Xencor (XNCR) 10-Q 2 May 16 2016 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2016	Apr. 26, 2016
Document and Entity Information
Entity Registrant Name	Xencor Inc
Entity Central Index Key	1,326,732
Document Type	10-Q
Document Period End Date	Mar. 31, 2016
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		40,745,715
Document Fiscal Year Focus	2,016
Document Fiscal Period Focus	Q1

Balance Sheets

Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Current assets
Cash and cash equivalents	$ 8,150	$ 12,590
Marketable securities	84,209	83,840
Accounts receivable	649	44
Prepaid expenses and other current assets	1,843	1,201
Total current assets	94,851	97,675
Property and equipment, net	2,510	2,310
Other assets
Patents, licenses, and other intangible assets, net	10,140	9,971
Marketable securities - long term	86,357	96,891
Other assets	103	63
Total assets	193,961	206,910
Current liabilities
Accounts payable	4,291	6,400
Accrued expenses	2,391	3,634
Current portion of deferred rent	113	108
Current portion of deferred revenue	27,460	33,287
Total current liabilities	34,255	43,429
Deferred rent, less current portion	476	507
Deferred revenue, less current portion	417	542
Total liabilities	$ 35,148	$ 44,478
Commitments and contingencies
Stockholders' equity
Preferred stock, $0.01 par value: 10,000,000 authorized shares; -0- issued and outstanding shares at March 31, 2016 and December 31, 2015
Common stock, $0.01 par value: 200,000,000 authorized shares at March 31, 2016 and December 31, 2015; 40,741,753 issued and outstanding at March 31, 2016 and 40,551,039 issued and outstanding at December 31, 2015	$ 407	$ 405
Additional paid-in capital	426,286	424,128
Accumulated other comprehensive income (loss)	103	(516)
Accumulated deficit	(267,983)	(261,585)
Total stockholders' equity	158,813	162,432
Total liabilities and stockholders' equity	$ 193,961	$ 206,910

Balance Sheets (Parenthetical)

Balance Sheets (Parenthetical) - $ / shares	Mar. 31, 2016	Dec. 31, 2015
Condensed Balance Sheets
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common Stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common Stock, shares authorized	200,000,000	200,000,000
Common Stock, shares issued	40,741,753	40,551,039
Common Stock, shares outstanding	40,741,753	40,551,039

Statements of Comprehensive Los

Statements of Comprehensive Loss - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Revenue
Collaborations, licenses and milestones	$ 7,252	$ 1,491
Operating expenses
Research and development	10,035	5,205
General and administrative	3,950	2,764
Total operating expenses	13,985	7,969
Loss from operations	(6,733)	(6,478)
Other income (expenses)
Interest income	359	38
Interest expense	(27)	(4)
Other income	3
Total other income, net	335	34
Net loss	(6,398)	(6,444)
Other comprehensive loss
Net unrealized gain (loss) on marketable securities available-for-sale	619	(35)
Comprehensive loss	$ (5,779)	$ (6,479)
Basic and diluted net loss per common share (in dollars per share)	$ (0.16)	$ (0.19)
Weighted-average common shares outstanding used in computing basic and diluted net loss per share (in shares)	40,626,729	34,297,782

Statement of Stockholders_ Equi

Statement of Stockholders’ Equity - 3 months ended Mar. 31, 2016 - USD ($) $ in Thousands	Common Stock	Additional Paid-in Capital	Accumulated Other Comprehensive Income (Loss)	Accumulated Deficit	Total
Balance at Dec. 31, 2015	$ 405	$ 424,128	$ (516)	$ (261,585)	$ 162,432
Balance (in shares) at Dec. 31, 2015	40,551,039
Increase (Decrease) in Stockholders' Equity
Issuance of common stock upon exercise and vesting of stock awards	$ 2	198			200
Issuance of common stock upon exercise and vesting of stock awards (in shares)	190,714
Comprehensive loss			619	(6,398)	(5,779)
Stock-based compensation expense		1,960			1,960
Balance at Mar. 31, 2016	$ 407	$ 426,286	$ 103	$ (267,983)	$ 158,813
Balance (in shares) at Mar. 31, 2016	40,741,753

Statements of Cash Flows

Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Cash flows from operating activities
Net loss	$ (6,398)	$ (6,444)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization	282	240
Amortization of premium on marketable securities	426	63
Stock-based compensation	1,960	1,107
Abandonment of capitalized intangible assets	9	37
Gain on disposal of assets		(1)
Gain on sale of marketable securities available-for-sale	(3)
Changes in operating assets and liabilities:
Accounts receivable	(604)	2,555
Interest receivable	41	(146)
Prepaid expenses and other assets	(683)	(142)
Accounts payable	(2,109)	699
Accrued expenses	(1,243)	(523)
Deferred rent	(26)	553
Deferred revenue	(5,952)	(91)
Net cash used in operating activities	(14,300)	(2,093)
Cash flows from investing activities
Purchase of marketable securities	(16,340)	(47,913)
Purchase of intangible assets	(343)	(571)
Purchase of property and equipment	(317)	(575)
Proceeds from maturities and sale of marketable securities available-for-sale	26,660
Proceeds from sale of property and equipment		1
Net cash provided by (used in) investing activities	9,660	(49,058)
Cash flows from financing activities
Proceeds from issuance of common stock		122,906
Proceeds from issuance of common stock upon exercise of stock awards	200	180
Common stock issuance cost		(7,536)
Net cash provided by financing activities	200	115,550
Net (decrease) increase in cash and cash equivalents	(4,440)	64,399
Cash and cash equivalents, beginning of period	12,590	12,590
Cash and cash equivalents, end of period	8,150	119,048
Supplemental disclosures of non-cash investing activities
Net unrealized gain (loss) on marketable securities available for sale	$ 619	(35)
Common stock issuance costs		$ 166

