without consideration of common stock equivalents. Diluted net loss per common share is computed by dividing the net loss attributable to Xencor by the weighted-average number of common stock equivalents outstanding for the period. Potentially dilutive securities consisting of stock issuable pursuant to outstanding options and restricted stock units (RSUs), and stock issuable pursuant to the 2013 Employee Stock Purchase Plan (ESPP) are not included in the per common share calculation in periods when the inclusion of such shares would have an anti-dilutive effect.

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	(in thousands, except share and per share data)				(in thousands, except share and per share data)
Numerator:
Net loss attributable to Xencor, Inc.	$	(45,143)	$	(24,269)	$	(179,139)	$	(106,986)
Denominator:


Weighted-average common shares outstanding used in computing basic and diluted net loss	64,022,547		60,621,534		62,310,045		60,387,163
Basic and diluted net loss per common share attributable to Xencor, Inc.	$	(0.71)	$	(0.40)	$	(2.87)	$	(1.77)

For each of the three and nine months ended September 30, 2024 and 2023, all outstanding potentially dilutive securities have been excluded from the calculation of diluted net loss per common share as the effect of including such securities would have been anti-dilutive.

4. Comprehensive Loss

Comprehensive loss is comprised of net loss and other comprehensive income. For each of the three and nine-month periods ended September 30, 2024 and 2023, the only component of other comprehensive income is net unrealized gain on marketable debt securities. There were no material reclassifications out of accumulated other comprehensive income (loss) during each of the three and nine-month periods ended September 30, 2024 and 2023.

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5. Marketable Debt and Equity Securities

The Company’s marketable debt securities held as of September 30, 2024 and December 31, 2023 are summarized below:


September 30, 2024	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
(in thousands)
Money Market Funds	$	21,028	$	—	$	—	$	21,028
Corporate Securities	161,118		525		—		161,643
Government Securities	562,387		1,419		(132)		563,674
	$	744,533	$	1,944	$	(132)	$	746,345

Reported as
Cash and cash equivalents							$	21,028
Marketable securities							725,317
Total investments							$	746,345


December 31, 2023	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
(in thousands)
Money Market Funds	$	25,520	$	—	$	—	$	25,520
Corporate Securities	228,382		342		(1)		228,723
Government Securities	413,553		1,037		(76)		414,514
	$	667,455	$	1,379	$	(77)	$	668,757

Reported as
Cash and cash equivalents							$	25,520
Marketable securities							643,237
Total investments							$	668,757

The maturities of the Company’s marketable debt securities as of September 30, 2024 are as follows:


September 30, 2024	Amortized Cost		Estimated Fair Value
(in thousands)
Mature in one year or less	$	433,602	$	435,043
Mature within two years	289,903		290,274
	$	723,505	$	725,317

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The unrealized losses on available-for-sale investments and their related fair values as of September 30, 2024 and December 31, 2023 are as follows:


	Less than 12 months				12 months or greater
September 30, 2024	Fair value		Unrealized losses		Fair value		Unrealized losses
(in thousands)

Government Securities	$	—	$	—	$	198,710	$	(132)


	Less than 12 months				12 months or greater
December 31, 2023	Fair value		Unrealized losses		Fair value		Unrealized losses
(in thousands)
Corporate Securities	$	8,073	$	(1)	$	—	$	—
Government Securities	66,546		(76)		—		—
	$	74,619	$	(77)	$	—	$	—

The unrealized losses from the available-for-sale securities are due to changes in the interest rate environment and not changes in the credit quality of the underlying securities in the portfolio.

The Company’s equity securities include securities with a readily determinable fair value and securities without a readily determinable fair value. Equity securities with a readily determinable fair value are carried at fair value with changes in fair value recognized each period and reported within other income (expense), net. For equity securities without a readily determinable fair value, the Company elects the measurement alternative to record these investments at their initial cost and evaluates such investments at each reporting period for evidence of impairment, or observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

The Company sold 443,909 shares of common stock of Astria Therapeutics, Inc. (Astria) in the second quarter of 2024, and sold the remaining 253,958 shares of common stock of Astria in July 2024. The Company does not hold any shares of common stock of Astria as of September 30, 2024. The Company recorded realized gains of $0.1 million and $1.3 million for the three and nine months ended September 30, 2024, respectively. The Company held 697,867 shares of common stock as of September 30, 2023, which were classified as equity securities with a readily determinable fair value. The Company recorded unrealized losses of $0.6 million and $4.5 million for the three and nine months ended September 30, 2023, respectively.

