FORM 10-Q
2023 oSeptemberJune 30,, 2022☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-36182
Delaware (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) (Address of principal executive offices) (Zip Code) Title of each Trading Symbol(s) Name of each exchange on which Common Stock, par value $0.01 per share XNCR The Nasdaq Global Market 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 Class Outstanding at Common stock, par value $0.01 per share Sheets September 30, December 31, 2022 2021 (unaudited) Assets Current assets Cash and cash equivalents $ 52,654 $ 143,480 Marketable debt securities 515,398 153,767 Marketable equity securities 32,184 36,860 Accounts receivable 44,876 66,384 Prepaid expenses 22,886 23,877 Total current assets 667,998 424,368 Property and equipment, net 51,040 28,240 Patents, licenses, and other intangible assets, net 18,094 16,493 Marketable debt securities - long term 41,720 300,465 Marketable equity securities - long term 31,124 31,262 Notes receivable - long term 5,000 5,000 Right of use (ROU) asset 19,680 31,730 Other assets 613 653 Total assets $ 835,269 $ 838,211 Liabilities and stockholders’ equity Current liabilities Accounts payable $ 14,618 $ 14,001 Accrued expenses 19,289 19,443 Lease liabilities 20,551 — Deferred revenue 35,186 37,294 Income tax payable 388 — Total current liabilities 90,032 70,738 Lease liabilities, net of current portion 22,539 33,969 Total liabilities 112,571 104,707 Commitments and contingencies Stockholders’ equity Preferred stock, $0.01 par value: 10,000,000 authorized shares; -0- issued and outstanding shares at September 30, 2022 and December 31, 2021 — — Common stock, $0.01 par value: 200,000,000 authorized shares at September 30, 2022 and December 31, 2021; 59,773,337 issued and outstanding at September 30, 2022 and 59,355,558 issued and outstanding at December 31, 2021 598 595 Additional paid-in capital 1,058,219 1,017,523 Accumulated other comprehensive loss (9,875) (1,510) Accumulated deficit (326,244) (283,104) Total stockholders’ equity 722,698 733,504 Total liabilities and stockholders’ equity $ 835,269 $ 838,211 Loss Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Revenue Collaborations, milestones, and royalties $ 27,299 $ 19,683 $ 142,969 $ 121,096 Operating expenses Research and development 53,273 50,610 148,111 141,519 General and administrative 12,374 10,373 34,738 27,462 Total operating expenses 65,647 60,983 182,849 168,981 Loss from operations (38,348) (41,300) (39,880) (47,885) Other income (expenses) Interest income, net 1,379 196 2,749 558 Other expense, net (1) (593) (244) (610) Gain (loss) on equity securities, net 5,299 1,506 (4,676) 57,507 Total other income (expense), net 6,677 1,109 (2,171) 57,455 Income (loss) before income tax expense (31,671) (40,191) (42,051) 9,570 Income tax expense 1,088 — 1,088 — Net income (loss) (32,759) (40,191) (43,139) 9,570 Other comprehensive loss Net unrealized loss on marketable debt securities (931) (59) (8,366) (149) Comprehensive income (loss) $ (33,690) $ (40,250) $ (51,505) $ 9,421 Basic net income (loss) per common share $ (0.55) $ (0.69) $ (0.72) $ 0.16 Diluted net income (loss) per common share $ (0.55) $ (0.69) $ (0.72) $ 0.16 Basic weighted average common shares outstanding 59,716,594 58,350,647 59,564,985 58,199,928 Diluted weighted average common shares outstanding 59,716,594 58,350,647 59,564,985 60,346,480 See accompanying notes. Accumulated Additional Other Total Common Stock Paid-in Comprehensive Accumulated Stockholders’ Stockholders’ Equity Shares Amount Capital Income (Loss) Deficit Equity 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 36,500 — 731 — — 731 Issuance of restricted stock units 137,134 1 (1) — — — Comprehensive income (loss) — — — (5,611) 23,594 17,983 Stock-based compensation — — 10,805 — — 10,805 Balance, March 31, 2022 (unaudited) 59,529,192 $ 596 $ 1,029,058 $ (7,121) $ (259,510) $ 763,023 Issuance of common stock upon exercise of stock awards 70,874 1 1,315 — — 1,316 Issuance of restricted stock units 15,774 — — — — — Issuance of common stock under the Employee Stock Purchase Plan 68,580 1 1,196 — — 1,197 Comprehensive loss — — — (1,823) (33,975) (35,798) Stock-based compensation — — 12,603 — — 12,603 Balance, June 30, 2022 59,684,420 598 1,044,172 (8,944) (293,485) 742,341 Issuance of common stock upon exercise of stock awards 71,530 — 1,287 — — 1,287 Issuance of restricted stock units 17,387 — — — — — Comprehensive loss — — — (931) (32,759) (33,690) Stock-based compensation — — 12,760 — — 12,760 Balance, September 30, 2022 (unaudited) 59,773,337 $ 598 $ 1,058,219 $ (9,875) $ (326,244) $ 722,698 Accumulated Additional Other Total Common Stock Paid-in Comprehensive Accumulated Stockholders’ Stockholders’ Equity Shares Amount Capital Income (Loss) Deficit Equity Balance, December 31, 2020 57,873,444 $ 580 $ 937,525 $ 74 $ (365,735) $ 572,444 Issuance of common stock upon exercise of stock awards 230,701 2 5,337 — — 5,339 Issuance of restricted stock units 117,808 1 (1) — — — Comprehensive income (loss) — — — 23 (2,487) (2,464) Stock-based compensation — — 8,293 — — 8,293 Balance, March 31, 2021 (unaudited) 58,221,953 $ 583 $ 951,154 $ 97 $ (368,222) $ 583,612 Issuance of common stock upon exercise of stock awards 52,790 1 902 — — 903 Issuance of restricted stock units 10,190 — — — — — Issuance of common stock under the Employee Stock Purchase Plan 30,552 — 937 — — 937 Comprehensive income (loss) — — — (112) 52,248 52,136 Stock-based compensation — — 9,350 — — 9,350 Balance, June 30, 2021 58,315,485 584 962,343 (15) (315,974) 646,938 Issuance of common stock upon exercise of stock awards 132,709 1 3,228 — — 3,229 Issuance of restricted stock units 6,617 — — — — — Comprehensive loss — — — (59) (40,191) (40,250) Stock-based compensation — — 8,943 — — 8,943 Balance, September 30, 2021 (unaudited) 58,454,811 $ 585 $ 974,514 $ (74) $ (356,165) $ 618,860 See accompanying notes. Flows Nine Months Ended September 30, 2022 2021 Cash flows from operating activities Net (loss) income $ (43,139) $ 9,570 Adjustments to reconcile net (loss) income to net cash used in operating activities: Depreciation and amortization 6,640 5,384 Amortization of premium on marketable securities 909 2,632 Stock-based compensation 36,168 26,586 Abandonment of capitalized intangible assets 1,331 727 Equity received in connection with sale of financial assets — (3,300) Change in fair value of equity securities 4,676 (39,206) Impairment on equity securities 138 563 Loss on disposal of assets 132 17 Changes in operating assets and liabilities: Accounts receivable and contract asset 21,508 3,398 Interest receivable from marketable debt securities (392) 182 Prepaid expenses and other assets 1,031 (10,599) Accounts payable 617 177 Accrued expenses (154) 4,505 Income taxes 388 — Lease liabilities and ROU assets 21,171 386 Deferred revenue (2,108) (79,665) Net cash provided by (used in) operating activities 48,916 (78,643) Cash flows from investing activities Purchase of marketable debt securities (317,058) (387,826) Purchase of equity securities — (842) Proceeds from sale of property and equipment — 4 Purchase of intangible assets (3,977) (2,348) Purchase of property and equipment (28,528) (6,979) Proceeds from maturities of marketable debt securities 205,290 343,882 Net cash used in investing activities (144,273) (54,109) Cash flows from financing activities Proceeds from issuance of common stock upon exercise of stock awards 3,334 9,471 Proceeds from issuance of common stock under the Employee Stock Purchase Plan 1,197 937 Net cash provided by financing activities 4,531 10,408 Net decrease in cash and cash equivalents (90,826) (122,344) Cash and cash equivalents, beginning of period 143,480 163,544 Cash and cash equivalents, end of period $ 52,654 $ 41,200 Supplemental disclosure of cash flow information Cash paid during the period for: Interest $ 13 $ 13 Income taxes $ 72 $ — Supplemental disclosures of non-cash investing activities Unrealized loss on marketable debt securities $ (8,366) $ (149) See accompanying notes. 2023. 2022. condition or cash flows. September 30, 2022 (unaudited) December 31, 2021 Total Total Fair Value Level 1 Level 2 Fair Value Level 1 Level 2 Money Market Funds $ 24,506 $ 24,506 $ — $ 123,892 $ 123,892 $ — Corporate Securities 186,597 — 186,597 144,418 — 144,418 Government Securities 370,521 — 370,521 309,814 — 309,814 $ 581,624 $ 24,506 $ 557,118 $ 578,124 $ 123,892 $ 454,232 Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 (in thousands, except share and per share data) (in thousands, except share and per share data) Numerator: Net income (loss) attributable to common stockholders $ (32,759) $ (40,191) $ (43,139) $ 9,570 Denominator: Weighted-average common shares outstanding used in computing basic net income (loss) 59,716,594 58,350,647 59,564,985 58,199,928 Effect of dilutive securities — — — 2,146,552 Weighted-average common shares outstanding used in computing diluted net income (loss) 59,716,594 58,350,647 59,564,985 60,346,480 Basic net income (loss) per common share $ (0.55) $ (0.69) $ (0.72) $ 0.16 Diluted net income (loss) per common share $ (0.55) $ (0.69) $ (0.72) $ 0.16 been anti-dilutive. Gross Gross Amortized Unrealized Unrealized September 30, 2022 Cost Gains Losses Fair Value (in thousands) Money Market Funds $ 24,506 $ — $ — $ 24,506 Corporate Securities 188,360 — (1,763) 186,597 Government Securities 378,623 — (8,102) 370,521 $ 591,489 $ — $ (9,865) $ 581,624 Reported as Cash and cash equivalents $ 24,506 Marketable securities 557,118 Total investments $ 581,624 Gross Gross Amortized Unrealized Unrealized December 31, 2021 Cost Gains Losses Fair Value (in thousands) Money Market Funds $ 123,892 $ — $ — $ 123,892 Corporate Securities 144,584 — (166) 144,418 Government Securities 311,148 1 (1,335) 309,814 $ 579,624 $ 1 $ (1,501) $ 578,124 Reported as Cash and cash equivalents $ 123,892 Marketable securities 454,232 Total investments $ 578,124 Amortized Estimated September 30, 2022 Cost Fair Value (in thousands) Mature in one year or less $ 523,629 $ 515,398 Mature within two years 43,354 41,720 $ 566,983 $ 557,118 The unrealized losses on available-for-sale investments and their related fair values as of Less than 12 months 12 months or greater Unrealized Unrealized September 30, 2022 Fair value losses Fair value losses (in thousands) Corporate Securities $ 143,625 $ (1,649) $ 2,880 $ (114) Government Securities 331,407 (6,582) 38,840 (1,520) $ 475,032 $ (8,231) $ 41,720 $ (1,634) Less than 12 months 12 months or greater Unrealized Unrealized December 31, 2021 Fair value losses Fair value losses (in thousands) Corporate Securities $ 50,337 $ (51) $ 45,872 $ (115) Government Securities 39,909 (54) 254,593 (1,281) $ 90,246 $ (105) $ 300,465 $ (1,396) Fair Value Fair Value September 30, 2022 December 31, 2021 Astria Common Stock $ 5,785 $ 3,449 INmune Common Stock 11,690 19,233 Viridian Common Stock 14,709 14,178 $ 32,184 $ 36,860 Carrying Value Carrying Value September 30, 2022 December 31, 2021 Astria Preferred Stock $ 174 $ 312 Zenas Preferred Stock 30,950 30,950 $ 31,124 $ 31,262 2023. the Astria common stock for the three and six months ended June 30, 2023. 2023. 2023. Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Net gain (loss) recognized on equity securities $ 5,299 $ 1,506 $ (4,676) $ 57,507 Less: net gain recognized on sale of equity securities — — — (18,301) Unrealized gain (loss) recognized on equity securities $ 5,299 $ 1,506 $ (4,676) $ 39,206 �� Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 General and administrative $ 4,736 $ 3,370 $ 12,760 $ 9,300 Research and development 8,024 5,573 23,408 17,286 $ 12,760 $ 8,943 $ 36,168 $ 26,586 Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Stock options $ 7,833 $ 6,959 $ 22,178 $ 20,844 ESPP 282 265 873 766 RSUs 4,645 1,719 13,117 4,976 $ 12,760 $ 8,943 $ 36,168 $ 26,586 The following table summarizes option activity under our stock plans and related information: Weighted Weighted Average Average Number of Exercise Remaining Aggregate Shares Subject Price Contractual Intrinsic to Outstanding (Per Term Value Options Share) (in years) (in thousands) Balance at December 31, 2021 8,676,329 $ 29.11 6.65 $ 100,057 Options granted 2,007,833 $ 29.58 Options forfeited (440,882) $ 33.77 Options exercised (178,904) $ 18.64 Balance at September 30, 2022 10,064,376 $ 29.18 6.51 $ 27,085 Exercisable 6,401,896 $ 26.57 5.21 $ 26,936 2023. Options Options Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Expected term (years) 6.1 6.0 6.3 6.2 Expected volatility 51.9 % 55.6 % 53.0 % 55.6 % Risk-free interest rate 3.38 % 0.88 % 2.02 % 1.00 % Expected dividend yield — % — % — % — % ESPP ESPP Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Expected term (years) 0.5 - 2.0 0.5 - 2.0 0.5 - 2.0 0.5 - 2.0 Expected volatility 43.2 - 55.7 % 46.1 - 66.4 % 43.2 - 55.7 % 46.1 - 66.4 % Risk-free interest rate 0.13 - 2.82 % 0.04 - 1.65 % 0.13 - 2.82 % 0.04 - 1.65 % Expected dividend yield — % — % — % — % 2022: The following table summarizes the RSU activity for the Weighted Restricted Average Grant Stock Date Fair Value Units (Per unit) Unvested RSUs at December 31, 2021 826,148 $ 37.79 Granted 809,630 29.61 Vested (170,295) 37.42 Forfeited (108,076) 33.65 Unvested RSUs at September 30, 2022 1,357,407 $ 33.28 2023: liabilities. liabilities. The following table reconciles the undiscounted cash flows for the operating leases at Years ending December 31, For the remainder of 2022 $ 727 2023 7,251 2024 6,072 2025 6,176 2026 5,638 2027 5,791 Thereafter 49,407 Total undiscounted lease payments 81,062 Less: Tenant allowance (3,489) Less: Imputed interest (34,483) Present value of lease payments $ 43,090 Lease liabilities - short-term $ 20,551 Lease liabilities - long-term 22,539 Total lease liabilities $ 43,090 Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Operating lease cost $ 1,589 $ 1,553 $ 4,725 $ 2,780 Variable lease cost 156 16 287 44 Total lease costs $ 1,745 $ 1,569 $ 5,012 $ 2,824 Cash paid for amounts included in the measurement of lease liabilities $ 564 $ 1,034 $ 1,913 $ 2,081 9. Collaboration and Licensing Agreements 2022. Astria. For the three and In the second quarter of 2023, the Company recognized $22.2 million of revenue related to research activities performed under the Second Janssen Agreement. The Company uses the input method under ASC 606 for recognizing revenue related to completing its performance obligations for research services. 2023. 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 two novel antibodies that Vir continue to decline. stock for each license. The equity in Zenas is recorded at the fair value as of the date of the Zenas Agreement and is reviewed each reporting period for impairment or other evidence of change in value. Zenas in November 2022. The preferred shares received in exchange for the warrant were recorded at their fair value at the date of the exchange and is reviewed each reporting period for impairment or other evidence of change in value. Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Alexion $ 7.3 $ 5.8 $ 20.2 $ 16.4 Astellas — — 5.0 — Genentech — — — 2.5 Janssen 0.1 6.3 2.1 37.0 MorphoSys 2.1 1.3 5.6 16.4 Novartis — — — 41.1 Vir 17.8 6.3 110.1 7.7 Total $ 27.3 $ 19.7 $ 143.0 $ 121.1 Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Research collaboration $ 0.1 $ 6.3 $ 2.1 $ 79.7 Milestone — — 5.0 14.0 Royalties 27.2 13.4 135.9 27.4 Total $ 27.3 $ 19.7 $ 143.0 $ 121.1 antibody structure. The Fc domain is constant and interchangeable among antibodies, and our engineered us, which partially offset our internal development costs. Clinical-Stage XmAb Candidates microsatellite stable or proficient mismatch repair colorectal cancer. XmAb819 (ENPP3 x CD3): XmAb819 is a bispecific antibody that targets ENPP3 and Progress Across Partnerships 2023. months ended June 30, 2023. 2023. XmAb drug candidates. Results of Operations 2022 Three Months Ended September 30, 2022 2021 Change Revenues: Research collaboration $ 0.1 $ 6.3 $ (6.2) Royalties 27.2 13.4 13.8 Total revenues 27.3 19.7 7.6 Operating expenses: Research and development 53.3 50.6 2.7 General and administrative 12.4 10.4 2.0 Total operating expenses 65.7 61.0 4.7 Other income, net 6.7 1.1 5.6 Loss before income tax expense (31.7) (40.2) 8.5 Income tax expense 1.1 — 1.1 Net loss $ (32.8) $ (40.2) $ 7.4 Research and Development Expenses Three Months Ended September 30, 2022 2021 Change Product programs: Bispecific programs: CD3 programs: Vibecotamab(1)(2) $ 0.9 $ 1.5 $ (0.6) Plamotamab(3) 6.4 9.3 (2.9) Tidutamab(4) 2.9 3.3 (0.4) XmAb819 (ENPP3 x CD3) 2.5 3.9 (1.4) Total CD3 programs 12.7 18.0 (5.3) XmAb808 (B7-H3 x CD28) 3.9 3.3 0.6 Tumor micro environment (TME) activator programs: Vudalimab 5.5 6.7 (1.2) XmAb104 5.2 2.6 2.6 XmAb841(5) 1.9 3.5 (1.6) Total TME activators programs 12.6 12.8 (0.2) Cytokine programs: XmAb306/RG6323 programs(6) 4.1 5.7 (1.6) XmAb564 4.5 3.7 0.8 XmAb662 (IL-12-Fc) 5.4 2.1 3.3 IL-18-Fc 2.3 — 2.3 Total cytokine programs 16.3 11.5 4.8 Subtotal bispecific programs 45.5 45.6 (0.1) Other, research and early stage programs 7.8 5.0 2.8 Total research and development expenses $ 53.3 $ 50.6 $ 2.7 Three Months Ended September 30, 2022 2021 Change External research and development expenses $ 25.5 $ 28.2 $ (2.7) Internal research and development expenses 19.8 16.8 3.0 Stock based compensation 8.0 5.6 2.4 Total research and development expenses $ 53.3 $ 50.6 $ 2.7 General and Administrative Expenses Three Months Ended September 30, 2022 2021 Change General and administrative $ 12.4 $ 10.4 $ 2.0 2022 Nine Months Ended September 30, 2022 2021 Change Revenues: Research collaboration $ 2.1 $ 79.7 $ (77.6) Milestone 5.0 14.0 (9.0) Royalties 135.9 27.4 108.5 Total revenues 143.0 121.1 21.9 Operating expenses: Research and development 148.1 141.5 6.6 General and administrative 34.7 27.5 7.2 Total operating expenses 182.8 169.0 13.8 Other income (expense), net (2.2) 57.5 (59.7) Income (loss) before income tax expense (42.0) 9.6 (51.6) Income tax expense 1.1 — 1.1 Net income (loss) $ (43.1) $ 9.6 $ (52.7) Research and Development Expenses Nine Months Ended September 30, 2022 2021 Change Product programs: Bispecific programs: CD3 programs: Vibecotamab(1)(2) 3.8 6.5 (2.7) Plamotamab(3) 13.6 26.2 (12.6) Tidutamab(4) 9.2 11.5 (2.3) XmAb819 (ENPP3 x CD3) 8.1 11.2 (3.1) Total CD3 programs 34.7 55.4 (20.7) XmAb808 (B7-H3 x CD28) 12.9 4.0 8.9 Tumor micro environment (TME) activator programs: Vudalimab 16.5 18.9 (2.4) XmAb104 17.0 11.4 5.6 XmAb841(5) 6.5 8.9 (2.4) Total TME activators programs 40.0 39.2 0.8 Cytokine programs: XmAb306/RG6323 programs(6) 11.9 12.8 (0.9) XmAb564 11.3 10.5 0.8 XmAb662 (IL-12-Fc) 12.6 2.8 9.8 IL-18-Fc 3.0 — 3.0 Total cytokine programs 38.8 26.1 12.7 Subtotal bispecific programs 126.4 124.7 1.7 Other, research and early stage programs 21.7 16.8 4.9 Total research and development expenses $ 148.1 $ 141.5 $ 6.6 Nine Months Ended September 30, 2022 2021 Change External research and development expenses $ 66.5 $ 75.5 $ (9.0) Internal research and development expenses 58.2 48.7 9.5 Stock based compensation 23.4 17.3 6.1 Total research and development expenses $ 148.1 $ 141.5 $ 6.6 General and Administrative Expenses Nine Months Ended September 30, 2022 2021 Change General and administrative $ 34.7 $ 27.5 $ 7.2 fees. investments. Nine Months Ended September 30, 2022 2021 Change Net cash provided by (used in): Operating activities $ 48,916 $ (78,643) $ 127,559 Investing activities (144,273) (54,109) (90,164) Financing activities 4,531 10,408 (5,877) Net decrease in cash $ (90,826) $ (122,344) $ 31,518 2023. Liquidity and Capital Resources As of 2023. For a discussion of our material changes in critical accounting policies, see “Recent Accounting Pronouncements” in Note 1, Summary of Significant Accounting Policies, of the Notes to Financial Statements included in this Quarterly Report on Form 10-Q. 2023. Exhibit Description of Document 3.1 3.2 4.1 4.2 31.1 31.2 32.1 101.INS Inline 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. 101.SCH Inline XBRL Schema Document 101.CAL Inline XBRL Calculation Linkbase Document 101.DEF Inline XBRL Definition Linkbase Document 101.LAB Inline XBRL Labels Linkbase Document 101.PRE Inline XBRL Presentation Linkbase Document XENCOR, INC. BY: /s/ BASSIL I. DAHIYAT Bassil I. Dahiyat, Ph.D. President and Chief Executive Officer (Principal Executive Officer) BY: /s/ JOHN J. KUCH John J. Kuch Chief Financial Officer (Principal Financial Officer) Dated: 20-162250220-1622502111 West Lemon Avenue, Monrovia, 465 North Halstead Street, Suite 200, Pasadena, CA9110791016(626) class:registered:⌧x No ◻o⌧x No ◻o⌧x Accelerated filer ◻o Non-accelerated filer ◻o Smaller reporting company ☐o Emerging growth company ☐o13 (a)13(a) of the Exchange Act. ◻oSecurities Exchange Act of 1934)Act). Yes ☐o No ☒xNovember 3, 202259,924,016Contents•●the lingering effects of the ongoing COVID-19 pandemic in the United States and abroad 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, cost, and timing 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 accurately estimate expenses, future revenue, capital requirements and needs for additional financing;●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 ability to attract collaborators with development, regulatory, and commercial 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; and3•●our failure to maintain effective internal controls.our failure to successfully execute our growth strategy, including any delays in our planned future growth; and20212022 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.ITEMSheetsJune 30,
2023December 31,
2022(unaudited) Assets Current assets Cash and cash equivalents $ 34,710 $ 53,942 Marketable debt securities 476,667 526,689 Marketable equity securities 39,995 42,431 Accounts receivable 20,019 28,997 Prepaid expenses and other current assets 22,171 23,283 Total current assets 593,562 675,342 Property and equipment, net 67,997 59,183 Patents, licenses, and other intangible assets, net 18,708 18,500 Marketable debt securities - long term — 3,826 Marketable equity securities - long term 64,210 54,383 Right of use (ROU) asset 33,046 34,419 Other assets 598 613 Total assets $ 778,121 $ 846,266 Liabilities and stockholders’ equity Current liabilities Accounts payable $ 14,097 $ 10,088 Accrued expenses 18,440 18,728 Lease liabilities 4,228 4,708 Deferred revenue 7,865 30,320 Total current liabilities 44,630 63,844 Lease liabilities, net of current portion 54,615 54,926 Total liabilities 99,245 118,770 Commitments and contingencies Stockholders’ equity Preferred stock, $0.01 par value: 10,000,000 authorized shares; -0- issued and outstanding shares at June 30, 2023 and December 31, 2022 — — Common stock, $0.01 par value: 200,000,000 authorized shares at June 30, 2023 and December 31, 2022; 60,600,060 issued and outstanding at June 30, 2023 and 59,997,713 issued and outstanding at December 31, 2022 607 601 Additional paid-in capital 1,101,131 1,072,132 Accumulated other comprehensive loss (1,860) (6,952) Accumulated deficit (421,002) (338,285) Total stockholders’ equity 678,876 727,496 Total liabilities and stockholders’ equity $ 778,121 $ 846,266 Income (Loss)Three Months Ended
June 30,Six Months Ended