Summary of Significant Accounti

Summary of Significant Accounting Policies	3 Months Ended
	Mar. 31, 2016
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies	1. Summary of Significant Accounting Policies Basis of Presentation The accompanying unaudited interim financial statements for Xencor, Inc. (the Company) have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information. The financial statements include all adjustments (consisting only of normal recurring adjustments) that the management of the Company believes are necessary for a fair presentation of the periods presented. The preparation of interim financial statements requires the use of management’s estimates and assumptions that affect reported amounts of assets and liabilities at the date of the interim financial statements and the reported revenues and expenditures during the reported periods. These interim financial results are not necessarily indicative of the results expected for the full fiscal year or for any subsequent interim period. The accompanying unaudited interim financial statements and related notes should be read in conjunction with the audited financial statements and notes thereto included in the Company’s 2015 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 8, 2016. Marketable Securities The Company has an investment policy that includes guidelines on acceptable investment securities, minimum credit quality, maturity parameters and concentration and diversification. The Company invests its excess cash primarily in marketable securities issued by investment grade institutions. The Company considers its marketable securities to be available-for-sale. These assets are carried at fair value and the unrealized gains and losses are included in accumulated other comprehensive income (loss). Accrued interest on marketable securities is included in marketable securities. If a decline in the value of a marketable security in the Company’s investment portfolio is deemed to be other-than-temporary, the Company writes down the security to its current fair value and recognizes a loss as a charge against income. The Company reviews its portfolio of marketable securities, using both quantitative and qualitative factors, to determine if declines in fair value below cost are other-than-temporary. Sale of Additional Common Stock In March 2015, we completed the sale of 8,625,000 shares of common stock which included shares we issued pursuant to our underwriters’ exercise of their over-allotment option pursuant to a follow-on offering. We received net proceeds of $115.2 million, after underwriting discounts, commissions and estimated offering expenses. Recent Accounting Pronouncements In March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” which amends the current stock compensation guidance. The amendments simplify the accounting for the taxes related to stock based compensation, including adjustments to how excess tax benefits and a company's payments for tax withholdings should be classified. The standard is effective for fiscal periods beginning after December 15, 2016, with early adoption permitted. The Company is currently evaluating the impact of the adoption of the new accounting pronouncement on its financial statements and related disclosures. There have been no other material changes to the significant accounting policies previously disclosed in the Company’s 2015 Annual Report on Form 10-K .

Fair Value of Financial Instrum

Fair Value of Financial Instruments	3 Months Ended
	Mar. 31, 2016
Fair Value of Financial Instruments
Fair Value of Financial Instruments	2. Fair Value of Financial Instruments Financial instruments included in the financial statements include cash equivalents, marketable securities, trade accounts receivable, accounts payable and accrued expenses. Marketable securities and cash equivalents are carried at fair value. The fair value of the other financial instruments closely approximate their fair value due to their short maturities. The Company accounts for recurring and non-recurring fair value measurements in accordance with FASB Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures (ASC 820). ASC 820 defines fair value, establishes a fair value hierarchy for assets and liabilities measured at fair value, and requires expanded disclosure about fair value measurements. The ASC 820 hierarchy ranks the quality of reliable inputs, or assumptions, used in the determination of fair value and requires assets and liabilities carried at fair value to be classified and disclosed in one of the following three categories: Level 1— Fair Value is determined by using unadjusted quoted prices that are available in active markets for identical assets or liabilities. Level 2— Fair Value is determined by using inputs other than Level 1 quoted prices that are directly or indirectly observable. Inputs can include quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in markets that are not active. Related inputs can also include those used in valuation or other pricing models, such as interest rates and yield curves that can be corroborated by observable market data. Level 3— Fair value is determined by inputs that are unobservable and not corroborated by market data. Use of these inputs involves significant and subjective judgments to be made by the reporting entity –e.g. determining an appropriate discount factor for illiquidity associated with a given security. The Company measures the fair value of financial assets using the highest level of inputs that are reasonably available as of the measurement date. The assets recorded at fair value are classified within the hierarchy as follows for the periods reported (in thousands): March 31, 2016 December 31, 2015 Total Total Fair Value Level 1 Level 2 Fair Value Level 1 Level 2 Money Market Funds $ $ $ — $ $ $ — Corporate Securities — — Government Securities — — $ $ $ $ $ $ Our policy is to record transfers of assets between Level 1 and Level 2 at their fair values as of the end of each reporting period, consistent with the date of the determination of fair value. During the three months ended March 31, 2016, there were no transfers between Level 1 and Level 2. The Company does not have any Level 3 assets or liabilities.

Net Loss Per Share

Net Loss Per Share	3 Months Ended
	Mar. 31, 2016
Net Loss Per Share
Net Loss Per Share	3. Net Loss Per Share We compute net loss per common share by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Potentially dilutive securities consisting of stock issuable under options and our 2013 Employee Stock Purchase Plan (ESPP) are not included in the diluted net loss per common share calculation where the inclusion of such shares would have had an antidilutive effect. Basic and diluted (loss) per common share is computed as follows (in thousands except share and per share data) Three Months Ended March 31, 2016 2015 (in thousands, except per share data) Basic numerator: Net loss attributable to common stockholders $ $ Denominator: Weighted-average common shares outstanding used in computing basic and diluted net loss Basic and diluted net loss per common share $ $ All outstanding potentially dilutive securities have been excluded from the calculation of diluted net loss per common share as the effect of including such securities would have been antidilutive.

Comprehensive loss

Comprehensive loss	3 Months Ended
	Mar. 31, 2016
Comprehensive Loss
Comprehensive Loss	4. Comprehensive loss Comprehensive loss is comprised of net loss and other comprehensive income (loss). For the three months ended March 31, 2016, the only component of other comprehensive loss is net unrealized gains on marketable securities. There were no material reclassifications out of accumulated other comprehensive loss during the three months ended March 31, 2016.