The Company currently holds 1,885,533 shares of common stock of INmune Bio, Inc. (INmune). The 1,885,533 shares of INmune common stock are classified as equity securities with a readily determinable fair value. For the three and nine months ended September 30, 2024, the Company recorded unrealized losses of $6.5 million and $11.1 million, respectively. For the three and nine months ended September 30, 2023, the Company recorded an unrealized loss of $4.4 million and an unrealized gain of $0.8 million, respectively.

The Company currently holds 717,144 shares of common stock of Viridian Therapeutics, Inc. (Viridian). The shares of Viridian common stock are classified as equity securities with a readily determinable fair value. The Company recorded unrealized gains of $7.0 million and $0.7 million for the three and nine months ended September 30, 2024, respectively. The Company recorded unrealized losses of $6.1 million and $9.9 million for the three and nine months ended September 30, 2023, respectively.

The Company holds an equity interest in Zenas BioPharma, Inc. (Zenas). The Company’s equity interests previously included preferred stock in Zenas when Zenas was a privately-held company. The preferred shares were received as an upfront payment and a milestone payment for licensing certain clinical and preclinical assets from the Company and did not have a readily determinable fair value. The Company elected the measurement alternative to carry the Zenas equity at cost minus impairment, plus or minus changes resulting from observable price changes in an orderly transaction for the identical or a similar investment of the same issuer. During the six months ended June 30, 2024, the Company recorded $20.4 million of impairment charge due to an impairment analysis using the measurement alternative for the valuation of a security without a readily determinable fair value.

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On September 16, 2024, following the closing of Zenas' initial public offering, the Company's preferred stock in Zenas was automatically converted to 3,098,380 shares of common stock which were then classified as equity securities with a readily determinable fair value. The Company subsequently discontinued the use of the measurement alternative in valuing its equity interest in Zenas. As a result, the Company recorded an unrealized gain of $8.6 million for each of the three and nine months ended September 30, 2024.

Equity securities with a readily determinable fair value, which are categorized as Level 1 in the fair value hierarchy under ASC 820, and their fair values (in thousands) as of September 30, 2024 and December 31, 2023 are as follows:


	Fair Value		Fair Value
	September 30, 2024		December 31, 2023
Astria Common Stock	$	—	$	5,360
INmune Common Stock	10,163		21,231
Viridian Common Stock	16,315		15,619
Zenas Common Stock	52,425		—
	$	78,903	$	42,210

Equity securities without a readily determinable fair value and their carrying values (in thousands) as of September 30, 2024 and December 31, 2023 are as follows:


	Carrying Value		Carrying Value
	September 30, 2024		December 31, 2023

Zenas Preferred Stock	$	—	$	64,210

Net gain (loss) recorded related to these equity securities are recorded under other income (expense). Below is a reconciliation of net gain (loss) recorded on equity securities during the three and nine months ended September 30, 2024 and 2023:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Net gain (loss) recorded on equity securities	$	9,254	$	(11,023)	$	(448)	$	(13,633)
Less: Net gain recorded on sale of equity securities	92		—		1,280		—
Unrealized gain (loss) recorded on equity securities held at the reporting date	$	9,162	$	(11,023)	$	(1,728)	$	(13,633)

6. Stock Based Compensation

In June 2023, our Board of Directors (the Board) and stockholders approved the 2023 Equity Incentive Plan (the 2023 Plan), which became effective as of June 14, 2023, and superseded the 2013 Equity Incentive Plan (the 2013 Plan). No additional awards may be granted under the 2013 Plan.

The 2023 Plan reserve consists of 3,000,000 shares and the remaining available shares from the 2013 Plan as of the effective date of the 2023 Plan. In addition, any shares of common stock covered by awards granted under the 2013 Plan that terminate on or after June 14, 2023 by expiration, forfeiture, cancellation, or other means without the issuance of such shares will be added to the 2023 Plan reserve. The 2023 Plan does not include a provision for an automatic increase in shares, also known as an evergreen provision.

As of September 30, 2024, the total number of shares of common stock available for issuance under the 2023 Plan is 18,617,423, which includes shares of common stock that were available for issuance under the 2013 Plan as of the

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effective date of the 2023 Plan. As of September 30, 2024, a total of 2,510,949 options have been granted under the 2023 Plan.