June 30,2023 2022 2023 2022 Revenue Collaborations, milestones, and royalties $ 45,523 $ 30,175 $ 64,485 $ 115,670 Operating expenses Research and development 60,060 47,084 124,439 94,839 General and administrative 11,460 11,091 25,408 22,364 Total operating expenses 71,520 58,175 149,847 117,203 Loss from operations (25,997) (28,000) (85,362) (1,533) Other income (expenses) Interest income, net 3,764 717 6,656 1,371 Other expense, net (9) (147) (1,401) (244) Gain (loss) on equity securities, net 288 (6,545) (2,610) (9,974) Total other income (expense), net 4,043 (5,975) 2,645 (8,847) Net loss (21,954) (33,975) (82,717) (10,380) Other comprehensive income (loss) Net unrealized gain (loss) on marketable debt securities 1,765 (1,823) 5,093 (7,435) Comprehensive loss $ (20,189) $ (35,798) $ (77,624) $ (17,815) Basic and diluted net loss per common share $ (0.37) $ (0.57) $ (1.38) $ (0.17) Basic and diluted weighted average common shares outstanding 59,807,558 59,567,139 59,922,784 59,487,924 Common Stock Additional
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DeficitTotal
Stockholders’
EquityStockholders’ 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 (unaudited) 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 (unaudited) 60,600,060 $ 607 $ 1,101,131 $ (1,860) $ (421,002) $ 678,876 Common Stock Additional
Paid-in
CapitalAccumulated
Other
Comprehensive
Income (Loss)Accumulated
DeficitTotal
Stockholders’
EquityStockholders’ Equity Shares Amount 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 36,500 — 731 — — 731 Issuance of restricted stock units 137,134 1 (1) — — — Comprehensive income (loss) — — — (5,611) 23,594 17,983 Stock-based compensation — — 10,805 — — 10,805 Balance, March 31, 2022 (unaudited) 59,529,192 $ 596 $ 1,029,058 $ (7,121) $ (259,510) $ 763,023 Issuance of common stock upon exercise of stock awards 70,874 1 1,315 — — 1,316 Issuance of restricted stock units 15,774 — — — — — Issuance of common stock under the Employee Stock Purchase Plan 68,580 1 1,196 — — 1,197 Comprehensive loss — — — (1,823) (33,975) (35,798) Stock-based compensation — — 12,603 — — 12,603 Balance, June 30, 2022 (unaudited) 59,684,420 $ 598 $ 1,044,172 $ (8,944) $ (293,485) $ 742,341 FlowsSix Months Ended
June 30,2023 2022 Cash flows from operating activities Net loss $ (82,717) $ (10,380) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization 5,130 4,402 (Accretion of discount) amortization of premium on marketable debt securities (4,345) 968 Stock-based compensation 26,162 23,408 Abandonment of capitalized intangible assets 594 1,047 Equity received in connection with license agreements (10,000) — Change in fair value of equity securities 2,610 9,974 Impairment on equity securities — 138 Loss on disposal of assets 1,379 125 Changes in operating assets and liabilities: Accounts receivable and contract asset 8,978 12,100 Interest receivable from marketable debt securities 420 (448) Prepaid expenses and other assets 1,127 4,183 Accounts payable 4,009 1,746 Accrued expenses (288) (3,095) Lease liabilities and ROU assets 582 7,911 Deferred revenue (22,455) (1,995) Net cash (used in) provided by operating activities (68,814) 50,084 Cash flows from investing activities Purchase of marketable securities (276,715) (206,148) Purchase of intangible assets (1,490) (3,197) Purchase of property and equipment (14,636) (14,443) Proceeds from maturities and sale of marketable securities 339,580 76,390 Net cash provided by (used in) investing activities 46,739 (147,398) Cash flows from financing activities Proceeds from issuance of common stock upon exercise of stock awards 1,601 2,047 Proceeds from issuance of common stock under the Employee Stock Purchase Plan 1,242 1,197 Net cash provided by financing activities 2,843 3,244 Net decrease in cash and cash equivalents (19,232) (94,070) 53,942 143,480 $ 34,710 $ 49,410 Supplemental disclosure of cash flow information Cash paid during the period for: Interest $ 14 $ 9 Supplemental disclosures of non-cash investing activities Unrealized gain (loss) on marketable securities $ 5,093 $ (7,435) September20212022 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on February 24, 2022.ninesix months ended SeptemberJune 30, 2022. During the three2023 and nine months ended September 30, 2021, the Company recorded an impairment charge of $0.4 million related to an acquired license.$1.3$0.6 million of in-process intangible assets for the three and six months ended June 30, 2023, respectively. We abandoned $0.7 million and $1.0 million of in-process intangible assets during the three and ninesix months ended SeptemberJune 30, 2022, respectively. There was no material abandonment of in-process intangible assets during the three months ended September 30, 2021. We abandoned $0.3 million of in-process intangible assets during the nine months ended September 30, 2021.9ninesix months ended SeptemberJune 30, 20222023 and 2021.2022. 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 ninesix months ended SeptemberJune 30, 2023, the Company recorded an unrealized gain of $1.8 million and $5.1 million, respectively, in its portfolio of marketable debt securities. During the three and six months ended June 30, 2022, the Company recorded an unrealized loss of $0.9$1.8 million and $8.4$7.4 million, respectively, in its portfolio of marketable debt securities.respectively. The unrealized losses are due to the changing interest rate environment and are not due to changes in the credit quality of the underlying securities. The unrealized losses aregain (loss) is recorded in other comprehensive income (loss) for the three and ninesix months ended SeptemberJune 30, 2023 and 2022.SeptemberJune 30, 2022. During the nine months ended September 30, 2022, the Company recorded an impairment charge of $0.1 million2023 in connection with equity securities without a readily determinable fair value. During the three and ninesix months ended SeptemberJune 30, 2021,2022, the Company recorded an impairment charge of $0.6$0.1 million.Pronouncements Not Yet EffectiveIn Junethe Financial Accounting Standards Board (FASB) issued ASU No. 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which is effective for fiscal years beginningAnnual Report on and after December 15, 2023, and interim periods within those fiscal years. The standard clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and is not considered in measuring fair value.Form 10-K. The Company has reviewed all recently issued accounting pronouncements and does not anticipate that the standardbelieve they will have a significantmaterial impact on itsour results of operations, financial statements.20212022 Annual Report on Form 10-K.10June 30, 2023
(unaudited)December 31, 2022 Total
Fair ValueLevel 1 Level 2 Total
Fair ValueLevel 1 Level 2 Money Market Funds $ 21,422 $ 21,422 $ — $ 40,967 $ 40,967 $ — Corporate Securities 139,611 — 139,611 200,626 — 200,626 Government Securities 337,056 — 337,056 329,889 — 329,889 $ 498,089 $ 21,422 $ 476,667 $ 571,482 $ 40,967 $ 530,515 ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, there were no transfers between Level 1 and Level 2.11income (loss)loss per common share is computed as follows:Three Months Ended
June 30,Six Months Ended
June 30,2023 2022 2023 2022 (in thousands, except share and per share data) (in thousands, except share and per share data) Numerator: Net loss attributable to common stockholders $ (21,954) $ (33,975) $ (82,717) $ (10,380) Denominator: Weighted-average common shares outstanding used in computing basic and diluted net loss 59,807,558 59,567,139 59,922,784 59,487,924 Basic and diluted net loss per common share $ (0.37) $ (0.57) $ (1.38) $ (0.17) ninesix months ended SeptemberJune 30, 2023 and 2022, and three months ended September 30, 2021, weall outstanding potentially dilutive securities have been excluded all shares of stock issuable pursuant to outstanding options and RSUs from the calculation becauseof diluted net loss per common share as the inclusioneffect of including such sharessecurities would have had an anti-dilutive effect. For the nine months ended September 30, 2021, we excluded 1,139,403 shares of stock issuable pursuant to outstanding options and RSUs from the calculation, because the inclusion of such shares would have had an anti-dilutive effect.4.4. Comprehensive Income (Loss)three-three and nine-monthsix-month periods ended SeptemberJune 30, 20222023 and 2021,2022, the only component of other comprehensive lossincome (loss) is net unrealized lossgain (loss) on marketable debt securities. There were no material reclassifications out of accumulated other comprehensive lossincome (loss) during each of the three-three and nine-monthsix-month periods ended SeptemberJune 30, 20222023 and 2021.12SeptemberJune 30, 20222023 and December 31, 20212022 are summarized below:June 30, 2023 Amortized
CostGross
Unrealized
GainsGross
Unrealized
LossesFair Value (in thousands) Money Market Funds $ 21,422 $ — $ — $ 21,422 Corporate Securities 139,812 3 (204) 139,611 Government Securities 338,704 19 (1,667) 337,056 $ 499,938 $ 22 $ (1,871) $ 498,089 Reported as Cash and cash equivalents $ 21,422 Marketable securities 476,667 Total investments $ 498,089 December 31, 2022 Amortized
CostGross
Unrealized
GainsGross
Unrealized
LossesFair 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 Table of ContentsSeptemberJune 30, 20222023 are as follows:13June 30, 2023 Amortized
CostEstimated Cost
Fair Value(in thousands) Mature in one year or less $ 478,516 $ 476,667 SeptemberJune 30, 20222023 and December 31, 20212022 are as follows:Less than 12 months 12 months or greater June 30, 2023 Fair value Unrealized
lossesFair value Unrealized
losses(in thousands) Corporate Securities $ 67,843 $ (204) $ — $ — Government Securities 275,316 (1,667) — — $ 343,159 $ (1,871) $ — $ — Less than 12 months 12 months or greater December 31, 2022 Fair value Unrealized
lossesFair 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) ninesix months ended SeptemberJune 30, 2022,2023, a gain of $5.3$0.3 million and a loss of $4.7$2.6 million, respectively, were recorded under other income (expense) related to these securities. For the three and six months ended June 30, 2022, losses of $6.5 million and $10.0 million, respectively, were recorded under other income (expense). 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 SeptemberJune 30, 20222023 and December 31, 20212022 are as follows:Fair Value Fair Value June 30, 2023 December 31, 2022 Astria Common Stock $ 5,813 $ 9,529 INmune Common Stock 17,121 11,954 Viridian Common Stock 17,061 20,948 $ 39,995 $ 42,431 SeptemberJune 30, 20222023 and December 31, 20212022 are as follows:14Carrying Value Carrying Value June 30, 2023 December 31, 2022 Astria Preferred Stock $ — $ 174 Zenas Preferred Stock 64,209 54,209 $ 64,209 $ 54,383 In 2018, the Company received equity shares in Quellis Biosciences, Inc. (Quellis) in connection with a licensing transaction. In 2021, Quellis merged into Astria Therapeutics, Inc. (Astria) (formerly Catabasis Pharmaceuticals, Inc.), and theThe Company received common and preferred stock in Astria in exchange for its Quellis equity.connection with a licensing transaction. The shares of Astria common stock have a readily determinable fair value. Thevalue, and the adjustment in the fair value of the Astria common stock has been recorded as a gain inan unrealized loss on equity securities for the three and ninesix months ended SeptemberJune 30, 2022.recordsoriginally recorded its investment in the shares of Astria preferred stock as an equity interest without a readily determinable fair value. In January 2023, the Company exchanged its preferred shares for common stock in Astria. The Company elected to recordcommon stock has a readily determinable fair value, and difference in the sharesfair value of preferredthe common stock at their initial cost and to review the carrying value of the preferred stock has been recorded as a gain in equity securities for impairment or other changes in carrying value at each reporting period. During the ninesix months ended SeptemberJune 30, 2022, the2023. The Company recorded an impairment charge of $0.1 milliona loss in equity securities related to its investment in Astria’s preferred stock.lossgain in equity securities for the three and ninesix months ended SeptemberJune 30, 2022.gainloss in equity securities for the three and ninesix months ended SeptemberJune 30, 2022.a warrant to acquire additional equity in Zenas in a subsequent financing. The Company also holds a convertible promissory notepreclinical assets from Zenas.the Company. The Company elected the measurement alternative to carry the Zenas equity and the warrant at cost minus impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. During the three and nine months ended SeptemberJune 30, 2022,2023, the Company received additional preferred shares in Zenas as payment for a milestone. The preferred shares have a fair value of $10.0 million as of the date of issuance. During the three and six months ended June 30, 2023, there has not been any impairment or observable price changes related to this investment. gain recognized on equity securities during each of the three- and nine-monthsix-month periods ended SeptemberJune 30, 20222023 and 2021,2022, consist of the following:Three Months Ended