Marketable Securities

Marketable Securities	3 Months Ended
	Mar. 31, 2016
Marketable Securities
Marketable Securities	5. Marketable Securities The Company’s marketable securities held as of March 31, 2016 and December 31, 2015 are summarized below: Gross Gross Amortized Unrealized Unrealized March 31, 2016 Cost Gains Losses Fair Value (in thousands) Money Market Funds $ $ — $ — $ Corporate Securities Government Securities $ $ $ $ Reported as Cash and cash equivalents $ Marketable securities Total investments $ Gross Gross Amortized Unrealized Unrealized December 31, 2015 Cost Gains Losses Fair Value (in thousands) Money Market Funds $ $ — $ — $ Corporate Securities Government Securities — $ $ $ $ Reported as Cash and cash equivalents $ Marketable securities Total investments $ The maturities of the Company’s marketable securities are as follows: Amortized Estimated March 31, 2016 Cost Fair Value (in thousands) Mature in one year or less $ $ Mature after one year through five years $ $ Amortized Estimated December 31, 2015 Cost Fair Value (in thousands) Mature in one year or less $ $ Mature after one year through five years $ $

Stock-Based Compensation

Stock-Based Compensation	3 Months Ended
	Mar. 31, 2016
Stock-Based Compensation
Stock-Based Compensation	6. Stock Based Compensation Our Board of Directors and the requisite stockholders previously approved the 2010 Equity Incentive Plan (the 2010 Plan). In October 2013, our Board of Directors approved the 2013 Equity Incentive Plan (the 2013 Plan) and in November 2013 our stockholders approved the 2013 Plan. The 2013 Plan became effective as of December 3, 2013, the date of the Company’s initial public offering (IPO). As of December 2, 2013, we suspended the 2010 Plan and no additional awards may be granted under the 2010 Plan. 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. As of March 31, 2016 the total number of shares of common stock available for issuance under the 2013 Plan is 7,535,701 , which includes 2,684,456 of common stock that were available for issuance under the 2010 Plan as of the effective date of the 2013 Plan. 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 immediate preceding year. Pursuant to approval by our board on January 1, 2016, the total number of shares of common stock available for issuance under the 2013 Plan was increased by 1,400,000 shares. As of March 31, 2016 a total of 2,961,750 options had been issued under the 2013 Plan. In November 2013, our Board of Directors and stockholders approved the 2013 Employee Stock Purchase Plan (ESPP), which became effective as of December 5, 2013. We have reserved a total of 581,286 shares of common stock for issuance under the ESPP. Unless otherwise determined by our Board, beginning on January 1, 2014, and continuing until the expiration of the ESPP, the total number 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 our board, there was no increase in the number of authorized shares in the ESPP in 2016. As of March 31, 2016, we have issued a total of 176,363 shares of common stock under the ESPP. Total employee, director and non-employee stock-based compensation expense recognized for the three months ended March 31, 2016 are as follows (in thousands): Three Months Ended March 31, 2016 2015 General and administrative $ $ Research and development $ $ 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) Balances at December 31, 2015 $ Options granted $ Options forfeited $ Options exercised $ Balance at March 31, 2016 $ $ Exercisable $ $ We calculate the intrinsic value as the difference between the exercise price of the options and the closing price of common stock of $ 13.42 per share as of March 31, 2016. Weighted average fair value of options granted during the three-month period ended March 31, 2016 and 2015 was $ 8.30 and $10.54 per share, respectively. There were 720,250 options granted during the period ended March 31, 2015. 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 months ended March 31, 2016 and 2015: Options Three Months Ended March 31, 2016 2015 Expected term (years) Expected volatility % % Risk-free interest rate % % Expected dividend yield — % — % ESPP Three Months Ended March 31, 2016 2015 Expected term (years) 0.5 - 2.0 0.5 - 2.0 Expected volatility % 70.6 - 71.8 % Risk-free interest rate .55% - .93 % .06% - .46 % Expected dividend yield — % — % As of March 31, 2016, the unamortized compensation expense related to unvested stock options was $16.7 million, net of estimated forfeitures. The remaining unamortized compensation expense will be recognized over the next three years.