In November 2013, the Board and our stockholders approved the ESPP, which became effective as of December 5, 2013. As of September 30, 2024, the total number of shares of common stock available for issuance under the ESPP is 987,344. Unless otherwise determined by the Board, beginning on January 1, 2014, and continuing until January 1, 2023, the total number of shares of common stock available for issuance under the ESPP automatically increased annually on January 1 by the lesser of (i) 1% of the total number of issued and outstanding shares of common stock as of December 31 of the immediately preceding year, or (ii) 621,814 shares of common stock. The automatic increase has expired, and the number of shares of common stock available for issuance under the ESPP was not increased on January 1, 2024. As of September 30, 2024, we have issued a total of 787,474 shares of common stock under the ESPP.

During the nine months ended September 30, 2024, the Company awarded 1,026,220 RSUs under the 2023 Plan to certain employees and non-employee directors. The standard vesting of these awards is generally in three equal annual installments and is contingent on an employee’s continued service to the Company. The fair value of these awards is determined based on the intrinsic value of the stock on the date of grant and will be recognized as stock-based compensation expense over the requisite service period. As of September 30, 2024, a total of 1,112,887 RSUs have been granted under the 2023 Plan.

The Company extended vesting periods and expiration dates of equity awards for employees who retired in April 2024. There was a $3.1 million incremental expense as a result of the extension of the expiration dates, and there was a $1.2 million expense as a result of the extension of the vesting periods.

Total employee, director and non-employee stock-based compensation expense recognized for the three and nine months ended September 30, 2024 and 2023 are as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
General and administrative	$	5,158	$	4,487	$	18,326	$	13,234
Research and development	7,180		8,409		22,623		25,824
	$	12,338	$	12,896	$	40,949	$	39,058


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Stock options	$	6,760	$	6,314	$	24,578	$	20,139
ESPP	206		307		623		970
RSUs	5,372		6,275		15,748		17,949
	$	12,338	$	12,896	$	40,949	$	39,058

The following table summarizes option activity under our stock plans and related information:


	Number of Shares Subject to Outstanding Options	Weighted Average Exercise Price (Per Share)		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Balance at December 31, 2023	11,142,986	$	29.60	6.03	$	9,977
Options granted	2,297,551	$	22.21
Options forfeited	(614,922)	$	32.36
Options exercised	(222,149)	$	11.76
Balance at September 30, 2024	12,603,466	$	28.44	5.96	$	6,942
Exercisable	8,522,788	$	29.56	4.62	$	6,550

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We calculate the intrinsic value as the difference between the exercise price of the options and the closing price of common stock of $20.11 per share as of September 30, 2024.

The weighted-average fair value of options granted during the nine-month periods ended September 30, 2024 and 2023 were $22.21 and $30.07 per share, respectively. There were 2,068,582 options granted during the nine-month period ended September 30, 2023. We estimated the fair value of each equity award, including stock options and shares issued under our ESPP, using the Black-Scholes option-pricing model based on the date of grant of such stock option or ESPP share issuance date, with the following weighted average assumptions for the three and nine months ended September 30, 2024 and 2023:


	Options				Options
	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Expected term (years)	5.8		6.1		6.4		6.1
Expected volatility	50.8	%	50.0	%	50.1	%	50.5	%
Risk-free interest rate	4.15	%	4.43	%	4.18	%	4.18	%
Expected dividend yield	—	%	—	%	—	%	—	%


	ESPP				ESPP
	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Expected term (years)	0.5 - 2.0		0.5 - 2.0		0.5 - 2.0		0.5 -2.0
Expected volatility	43.0% - 44.6%		38.2% - 55.7%		43.0% - 44.6%		38.2% - 55.7%
Risk-free interest rate	4.71% - 5.40%		0.13% - 5.39%		4.71% - 5.40%		0.13% - 5.39%
Expected dividend yield	—	%	—	%	—	%	—	%

As of September 30, 2024, the unamortized compensation expense related to unvested stock options was $50.4 million. The remaining unamortized compensation expense will be recognized over the next 2.5 years. As of September 30, 2024, the unamortized compensation expense under our ESPP was $1.0 million. The remaining unamortized expense will be recognized over the next 1.2 years.

The following table summarizes the RSU activity for the nine-month period ended September 30, 2024:


	Restricted Stock Units	Weighted Average Grant Date Fair Value (Per unit)

Unvested RSUs at December 31, 2023	1,490,040	$	30.66
Granted	1,026,220	22.31
Vested	(595,399)	31.49
Forfeited	(167,097)	28.89
Unvested RSUs at September 30, 2024	1,753,764	$	25.57

As of September 30, 2024, the unamortized compensation expense related to unvested RSUs was $31.6 million. The remaining unamortized expense will be recognized over the next 1.9 years.

