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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________________________
FORM 10-Q
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2023
or
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
_______________________________________________
Commission file number: 001-36182
Xencor, Inc.
(Exact name of registrant as specified in its charter)
Delaware20-1622502
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
465 North Halstead Street, Suite 200, Pasadena, CA
91107
(Address of principal executive offices)(Zip Code)
(626) 305-5900
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per share
XNCR
The Nasdaq Global Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x Accelerated filer o Non-accelerated filer o Smaller reporting company o Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Class
Outstanding at April 29, 2023
Common stock, par value $0.01 per share60,390,793

Xencor, Inc.
Quarterly Report on Form 10-Q for the Quarter Ended March 31, 2023
Table of Contents
Page
In this report, unless otherwise stated or the context otherwise indicates, references to “Xencor,” “the Company,” “we,” “us,” “our” and similar references refer to Xencor, Inc. The Xencor logo is a registered trademark of Xencor, Inc. This report also contains registered marks, trademarks, and trade names of other companies. All other trademarks, registered marks and trade names appearing in this report are the property of their respective holders.
2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). You should not place undue reliance on these statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting the financial condition of our business. Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made and/or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth below under Part II, Item 1A, “Risk Factors” in this Quarterly Report. These statements, which represent our current expectations or beliefs concerning various future events, may contain words such as “may,” “will,” “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” the negative of such terms or other words indicating future results.
These forward-looking statements should, therefore, be considered in light of various important factors, including but not limited to, the following:
•the lingering effects of the 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;
3
•our failure to successfully execute our growth strategy, including any delays in our planned future growth; and
•our failure to maintain effective internal controls.
The factors, risks and uncertainties referred to above and others are more fully described under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 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.
4
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Xencor, Inc.
Balance Sheets
(in thousands, except share and per share data)
March 31,
2023		December 31,
2022
(unaudited)
Assets
Current assets
Cash and cash equivalents$72,394 $53,942 
Marketable debt securities475,922 526,689 
Marketable equity securities39,706 42,431 
Accounts receivable 19,861 28,997 
Prepaid expenses22,093 23,283 
Total current assets 629,976 675,342 
Property and equipment, net 66,685 59,183 
Patents, licenses, and other intangible assets, net 18,244 18,500 
Marketable debt securities - long term— 3,826 
Marketable equity securities - long term54,210 54,383 
Notes receivable - long term— — 
Right of use (ROU) asset33,697 34,419 
Other assets 599 613 
Total assets $803,411 $846,266 
Liabilities and stockholders’ equity
Current liabilities
Accounts payable $15,341 $10,088 
Accrued expenses 15,140 18,728 
Lease liabilities4,471 4,708 
Deferred revenue30,104 30,320 
Total current liabilities 65,056 63,844 
Lease liabilities, net of current portion54,772 54,926 
Total liabilities 119,828 118,770 
Commitments and contingencies
Stockholders’ equity
Preferred stock, $0.01 par value: 10,000,000 authorized shares; -0- issued and outstanding shares at March 31, 2023 and December 31, 2022
— — 
Common stock, $0.01 par value: 200,000,000 authorized shares at March 31, 2023 and December 31, 2022; 60,381,600 issued and outstanding at March 31, 2023 and 59,997,713 issued and outstanding at December 31, 2022
605 601 
Additional paid-in capital 1,085,651 1,072,132 
Accumulated other comprehensive loss(3,625)(6,952)
Accumulated deficit (399,048)(338,285)
Total stockholders’ equity 683,583 727,496 
Total liabilities and stockholders’ equity $803,411 $846,266 
See accompanying notes.
5
Xencor, Inc.
Statements of Comprehensive Income (Loss)
(unaudited)
(in thousands, except share and per share data)
Three Months Ended
March 31,
20232022
Revenue
Collaborations, milestones, and royalties$18,962 $85,495 
Operating expenses
Research and development 64,379 47,756 
General and administrative 13,948 11,273 
Total operating expenses78,327 59,029 
Loss from operations(59,365)26,466 
Other income (expenses)
Interest income, net2,892 653 
Other expense, net(1,392)(96)
Loss on equity securities, net(2,898)(3,429)
Total other expense, net(1,398)(2,872)
Net income (loss)(60,763)23,594 
Other comprehensive income (loss)
Net unrealized gain (loss) on marketable debt securities 3,327 (5,611)
Comprehensive income (loss)$(57,436)$17,983 
Basic net income (loss) per common share$(1.02)$0.40 
Diluted net income (loss) per common share$(1.02)$0.39 
Basic weighted average common shares outstanding59,771,67459,407,829
Diluted weighted average common shares outstanding59,771,67461,078,494
See accompanying notes.
6
Xencor, Inc.