Commitments and Contingencies

Commitments and Contingencies	3 Months Ended
	Mar. 31, 2016
Commitments and Contingencies
Commitments and Contingencies	7. Commitments and Contingencies Operating Leases The Company leases office and laboratory space in Monrovia, CA through June 2020 with an option to renew for an additional five years. The Company also leases office space in San Diego, CA through April 2018 and includes an option to renew for a period of one year . In March 2016, the Company signed a lease for additional space contiguous with its existing office space through June 2020. The leases are accounted for as non-cancellable operating leases and future minimum payments are as follows (in thousands): Years ending December 31, For the remainder of the fiscal year $ 2017 2018 2019 2020 Thereafter — Rent expense for the three months ended March 31, 2016 and 2015 was $ 143,000 and $129,000 respectively. Contingencies From time to time, the Company may be subject to various litigation and related matters arising in the ordinary course of business. The Company does not believe it is currently subject to any material matters where there is at least a reasonable possibility that a material loss may be incurred. On March 3, 2015, a verified class action complaint, captioned DePinto v. John S. Stafford, et al., C.A. No. 10742, was filed in the Court of Chancery of the State of Delaware against certain of the Company’s current and former directors alleging cause of action for Breach of Fiduciary Duty and Invalidity of Director and Stockholder Consents. In general, the complaint alleged that the plaintiff and the class he seeks to represent were shareholders of the Company during the recapitalization and certain related transactions that the Company underwent in 2013 and that the defendants breached their fiduciary duties in the course of approving that series of transactions. It also challenged as invalid certain corporate acts taken in the 2013 time period. On June 10, 2015, the Company filed a Verified Petition for Relief under Del. C. Section 205 (the 205 Petition) related to the corporate acts challenged in the complaint. The defendants filed an answer to the class action complaint on June 22, 2015. On July 9, 2015, the Court consolidated the 205 Petition with the class action, joined the Company as a defendant and ordered it to file the claims in the 205 Petition as counter-claims in the class action, which the Company has done. On August 11, 2015, the Company filed a Motion for Leave to File an Amended Counter-Claim, along with the proposed Amended Counter-Claim and related documents. On October 5, the parties filed a Stipulation of Partial Settlement and related documents disclosing a settlement of the invalidity claims addressed in the complaint, the counter-claim and the proposed amended counter-claim including a request by plaintiff’s counsel for reimbursement of legal fees up to $950,000 . On October 7, 2015, Xencor filed the Amended Counter-Claim and related documents. On December 14, 2015, the Court entered an Order and Partial Final Judgment approving the settlement of the invalidity claims, validating each corporate act challenged in the complaint, dismissing with prejudice Count II of the complaint (the invalidity claims) and granting plaintiff’s counsel a fee award. We have paid the plaintiff’s legal award of $950,000 net of insurance proceeds of $187,500 which has been reflected as a charge in our 2015 operations. We continue to recognize legal costs as incurred and any insurance proceeds when received. Based on the nature of the remaining claim, the Company believes that it is not possible to estimate the likelihood of loss or a range of potential loss related to the claim; accordingly, no amount for any loss has been accrued at March 31, 2016.