June 30,Six Months Ended
June 30,2023 2022 2023 2022 Net and unrealized gain (loss) recognized on equity securities $ 288 $ (6,545) $ (2,610) $ (9,974) Any shares of common stock covered by awards granted under the 2010 Plan that terminate after December 2, 2013 by expiration, forfeiture, cancellation, or other means without the issuance of such shares will be added to the 2013 Plan reserve.15As of September 30, 2022, the total number of shares of common stock available for issuance under the 2013 Plan is 14,974,396. 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 of each year by 4% of the total number of issued and outstanding shares of common stock as of December 31 of the immediately preceding year. Pursuant to approval by the Board, the total number of shares of common stock available for issuance under the 2013 Plan was increased by 2,374,2222,399,908 shares on January 1, 2022. 2023.SeptemberJune 30, 2022,2023, the total number of shares of common stock available for issuance under the 2023 Plan is 19,790,382, 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 June 30, 2023, a total of 14,407,90616,476,718 options have been granted under the 2013 Plan and 2023 Plan.SeptemberJune 30, 2022,2023, the total number of shares of common stock available for issuance under the ESPP is 576,409.1,084,060. Unless otherwise determined by the Board, beginning on January 1, 2014, and continuing until the expiration of the ESPP, the total number of 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. Pursuant to approval by the Board, the total number of shares of common stock available for issuance under the ESPP was increased by 593,555599,977 shares on January 1, 2022.2023. As of SeptemberJune 30, 2022,2023, we have issued a total of 598,432690,758 shares of common stock under the ESPP.ninesix months ended SeptemberJune 30, 2022,2023, the Company awarded 809,630944,726 RSUs to certain employees. 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 SeptemberJune 30, 2022,2023, a total of 1,934,1172,944,543 RSUs have been granted under the 2013 Plan and 2023 Plan.SeptemberJune 30, 20222023 and 20212022 are as follows (in thousands):16Three Months Ended
June 30,Six Months Ended
June 30,2023 2022 2023 2022 General and administrative $ 4,471 $ 4,350 $ 8,747 $ 8,024 Research and development 9,092 8,253 17,415 15,384 $ 13,563 $ 12,603 $ 26,162 $ 23,408 Three Months Ended
June 30,Six Months Ended
June 30,2023 2022 2023 2022 Stock options $ 6,842 $ 7,512 $ 13,825 $ 14,345 ESPP 341 290 663 591 RSUs 6,380 4,801 11,674 8,472 $ 13,563 $ 12,603 $ 26,162 $ 23,408 Number of
Shares Subject
to Outstanding
OptionsWeighted
Average
Exercise
Price
(Per
Share)Weighted
Average
Remaining
Contractual
Term
(in years)Aggregate
Intrinsic
Value
(in thousands)Balance at December 31, 2022 10,082,642 $ 29.12 6.30 $ 27,141 Options granted 1,941,412 $ 30.65 Options forfeited (269,747) $ 33.95 Options exercised (179,391) $ 8.92 Balance at June 30, 2023 11,574,916 $ 29.58 6.41 $ 20,561 Exercisable 7,492,446 $ 28.17 5.04 $ 20,504 $25.98$24.97 per share as of SeptemberJune 30, 2022.nine-monthsix-month periods ended SeptemberJune 30, 2023 and June 30, 2022 were $16.31 and 2021 were $15.50 and $21.96$15.64 per share, respectively. There were 1,662,5741,883,951 options granted during the nine-monthsix-month period ended SeptemberJune 30, 2021.2022. We estimated the fair value of each stock option using the Black-Scholes option-pricing model based on the date of grant of such stock option with the following weighted average assumptions for the three and ninesix months ended SeptemberJune 30, 20222023 and 2021:Options Options Three Months Ended
June 30,Six Months Ended
June 30,2023 2022 2023 2022 Expected term (years) 6.5 6.3 6.1 6.4 Expected volatility 51.2 % 53.1 % 50.5 % 53.0 % Risk-free interest rate 3.69 % 3.13 % 4.17 % 1.93 % Expected dividend yield — % — % — % — % ESPP ESPP Three Months Ended
June 30,Six Months Ended
June 30,2023 2022 2023 2022 Expected term (years) 0.5 - 2.0 0.5 - 2.0 0.5 - 2.0 0.5 -2.0 Expected volatility 38.2% - 55.7% 43.2% - 55.7% 38.2% - 55.7% 43.2% - 55.7% Risk-free interest rate 0.13% - 5.39% 0.13% - 2.82% 0.13% - 5.39% 0.13% - 2.82% Expected dividend yield — % — % — % — % SeptemberJune 30, 2022,2023, the unamortized compensation expense related to unvested stock options was $59.1$66.3 million. The remaining unamortized compensation expense will be recognized over the next 2.52.7 years. As of SeptemberJune 30, 2022,2023, the unamortized compensation expense under our ESPP was $1.4$0.6 million. The remaining unamortized expense will be recognized over the next 1.20.4 years.17nine-monthsix-month period ended SeptemberJune 30, 2022:Restricted
Stock
UnitsWeighted
Average Grant
Date Fair Value
(Per unit)Unvested RSUs at December 31, 2022 1,232,551 $ 32.41 Granted 944,726 30.82 Vested (367,647) 32.73 Forfeited (75,672) 31.93 Unvested RSUs at June 30, 2023 1,733,958 $ 31.50 SeptemberJune 30, 2022,2023, the unamortized compensation expense related to unvested RSUs was $32.0$43.3 million. The remaining unamortized expense will be recognized over the next 2.02.2 years.In July 2017, under a separate agreement, the Company entered into a lease for additional space in the same building with a lease that continues through September 2022. The lease contained an option to renew for additional lease term and the option period has lapsed. In October 2022, the Company entered into an amendment to extend the lease under existing terms through January 31, 2023. For the three and ninesix months ended SeptemberJune 30, 2022,2023, there were no ROU assets obtained in exchange for new operating lease liabilities are $0.3 million.commencescommenced on August 1, 2022 and provides 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, which the Company would receive 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. For the three and ninesix months ended SeptemberJune 30, 2022,2023, there were no ROU assets obtained in exchange for new operating lease liabilities are $11.4 million.August 2022. In May 2022, the Company extended the term of the lease through December 2023. For the ninethree and six months ended SeptemberJune 30, 2022,2023, there were no ROU assets obtained in exchange for new operating lease liabilities are $1.5 million.The Company also leases additional office space in Monrovia, California under a lease that extends through January 2023, with an option to extend for an additional two years. The Company has assessed that it is unlikely to exercise the option to extend the lease term.liabilities.18SeptemberJune 30, 20222023 to the operating lease liabilities recorded on the balance sheet (in thousands):Years ending December 31, For the remainder of 2023 $ 3,021 2024 6,072 2025 7,392 2026 8,589 2027 8,829 2028 9,076 Thereafter 66,435 Total undiscounted lease payments 109,414 Less: Tenant allowance (5,459) Less: Imputed interest (45,112) Present value of lease payments $ 58,843 Lease liabilities - short-term $ 4,228 Lease liabilities - long-term 54,615 Total lease liabilities $ 58,843 ninesix months ended SeptemberJune 30, 20222023 and 20212022 (in thousands):Three Months Ended
June 30,Six Months Ended
June 30,2023 2022 2023 2022 Operating lease cost $ 2,020 $ 1,574 $ 4,200 $ 3,136 Variable lease cost 219 33 453 132 Total lease costs $ 2,239 $ 1,607 $ 4,653 $ 3,268 Cash paid for amounts included in the measurement of lease liabilities $ 721 $ 665 $ 1,445 $ 1,349 SeptemberJune 30, 2023, the weighted-average remaining lease term for operating leases is 11.7 years, and the weighted-average discount rate for operating leases is 8.9%. As of June 30, 2022, the weighted-average remaining lease term for operating leases is 11.912.0 years, and the weighted-average discount rate for operating leases is 9.1%6.0%. As of September 30, 2021, the weighted-average remaining lease term for operating leases is 12.3 years, and the weighted-average discount rate for operating leases is 5.7%.19ninesix months ended SeptemberJune 30, 20222023 and 2021.achievementssales levels of Ultomiris and is also 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.$7.3$11.2 million and $5.8$6.7 million of royalty revenue under this arrangement for the three months ended SeptemberJune 30, 20222023 and 2021,2022, respectively. The Company recognized $20.2$21.6 million and $16.4$12.9 million of royalty revenue under this arrangement for the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively. As of SeptemberJune 30, 2022,2023, there is a receivable of $12.5$10.7 million related to royalties due under the arrangement, and there is no deferred revenue related to this agreement.