7. Leases

The Company leases office and laboratory space in Monrovia, California under a lease that expires in December 2025 with an option to renew for an additional five years at then market rates. The Company has assessed that it is unlikely to exercise the option to extend the lease term.

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In June 2021, the Company entered into an Agreement of Lease (Lease Agreement) for laboratory and office space in Pasadena, California, which will expire in July 2035. The Lease Agreement provides for two separate phases of lease and occupancy. The first phase commenced on August 1, 2022 and provided the Company with an improvement allowance up to $17.0 million. The second phase of the lease agreement will commence no later than September 30, 2026 and includes an additional improvement allowance up to $3.3 million. In August 2022, the Company entered into an amendment pursuant to which the Company received an additional $5.0 million in tenant improvement allowance in exchange for an increase in the rental rate of the phase 1 space. The Company received delivery of the second phase premises on December 1, 2022. The Company placed the new facility into service in February 2023. In January 2024, the Company entered into an amendment, in which the Company was paid $0.7 million of tenant improvement allowance from the second phase for HVAC costs in the first phase.

In August 2023, the Company entered into a Sublease Agreement for office space in San Diego, California. The term of the Sublease Agreement began in September 2023 and ends in December 2027. In connection with the Sublease Agreement, the Company provided a $0.4 million Letter of Credit to the landlord. The Letter of Credit will decline over the term of the lease. The Company also entered into a Cash Collateral Agreement for $0.4 million, which is classified as restricted cash in the Consolidated Balance Sheets.

The Company’s lease agreements do not contain any residual value guarantees or restrictive covenants.

The following table reconciles the undiscounted cash flows for the operating leases at September 30, 2024 to the operating lease liabilities recorded on the balance sheet (in thousands):


Years ending December 31,
For the remainder of 2024	$	1,143
2025	8,022
2026	9,238
2027	9,560
2028	9,076
2029	9,331
Thereafter	57,104
Total undiscounted lease payments	103,474
Less: Tenant allowance	(2,536)
Less: Imputed interest	(32,268)
Present value of lease payments	$	68,670

Lease liabilities - short-term	$	2,181
Lease liabilities - long-term	66,489
Total lease liabilities	$	68,670

The following table summarizes lease costs and cash payments for the three and nine months ended September 30, 2024 and 2023 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023

Operating lease cost	$	1,881	$	2,075	$	5,643	$	6,275
Variable lease cost	(201)		232		939		685
Total lease costs	$	1,680	$	2,307	$	6,582	$	6,960

Cash paid for amounts included in the measurement of lease liabilities	$	801	$	820	$	2,679	$	2,265

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As of September 30, 2024, the weighted-average remaining lease term for operating leases is 10.5 years, and the weighted-average discount rate for operating leases is 7.0%. As of September 30, 2023, the weighted-average remaining lease term for operating leases was 11.0 years, and the weighted-average discount rate for operating leases was 8.8%.

8. Commitments and Contingencies

From time to time, the Company may be subject to various litigation and related matters arising in the ordinary course of business. We are currently a party to an action initiated by Merus N.V. (Merus) in the District of Delaware alleging that our manufacture, use, offer for sale, sale, and/or importation of common light chain antibodies and heterodimeric antibodies infringes certain claims of three Merus patents. Merus filed its complaint against us on August 5, 2024. Merus asserted claims of U.S. Patent Nos. 9,944,695, 9,358,286 and 11,926,859 (collectively, the Asserted Patents). Merus seeks a judgment of patent infringement, an order enjoining us from infringing the Asserted Patents, a damages award (together with interest), a declaration of willful infringement, and a finding that this case is exceptional. On October 10, 2024, we filed a motion to dismiss the Merus complaint with prejudice under Rule 12(b)(6), in which we argued that all of the activities accused of infringement are covered by the 35 U.S.C.§ 271(e)(1) safe harbor. Merus filed its response to our motion on October 31, 2024, and our deadline for replying to the Merus response is November 14, 2024. We believe we have strong defenses to Merus' claims, including defenses of invalidity and/or non-infringement, but there is no guarantee that we will prevail.

The Company does not believe it is currently subject to other matters where there is at least a reasonable possibility that a material loss may be incurred.

The Company is obligated to make future payments to third parties pursuant to certain license agreements, including sublicense fees, royalties, and payments that become due and payable on the achievement of certain development and commercialization milestones. As the amount and timing of sublicense fees and the achievement and timing of these milestones are not probable and estimable, such commitments have not been included on the Company’s balance sheets for the periods ended September 30, 2024 and December 31, 2023. The Company has also entered into agreements with third-party vendors that will require us to make future payments upon the delivery of goods and services in future periods.