Collaboration and Licensing Agr

Collaboration and Licensing Agreements	3 Months Ended
	Mar. 31, 2016
Collaboration and Licensing Agreements
Collaboration and Licensing Agreements	8. Collaboration and Licensing Agreements Following is a summary description of the arrangements that generated revenue in the three months ended March 31, 2016 and 2015. Amgen, Inc. In September 2015, the Company entered into a research and license agreement (the Amgen Agreement) with Amgen, Inc. (Amgen) to develop and commercialize bispecific antibody product candidates using the Company’s proprietary XmAb® bispecific Fc technology. Under the Amgen Agreement, the Company granted an exclusive license to Amgen to develop and commercialize bispecific drug candidates from the Company’s preclinical program that bind the CD38 antigen and the cytotoxic T-cell binding domain CD3, (the CD38 Program). The Company will also apply its bispecific technology to five previously identified Amgen provided targets (each a Discovery Program). The Company received a $45.0 million upfront payment from Amgen and is eligible to receive up to $1.7 billion in future development, regulatory and sales milestones in total for all six programs and is eligible to receive royalties on any global net sales of products. In the fourth quarter ended December 31, 2015, the Company transferred the research material and data related to its CD38 Program to Amgen. Amgen will assume full responsibility for the further development and commercialization of product candidates under the CD38 Program. Assuming successful development and commercialization of a product, the Company could receive up to $355 million in milestones payments which include $55 million in development milestones, $70 million in regulatory milestones and, $230 million in sales milestones. If commercialized, the Company is eligible to receive from high single-digit up to low double-digit royalties on global net sales of approved products under the CD38 Program. Pursuant to the Amgen Agreement, for each of the five Discovery Programs the Company will apply its bispecific technology to antibody molecules provided by Amgen that bind Discovery Program Targets and return the bispecific product candidates to Amgen for further testing, development and commercialization. Subject to approval by Xencor, Amgen has the right to substitute up to three of the previously identified targets during the research term provided that Amgen has not initiated non-human primate studies with the Xencor provided bispecific candidate. The initial research term is three years from the date of the Amgen Agreement but Amgen, at its option, may request an extension of one year if Xencor has not completed delivery of all five Discovery Program bispecific candidates to Amgen. Amgen will assume full responsibility for development and commercialization of product candidates under each of the Discovery Programs. Assuming successful development and commercialization of each Discovery Program compound, the Company could receive up to $260.5 million in milestones for each compound which include $35.5 million in development milestones, $55.0 million in regulatory milestones and $170.0 million in sales milestones. If commercialized, the Company is eligible to receive mid to high single-digit royalties on global net sales of approved products. The Company evaluated the Amgen Agreement with Amgen and determined that it is a revenue arrangement with multiple deliverables or performance obligations. The Company’s substantive performance obligations under the Amgen Agreement include delivery of research material and data related to its CD38 Program and application of its bispecific technology to five Amgen provided targets and delivery of the five bispecific product candidates. The Company evaluated the Amgen Agreement with Amgen and determined that the CD38 Program and each of the five Discovery Programs represent separate units of accounting. The $45 million upfront payment represents the total initial consideration and was allocated to each of the deliverables using the relative selling price method. After identifying each of the deliverables included in the arrangement, the Company determined its best estimate of selling price for each of the deliverables. In order to determine the best estimate of selling price for the CD38 Program, the Company determined the value of the CD38 Program by calculating a risk-adjusted present value of the potential revenue from the future development and regulatory milestones under the Amgen Agreement. This amount represents the value that a third party would be willing to pay as an upfront fee to license the Company’s CD38 Program. The Company determined the value of each of the Discovery Programs by calculating a risk-adjusted net present value of the potential revenue from future development and regulatory milestones reduced by the estimated cost of the Company’s efforts to apply its bispecific technology to the Amgen targets and deliver the five bispecific product candidates. These amounts represent the value that a third party would be willing to pay as an upfront for access to the Company’s bispecific technology and capabilities. The total allocable consideration of $45 million was allocated to the deliverables based on the relative selling price method as follows: $13.75 million to the CD38 Program and, $6.25 million to each of the five Discovery Programs The Company recognized as collaboration revenue the amount of total allocable consideration allocated to the CD38 Programs upon delivery of the CD38 research material and data to Amgen in the fourth quarter of 2015. In the first quarter ended March 31, 2016, Amgen exercised its substitution rights with respect to one of the previously identified Discovery targets. In the first quarter ended March 31, 2016, the Company delivered bispecific product candidates for three Discovery Program targets to Amgen. At the time that each bispecific Discovery Program is accepted by Amgen, the Company will recognize as collaboration revenue $6.25 million for each program. Since Amgen has substitution rights for up to three targets, revenue recognition may be delayed until the earlier that Amgen initiates non-human primate studies for a delivered bispecific Discovery Program or the right to substitute the target lapses. During the three months ended March 31, 2016, we recognized $6.25 million in revenue under this arrangement. As of March 31, 2016 there is $25 million in deferred revenue related to the arrangement. Merck Sharp & Dohme Corporation In July 2013, we entered into a License Agreement with Merck Sharp & Dohme Corp (Merck). Under the terms of the agreement, we provided Merck with a non-exclusive commercial license to certain patent rights to our Fc domains to apply to one of their compounds. We also provided Merck with contingent options to take additional non-exclusive commercial licenses. The contingent options provide Merck an opportunity to take non-exclusive commercial licenses at an amount less than the amount paid for the original license. The agreement provided for an upfront payment of $1.0 million and annual maintenance fees totaling $0.5 million. We are also eligible to receive future milestones and royalties as Merck advances the compound into clinical development. We determined that the deliverables under this agreement were the non-exclusive commercial license and the options. The options are considered substantive and contingent and no amount of the upfront payment was allocated to these options. We also determined that the future milestones and related payments were substantive and contingent and did not allocate any of the upfront payment to the milestones. During each of the three months ended March 31, 2016 and 2015 we recognized $25,000 of revenue. As of March 31, 2016, there is $25,000 of deferred revenue related to this arrangement. Alexion Pharmaceuticals, Inc. In January 2013, we entered into an option and license agreement with Alexion Pharmaceuticals, Inc. (Alexion). Under the terms of the agreement, we granted to Alexion an exclusive research license, with limited sublicensing rights, to make and use our Xtend technology to evaluate and advance compounds against six different target programs during a five -year research term under the agreement, up to completion of the first multi-dose human clinical trial for each target compound. Alexion may extend the research term for an additional three years upon written notice to us and payment of an extension fee of $2.0 million. Alexion is responsible for conducting all research and development activities under the agreement at its own expense. In addition, we granted to Alexion an exclusive option, on a target-by-target basis, to obtain an exclusive commercial, worldwide, royalty-bearing license, with sublicensing rights, under our Xtend technology to develop and commercialize products that contain the target for which the option is exercised. In order to exercise this option, Alexion must pay a $4.0 million option fee with respect to each target for which the option is exercised. Alexion may exercise this option at any time during the research term. An option must be exercised for any compound that is advanced into development after the first multi-ascending dose trial is initiated. Under the agreement, we received an upfront payment of $3.0 million. Alexion is also required to pay an annual maintenance fee of $0.5 million during the research term of the agreement and $1.0 million during any extension of the research term. We determined that $2.5 million of the upfront fee was allocated to the license and is being recognized into income over the initial research term of five years. In the third quarter of 2014, Alexion achieved a clinical development milestone with an undisclosed molecule to be used against an undisclosed target. We received a milestone related to this trial in March 2015 upon issuance of certain patents related to our Xtend technology. In the fourth quarter of 2015, Alexion exercised its option to take an exclusive commercial license and achieved a further clinical development milestone. As a result of Alexion’s exercise to take a commercial option to an undisclosed compound, the Company is eligible to receive additional development, regulatory and sales milestones under the agreement. If commercialized, the Company is eligible to receive royalties on global net sales of approved products. During the three months ended March 31, 2016 and 2015 we recognized $0.3 million and $0.8 million of revenue respectively. As of March 31, 2016, we have deferred revenue related to this arrangement of $ 1.3 million. Novo Nordisk A/S In December 2014, we entered into a collaboration and license agreement with Novo Nordisk A/S (Novo). Under the terms of the agreement we granted Novo a research license to use certain Xencor technologies including our bispecific, Fcy-IIb, Xtend and other technologies during a two -year research term. We are recognizing the $2.5 million upfront payment as income over the two - year research term. The research funding is being recognized into income over the period that the services are being provided. We determined that future milestone payments were substantive and contingent and we did not allocate any of the upfront consideration to these milestones. During each of the three months ended March 31, 2016 and 2015, we recognized $0.7 million of revenue. As of March 31, 2016, we have $1.3 million in deferred revenue related to this arrangement.

Income Taxes

Income Taxes	3 Months Ended
	Mar. 31, 2016
Income Taxes
Income Taxes	9. Income Taxes No provision for U.S. income taxes has been made, net of the valuation allowance, with the exception of the minimum statutory amounts, because the Company has incurred losses since its inception. The Company has deferred tax assets consisting primarily of net operating loss and tax credit carryforwards that have been fully offset by a valuation allowance.