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, Amgen applied our bispecific Fc technology to create AMG 509, a STEAP1 x CD3 XmAb 2+1 bispecific antibody, which is currently being developed by Amgen in a Phase 1 study.No revenue was recognized under the Amgen Agreement during the three and nine months ended September 30, 2022 or 2021, and there is no deferred revenue related to the arrangement.Pursuant to the Astellas Agreement, the Company applied its bispecific Fc technology to research antibodies provided by Astellas to generate bispecific antibody candidates and returned the candidates to Astellas for further development and commercialization.20TheNo revenue was recognized under the arrangement for the three and six months ended June 30, 2023, or the three months ended June 30, 2022, and the Company recognized $5.0 million of revenue for the ninesix months ended SeptemberJune 30, 2022; no revenue was recognized related to the arrangement for the three months ended September 30, 2022, and 2021, or the nine months ended September 30, 2021.2022. As of SeptemberJune 30, 2022,2023, there is no deferred revenue related to the arrangement.May 2018, the Company entered into an agreementconnection with Quellis, pursuant to which the Company provided Quellis a non-exclusive license to its Xtend Fc technology to apply to an identified antibody. Quellis is responsible for all development and commercialization activities. The Company received an equity interest in Quellis and is eligible to receive development, regulatory and sales milestones, and royalties in the mid-single digit percentage range on net sales of approved products.In January 2021, Quellis merged into Astria (formerly Catabasis), andlicensing transaction, the Company received preferred and common stock andin Astria. In January 2023, the Company exchanged its preferred stock of Astriafor additional common stock 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 September 30, 2021. The Astria preferred stock is carried at its original cost and is reviewed for impairment or other changes at each reporting period.gainloss of $3.9$3.5 million and $2.3$3.9 million related to its equity interest in Astria for the three and ninesix months ended SeptemberJune 30, 2022,2023, respectively. The Company recognized an unrealized loss of $2.4 million and an unrealized gain of $6.7$1.5 million related to its equity interest in Astria for the three and ninesix months ended SeptemberJune 30, 2021,2022, respectively. There is no deferred revenue as of SeptemberJune 30, 20222023 related to this agreement.Pursuant to the Genentech Agreement, the Company and Genentech conducted joint research activities for a two-year period to identify and discover additional IL-15 candidates developed from the Company’s cytokine and bispecific technologies. The two-year research term expired in March 2021. The Company is eligible for clinical milestone payments for new Collaboration Products identified from the research efforts.ninesix months ended SeptemberJune 30, 2022,2023, or the three months ended September 30, 2021. For the nine months ended September 30, 2021, the Company recognized $2.5 million of revenue.2022. As of SeptemberJune 30, 2022,2023, there is a $3.2$1.0 million payablereceivable related to cost-sharing development activities during the second quarter of 20222023 for development studies being conducted under the Genentech Agreement. There is no deferred revenue as of SeptemberJune 30, 2022,2023, as obligations to perform research activities have expired.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. the agreement,a licensing transaction, the Company received shares of INmune common stock.stock in INmune.21During the three months ended September 30, 2021, the Company determined that it should no longer record its investment in INmune under the equity method and recorded its investment in INmune pursuant to ASC 321.ninesix months ended SeptemberJune 30, 2023, the Company recorded an unrealized gain of $4.9 million and $5.2 million. For the three and six months ended June 30, 2022, the Company recorded an unrealized gain of $0.8 million and an unrealized loss of $5.0$2.6 million and $7.5 million, respectively, related to its investment in INmune. For the three months ended September 30, 2021, the Company recorded $4.5 million of unrealized gain. For the nine months ended September 30, 2021, the Company recognized an unrealized gain of $32.5 million and a realized gain of $18.3 million.Pursuant to the Second Janssen Agreement, the Company received an upfront payment of $100.0 million and is eligible to receive up to $1,187.5 million in milestones 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.22$3.7$2.2 million as of SeptemberJune 30, 2022,2023, related to cost-sharing activities for development of plamotamab under the Second Janssen Agreement. The Company recognized $0.1$22.2 million and $6.3$0.2 million of revenue related to the twoSecond Janssen agreementsAgreement for the three months ended SeptemberJune 30, 20222023 and 2021,2022, respectively. The Company recognized $2.1$27.5 million and $37.0$2.0 million of revenue related to the two Janssen agreements for the ninesix months ended SeptemberJune 30, 2023 and 2022, and 2021, respectively, and thererespectively. There is $35.2$7.9 million in deferred revenue as of SeptemberJune 30, 20222023 related to the Second Janssen Agreement.$2.1$2.0 million and $1.3$1.2 million of royalty revenue during the three months ended SeptemberJune 30, 20222023 and 2021,2022, respectively. The Company recognized $5.6$3.9 million and $16.4$3.5 million of royalty revenue during the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively. As of SeptemberJune 30, 2022,2023, there is a receivable of $2.0 million related to estimated royalties due under the arrangement. As of SeptemberJune 30, 2022,2023, there is no deferred revenue related to this agreement.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 licensed Fc product candidate. The Company is eligible to receive development, clinical, and sales milestones and royalties on net sales of approved products for the licensed Fc candidate.ninesix months ended SeptemberJune 30, 2022,2023, or the three months ended September 30, 2021,2022, from the Novartis Agreement. The Company recognized $41.1 million of revenue during the nine months ended September 30, 2021. As of September 30, 2022, there is a receivable of $0.3 million related to cost-sharing of development activities for the third quarter of 2022 for the vibecotamab program, and thereThere is no deferred revenue as of SeptemberJune 30, 2022.thirdsecond quarter of 2019,2020, 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.23is investigating as potential treatments foradvanced into development to treat patients with COVID-19. VIR incorporated our Xtend technology in developing Sotrovimab which was authorized to treat mild-to-moderate COVID 19 in certain patient populations. 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. In May 2021,We began earning royalties from the FDA granted emergency use authorization (EUA) to Vir’s COVID-19 antibody, sotrovimab (VIR-7831), for the treatment of mild-to-moderate COVID-19 in high-risk adults and patients.In February 2021, the Company entered into the Vir Amendment No. 1 to the Vir Agreement and the Vir Amendment No. 1 to the Second Vir Agreement (collectively, the Vir Amendments), in each case, pursuant to which the Company provided a non-exclusive license to additional Fc technology for the targets previously identified in the Vir Agreement and the Second Vir Agreement, respectively. If Vir incorporates additional Fc technologies in the identified targets, the Company is eligible to receive additional royalties on net sales of approved productsSotrovimab in the second quarter of 2021. As the COVID 19 virus has mutated, our royalties from lowthe sale of Sotrovimab have diminished significantly and future revenues from this license are expected to mid-single digit range.$17.8$0.1 million and $110.1$22.1 million of royalty revenue for the three and nine months ended SeptemberJune 30, 2023 and 2022, respectively. The Company recognized $6.3$1.5 million and $7.7$92.3 million of royalty revenue for the three and ninesix months ended SeptemberJune 30, 2021,2023 and 2022, respectively. As of SeptemberJune 30, 2022,2023, there is a receivable of $17.8$0.1 million related to estimated royalty due under this agreement, and there is no deferred revenue related to this agreement.the Company entered into a Technology License Agreement (Viridian Agreement) with Viridian, pursuant to which the Company provided Viridian a non-exclusive license to its Xtend Fc technology and an exclusive license to apply its Xtend Fc technology to antibodies targeting IGF-1R. Viridian is responsible for all development and commercialization activities. The Company received an upfront payment and is eligible to receive development, regulatory and sales milestones, and royalties on net sales in the mid-single digit percentage range.In December 2021, the Company entered into a second Technology License Agreement (Second Viridian Agreement)two separate license agreements with Viridian for a non-exclusive license to certain antibody libraries developed by the Company. 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. Viridian is responsible for all further development of the selected antibodies. The Company received an upfront payment and is eligible to receive development, regulatory and sales milestones, in addition to royalties on net sales of approved products under the Second Viridian Agreement.In connection with the Viridian Agreement and the Second Viridian Agreement, the Company received shares of Viridian common stock.gainlosses of $6.4$1.2 million and $0.5$5.0 million for the three and nine months ended SeptemberJune 30, 2023 and 2022 related to the shares of Viridian common stock. The Company reported unrealized losslosses of $0.6$3.9 million and $5.9 million for the threesix months ended SeptemberJune 30, 2021. For the nine months ended September 30, 2021, there was no unrealized gain or loss related to the shares of Viridian common stock.2023 and 2022. The Company did not recognize revenue for the three and ninesix months ended SeptemberJune 30, 20222023 or 2021.2022. There is no deferred revenue as of SeptemberJune 30, 20222023 related to this agreement.grantedreceived an equity interest in Zenas in exchange for the exclusive, worldwide rights to develop and commercialize three preclinical-stage Fc-engineered drug candidates: XmAb6755, XPro9523, and XmAb10171. Undercandidates from the Zenas Agreement, Zenas will be responsible for all further development and commercialization activities for the drug candidates. The Company received a 15% equity interest in Zenas with a fair value of $16.1 million and is eligible to receive royalties on net sales of approved products in the mid-single digit to mid-teen percentage range.Company.24which we licensedZenas in exchange for the exclusive worldwide rights to develop and commercialize the Company’s obexelimab (XmAb5871) drug candidate. Under the Second Zenas Agreement, Zenas will be responsible for all further development and commercialization activities for obexelimab. Thelicense, the Company received a warrant to acquire additional equity in Zenas and is eligible to receive development, regulatory and sales milestones in connection with the development of obexelimab and royalties on net sales of approved productsproducts. 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 the mid-single digit to mid-teen percentage range.iswas recorded at its fair value as of the date of the Second Zenas Agreement and is reviewed each reporting period for impairment or other evidence of change in value.ninesix months ended SeptemberJune 30, 20222023 or 2021.2022. The Company recognized $10.0 million of revenue for the three and six months ended June 30, 2023. The Company did not recognize any revenue related to the Zenas Agreement for the three and ninesix months ended SeptemberJune 30, 2022, or 2021, and there is no deferred revenue related to this agreement.ninesix months ended SeptemberJune 30, 20222023 and 20212022 were earned principally from the following licensees (in millions):Three Months Ended
June 30,Six Months Ended
June 30,2023 2022 2023 2022 Alexion $ 11.2 $ 6.7 $ 21.6 $ 12.9 Astellas $ — $ — $ — $ 5.0 Janssen $ 22.2 $ 0.2 $ 27.5 $ 2.0 MorphoSys $ 2.0 $ 1.2 $ 3.9 $ 3.5 Vir $ 0.1 $ 22.1 $ 1.5 $ 92.3 Zenas $ 10.0 $ — $ 10.0 $ — Total $ 45.5 $ 30.2 $ 64.5 $ 115.7 ninesix months ended SeptemberJune 30, 20222023 and 20212022 (in millions):25Three Months Ended
June 30,Six Months Ended