9. Collaboration and Licensing Agreements

The following is a summary description of the material collaboration arrangements in the three and nine months ended September 30, 2024 and 2023.

Alexion Pharmaceuticals, Inc.

In January 2013, the Company entered into an Option and License Agreement (the Alexion Agreement) with Alexion Pharmaceuticals, Inc. (Alexion). Under the terms of the Alexion Agreement, the Company granted to Alexion an exclusive research license, with limited sublicensing rights, to make and use the Company’s Xtend technology to evaluate and advance compounds. Alexion exercised its rights to one target program, ALXN1210, which is now marketed as Ultomiris®.

The Company is entitled to receive royalties based on a percentage of net sales of Ultomiris sold by Alexion, its affiliates or its sublicensees, which percentage is in the low single digits. Alexion’s royalty obligations continue on a product-by-product and country-by-country basis until the expiration of the last-to-expire valid claim in a licensed patent covering the applicable product in such country.

On November 3, 2023, the Company entered into the Ultomiris Royalty Sale Agreement with OMERS, in which OMERS acquired the rights to certain royalties associated with the existing license relating to Ultomiris in exchange for cash consideration. For the nine months ended September 30, 2024, Company earned and recognized $24.9 million in non-cash royalty revenue under the Ultomiris Royalty Sale Agreement.

The Company recognized $8.6 million and $24.9 million of non-cash royalty revenue during the three and nine months ended September 30, 2024, respectively, and $11.8 million and $33.4 million of royalty revenue under this arrangement for the three and nine months ended September 30, 2023, respectively. As of September 30, 2024, there is no receivable and no deferred revenue related to this agreement.

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Genentech, Inc., and F. Hoffmann-La Roche Ltd

In February 2019, the Company entered into a collaboration and license agreement (the Genentech Agreement) with Genentech, Inc. and F. Hoffmann-La Roche Ltd (collectively, Genentech) for the development and commercialization of novel IL-15 collaboration products (Collaboration Products), including efbalropendekin alfa (also named XmAb306 and RG6323), the Company’s IL-15/IL15Rα-Fc candidate.

Under the terms of the Genentech Agreement, Genentech received an exclusive worldwide license to XmAb306, and we shared in 45% of development and commercialization costs of Collaboration Products. We were also eligible to share in 45% of net profits and losses from the sale of approved products. However, in the fourth quarter of 2023, we agreed with Genentech to convert our current development cost and profit-sharing arrangement into a royalty and milestone payment-based arrangement. Pursuant to the terms of the amended agreement with Genentech, effective June 1, 2024, Genentech assumed sole responsibility over all clinical, regulatory and commercial activities. We are eligible to receive up to $600.0 million in milestones, including $115.0 million in development milestones, $185.0 million in regulatory milestones and $300.0 million in sales-based milestones and tiered royalties ranging from low double-digit to mid-teen percentages.

The Company did not recognize revenue related to the Genentech Agreement for the three and nine months ended September 30, 2024 or 2023. As of September 30, 2024, there is a $7.6 million payable related to cost-sharing development activities during the first half of 2024 for development studies being conducted under the Genentech Agreement. There is no deferred revenue as of September 30, 2024 related to this agreement.

Gilead Sciences, Inc.

In January 2020, the Company entered into a Technology License Agreement (the Gilead Agreement) with Gilead Sciences, Inc. (Gilead), in which the Company provided Gilead an exclusive license to its Cytotoxic Fc and Xtend Fc technologies for an initial identified antibody and options for up to three additional antibodies directed to the same molecular target. In the second quarter 2020, Gilead exercised its options for the three additional antibody compounds.

No revenue was recognized for the three and nine months ended September 30, 2024. For the three and nine months ended September 30, 2023, the Company recognized $6.0 million in revenue related to development milestones. There is no deferred revenue as of September 30, 2024 related to this agreement.

Janssen Biotech, Inc., a Johnson & Johnson company

J&J Agreement

In November 2020, the Company entered into a Collaboration and License Agreement (the J&J Agreement) with Janssen Biotech, Inc., a Johnson & Johnson company, pursuant to which the Company and J&J conducted research and development activities to discover novel CD28 bispecific antibodies for the treatment of prostate cancer. Xencor together with J&J conducted joint research activities to discover XmAb bispecific antibodies against CD28 and against an undisclosed prostate tumor-target with J&J maintaining exclusive worldwide rights to develop and commercialize licensed products identified from the research activities.