Statements of Stockholders’ Equity
(unaudited)
(in thousands, except share data)
Common StockAdditional
Paid-in
Capital		Accumulated
Other
Comprehensive
Income (Loss)		Accumulated
Deficit		Total
Stockholders’
Equity
Stockholders’ EquitySharesAmount
Balance, December 31, 202259,997,713$601 $1,072,132 $(6,952)$(338,285)$727,496 
Issuance of common stock upon exercise of stock awards34,388— 924 — — 924 
Issuance of restricted stock units349,4994 (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 
Common StockAdditional
Paid-in
Capital		Accumulated
Other
Comprehensive
Income (Loss)		Accumulated
Deficit		Total
Stockholders’
Equity
Stockholders’ EquitySharesAmount
Balance, December 31, 202159,355,558$595 $1,017,523 $(1,510)$(283,104)$733,504 
Issuance of common stock upon exercise of stock awards36,500— 731 — — 731 
Issuance of restricted stock units137,1341 (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)$763,023 
See accompanying notes.
7
Xencor, Inc.
Statements of Cash Flows
(unaudited)
(in thousands)
Three Months Ended
March 31,
20232022
Cash flows from operating activities
Net income (loss)$(60,763)$23,594 
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization 2,245 2,178 
Amortization of premium on marketable securities(1,661)543 
Stock-based compensation 12,599 10,805 
Abandonment of capitalized intangible assets 321 311 
Change in fair value of equity securities2,898 3,429 
Loss on disposal of assets1,379 117 
Changes in operating assets and liabilities:
Accounts receivable and contract asset9,135 (26,820)
Interest receivable from marketable debt securities248 (251)
Prepaid expenses and other assets1,204 906 
Accounts payable 5,254 (2,096)
Accrued expenses (3,588)(6,831)
Lease liabilities and ROU assets331 1,736 
Deferred revenue(216)(1,806)
Net cash (used in) provided by operating activities (30,614)5,815 
Cash flows from investing activities
Purchase of marketable securities (95,228)(88,764)
Purchase of intangible assets (407)(906)
Purchase of property and equipment (10,783)(2,089)
Proceeds from maturities and sale of marketable securities 154,562 20,000 
Net cash provided by (used in) investing activities 48,144 (71,759)
Cash flows from financing activities
Proceeds from issuance of common stock upon exercise of stock awards922 731 
Net cash provided by financing activities 922 731 
Net increase (decrease) in cash and cash equivalents18,452 (65,213)
Cash and cash equivalents, beginning of period
53,942 143,480 
Cash and cash equivalents, end of period
$72,394 $78,267 
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest$7 $4 
Supplemental disclosures of non-cash investing activities
Unrealized gain (loss) on marketable securities$3,327 $(5,611)
See accompanying notes.
8
Xencor, Inc.
Notes to Financial Statements
(unaudited)
March 31, 2023
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited interim financial statements for Xencor, Inc. (the Company, Xencor, we or us) have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information. The 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 2022 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on February 24, 2023.
Use of Estimates
The preparation of interim financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, other comprehensive gain (loss) and the related disclosures. On an ongoing basis, management evaluates its estimates, including estimates related to its accrued clinical trial and manufacturing development expenses, stock-based compensation expense, evaluation of intangible assets, investments, leases and other assets for evidence of impairment, fair value measurements, and contingencies. Significant estimates in these interim financial statements include estimates made for royalty revenue, accrued research and development expenses, stock-based compensation expenses, intangible assets, incremental borrowing rate for right-of-use asset and lease liability, estimated standalone selling price of performance obligations, estimated time for completing delivery of performance obligations under certain arrangements, the likelihood of recognizing variable consideration, the carrying value of equity instruments without a readily determinable fair value, and recoverability of deferred tax assets.
Intangible Assets
The Company maintains definite-lived intangible assets related to certain capitalized costs of acquired licenses and third-party costs incurred in establishing and maintaining its intellectual property rights to its platform technologies and development candidates. These assets are amortized over their useful lives, which are estimated to be the remaining patent life or the contractual term of the license. The straight-line method is used to record amortization expense. The Company assesses its intangible assets for impairment if indicators are present or changes in circumstances suggest that impairment may exist. There was no impairment charge recorded for the three months ended March 31, 2023 and 2022.
The Company capitalizes certain in-process intangible assets that are then abandoned when they are no longer pursued or used in current research activities. There was no material abandonment of in-process intangible assets for each of the three months ended March 31, 2023 and March 31, 2022.
Marketable Debt and Equity Securities
The Company has an investment policy that includes guidelines on acceptable investment securities, minimum credit quality, maturity parameters, and concentration and diversification. The investment policy limits the maturity of any individual security to a maximum of 36 months. The average maturity of securities in the portfolio as of March 31, 2023 is less than 12 months. The Company invests its excess cash primarily in marketable debt securities issued by investment grade institutions.
9
The Company considers its marketable debt securities to be available-for-sale because it is not more likely than not that the Company will be required to sell the securities before recovery of the amortized cost. These assets are carried at fair value and any impairment losses and recoveries related to the underlying issuer’s credit standing are recognized within other income (expense), while non-credit related impairment losses and recoveries are recognized within accumulated other comprehensive income (loss). There were no impairment losses or recoveries recorded for the three months ended March 31, 2023 and 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 months ended March 31, 2023, the Company recorded an unrealized gain of $3.3 million in its portfolio of marketable debt securities. During the three months ended March 31, 2022, the Company recorded an unrealized loss of $5.6 million. 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 gain is recorded in other comprehensive income (loss) for the three months ended March 31, 2023.