Summary of Significant Accoun16

Summary of Significant Accounting Policies (Polices)	3 Months Ended
	Mar. 31, 2016
Summary of Significant Accounting Policies
Basis of Presentation	Basis of Presentation The accompanying unaudited interim financial statements for Xencor, Inc. (the Company) have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information. The financial statements include all adjustments (consisting only of normal recurring adjustments) that the management of the Company believes are necessary for a fair presentation of the periods presented. The preparation of interim financial statements requires the use of management’s estimates and assumptions that affect reported amounts of assets and liabilities at the date of the interim financial statements and the reported revenues and expenditures during the reported periods. These interim financial results are not necessarily indicative of the results expected for the full fiscal year or for any subsequent interim period. The accompanying unaudited interim financial statements and related notes should be read in conjunction with the audited financial statements and notes thereto included in the Company’s 2015 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 8, 2016.
Marketable Securities	Marketable Securities The Company has an investment policy that includes guidelines on acceptable investment securities, minimum credit quality, maturity parameters and concentration and diversification. The Company invests its excess cash primarily in marketable securities issued by investment grade institutions. The Company considers its marketable securities to be available-for-sale. These assets are carried at fair value and the unrealized gains and losses are included in accumulated other comprehensive income (loss). Accrued interest on marketable securities is included in marketable securities. If a decline in the value of a marketable security in the Company’s investment portfolio is deemed to be other-than-temporary, the Company writes down the security to its current fair value and recognizes a loss as a charge against income. The Company reviews its portfolio of marketable securities, using both quantitative and qualitative factors, to determine if declines in fair value below cost are other-than-temporary.
Sale of Additional Common Stock	Sale of Additional Common Stock In March 2015, we completed the sale of 8,625,000 shares of common stock which included shares we issued pursuant to our underwriters’ exercise of their over-allotment option pursuant to a follow-on offering. We received net proceeds of $115.2 million, after underwriting discounts, commissions and estimated offering expenses.
Recent Accounting Pronouncements	Recent Accounting Pronouncements In March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” which amends the current stock compensation guidance. The amendments simplify the accounting for the taxes related to stock based compensation, including adjustments to how excess tax benefits and a company's payments for tax withholdings should be classified. The standard is effective for fiscal periods beginning after December 15, 2016, with early adoption permitted. The Company is currently evaluating the impact of the adoption of the new accounting pronouncement on its financial statements and related disclosures. There have been no other material changes to the significant accounting policies previously disclosed in the Company’s 2015 Annual Report on Form 10-K

Fair Value of Financial Instr17

Fair Value of Financial Instruments (Tables)	3 Months Ended
	Mar. 31, 2016
Fair Value of Financial Instruments
Schedule of assets recorded at fair value	The assets recorded at fair value are classified within the hierarchy as follows for the periods reported (in thousands): March 31, 2016 December 31, 2015 Total Total Fair Value Level 1 Level 2 Fair Value Level 1 Level 2 Money Market Funds $ $ $ — $ $ $ — Corporate Securities — — Government Securities — — $ $ $ $ $ $

Net Loss Per Share (Tables)

Net Loss Per Share (Tables)	3 Months Ended
	Mar. 31, 2016
Net Loss Per Share
Schedule of basic and diluted net loss per common share	Basic and diluted (loss) per common share is computed as follows (in thousands except share and per share data) Three Months Ended March 31, 2016 2015 (in thousands, except per share data) Basic numerator: Net loss attributable to common stockholders $ $ Denominator: Weighted-average common shares outstanding used in computing basic and diluted net loss Basic and diluted net loss per common share $ $

Marketable Securities (Tables)

Marketable Securities (Tables)	3 Months Ended
	Mar. 31, 2016
Marketable Securities
Schedule of marketable securities	Gross Gross Amortized Unrealized Unrealized March 31, 2016 Cost Gains Losses Fair Value (in thousands) Money Market Funds $ $ — $ — $ Corporate Securities Government Securities $ $ $ $ Reported as Cash and cash equivalents $ Marketable securities Total investments $ Gross Gross Amortized Unrealized Unrealized December 31, 2015 Cost Gains Losses Fair Value (in thousands) Money Market Funds $ $ — $ — $ Corporate Securities Government Securities — $ $ $ $ Reported as Cash and cash equivalents $ Marketable securities Total investments $
Schedule of maturities of marketable securities	Amortized Estimated March 31, 2016 Cost Fair Value (in thousands) Mature in one year or less $ $ Mature after one year through five years $ $ Amortized Estimated December 31, 2015 Cost Fair Value (in thousands) Mature in one year or less $ $ Mature after one year through five years $ $

Stock-Based Compensation (Table

Stock-Based Compensation (Tables)	3 Months Ended
	Mar. 31, 2016
Stock-Based Compensation
Schedule of total employee, director and non-employee stock-based compensation expense recognized	Total employee, director and non-employee stock-based compensation expense recognized for the three months ended March 31, 2016 are as follows (in thousands): Three Months Ended March 31, 2016 2015 General and administrative $ $ Research and development $ $
Summary of stock option activity	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) Balances at December 31, 2015 $ Options granted $ Options forfeited $ Options exercised $ Balance at March 31, 2016 $ $ Exercisable $ $
Schedule of weighted average assumptions used for estimation of fair value of stock options	Options Three Months Ended March 31, 2016 2015 Expected term (years) Expected volatility % % Risk-free interest rate % % Expected dividend yield — % — %
Schedule of weighted average assumptions used for estimation of fair value of ESPP	ESPP Three Months Ended March 31, 2016 2015 Expected term (years) 0.5 - 2.0 0.5 - 2.0 Expected volatility % 70.6 - 71.8 % Risk-free interest rate .55% - .93 % .06% - .46 % Expected dividend yield — % — %

Commitments and Contingencies (

Commitments and Contingencies (Tables)	3 Months Ended
	Mar. 31, 2016
Commitments and Contingencies
Schedule of future minimum payments under the non-cancelable operating and capital leases	The leases are accounted for as non-cancellable operating leases and future minimum payments are as follows (in thousands): Years ending December 31, For the remainder of the fiscal year $ 2017 2018 2019 2020 Thereafter —

Summary of Significant Accoun22

Summary of Significant Accounting Policies (Details) - Common Stock $ in Millions	1 Months Ended
	Mar. 31, 2015USD ($)shares
Sale of common stock | shares	8,625,000
Proceeds from sale of common stock | $	$ 115.2