June 30,2023 2022 2023 2022 Research collaboration $ 22.2 $ 0.2 $ 22.5 $ 2.0 Milestone 10.0 — 15.0 5.0 Royalties 13.3 30.0 27.0 108.7 Total $ 45.5 $ 30.2 $ 64.5 $ 115.7 SeptemberJune 30, 20222023 is conducting research activities pursuant to research plans under the Second Janssen Agreement. The Company’s obligation to perform research services under the Genentech and the Novartis Agreements ended upon expiration of the respective research terms for each agreement in the second quarter of 2021. As of SeptemberJune 30, 20222023 and 2021,2022, the Company has deferred revenue of $35.2$7.9 million and $13.0$35.3 million, respectively. All deferred revenue as of SeptemberJune 30, 20222023 is classified as current liabilities as the Company’s obligations to perform services are due on demand when requested by Janssen under the Second Janssen Agreement.The provision for income tax for the three and nine months ended September 30, 2022 $1.1 million. There was no provision for income tax for the three and ninesix months ended SeptemberJune 30, 2021. Beginning in 2022, the Tax Cuts and Jobs Act (TCJA) requires taxpayers to capitalize certain research and development costs and amortize them over five2023 or fifteen years pursuant to Internal Revenue Code Section 174. Previously, such costs could be deducted in the period they were incurred. This provision may increase our taxable income for the tax yearthree and six months ended December 31, 2022 and subsequent years, and result in additional cash payments for our federal income taxes.June 30, 2022. As of SeptemberJune 30, 2022,2023, the Company’s deferred income tax assets, consisting primarily of net operating loss and tax credit carryforwards, have been fully offset by a valuation allowance.11. Subsequent EventIn November 2022, Zenas closed on a Series B financing, 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’ Series B preferred stock. After the financing transaction, we will continue 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 would increase by $17.9 million.ITEM20212022 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, 2021.2022. See also “Special Note Regarding Forward-Looking Statements” included in this Quarterly Report on Form 10-Q.and our partners are advancing a broad portfolio of clinical-stage XmAb® drug candidates from our proprietary protein engineering andFc technology platforms. We also use our protein engineering capabilities to increase our understanding of protein structure26XmAb Fc domains can be readily substituted for natural Fc domains.functionality,function, which can provide innovative approaches to treating disease and potential clinical advantage over other treatment options. For example, we have developed an antibody scaffold to rapidly create novel bispecific antibodies that bind two different targets simultaneously, creating entirely new biological mechanisms. Other applications of our protein engineeringFc technologies enhance antibody performance by increasing immune inhibitory activity, improving cytotoxicity, extending circulating half-life and stabilizing novel protein structures, such as engineered cytokines. Three marketed XmAb medicines have been developed with our protein engineeringFc technologies are marketed by our partners and are generating milestone payments and royaltiesroyalty revenues for us.“XmAb"XmAb Bispecific Fc Domain and New Multi-Specific Antibody Formats”Formats" and “Other"Other XmAb Fc Domains”Domains" in the description of our business included in our Annual Report on Form 10-K for the year ended December 31, 20212022 for a discussion of our core Fc technology platforms.COVID-19We are closely monitoring the COVID-19 pandemic and continue to evaluate its impact on all aspects of our business including how it will affect our partners, collaborations, supply chains and research and development operations. While the pandemic did not significantly disrupt our business during the three and nine months ended September 30, 2022, the changing 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 implemented restrictions, rules and guidelines that affect the continued operation of businesses. Other countries and states where we conduct manufacturing of our drug products, testing activities and clinical sites where patients are enrolled in our clinical trials have enacted similar restrictions that could affect our ability to conduct our drug 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. For example, sotrovimab (VIR-7831), an antibody that targets the SARS-CoV-2 virus, received an EUA from the FDA for the treatment of mild-to-moderate COVID-19 in high-risk adults and pediatric patients. Due to the high frequency of the Omicron BA.2 subvariant, sotrovimab is not currently authorized in any U.S. region. Sotrovimab currently has EUA temporary authorization or marketing approval (under the brand name Xevudy®) in more than 40 countries. Sotrovimab incorporates our Xtend Fc technology for longer duration of action.●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 the amount of revenue we generate from such partnerships and collaborations for the quarter ended September 30, 2022. During this quarter, for example, we received approximately $27.2 million in revenue from our partnerships and collaborations.Our ability to earn revenue from these and other partnerships is dependent on the ability of our partners to generate sales from products, such as Ultomiris®, Monjuvi® and sotrovimab, the ability of our partners to advance our partnered programs through later stages of development and through regulatory approval, which would entitle us to potential milestone payments. A majority of our revenue received in the first nine months of 2022 is royalty revenue from the sales of sotrovimab under our partnership with Vir. In April272022, GSK, which is marketing sotrovimab with Vir, announced that a majority of the total 2022 projected sales of sotrovimab was recorded in the first quarter. We recorded royalty revenues of $70.3 million, $22.1 million, and $17.8 million in the first, second, and third quarter, respectively, related to sales of sotrovimab, and based on the guidance from GSK, we expect the amount of royalties that we expect to receive from the sale of sotrovimab to continue to decline in subsequent quarters. If the COVID-19 pandemic adversely affects the sales or clinical, development and regulatory progress of partnered programs, the amount of revenue we could earn would be adversely affected.●Clinical studies: We are currently enrolling patients into multiple clinical trials evaluating our drug candidates, and our partner Genentech is enrolling patients in multiple Phase 1 studies of XmAb306 (also known as RG6323), our co-development program with Genentech. Many partners are also enrolling patients in clinical trials with drug candidates that incorporate one or more XmAb technologies. Although the pandemic has not materially affected development of our clinical programs for the quarter ended September 30, 2022, some of our clinical programs have temporarily experienced slower patient enrollment, and the initiations of new studies for certain programs have been delayed. These delays have not broadly affected the status of our portfolio programs and have been limited to specific trials and specific sites. Many clinical sites have delayed starting new clinical trials and others have postponed enrollment to address the pandemic.●Research, development, and administrative activities: We have implemented environmental, health, and safety procedures for all employees and have also offered reimbursement of costs incurred and time off to employees to receive vaccinations that have been authorized. We believe we provide a safe and healthy environment for our onsite employees who have been able to continue research operations, following an initial period of reduced onsite activities while new policies and procedures were developed and implemented. As of September 30, 2022, these activities have continued without interruption from the COVID-19 pandemic.Our development activities include initiating a Phase 1 study of XmAb808, our first tumor selective CD28 bispecific candidate that targets B7-H3, and XmAb662, our IL12-Fc cytokine candidate. Several other bispecific antibody and cytokine programs are in earlier stages of development. Certain manufacturing and supply companies have indicated supply chain issues and shortages of research and manufacturing supply materials. The development timelines for additional early-stage programs and ongoing clinical programs could be affected if the supply shortages and delays continue for an extended period.●Government credits: In the second quarter of 2022, we recorded a receivable of $3.2 million related to the U.S. Government Employee Retention Tax Credit (ERTC) Program. The ERTC was established to assist companies that were impacted by the pandemic during 2020 and 2021. The receivable relates to credits that were earned in connection with our operations in the first and second quarter of 2021.Bispecific Antibody and Cytokine Drug Candidate Updatessixseven wholly owned or co-development candidates to treat patients with many different types of cancer, and a candidate in development for patients with autoimmune disease.plan to present data from the first patients in the study at the Annual Meeting of the Society for Immunotherapy of Cancer (SITC) in November 2022.28We are also conducting a second Phase 2 study in patients with advanced gynecologic malignancies, as well as clinically-defined high-risk mCRPC.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, and we are co-developing the program in collaboration with Janssen. Data from the dose-escalation portion of a Phase 1 study in B-cell malignancies, including from patients with relapsed or refractory non-Hodgkin’s lymphoma (NHL), indicate that plamotamab was generally well tolerated and demonstrated encouraging clinical activity as a monotherapy. Expansion cohorts are actively recruiting patients with diffuse large B-cell lymphoma (DLBCL) and follicular lymphoma (FL) and are dosing using the recommended Phase 2 regimen to further evaluate the safety and efficacy of plamotamab monotherapy. Subcutaneous administration of plamotamab is being incorporated into the study, and we plan to present data from expansion cohorts at the American Society of Hematology (ASH) Annual Meeting in December 2022.We are also collaborating with MorphoSys AG and Incyte Corporation 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. In May 2022, we are enrolling in the first of these studies, a potentially registration-enabling Phase 2 study, in patients with relapsed or refractory DLBCL, an aggressive type of NHL.XmAb306/RG6323 (IL15/IL15Rα-Fc Cytokine): XmAb306 is an IL15/IL15Rα-Fc fusion protein that incorporates our Xtend extended half-life technology, and we are co-developing this program in collaboration with Genentech, a member of the Roche Group. Genentech is conducting a Phase 1 dose-escalation study of XmAb306 as a single agent and in combination with atezolizumab. In November 2021, we announced that XmAb306 promoted high levels of sustained NK cell expansion and evidence of peripheral T cell proliferation had been observed. Genentech has initiated a second study, evaluating XmAb306 in combination with daratumumab (anti-CD38 antibody) in patients with relapsed/refractory multiple myeloma. Additional studies of XmAb306 in combination with other agents are also being planned.We reported initialInitial dose-escalation data from thea Phase 1 study at the American Society of Clinical Oncology in June 2022.indicates that XmAb104 was well tolerated and exhibited a distinct safety profile compared to other clinical-stage ICOS programs. Anti-tumor activity was observed in patients, and biomarker activity was consistent with engagement with T cells. We are evaluating XmAb104 as a monotherapy and in combination with ipilimumab in the Part C expansion portion of a Phase 1 clinical study, for the treatment ofwhich is enrolling patients with advanced solid tumors.wholly owned, monovalent potency-reduced 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’sIL-2's beta receptor and increased binding affinity for its alpha receptor. In preclinical studies, XmAb564 was well-tolerated, promoted the selective and sustained expansion of Tregs and exhibited a favorable pharmacokinetic profile.In November 