The Company receives equity securities in connection with certain licensing transactions with its partners. These investments in equity securities are carried at fair value with changes in fair value recognized each period and reported within other income (expense). For equity securities with a readily determinable fair value, the Company remeasures these equity investments at each reporting period until such time that the investment is sold or disposed. If the Company sells an investment, any realized gain or loss on the sale of the securities will be recognized within other income (expense) in the Statements of Comprehensive Income (Loss) in the period of sale.
The Company also has investments in equity securities without a readily determinable fair value, where the Company elects the measurement alternative to record the investment at its initial cost minus impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. There was no impairment charge recorded for the three months ended March 31, 2023 and 2022, in connection with equity securities without a readily determinable fair value.
Recent Accounting Pronouncements
There have been no material changes in recently issued or adopted accounting standards from those disclose in the Company's 2022 Annual Report on Form 10-K. The Company has reviewed all recently issued accounting pronouncements and does not believe they will have a material impact on our results of operations, financial condition or cash flows.
There have been no other material changes to the significant accounting policies previously disclosed in the Company’s 2022 Annual Report on Form 10-K.
2. Fair Value of Financial Instruments
Financial instruments included in the financial statements include cash and cash equivalents, marketable debt and equity securities, accounts receivable, accounts payable, and accrued expenses. Marketable debt securities, equity securities, and cash equivalents are carried at fair value. The fair value of the other financial instruments closely approximates their fair value due to their short-term maturities.
The Company accounts for recurring and non-recurring fair value measurements in accordance with FASB Accounting Standards Codification 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.
10
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, 2023
(unaudited)		December 31, 2022
Total
Fair Value		Level 1Level 2Total
Fair Value		Level 1Level 2
Money Market Funds $56,705 $56,705 $— $40,967 $40,967 $— 
Corporate Securities189,026 — 189,026 200,626 — 200,626 
Government Securities286,896 — 286,896 329,889 — 329,889 
$532,627 $56,705 $475,922 $571,482 $40,967 $530,515 
Our policy is to record transfers of assets between Level 1 and Level 2 at their fair values as of the end of each reporting period, consistent with the date of the determination of fair value. During the three months ended March 31, 2023 and 2022, there were no transfers between Level 1 and Level 2.
3. Net Income (Loss) Per Common Share
Basic net income (loss) per common share is computed by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the period without consideration of common stock equivalents. Diluted net income (loss) per common share is computed by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common stock equivalents outstanding for the period. Potentially dilutive securities consisting of stock issuable pursuant to outstanding options and restricted stock units (RSUs), and stock issuable pursuant to the 2013 Employee Stock Purchase Plan (ESPP) are not included in the per common share calculation in periods when the inclusion of such shares would have an anti-dilutive effect.
Basic and diluted net income (loss) per common share is computed as follows:
Three Months Ended
March 31,
20232022
(in thousands, except share and per share data)
Numerator:
Net income (loss) attributable to common stockholders$(60,763)$23,594 
Denominator:
Weighted-average common shares outstanding used in computing basic net income (loss)59,771,67459,407,829
Effect of dilutive securities—1,670,665
Weighted-average common shares outstanding used in computing diluted net income (loss)59,771,67461,078,494
Basic net income (loss) per common share$(1.02)$0.40 
Diluted net income (loss) per common share$(1.02)$0.39 

For the three months ended March 31, 2023, all outstanding potentially dilutive securities have been excluded from the calculation of diluted net loss per common share as the effect of including such securities would have been anti-dilutive. For the three months ended March 31, 2022, we excluded 2,556,779 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.
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4. Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss). For each of the three-month period ended March 31, 2023 and 2022, the only component of other comprehensive loss is net unrealized gain or loss on marketable debt securities. There were no material reclassifications out of accumulated other comprehensive loss during each of the three-month periods ended March 31, 2023 and 2022.
5. Marketable Debt and Equity Securities
The Company’s marketable debt securities held as of March 31, 2023 and December 31, 2022 are summarized below:
March 31, 2023Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair Value
(in thousands)
Money Market Funds $56,705 $— $— $56,705 
Corporate Securities189,658 — (632)189,026 
Government Securities289,878 55 (3,037)286,896 
$536,241 $55 $(3,669)$532,627 
Reported as
Cash and cash equivalents$56,705 
Marketable securities475,922 
Total investments$532,627 
December 31, 2022Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair Value
(in thousands)
Money Market Funds $40,967 $— $— $40,967 
Corporate Securities201,752 — (1,126)200,626 
Government Securities335,705 3 (5,819)329,889 
$578,424 $3 $(6,945)$571,482 
Reported as
Cash and cash equivalents$40,967 
Marketable securities530,515 
Total investments$571,482 
The maturities of the Company’s marketable debt securities as of March 31, 2023 are as follows:
March 31, 2023Amortized
Cost		Estimated Cost
Fair Value
(in thousands)
Mature in one year or less$479,536 $475,922 
Mature within two years— — 
$479,536 $475,922 
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The unrealized losses on available-for-sale investments and their related fair values as of March 31, 2023 and December 31, 2022 are as follows:
Less than 12 months12 months or greater
March 31, 2023Fair valueUnrealized
losses		Fair valueUnrealized
losses
(in thousands)
Corporate Securities$119,220 $(632)$— $— 
Government Securities232,044 (3,037)— — 
$351,264 $(3,669)$— $— 
Less than 12 months12 months or greater
December 31, 2022Fair valueUnrealized
losses		Fair valueUnrealized
losses
(in thousands)
Corporate Securities$132,658 $(1,121)$3,826 $(5)
Government Securities324,933 (5,819)— — 
$457,591 $(6,940)$3,826 $(5)
The unrealized losses from the available-for-sale securities are primarily due to changes in the interest rate environment and not changes in the credit quality of the underlying securities in the portfolio.