Under the J&J Agreement, the Company conducted research activities and applied its bispecific Fc technology to antibodies targeting prostate cancer provided by J&J. Upon completion of the research activities J&J had a candidate selection option to advance an identified candidate for development and commercialization. In November 2021, the Company completed its performance obligations under the research activities and delivered CD28 bispecific antibodies to J&J. In December 2021, J&J selected a bispecific CD28 candidate for further development. J&J will assume full responsibility for development and commercialization of the CD28 bispecific antibody candidate.

The Company did not recognize revenue for the three and nine months ended September 30, 2024, and the Company recognized $7.5 million of revenue for the three and nine months ended September 30, 2023 under the J&J Agreement. As of September 30, 2024, there is no deferred revenue related to this Agreement.

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Second J&J Agreement

On October 1, 2021, the Company entered into a second Collaboration and License Agreement (the Second J&J Agreement) with J&J pursuant to which the Company granted J&J an exclusive worldwide license to develop, manufacture, and commercialize plamotamab, the Company’s CD20 x CD3 development candidate, and pursuant to which Xencor and J&J conducted research and development activities to discover novel CD28 bispecific antibodies. The parties conducted joint research activities for a two-year period to discover XmAb bispecific antibodies against CD28 and undisclosed B cell tumor-targets with J&J receiving exclusive worldwide rights, subject to certain Xencor opt-in rights, to develop, manufacture and commercialize pharmaceutical products that contain one or more of such discovered antibodies (CD28 Licensed Antibodies). The Agreement became effective on November 5, 2021.

The Company collaborated with J&J on clinical development of plamotamab and shared development costs with J&J paying 80% and the Company paying 20% of certain development costs. In June 2024, the Company was notified that J&J was terminating its rights to plamotamab, which termination became effective in June 2024.

The Company is generally responsible for conducting research activities under the Second J&J Agreement, and J&J is generally responsible for all development, manufacturing, and commercialization activities for CD28 Licensed Antibodies that are advanced. Revenue from the research activities was recognized over a period of time through the end of the research term that services were rendered as we determined that the input method was the appropriate approach to recognize income for such services.

There is a receivable of $2.3 million as of September 30, 2024, related to cost-sharing activities for the development of plamotamab under the Second J&J Agreement. No revenue was recognized for the three and nine months ended September 30, 2024, and the Company recognized $6.2 million and $33.6 million of revenue for the three and nine months ended September 30, 2023, respectively. There is no deferred revenue as of September 30, 2024 related to the Second J&J Agreement as obligations to perform research activities have expired.

MorphoSys AG/Incyte Corporation

In June 2010, the Company entered into a Collaboration and License Agreement (the MorphoSys Agreement) with MorphoSys AG (MorphoSys), which was subsequently amended. Under the MorphoSys Agreement, we granted MorphoSys an exclusive worldwide license to the Company’s patents and know-how to research, develop and commercialize the XmAb5574 product candidate (subsequently renamed MOR208 and tafasitamab) with the right to sublicense under certain conditions. In February 2024, Incyte Corporation assumed all of MorphoSys' right, title and interest in the MorphoSys Agreement and acquired exclusive global development and commercialization rights to tafasitamab. If certain developmental, regulatory and sales milestones are achieved, the Company is eligible to receive future milestone payments and royalties.

On November 3, 2023, the Company entered into the Monjuvi Royalty Sale Agreement with OMERS, pursuant to which OMERS acquired the rights to certain royalties earned after July 1, 2023 associated with the existing license relating to Monjuvi.

The Company recognized $2.1 million and $6.5 million of non-cash royalty revenue during the three and nine months ended September 30, 2024, respectively. The Company recognized $2.7 million and $6.6 million of royalty revenue during the three and nine months ended September 30, 2023, respectively. As of September 30, 2024, there is a receivable of $2.1 million related to estimated royalties due under the arrangement. As of September 30, 2024, there is no deferred revenue related to this agreement.

Omeros Corporation

In August 2020, the Company entered into a Technology License Agreement (the Omeros Agreement) with Omeros Corporation (Omeros), in which the Company provided Omeros a non-exclusive license to its Xtend Fc technology, an exclusive license to apply its Xtend technology to an initial identified antibody and options to apply its Xtend technology to three additional antibodies.

No revenue was recognized for the three and nine months ended September 30, 2024. For the three and nine months ended September 30, 2023, the Company recognized $5.0 million of milestone revenue related to a development milestone. As of September 30, 2024, there is no deferred revenue related to this Agreement.

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Shanghai Mabgeek Biotech Co., Ltd.