Fair Value of Financial Instr23

Fair Value of Financial Instruments (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015	Mar. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Fair Value of Financial Instruments
Money Market Funds	$ 8,150	$ 12,590	$ 119,048	$ 12,590	$ 54,649
Total Fair Value	177,381	190,184
Money Market Funds
Fair Value of Financial Instruments
Money Market Funds	6,815	9,453
Corporate Securities
Fair Value of Financial Instruments
Securities	107,511	114,846
Government Securities
Fair Value of Financial Instruments
Securities	63,055	65,885
Level 1
Fair Value of Financial Instruments
Total Fair Value	6,815	9,453
Level 1 | Money Market Funds
Fair Value of Financial Instruments
Money Market Funds	6,815	9,453
Level 2
Fair Value of Financial Instruments
Total Fair Value	170,566	180,731
Level 2 | Corporate Securities
Fair Value of Financial Instruments
Securities	107,511	114,846
Level 2 | Government Securities
Fair Value of Financial Instruments
Securities	$ 63,055	$ 65,885

Net Loss Per Share (Details)

Net Loss Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Basic and diluted numerator:
Net loss attributable to common stockholders	$ (6,398)	$ (6,444)
Denominator:
Weighted-average common shares outstanding used in computing basic and diluted net loss per share (in shares)	40,626,729	34,297,782
Basic and diluted net loss per common share (in dollars per share)	$ (0.16)	$ (0.19)

Marketable Securities (Details)

Marketable Securities (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Schedule of Available-for-sale Securities
Amortized cost	$ 177,278	$ 190,700
Gross unrealized gains	158	6
Gross unrealized losses	(55)	(522)
Fair value	177,381	190,184
Marketable securities
Schedule of Available-for-sale Securities
Fair value	170,566	180,731
Money Market Funds
Schedule of Available-for-sale Securities
Amortized cost	6,815	9,453
Fair value	6,815	9,453
Corporate Securities
Schedule of Available-for-sale Securities
Amortized cost	107,423	115,148
Gross unrealized gains	130	6
Gross unrealized losses	(42)	(308)
Fair value	107,511	114,846
Government Securities
Schedule of Available-for-sale Securities
Amortized cost	63,040	66,099
Gross unrealized gains	28
Gross unrealized losses	(13)	(214)
Fair value	63,055	65,885
Cash and Cash Equivalents
Schedule of Available-for-sale Securities
Fair value	$ 6,815	$ 9,453

Marketable Securities - Maturit

Marketable Securities - Maturities (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Amortized Cost
Maturing in one year or less	$ 84,204	$ 83,963
Maturing after one year through five years	86,259	97,284
Total amortized cost	170,463	181,247
Estimate Fair Value
Maturing in one year or less	84,209	83,840
Maturing after one year through five years	86,357	96,891
Total estimated fair value	$ 170,566	$ 180,731

Stock Based Compensation (Detai

Stock Based Compensation (Details) - shares	Dec. 02, 2013	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015
Stock-based compensation
Common Stock, shares issued		40,741,753		40,551,039
Employee stock options
Stock-based compensation
Options granted (in shares)		957,000	720,250
Employee Stock Purchase Plan
Stock-based compensation
Total number of shares of common stock available for issuance		581,286
Annual percentage increase in shares of common stock available for issuance		1.00%
Awards issued under the plan (in shares)		0
Common Stock, shares issued		176,363
Annual increase in shares of common stock available for issuance (in shares)		621,814
The 2013 Plan
Stock-based compensation
Total number of shares of common stock available for issuance		7,535,701
Annual percentage increase in shares of common stock available for issuance		4.00%
Awards issued under the plan (in shares)		2,961,750
Annual increase in shares of common stock available for issuance (in shares)		1,400,000
Prior Plans
Stock-based compensation
Total number of shares of common stock available for issuance		2,684,456
The 2010 Plan
Stock-based compensation
Options granted (in shares)	0

Stock-Based Compensation - Empl

Stock-Based Compensation - Employee expense (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Stock-based compensation
Total employee, director and non-employee stock-based compensation expense	$ 1,960	$ 1,107
General and administrative
Stock-based compensation
Total employee, director and non-employee stock-based compensation expense	952	514
Research and development
Stock-based compensation
Total employee, director and non-employee stock-based compensation expense	$ 1,008	$ 593

Stock-Based Compensation - Opti

Stock-Based Compensation - Option Activity (Details) - USD ($) $ / shares in Units, $ in Thousands	Dec. 02, 2013	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015
Employee stock options
Number of Shares subject to outstanding options
Balance at the beginning of the period (in shares)		3,370,901
Options granted (in shares)		957,000	720,250
Options forfeited (in shares)		(43,486)
Options exercised (in shares)		(190,714)
Balance at the end of the period (in shares)		4,093,701		3,370,901
Weighted Average Exercise Price (Per Share)
Balance at the beginning of the period (in dollars per share)		$ 8.50
Options granted (in dollars per share)		12.46
Options forfeited (in dollars per share)		12.03
Options exercised (in dollars per share)		1.05
Balance at the end of the period (in dollars per share)		$ 9.74		$ 8.50
Exercisable (in shares)		1,704,726
Exercisable (in dollars per share)		$ 5.90
Weighted-average remaining contractual life		7 years 8 months 9 days		6 years 11 months 23 days
Weighted-average remaining contractual life of awards exercisable		5 years 10 months 21 days
Aggregate intrinsic value of options outstanding		$ 17,350
Aggregate intrinsic value of options exercisable		$ 13,270
Closing price of common stock (in dollars per share)		$ 13.42
Weighted average fair value of options granted (in dollars per share)		$ 8.30	$ 10.54
The 2010 Plan
Number of Shares subject to outstanding options
Options granted (in shares)	0