The Company’s equity securities include securities with a readily determinable fair value. These investments are carried at fair value with changes in fair value recognized each period and reported within other income (expense). For the three months ended March 31, 2023 and March 31, 2022, a loss of $2.9 million and a loss of $3.4 million, respectively, were recorded under other income (expense) related to these securities. 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 March 31, 2023 and December 31, 2022 are as follows:
Fair ValueFair Value
March 31, 2023December 31, 2022
Astria Common Stock$9,282 $9,529 
INmune Common Stock12,180 11,954 
Viridian Common Stock18,244 20,948 
$39,706 $42,431 
The Company also has investments in equity securities without a readily determinable fair value. The Company elects the measurement alternative to record these investments at their initial cost and evaluate such investments at each reporting period for evidence of impairment, or observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Equity securities without a readily determinable fair value and their carrying values (in thousands) as of March 31, 2023 and December 31, 2022 are as follows:
Carrying ValueCarrying Value
March 31, 2023December 31, 2022
Astria Preferred Stock$— $174 
Zenas Preferred Stock54,209 54,209 
$54,209 $54,383 
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The Company received common and preferred stock in Astria in connection with a licensing transaction. The shares of Astria common stock have a readily determinable fair value and the adjustment in the fair value of the Astria common stock from the period ended December 31, 2022 has been recorded as an unrealized loss on equity securities for the three months ended March 31, 2023.
The Company originally 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 common stock has a readily determinable fair value and difference in the fair value of the common stock and the carrying value of the preferred stock has been recorded as a gain in equity securities for the three months ended March 31, 2023. The Company recorded a loss in equity securities related to the Astria common stock for the three months ended March 31, 2023.
The Company currently holds 1,885,533 shares of common stock of INmune Bio, Inc. (INmune). The 1,885,533 shares of INmune common stock are classified as equity securities with a readily determinable fair value, and the adjustment in the fair value of the shares of INmune common stock has been recorded as a gain in equity securities for the three months ended March 31, 2023.
The Company currently holds 717,144 shares of common stock of Viridian Therapeutics, Inc. (Viridian). The shares of Viridian common stock are classified as equity securities with a readily determinable fair value, and the adjustment in the fair value of the shares of Viridian common stock was recorded as a loss in equity securities for the three months ended March 31, 2023.
The Company currently holds an equity interest in Zenas BioPharma Limited (Zenas), a private biotechnology company. The Company’s equity interests include preferred stock in Zenas. The Company elected the measurement alternative to carry the Zenas equity at cost minus impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. During the three months ended March 31, 2023, there has not been any impairment or observable price changes related to this investment.
Unrealized loss recognized on equity securities during each of the three-month periods ended March 31, 2023 and 2022, consist of the following:
Three Months Ended
March 31,
20232022
Net loss recognized on equity securities$(2,898)$(3,429)
Less: net gain recognized on sale of equity securities— — 
Unrealized loss recognized on equity securities$(2,898)$(3,429)
6. Stock Based Compensation
Our Board of Directors (the Board) and the requisite stockholders previously approved the 2010 Equity Incentive Plan (the 2010 Plan). In October 2013, the Board approved the 2013 Equity Incentive Plan (the 2013 Plan), and in November 2013, our stockholders approved the 2013 Plan, which became effective as of December 3, 2013. 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. The December 2013 Plan will end December 2, 2023 and we will no longer be able to issue shares under the Plan after this date.
As of March 31, 2023, the total number of shares of common stock available for issuance under the 2013 Plan is 17,507,818. 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 2,399,908 shares on January 1, 2023. As of March 31, 2023, a total of 16,155,562 options have been granted under the 2013 Plan.
14
In November 2013, the Board and our stockholders approved the ESPP, which became effective as of December 5, 2013. As of March 31, 2023, the total number of shares of common stock available for issuance under the ESPP is 1,139,369. 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 599,977 shares on January 1, 2023. As of March 31, 2023, we have issued a total of 635,449 shares of common stock under the ESPP.
During the three months ended March 31, 2023, the Company awarded 862,738 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 March 31, 2023, a total of 2,862,555 RSUs have been granted under the 2013 Plan.