2022, we presented dataResults from a randomized, double-blind, placebo-controlled Phase 1a clinical study to evaluateof XmAb564, presented at the safety and tolerabilityEuropean Congress of Rheumatology (EULAR) in May 2023, indicate a single dose of XmAb564, administered subcutaneously in healthy volunteers. The study enrolled 48 subjects, with six dose-level cohorts each randomizing six subjects to XmAb564 and two subjects to placebo. The study demonstrated that a single dose of XmAb564 isvolunteers, was well tolerated and generates agenerated durable, dose-dependent and selective expansion of Tregs. In the highest dose cohort (0.065 mg/kg; Cohort 6),We are conducting a 117-fold mean peak expansion over baseline in CD25bright cells was observed, with an 8-fold expansion in the bulk Treg population. The ratio of Tregs to conventional T cells also increased significantly in a dose-dependent manner. At day 21, both CD25bright and total Treg counts remained markedly elevated, potentially supporting a multi-week dosing profile. All adverse events (AEs) were either Grade 1 or 2 and resolved without intervention. Injection site reaction was the most reported AE.Xencor has dosed the first patient in a newly initiatedrandomized, double-blind, placebo-controlled Phase 1b multiple-ascending doseclinical study to evaluate the safety and tolerability of multiple ascending doses of XmAb564, administered subcutaneously in patients with atopic dermatitis andor psoriasis.29CD3, and it is our lead XmAb 2+1 bispecific antibody candidate.CD3. ENPP3 is a tumor-associated antigen in renal cell carcinoma (RCC) and exhibits low-level expression on. The XmAb 2+1 multivalent format used in XmAb819 enables greater selectivity for ENPP3 expressing tumor cells compared to normal tissues.cells, which also express ENPP3 at lower levels. We are currently enrolling a Phase 1 study to evaluate XmAb819 in patients with advanced clear cell RCC.Tidutamab (SSTR2 x CD3) and XmAb841 (CTLA-4 x LAG-3): In May 2022, we announced that we do not intend further internal development of tidutamab and XmAb841. Neither program demonstrated a competitive clinical profile in recent studies, and we have decided to focus resources on new clinical programs. We will continue to support patients currently enrolled and being treated. We anticipate spending on these two programs to decline throughout 2022.that targetsdesigned 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, which was demonstrated in in vitro studies. In vivo studies further demonstrated strong potentiation our lead XmAb CD28 T cell engager. B7-H3 is a tumor-associated antigen overexpressed on a variety of solid tumors. We are conducting a Phase 1 study to evaluate XmAb808 in combination with pembrolizumab in patients with advanced solid tumors. use the modularity of our XmAb bispecific Fc technology to build bispecific antibodies and cytokines in a variety of formats, and we have introduced CD3 bispecific antibodies of a mixed valency format, the XmAb 2+1 bispecific antibody. XmAb 2+1 bispecific antibodies may preferentially kill tumor cells with high target expression, which may be especially beneficial in designing antibodies that target solid tumors. This selectivity potentially empowers CD3 bispecifics to address an expanded set of tumor antigens. Multiple clinical-stage programs incorporate our XmAb 2+1 format, including XmAb819 (ENPP3 x CD3) and Amgen’s AMG 509 (STEAP1 x CD3).Additionally, we have engineered CD28 bispecific antibodies to provide conditional CD28 co-stimulation of T cells, activating them when bound to tumor cells. Targeted CD28 bispecific antibodies may provide conditional co-stimulation of T cells, for example, to T cells recognizing neoantigens or in concert with CD3 T-cell engaging bispecific antibodies. We are advancing wholly owned CD28 candidates including our lead candidate, XmAb808, a B7-H3 x CD28 bispecific antibody designed to be evaluated for the treatment of patients with a range of solid tumors.Our CD28 platform is also the subject of two collaborations with Janssen. The first collaboration was announced in 2020 and involves our research efforts to create and characterize CD28 bispecific antibody candidates against a prostate tumor target specified by Janssen. The second Janssen collaboration was announced in October 2021 and includes conducting research activities with Janssen to create and characterize CD28 bispecific antibody candidates against B-cell targets during a two-year period, with Janssen having an exclusive worldwide license to develop selected molecules from the research activities in combination with plamotamab and other agents, such as other CD3 bispecific antibodies.2022,2023, we presented emerging preclinical data from two wholly owned cytokine programsresearch-stage engineered CD28 bispecific antibodies targeting the solid tumor antigens CEACAM5, ENPP3, mesothelin, STEAP1 and Trop-2 in a poster at the American Association for Cancer Research (AACR) Annual Meeting: XmAb143,Meeting. We anticipate submitting an investigational new drug (IND) application for a decoy-resistant and potency-reduced IL18-Fc fusion protein, and a LAG-3 targeted IL15/IL15Rα-Fc fusion protein,second wholly owned CD28 bispecific antibody in 2024.is biased toward binding and activating LAG-3-positive immune cells thatwe are more likely to be tumor-reactive.In November 2023, at the SITC Annual Meeting, we plan to present additional preclinical data from the IL18-Fc fusion protein and LAG-3 IL15/IL15Rα-Fc fusion protein programs, as well as preclinical data from our NK cell engager platform and costimulatory CD28 trispecific antibodies targeting PDL1 and PDL2.In 2023, wedeveloping for patients with ovarian cancer. We plan to submit an IND application for XmAb662, a wholly owned, reduced-potency IL12-Fc cytokine and initiate a Phase 1 studyXmAb541 in patients with advanced solid tumors.30$2.1$3.9 million in estimated royalties from MorphoSys for the threesix months ended SeptemberJune 30, 2022.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.September 2015,November 2021, we entered into an agreement with Amgen Inc.Zenas BioPharma (Cayman) Limited (Zenas), to which we licensed the exclusive worldwide rights to develop and commercialize bispecificobexelimab, a bifunctional antibody product candidates using our proprietary XmAb bispecific Fc technology. Amgen appliedthat targets CD19 with its variable domain and uses our XmAb bispecificImmune Inhibitor Fc technology to create AMG 509,Domain. In January 2023, Zenas initiated a STEAP1 x CD3 XmAb 2+1 bispecific antibody, which is being evaluatedPhase 3 study of obexelimab in an ongoing dose-escalation Phase 1 study for patients with prostate cancer. In February 2022, Amgen presented encouraging, preliminary pharmacodynamic activity by induction of percent maximum prostate-specific antigen (PSA) decline among 30 patientsautoimmune disease and dosed their second patient in the study, which provides an early signal of activity and validation of the potential of the XmAb 2+1 format.In March 2019, we entered into an agreement with Astellas Pharma, Inc., under which we applied our XmAb bispecific Fc technology to an antigen pair provided by Astellas and generated bispecific antibody candidates for further certain characterization and testing. Astellas selected a bispecific antibody developed under the collaboration, ASP2138, a CLDN18.2 x CD3 bispecific antibody, for further development and is conducting a Phase 1 clinical studyApril 2023. We received additional preferred stock in patients with gastric, gastroesophageal, and pancreatic cancers. We recognized a $5.0 million milestone from Astellas forZenas as a development milestone in the firstsecond quarter of 2022.31In July 2022,$10.0 million and we entered into an agreement with Caris Life Sciences, under which Caris will apply its proprietary end-to-end discovery platform to identify novel targets for XmAb bispecific antibody drug candidates,recorded the milestone payment as revenue for the treatment of patients with cancer. Xencor will receive exclusive options to research, develop and commercialize products directed to up to three targets. Caris will receive an upfront payment and will be eligible to receive up to approximately $120.0 million in license fees, discovery, development, regulatory and sales-based milestones, in addition to royalty payments on net sales of each product commercialized by Xencor and future rights for molecular profiling and companion diagnostics for drug candidates developed under the collaboration.from regulatory agencies in the U.S. and multiple global markets for the treatment of patients with paroxysmal nocturnal hemoglobinuria (PNH) and, for certain patients with atypical hemolytic uremic syndrome (aHUS). In April 2022, Ultomiris was approved by the FDA and for the treatment of adultcertain patients with generalized myasthenia gravis (gMG) who are anti-acetylcholine receptor (AChR) antibody positive.. 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). We earned $7.3$21.6 million in royalties from Alexion for the threesix months ended SeptemberJune 30, 2022.multiple XmAbour Xtend Fc technologies, including Xtend™ Fc technology designed to extend the half-life of novel antibodies that Vir is investigatinginvestigated as potential treatments for patients with COVID-19. In May 2021, the FDA granted EUA to sotrovimab (VIR-7831) for the treatment of mild-to-moderate COVID-19 in high-risk adults and pediatric patients. A second drug candidate, VIR-7832, ispatients; in the first quarter of 2022, the FDA deauthorized sotrovimab in treating patients with COVID-19. In December 2021, the EU granted a Phase 1b/2a trialtemporary authorization for sotrovimab, and several other countries have also provided temporary or conditional authorizations for its use. As the COVID 19 virus has mutated, our royalty revenue from the sales of adults with mild-to-moderate COVID-19.sotrovimab has diminished significantly and future revenue from this license are expected to continue to decline. We earned $17.8$1.5 million in royalties from Vir for the threesix months ended SeptemberJune 30, 2022.Vir2023.advanced twobeen terminated.programs underindications for our August 2019 agreement. VIR-2482 is being evaluated in a Phase 2 study as a universal prophylactic for influenza A. In October 2022, Vir announced that developmentportfolio of VIR-2482 in a Phase 2 study, which dosed its first patient the same month. Additionally, VIR-3434 is being evaluated in a Phase 2 combination study as a potential treatment for patients with hepatitis B virus infection and hepatitis D virus infection.1,3001,400 issued and pending patents worldwide to protect our XmAb technology platform and XmAb drug candidates.pre-clinicalpreclinical and IND-enabling studies, and conducting clinical trials. We have no internally developed products approved for commercial sale and have not generated any revenues from our own product sales, and we continue to incur significant research and development expenses and other expenses related to our ongoing operations. To date, we have funded our operations primarily through the sale of stock and from payments generated from our product development partnerships and licensing arrangements.SeptemberJune 30, 2022,2023, we had an accumulated deficit of $326.2$421.0 million. Substantially all of the operating losses that we have incurred resulted from expenses incurred in connection with our product candidate development programs, our research activities and general and administrative costs associated with our operations.32SeptemberJune 30, 20222023 and 2021SeptemberJune 30, 20222023 and 20212022 (in millions):Three Months Ended