On December 22, 2023, the Company entered into a Technology License Agreement with Shanghai Mabgeek Biotech Co., Ltd. (Mabgeek), and the Company and Mabgeek entered into Amendment No. 1 on June 21, 2024 (collectively, the Mabgeek Agreement). Under the Mabgeek Agreement, the Company received an upfront payment of $1.5 million and up to $11.9 million of milestones. In addition, the Company is eligible to receive royalties on the net sales of approved products in the low single digits.

The Company evaluated the Mabgeek Agreement and determined that the single performance obligation was access to a non-exclusive license to certain patents of the Company which were transferred to Mabgeek in June 2024.

No revenue was recognized for the three months ended September 30, 2024. The Company recognized $1.5 million of license revenue related to the Mabgeek Agreement for the nine months ended September 30, 2024. There is no deferred revenue as of September 30, 2024 related to this agreement.

Vega Therapeutics, Inc.

In October 2021, the Company entered into a Technology License Agreement (the Vega Agreement) with Vega Therapeutics, Inc. (Vega), in which the Company provided Vega a non-exclusive license to its Xtend Fc technology. In March 2024, Vega notified the Company that it initiated a Phase 1 study, and the Company recorded milestone revenue of $0.5 million.

The Company recognized $0.5 million of revenue for the nine months ended September 30, 2024. No revenue was recognized for the three months ended September 30, 2024 or the three and nine months ended September 30, 2023.

Vir Biotechnology, Inc.

In 2019, the Company entered into a Patent License Agreement (the Vir Agreement) with Vir Biotechnology, Inc. (Vir) pursuant to which the Company provided a non-exclusive license to its Xtend technology for up to two targets.

In March 2020, the Company entered into a second Patent License Agreement (the Second Vir Agreement) with Vir pursuant to which the Company provided a non-exclusive license to its Xtend technology to extend the half-life of novel antibodies Vir developed as potential treatments for patients with COVID-19, including sotrovimab. Under the terms of the Second Vir Agreement, Vir is responsible for all research, development, regulatory and commercial activities for the antibodies, and the Company is eligible to receive royalties on the net sales of approved products in the mid-single digit percentage range. Vir and its marketing partner, GSK, began recording sales for sotrovimab beginning in June 2021.

The Company recognized nominal amounts of revenue for the three months ended September 30, 2024 and 2023. The Company recognized $0.1 million and $1.5 million of revenue for the nine months ended September 30, 2024 and 2023, respectively. As of September 30, 2024, there is no receivable related to estimated royalty due under this agreement, and there is no deferred revenue related to this agreement.

Zenas BioPharma, Inc.

In November 2020, the Company entered into a License Agreement (the Zenas Agreement) with Zenas, pursuant to which the Company received an equity interest in Zenas in exchange for the exclusive, worldwide rights to develop and commercialize drug candidates from the Company. The equity in Zenas was recorded at the fair value as of the date of the Zenas Agreement and was reviewed each reporting period for impairment or other evidence of change in value.

In November 2021, the Company entered into a second License Agreement (the Second Zenas Agreement) with Zenas, pursuant to which the Company received additional equity in Zenas in exchange for the exclusive worldwide rights to develop and commercialize the Company’s obexelimab (XmAb5871) drug candidate. Under the license, the Company is eligible to receive development, regulatory and sales milestones in connection with the development of obexelimab and royalties on net sales of approved products. The original equity received for the second license was a warrant to acquire additional shares of Zenas. The warrant was exchanged for additional preferred stock in Zenas in November 2022.

The warrant in Zenas was recorded at its fair value as of the date of the Second Zenas Agreement and was reviewed each reporting period for impairment or other evidence of change in value. The preferred shares received in

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exchange for the warrant were recorded at their fair value at the date of the exchange and were reviewed each reporting period for impairment or other evidence of change in value.

In 2023, Zenas initiated a Phase 3 clinical study with obexelimab and also dosed a second patient in the study. The Company received a development milestone in the form of additional preferred stock in Zenas with a fair value of $10.0 million.

On September 16, 2024, following the closing of Zenas' initial public offering, the Company's preferred stock ownership automatically converted to 3,098,380 shares of common stock of Zenas, which is classified as equity securities with a readily determinable fair value. As a result, the Company discontinued the use of the measurement alternative to record its equity interest in Zenas.

The Company did not recognize any revenue for the three and nine months ended September 30, 2024, or the three months ended September 30, 2023. The Company recognized $10.0 million of milestone revenue for the nine months ended September 30, 2023, and there is no deferred revenue related to this agreement.