Total employee, director and non-employee stock-based compensation expense recognized for the three months ended March 31, 2023 and 2022 are as follows (in thousands):
Three Months Ended
March 31,
20232022
General and administrative $4,276 $3,674 
Research and development 8,323 7,131 
$12,599 $10,805 
Three Months Ended
March 31,
20232022
Stock options$6,983 $6,833 
ESPP322 301 
RSUs5,294 3,671 
$12,599 $10,805 
The following table summarizes option activity under our stock plans and related information:
Number of
Shares Subject
to Outstanding
Options		Weighted
Average
Exercise
Price
(Per
Share)		Weighted
Average
Remaining
Contractual
Term
(in years)		Aggregate
Intrinsic
Value
(in thousands)
Balance at December 31, 202210,082,642$29.12 6.30$27,141 
Options granted1,620,256$31.40 
Options forfeited(51,523)$36.18 
Options exercised(34,388)$26.82 
Balance at March 31, 202311,616,987$29.42 6.59$33,738 
Exercisable7,308,552$27.47 5.17$33,229 
We calculate the intrinsic value as the difference between the exercise price of the options and the closing price of common stock of $27.89 per share as of March 31, 2023.
The weighted-average fair value of options granted during the three-month periods ended March 31, 2023 and March 31, 2022 were $31.40 and $15.85 per share, respectively. There were 1,668,623 options granted during the three-month period ended March 31, 2022. We estimated the fair value of each stock option using the Black-Scholes option-
15
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, 2023 and 2022:
Options
Three Months Ended
March 31,
20232022
Expected term (years)6.06.4
Expected volatility50.5 %53.0 %
Risk-free interest rate4.26 %1.78 %
Expected dividend yield— %— %
ESPP
Three Months Ended
March 31,
20232022
Expected term (years)
0.5 - 2.0
0.5 - 2.0
Expected volatility
43.2 - 55.7%
55.7 %
Risk-free interest rate
0.13 - 2.82%
0.13% - 0.67%
Expected dividend yield— %— %
As of March 31, 2023, the unamortized compensation expense related to unvested stock options was $71.9 million. The remaining unamortized compensation expense will be recognized over the next 2.8 years. As of March 31, 2023, the unamortized compensation expense under our ESPP was $0.9 million. The remaining unamortized expense will be recognized over the next 0.7 years.
The following table summarizes the RSU activity for the three-month period ended March 31, 2023:
Restricted
Stock
Units		Weighted
Average Grant
Date Fair Value
(Per unit)
Unvested RSUs at December 31, 20221,232,551$32.41 
Granted862,73831.22 
Vested(349,499)32.83 
Forfeited(17,794)32.88 
Unvested RSUs at March 31, 20231,727,996$31.72 
As of March 31, 2023, the unamortized compensation expense related to unvested RSUs was $49.3 million. The remaining unamortized expense will be recognized over the next 2.4 years.
7. Leases
The Company leases office and laboratory space in Monrovia, California under a lease that expires in December 2025 with an option to renew for an additional five years at then market rates. The Company has assessed that it is unlikely to exercise the option to extend the lease term. For the three months ended March 31, 2023, there were no ROU assets obtained in exchange for new operating lease liabilities.
In June 2021, the Company entered into an Agreement of Lease (Lease Agreement) for laboratory and office space in Pasadena, California, which will expire in July 2035. The Lease Agreement provides for two separate phases of lease and occupancy. The first phase commences 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
16
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 placed the new facility into service in February 2023. The Company received delivery of the second phase premises on December 1, 2022. For the three months ended March 31, 2023, there were no ROU assets obtained in exchange for new operating lease liabilities.
The Company leases additional office space in San Diego, California through December 2023. For the three months ended March 31, 2023, there were no ROU assets obtained in exchange for new operating lease liabilities.
The Company’s lease agreements do not contain any residual value guarantees or restrictive covenants.
The following table reconciles the undiscounted cash flows for the operating leases at March 31, 2023 to the operating lease liabilities recorded on the balance sheet (in thousands):
Years ending December 31,
For the remainder of 2023$4,789 
20246,072 
20257,392 
20268,589 
20278,829 
20289,076 
Thereafter66,436 
Total undiscounted lease payments111,183 
Less: Tenant allowance(5,459)
Less: Imputed interest(46,481)
Present value of lease payments$59,243 
Lease liabilities - short-term$4,471 
Lease liabilities - long-term54,772 
Total lease liabilities$59,243 
The following table summarizes lease costs and cash payments for the three months ended March 31, 2023 and 2022 (in thousands):
Three Months Ended
March 31,
20232022
Operating lease cost$2,181 $1,562 
Variable lease cost234 99 
Total lease costs$2,415 $1,661 
Cash paid for amounts included in the measurement of lease liabilities$724 $684 
As of March 31, 2023, the weighted-average remaining lease term for operating leases is 11.8 years, and the weighted-average discount rate for operating leases is 8.9%. As of March 31, 2022, the weighted-average remaining lease term for operating leases is 12.3 years, and the weighted-average discount rate for operating leases is 5.8%.
8. Commitments and Contingencies
From time to time, the Company may be subject to various litigation and related matters arising in the ordinary course of business. 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.