Stock Based Compensation - Assu

Stock Based Compensation - Assumptions (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Weighted average assumptions for estimated fair value of employee stock options
Total unrecognized compensation expense, net of estimated forfeitures	$ 16.7
Period to recognize total unrecognized compensation expense	3 years
Employee stock options
Weighted average assumptions for estimated fair value of employee stock options
Expected term (years)	6 years 1 month 6 days	6 years
Expected volatility (as a percent)	75.80%	76.60%
Risk-free interest rate (as a percent)	1.56%	1.61%
Employee Stock Purchase Plan
Weighted average assumptions for estimated fair value of employee stock options
Expected volatility (as a percent)	67.80%
Employee Stock Purchase Plan | Minimum
Weighted average assumptions for estimated fair value of employee stock options
Expected term (years)	6 months	6 months
Expected volatility (as a percent)		70.60%
Risk-free interest rate (as a percent)	0.55%	0.06%
Employee Stock Purchase Plan | Maximum
Weighted average assumptions for estimated fair value of employee stock options
Expected term (years)	2 years	2 years
Expected volatility (as a percent)		71.80%
Risk-free interest rate (as a percent)	0.93%	0.46%

Commitments and Contingencies31

Commitments and Contingencies (Details) - USD ($)	1 Months Ended		3 Months Ended
	Feb. 28, 2015	Jan. 31, 2015	Mar. 31, 2016	Mar. 31, 2015
Operating Leases
For the remainder of the fiscal year			$ 510,000
2,017			699,000
2,018			602,000
2,019			581,000
2,020			299,000
Net rent expense			$ 143,000	$ 129,000
Office Space
Renewal term	1 year	5 years

Commitments and Contingencies -

Commitments and Contingencies - Litigation (Details) - USD ($)	Oct. 05, 2015	Dec. 31, 2015	Mar. 31, 2016
Commitments and Contingencies
Loss contingency accrual			$ 0
Damages sought	$ 950,000
Insurance proceeds		$ 187,500
Paid legal award		$ 950,000

Collaboration and Licensing A33

Collaboration and Licensing Agreements (Details)	1 Months Ended				3 Months Ended
	Sep. 30, 2015USD ($)item	Dec. 31, 2014USD ($)	Jul. 31, 2013USD ($)item	Jan. 31, 2013USD ($)item	Mar. 31, 2016USD ($)item	Mar. 31, 2015USD ($)	Dec. 31, 2015USD ($)
Collaboration research and licensing agreements
Revenue recognized					$ 7,252,000	$ 1,491,000
Current portion of deferred revenue					27,460,000		$ 33,287,000
License Agreement | Merck Sharp & Dohme Corp.
Collaboration research and licensing agreements
Nonrefundable upfront payment			$ 1,000,000
Annual maintenance fees			$ 500,000
Revenue recognized					25,000
Deferred revenue					25,000
Number of compounds | item			1
Portion of nonrefundable upfront payment allocated to option			$ 0
License Agreement | Alexion Pharmaceuticals, Inc.
Collaboration research and licensing agreements
Nonrefundable upfront payment					2,500,000
Option and license agreement | Alexion Pharmaceuticals, Inc.
Collaboration research and licensing agreements
Nonrefundable upfront payment				$ 3,000,000
Annual maintenance fees				$ 500,000
Revenue recognized					300,000	$ 800,000
Deferred revenue					$ 1,300,000
Number of different target programs | item				6
Research license term				5 years
Additional research term					3 years
Extension fee					$ 2,000,000
Annual maintenance fees payable during any extension of research term				$ 1,000,000
Option fee					4,000,000
Research term of revenue recognized				5 years
Collaboration And License Agreement | Novo Nordisk
Collaboration research and licensing agreements
Nonrefundable upfront payment		$ 2,500,000
Revenue recognized					700,000
Deferred revenue					1,300,000
Research license term		2 years
Research term of revenue recognized		2 years
Research and License Agreement 2015 | Amgen, Inc.
Collaboration research and licensing agreements
Nonrefundable upfront payment	$ 45,000,000
Potential milestone payment	$ 1,700,000,000
Revenue recognized					6,250,000
Deferred revenue					$ 25,000,000
Number of different target programs | item	6
Number of previously identified products | item					3
Research and License Agreement 2015 | Amgen, Inc. | CD38 Program
Collaboration research and licensing agreements
Nonrefundable upfront payment					$ 13,750,000
Potential milestone payment					355,000,000
Research and License Agreement 2015 | Amgen, Inc. | Discovery Program
Collaboration research and licensing agreements
Nonrefundable upfront payment					6,250,000
Potential milestone payment					$ 260,500,000
Number of different target programs | item					3
Research license term					3 years
Additional research term					1 year
Number of previously identified products | item					1
Previous targets which bispecific technology will be applied | item	5
Development-based | Research and License Agreement 2015 | Amgen, Inc. | CD38 Program
Collaboration research and licensing agreements
Potential milestone payment					$ 55,000,000
Development-based | Research and License Agreement 2015 | Amgen, Inc. | Discovery Program
Collaboration research and licensing agreements
Potential milestone payment					35,500,000
Regulatory-based | Research and License Agreement 2015 | Amgen, Inc. | CD38 Program
Collaboration research and licensing agreements
Potential milestone payment					70,000,000
Regulatory-based | Research and License Agreement 2015 | Amgen, Inc. | Discovery Program
Collaboration research and licensing agreements
Potential milestone payment					55,000,000
Sales-based | Research and License Agreement 2015 | Amgen, Inc. | CD38 Program
Collaboration research and licensing agreements
Potential milestone payment					230,000,000
Sales-based | Research and License Agreement 2015 | Amgen, Inc. | Discovery Program
Collaboration research and licensing agreements
Potential milestone payment					$ 170,000,000

Income Taxes (Details)

Income Taxes (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2016USD ($)
Federal
Provision for income tax net of valuation allowance	$ 0