June 30,2023 2022 Change Revenues: Research collaboration $ 22.2 $ 0.2 $ 22.0 Milestone 10.0 — 10.0 Royalties 13.3 30.0 (16.7) Total revenues 45.5 30.2 15.3 Operating expenses: Research and development 60.0 47.1 12.9 General and administrative 11.5 11.1 0.4 Total operating expenses 71.5 58.2 13.3 Other income (expense), net 4.0 (6.0) 10.0 Net loss $ (22.0) $ (34.0) $ 12.0 Table of ContentsSeptemberJune 30, 20222023 are primarily from research revenue from our second collaboration with Janssen, royalty revenue from Alexion, and Vir.milestone revenue from Zenas. Revenues for the three months ended SeptemberJune 30, 20212022 are primarily from the collaboration with Janssen and royalty revenue from Alexion and Vir.33SeptemberJune 30, 20222023 and 20212022 (in millions):Three Months Ended
June 30,2023 2022 Change Product programs: Bispecific programs: CD3 programs: Plamotamab* $ 4.1 $ 1.7 $ 2.4 XmAb819 (ENPP3 x CD3) 4.8 2.1 2.7 XmAb541 (CLDN6 X CD3) 6.3 1.6 4.7 Total CD3 programs 15.2 5.4 9.8 XmAb808 (B7-H3 x CD28) 4.3 4.1 0.2 Tumor micro environment (TME) activator programs: Vudalimab 9.6 5.6 4.0 XmAb104 5.8 6.3 (0.5) Total TME activators programs 15.4 11.9 3.5 Subtotal bispecific programs 34.9 21.4 13.5 Cytokine programs: XmAb306/RG6323 programs* (0.5) 4.2 (4.7) XmAb564 5.9 3.8 2.1 XmAb662 (IL-12-Fc) 3.8 4.5 (0.7) Total cytokine programs 9.2 12.5 (3.3) Other, research and early stage programs 14.7 6.8 7.9 1.2 6.4 (5.2) Total research and development expenses $ 60.0 $ 47.1 $ 12.9 (1)Research and development expenses include wind down costs of programs that terminated in prior periods including the vibecotamab, tidutamab, and XmAb841 programs.(1)The costs are net of cost-sharing reimbursement from Novartis under the Novartis Agreement.(2)Represents wind down costs of the program; Novartis and the Company stopped development of the vibecotamab program in 2021.(3)The costs are net of cost-sharing reimbursement from Janssen under the Second Janssen Agreement.(4)Represents wind down costs of the program; the Company stopped development of the tidutamab program in the second quarter of 2022.(5)Represents wind down costs of the program; the Company stopped development of the XmAb841 program in the second quarter of 2022.(6)Includes our share of costs paid to Genentech for cost-sharing under the Genentech Agreement.Three Months Ended
June 30,2023 2022 Change External research and development expenses $ 25.0 $ 20.4 $ 4.6 Internal research and development expenses 25.9 18.4 7.5 Stock based compensation 9.1 8.3 0.8 Total research and development expenses $ 60.0 $ 47.1 $ 12.9 $2.7$12.9 million for the three months ended SeptemberJune 30, 20222023 over the same period in 20212022 primarily due to increased spending on our new developmentCD3 programs XmAb662,including plamotamab, XmAb819 and IL-18 programs, partially offset by reduced spending onXmAb541 and also our CD3vudalimab program and, other research and early stage programs.34SeptemberJune 30, 20222023 and 20212022 (in millions):Three Months Ended
June 30,2023 2022 Change General and administrative $ 11.5 $ 11.1 $ 0.4 $2.0$0.4 million for the three months ended SeptemberJune 30, 20222023 over the same period in 20212022 primarily due to increased general and administrative staffingfacility expenses and additional spending on professional fees.$6.7$4.0 million and $1.1$(6.0) million for the three months ended SeptemberJune 30, 20222023 and 2021,2022, respectively. Other income, net for the three months ended SeptemberJune 30, 20222023 consists of interest income earned on investments, while other expense, net for the same period in 2022 consist primarily of unrealized gainsloss recognized from the change in fair value of our equity investments and interest income earned on investments, while other income, net for the same period in 2021 consist primarilyinvestments.NineSix Months Ended SeptemberJune 30, 20222023 and 2021ninesix months ended SeptemberJune 30, 20222023 and 20212022 (in millions):Six Months Ended
June 30,2023 2022 Change Revenues: Research collaboration $ 22.5 $ 2.0 $ 20.5 Milestone 15.0 5.0 10.0 Royalties 27.0 108.7 (81.7) Total revenues 64.5 115.7 (51.2) Operating expenses: Research and development 124.4 94.8 29.6 General and administrative 25.4 22.4 3.0 Total operating expenses 149.8 117.2 32.6 Other income (expense), net 2.6 (8.9) 11.5 Net loss $ (82.7) $ (10.4) $ (72.3) ninesix months ended SeptemberJune 30, 2023 are primarily from research revenue from our second collaboration with Janssen, royalty revenue from Alexion, and milestone revenue from Janssen and Zenas. Revenues for the six months ended June 30, 2022 are primarily from milestone revenue from Astellas and royalty revenue from Alexion, MorphoSys, and Vir. Revenues for the nine months ended September 30, 2021 are primarily from our collaboration with Janssen, milestone revenue recognized from MorphoSys and Novartis, research revenue recognized under the Genentech and Novartis collaborations, and the royalty revenue from Alexion, MorphoSys, and Vir. 35Six Months Ended
June 30,2023 2022 Change Product programs: Bispecific programs: CD3 programs: Plamotamab* $ 9.8 $ 7.1 $ 2.7 XmAb819 (ENPP3 x CD3) 9.2 5.6 3.6 XmAb541 (CLDN6 X CD3) 10.7 2.7 8.0 Total CD3 programs 29.7 15.4 14.3 XmAb808 (B7-H3 x CD28) 8.0 8.9 (0.9) Tumor micro environment (TME) activator programs: Vudalimab 17.2 11.1 6.1 XmAb104 12.6 11.8 0.8 Total TME activators programs 29.8 22.9 6.9 Subtotal bispecific programs 67.5 47.2 20.3 Cytokine programs: XmAb306/RG6323 programs* 4.5 7.5 (3.0) XmAb564 12.4 6.9 5.5 XmAb662 (IL-12-Fc) 6.9 7.1 (0.2) Total cytokine programs 23.8 21.5 2.3 Other, research and early stage programs 28.9 12.2 16.7 4.2 13.9 (9.7) Total research and development expenses $ 124.4 $ 94.8 $ 29.6 (1)Research and development expenses include wind down costs of programs that terminated in prior periods including the vibecotamab, tidutamab, and XmAb841 programs.(1)The costs are net of cost-sharing reimbursement from Novartis under the Novartis Agreement.(2)Represents wind down costs of the program; Novartis and the Company stopped development of the vibecotamab program in 2021.(3)The costs are net of cost-sharing reimbursement from Janssen under the Second Janssen Agreement.(4)The Company stopped development of the tidutamab program in the second quarter of 2022.(5)The Company stopped development of the XmAb841 program in the second quarter of 2022.(6)Includes our share of costs paid to Genentech for cost-sharing under the Genentech Agreement.Six Months Ended
June 30,2023 2022 Change External research and development expenses $ 52.8 $ 41.1 $ 11.7 Internal research and development expenses 54.2 38.3 15.9 Stock based compensation 17.4 15.4 2.0 Total research and development expenses $ 124.4 $ 94.8 $ 29.6 $6.6$29.6 million for the ninesix months ended SeptemberJune 30, 20222023 over the same period in 20212022 primarily due to increased spending on our new development programs XmAb808, XmAb662,XmAb564, XmAb541 and, IL-18 programs, partially offset by reduced spending on our CD3Vudalimab and other research and early stage programs.36ninesix months ended SeptemberJune 30, 20222023 and 20212022 (in millions):Six Months Ended
June 30,2023 2022 Change General and administrative $ 25.4 $ 22.4 $ 3.0 $7.2$3.0 million for the ninesix months ended SeptemberJune 30, 20222023 over the same period in 20212022 primarily due to increased facility expenses, general and administrative staffing, and additional spending on professional fees, and additional facility expenses.($2.2)$2.6 million and $57.5$(8.9) million for the ninesix months ended SeptemberJune 30, 20222023 and 2021,2022, respectively. Other income, (expense) net for the ninesix months ended SeptemberJune 30, 2023 consists of interest income earned on investments, partially offset by unrealized loss recognized from the change in fair value of our equity investments, while other expense, net for the same period in 2022 consists primarily of unrealized loss recognized from the change in fair value of our equity investments, partially offset by the interest income recognized from our marketable debt securities. Other income (expense), net for the nine months ended September 30, 2021 consists primarily of realized gain from the sale of an equity instrument, as well as the unrealized gain recognized from the change in our accounting for an equity investment, and unrealized gain recognized with respect to the exchange of shares without a readily determinable fair value for shares in an entity with a readily determinable fair value.Six Months Ended June 30, 2023 2022 Change Net cash provided by (used in): Operating activities $ (68,814) $ 50,084 $ (118,898) Investing activities $ 46,739 $ (147,398) $ 194,137 Financing activities $ 2,843 $ 3,244 $ (401) Net decrease in cash $ (19,232) $ (94,070) $ 74,838 ninethree months ended SeptemberJune 30, 2022 was $48.9 million, while cash used in operating activities for the nine months ended September 30, 2021 was $78.6$50.1 million. The increase in cash provided byused in operating activities is primarily due to additionallower royalty revenue recognized and increased research and development expenses in the ninesix months ended SeptemberJune 30, 2022. purchase for the ninesix months ended SeptemberJune 30, 20222023 and SeptemberJune 30, 2021,2022, respectively. The proceeds received from option exercises decreased by $5.9 million over the same period in 2021.37SeptemberJune 30, 2022,2023, we had $654.6$531.4 million of cash, cash equivalents, receivables, and marketable debt securities compared to $664.1$613.5 million as of December 31, 2021.2022. The investments in marketable debt securities are further described above in Note 5, Marketable Debt and Equity Securities, of Notes to Financial Statements included in this Quarterly Report on Form 10-Q. We expect to continue to receive additional payments from our collaborators for research and development services rendered, additional milestone, opt-in and contingent payments, and royalties. Our ability to receive additional 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.and the COVID-19 pandemic could materially alter these estimates, which would cause us to use our capital resources sooner than we currently expect.SeptemberJune 30, 2022.ITEM2021.38ITEMSeptemberJune 30, 2022.2023. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in this Quarterly Report on Form 10-Q has been appropriately recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, to allow timely decisions regarding required disclosure. Based on that evaluation, our principal executive and principal financial officers have concluded that our disclosure controls and procedures are effective at the reasonable assurance level as of SeptemberJune 30, 2022.SeptemberJune 30, 20222023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Beginning March 17, 2020, a majority of our business, accounting and financial reporting employees began working remotely due to the COVID-19 pandemic. Since that time, we have not experienced any material impact to our internal controls over financial reporting. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact to their design and operating effectivenesseffectiveness..39ITEMITEM2021,2022, which could materially affect our business, financial position, or future results of operations. See also “Special Note Regarding Forward-Looking Statements” included in this Quarterly Report on Form 10-Q. In addition to the risks set forth in our Annual Report on Form 10-K for the year ended December 31, 2021,2022, additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business.40ITEM
NumberNumber10.110.1 104104 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) 41November 7, 202242