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The Company is obligated to make future payments to third parties under in license agreements, including sublicense fees, royalties, and payments that become due and payable on the achievement of certain development and commercialization milestones. As the amount and timing of sublicense fees and the achievement and timing of these milestones are not probable and estimable, such commitments have not been included on the Company’s balance sheet. The Company has also entered into agreements with third-party vendors that will require us to make future payments upon the delivery of goods and services in future periods.
9. Collaboration and Licensing Agreements
The following is a summary description of the material revenue arrangements, including arrangements that generated revenue in the three months ended March 31, 2023 and 2022.
Alexion Pharmaceuticals, Inc.
In January 2013, the Company entered into an Option and License Agreement (the Alexion Agreement) with Alexion Pharmaceuticals, Inc. (Alexion). Under the terms of the Alexion Agreement, the Company granted to Alexion an exclusive research license, with limited sublicensing rights, to make and use the Company’s Xtend technology to evaluate and advance compounds. Alexion exercised its rights to one target program, ALXN1210, which is now marketed as Ultomiris®.
The Company is eligible to receive a contractual milestone for the achievement of certain commercial sales 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.
Under ASC 606, Revenue from Contracts with Customers, the Company recognizes revenue for sales-based royalties upon the subsequent sale of the product. The Company recognized $10.5 million and $6.1 million of royalty revenue under this arrangement for the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, there is a receivable of $9.4 million related to royalties due under the arrangement, and there is no deferred revenue related to this agreement.
Astellas Pharma Inc.
Effective March 29, 2019, the Company entered into a Research and License Agreement (the Astellas Agreement) with Astellas Pharma Inc. (Astellas).
Under the Astellas Agreement, Astellas developed ASP2138, a CLDN18.2 x CD3 bispecific antibody, which is currently being developed by Astellas in a Phase 1 study.
At March 31, 2022, the Company recorded a contract asset of $5.0 million related to a future development milestone under the Astellas Agreement, and we received the milestone payment in July 2022.
No revenue was recognized under the arrangement for the three months ended March 31, 2023, and the Company recognized $5.0 million of revenue for the three months ended March 31, 2022. As of March 31, 2023, there is no deferred revenue related to the arrangement.
Astria Therapeutics, Inc.
In connection with a licensing transaction, the Company received preferred and common stock in Astria. In January 2023, the Company exchanged its preferred stock for additional common stock in Astria.
The Company recognized an unrealized loss of $0.4 million related to its equity interest in Astria for the three months ended March 31, 2023. The Company recognized an unrealized gain of $0.8 million related to its equity interest in Astria for the three months ended March 31, 2022. There is no deferred revenue as of March 31, 2023 related to this agreement.
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Genentech, Inc., and F. Hoffmann-La Roche Ltd
In February 2019, the Company entered into a collaboration and license agreement (the Genentech Agreement) with Genentech, Inc. and F. Hoffmann-La Roche Ltd (collectively, Genentech) for the development and commercialization of novel IL-15 collaboration products (Collaboration Products), including XmAb306 (also named RG6323), the Company’s IL-15/IL-15Ra candidate.
Pursuant to the Genentech Agreement, XmAb306 is designated as a development program and all costs incurred for developing XmAb306 from March 8, 2019, the effective date of the Genentech Agreement, are being shared with Genentech under the initial cost-sharing percentage of 45%.
The Company did not recognize revenue related to the Genentech Agreement for the three months ended March 31, 2023, or the three months ended March 31, 2022. As of March 31, 2023, there is a $4.2 million payable related to cost-sharing development activities during the first quarter of 2023 for development studies being conducted under the Genentech Agreement. There is no deferred revenue as of March 31, 2023, as obligations to perform research activities have expired.
INmune Bio, Inc.
In connection with a licensing transaction, the Company received common stock in INmune.
For the three months ended March 31, 2023 the Company recorded an unrealized gain of $0.2 million and for the three months ended March 31, 2022, the Company recorded an unrealized loss of $3.4 million related to its investment in INmune.
Janssen Biotech, Inc.
Janssen Agreement
In November 2020, the Company entered into a Collaboration and License Agreement (the Janssen Agreement) with Janssen Biotech, Inc. (Janssen) pursuant to which the Company and Janssen conducted research and development activities to discover novel CD28 bispecific antibodies for the treatment of prostate cancer with Janssen maintaining exclusive worldwide rights to develop and commercialize licensed products identified from the research activities.
Under the Janssen Agreement, the Company conducted research activities and applied its bispecific Fc technology to antibodies targeting prostate cancer provided by Janssen. Upon completion of the research activities Janssen had a candidate selection option to advance an identified candidate for development and commercialization. In November 2021, the Company completed its performance obligations under the research activities and delivered CD28 bispecific antibodies to Janssen, and Janssen exercised its candidate selection option to select a bispecific CD28 antibody for further development. Janssen will assume full responsibility for development and commercialization of the CD28 bispecific antibody candidate.