Third-Party Licensee

In May 2024, the Company entered into a Patent License Agreement (Third-Party Licensee Agreement) with a third-party licensee. The Company completed delivery of the performance obligation under the agreement, and the Company received a payment of $7.0 million in August 2024.

No revenue was recognized for the three months ended September 30, 2024, and the Company recognized $7.0 million of license revenue for the nine months ended September 30, 2024. There is a no receivable as of September 30, 2024., and there is no deferred revenue related to this agreement.

Gale Therapeutics Inc.

In the fourth quarter of 2023, the Company formed a subsidiary, Gale Therapeutics Inc. (Gale), to develop novel drug candidates with its Fc technologies. In December 2023, the Company entered into a Technology License Agreement (Gale License Agreement) with Gale in which Gale received an exclusive worldwide, royalty-bearing, non-transferable license to preclinical assets in exchange for royalties on future sales and an option for future drug candidates that Gale will develop. Concurrently, the Company entered into a Service Agreement (Gale Services Agreement) to provide research and development services and administrative support for Gale. In exchange for $7.5 million of funding, the Company acquired a majority stake in Gale. Total charges of $2.7 million and $10.7 million under the Gale Services Agreement for the three and nine months ended September 30, 2024, respectively, were eliminated in consolidation. In July 2024 and September 2024, the Company entered into a preferred stock purchase agreement to purchase additional shares in Gale for $3.0 million each, for a total of $6.0 million.

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Revenues earned

The revenues recorded for the three and nine months ended September 30, 2024 and 2023 were earned principally from the following licensees (in millions):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023

Alexion	$	8.6	$	31.8	$	24.9	$	53.4


Gilead	—		6.0		—		6.0
Janssen	—		13.7		—		41.1
Mabgeek	—		—		1.5		—
MorphoSys/Incyte	2.1		2.7		6.5		6.6

Omeros	—		5.0		—		5.0
Vega	—		—		0.5		—
Vir	—		—		0.1		1.5

Zenas	—		—		—		10.0
Third Party Licensee	—		—		7.0		—
Total	$	10.7	$	59.2	$	40.5	$	123.6

The table below summarizes the disaggregation of revenue recorded for the three and nine months ended September 30, 2024 and 2023 (in millions):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023

Research collaboration	$	—	$	(1.3)	$	—	$	21.1
License	—		—		8.5		—
Milestone	—		46.0		0.5		61.0
Royalties	—		14.5		0.1		41.5
Non-cash royalties	10.7		—		31.4		—
Total	$	10.7	$	59.2	$	40.5	$	123.6

Remaining Performance Obligations and Deferred Revenue

The Company does not have any remaining performance obligations as of September 30, 2024. As of September 30, 2023, the Company had deferred revenue of $9.2 million for conducting research activities pursuant to the Second J&J Agreement. All deferred revenue as of September 30, 2023 was classified as current liabilities as the Company’s obligations to perform services are due on demand when requested by J&J under the Second J&J Agreement.

Xencor Inc [XNCR] Filings
10-Q	[2024-11-06]
10-Q	[2024-08-05]
10-Q	[2024-05-09]
10-K	[2024-02-29]
10-Q	[2023-11-08]
10-Q	[2023-08-03]
10-Q	[2023-05-08]
10-K	[2023-02-27]
10-Q	[2022-11-07]
10-Q	[2022-08-03]
10-Q	[2022-05-05]
10-K	[2022-02-24]
10-Q	[2021-11-08]
10-Q	[2021-08-04]
10-Q	[2021-05-05]
10-K	[2021-02-24]
10-Q	[2020-11-06]
10-Q	[2020-08-05]
10-Q	[2020-05-08]
10-K	[2020-02-25]
10-Q	[2019-11-05]
10-Q	[2019-08-07]
10-Q	[2019-05-09]
10-K	[2019-02-26]
10-Q	[2018-11-05]
10-Q	[2018-08-07]
10-Q	[2018-05-07]
10-K	[2018-02-28]
10-Q	[2017-11-08]
10-Q	[2017-08-07]
10-Q	[2017-05-10]
10-K	[2017-03-01]
10-Q	[2016-11-02]
10-Q	[2016-08-03]
10-Q	[2016-05-02]
10-K	[2016-03-08]
10-Q	[2015-11-04]
10-Q	[2015-08-05]
10-Q	[2015-05-05]
10-K	[2015-02-20]
10-Q	[2014-11-10]
10-Q	[2014-08-01]
10-Q	[2014-05-15]
10-K	[2014-03-31]
S-1	[2013-10-11]