Second Janssen Agreement
On October 1, 2021, the Company entered into a second Collaboration and License Agreement (the Second Janssen Agreement) with Janssen pursuant to which the Company granted Janssen an exclusive worldwide license to develop, manufacture, and commercialize plamotamab, the Company’s CD20 x CD3 development candidate, and pursuant to which Xencor and Janssen will conduct research and development activities to discover novel CD28 bispecific antibodies. The parties will conduct joint research activities for up to a two-year period to discover XmAb bispecific antibodies against CD28 and undisclosed B cell tumor-targets with Janssen receiving exclusive worldwide rights, subject to certain Xencor opt-in rights, to develop, manufacture and commercialize pharmaceutical products that contain one or more of such discovered antibodies (CD28 Licensed Antibodies). The Second Janssen Agreement became effective on November 5, 2021.
The Company will collaborate with Janssen on further clinical development of plamotamab with Janssen and share development costs with Janssen paying 80% and the Company paying 20% of certain development costs.
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The Company is generally responsible for conducting research activities under the Second Janssen Agreement, and Janssen is generally responsible for all development, manufacturing, and commercialization activities for CD28 Licensed Antibodies that are advanced.
In the first quarter of 2023, Janssen selected a B cell target for further development under the Second Janssen Agreement and the Company received a $5.0 million milestone.
There is a receivable of $2.7 million as of March 31, 2023, related to cost-sharing activities for development of plamotamab under the Second Janssen Agreement. The Company recognized $5.2 million and $1.8 million of revenue related to the Second Janssen Agreement for the three months ended March 31, 2023 and 2022, respectively, and there is $30.1 million in deferred revenue as of March 31, 2023 related to the Second Janssen Agreement.
MorphoSys AG
In June 2010, the Company entered into a Collaboration and License Agreement with MorphoSys AG (MorphoSys), which was subsequently amended. Under the agreement, we granted MorphoSys an exclusive worldwide license to the Company’s patents and know-how to research, develop and commercialize the XmAb5574 product candidate (subsequently renamed MOR208 and tafasitamab) with the right to sublicense under certain conditions. If certain developmental, regulatory and sales milestones are achieved, the Company is eligible to receive future milestone payments and royalties.
The Company recognized $1.8 million and $2.3 million of royalty revenue during the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, there is a receivable of $2.0 million related to estimated royalties due under the arrangement. As of March 31, 2023, there is no deferred revenue related to this agreement.
Novartis Institute for Biomedical Research, Inc.
In June 2016, the Company entered into a Collaboration and License Agreement (the Novartis Agreement) with Novartis Institutes for BioMedical Research, Inc. (Novartis) to develop and commercialize bispecific and other Fc engineered antibody drug candidates using the Company’s proprietary XmAb technologies and drug candidates.
Pursuant to the Novartis Agreement, the Company and Novartis were co-developing vibecotamab worldwide and sharing development costs. In August 2021, Novartis notified the Company it was terminating its rights with respect to the vibecotamab program, which became effective in February 2022. Under the Novartis Agreement, Novartis is responsible for its share of vibecotamab development costs through February 2023.
No revenue was recognized during the three months ended March 31, 2023, or the three months ended March 31, 2022, from the Novartis Agreement. There is no deferred revenue as of March 31, 2023.
Vir Biotechnology, Inc.
In the first quarter of 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.
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 advanced 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. We began earning royalties from the net sales of Sotrovimab in the second quarter of 2021. As the COVID 19 virus has mutated, our royalties from the sale of Sotrovimab have diminished significantly and future revenues from this license are expected to continue to decline.
The Company recognized $1.5 million and $70.3 million of royalty revenue for the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, there is a receivable of $1.5 million related to estimated royalty due under this agreement, and there is no deferred revenue related to this agreement.
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Viridian Therapeutics, Inc.
In December 2020 and in December 2021, the Company entered two separate license agreements with Viridian and received shares of Viridian common stock for each license.
The Company reported unrealized loss of $2.7 million and a loss of $0.9 million for the three months ended March 31, 2023 and March 31, 2022 related to the shares of Viridian common stock. The Company did not recognize revenue for the three months ended March 31, 2023 or 2022. There is no deferred revenue as of March 31, 2023 related to this agreement.
Zenas BioPharma Limited
In November 2020, the Company entered into a License Agreement (the Zenas Agreement) with Zenas, pursuant to which the Company received an equity interest in Zenas in exchange for the exclusive, worldwide rights to develop and commercialize drug candidates from the Company.
The equity in Zenas 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.
In November 2021, the Company entered into a second License Agreement (Second Zenas Agreement) with Zenas, pursuant to which the Company received additional equity in Zenas in exchange for the exclusive worldwide rights to develop and commercialize the Company’s obexelimab (XmAb5871) drug candidate. The original equity received for the second license was a warrant to acquire additional shares of Zenas. The warrant was exchanged for additional preferred stock in Zenas in November 2022.
The warrant in Zenas was recorded at its fair value as of the date of the Second Zenas Agreement and is reviewed each reporting period for impairment or other evidence of change in value. 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.
The Company did not record an impairment or change in the value of the Zenas equity or the warrant in Zenas in the three months ended March 31, 2023 or 2022. The Company did not recognize any revenue related to the Zenas Agreement for the three months ended March 31, 2023 or 2022, and there is no deferred revenue related to this agreement.
Revenue earned
The revenues recorded for the three months ended March 31, 2023 and 2022 were earned principally from the following licensees (in millions):
Three Months Ended
March 31,
20232022
Alexion$10.5 $6.1 
Astellas— 5.0 
Janssen5.2 1.8 
MorphoSys1.8 2.3 
Vir1.5 70.3 
Total$19.0 $85.5 
The table below summarizes the disaggregation of revenue recorded for the three months ended March 31, 2023 and 2022 (in millions):
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Three Months Ended
March 31,
20232022
Research collaboration$0.2 $1.8 
Milestone5.0 5.0 
Royalties13.8 78.7 
Total$19.0 $85.5 
Remaining Performance Obligations and Deferred Revenue
The Company’s remaining performance obligation as of March 31, 2023 is conducting research activities pursuant to research plans under the Second Janssen Agreement. As of March 31, 2023 and 2022, the Company has deferred revenue of $30.1 million and $35.5 million, respectively. All deferred revenue as of March 31, 2023 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.
10. Income taxes
There is no provision for income tax for the three months ended March 31, 2023 or for the three months ended March 31, 2022. As of March 31, 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.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with our financial statements and accompanying notes included in this Quarterly Report on Form 10-Q and the financial statements and accompanying notes thereto for the fiscal year ended December 31, 2022 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, 2022. See also “Special Note Regarding Forward-Looking Statements” included in this Quarterly Report on Form 10-Q.
Company Overview
We are a clinical-stage biopharmaceutical company focused on discovering and developing engineered monoclonal antibody and cytokine therapeutics to treat patients with cancer and autoimmune diseases who have unmet medical needs. We are advancing a broad portfolio of clinical-stage XmAb® drug candidates from our proprietary Fc technology platforms. We also use our protein engineering capabilities to increase our understanding of protein structure and interactions and to design new Fc technologies and XmAb development candidates with improved properties. In addition to engineering protein-target interactions, our approach to protein design includes engineering Fc domains, the part of an antibody that interacts with multiple segments of the immune system and controls antibody structure. The Fc domain is constant and interchangeable among antibodies, and our engineered Fc domains can be readily substituted for natural Fc domains.
Our protein engineering capabilities and Fc technologies enable us and our partners to develop XmAb antibodies and biotherapeutic drug candidates with improved properties and function, which can provide innovative approaches to treating disease and potential clinical advantage over other treatment options. For example, we 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 Fc 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 medicines have been developed with our Fc technologies. Three medicines are marketed by our partners and are generating royalty revenues for us, which partially offset our internal development costs.
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Refer to Part I, Item 1, "XmAb Bispecific Fc Domain and New Multi-Specific Antibody Formats" and "Other XmAb Fc Domains" in the description of our business included in our Annual Report on Form 10-K for the year ended December 31, 2022 for a discussion of our core Fc technology platforms.

Clinical-Stage XmAb Bispecific Antibody and Cytokine Drug Candidate Updates
Our modular XmAb bispecific Fc domains and protein engineering capabilities enable us to rapidly advance multiple drug candidates into clinical development. We and our partners are currently enrolling Phase 1 or Phase 2 studies for six 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.
Vudalimab (PD-1 x CTLA-4): Vudalimab is a bispecific antibody that targets PD-1 and CTLA-4, two immune checkpoint receptors, to selectively activate the tumor microenvironment, and it is being developed for patients with metastatic castration-resistant prostate cancer (mCRPC) and other solid tumor types. We are conducting a Phase 2 study of vudalimab in patients with mCRPC, as a monotherapy or in combination with chemotherapy or a PARP inhibitor depending on the tumor’s molecular subtype. We are also conducting a second Phase 2 study in patients with advanced gynecologic malignancies, as well as clinically-defined high-risk mCRPC.
XmAb104 (PD-1 x ICOS): XmAb104 is a bispecific antibody that targets PD-1, an immune checkpoint receptor, and ICOS, an immune co-stimulatory receptor, to selectively activate the tumor microenvironment. Initial dose-escalation data from a Phase 1 study 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 in combination with ipilimumab, in the Part C expansion portion of a Phase 1 clinical study, which is enrolling patients with microsatellite stable or proficient mismatch repair colorectal cancer.
XmAb564 (IL2-Fc Cytokine): XmAb564 is a 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's beta receptor and increased binding affinity for its alpha receptor. In a Phase 1a clinical study of XmAb564, a single dose of XmAb564, administered subcutaneously in healthy volunteers, was well tolerated and generated durable, dose-dependent and selective expansion of Tregs. We are conducting a randomized, double-blind, placebo-controlled Phase 1b clinical study to evaluate the safety and tolerability of multiple ascending doses of XmAb564, administered subcutaneously in patients with atopic dermatitis or psoriasis.
XmAb819 (ENPP3 x CD3): XmAb819 is a bispecific antibody that targets ENPP3 and CD3. ENPP3 is a tumor-associated antigen in renal cell carcinoma (RCC). The XmAb 2+1 multivalent format enables greater selectivity for ENPP3 expressing tumor cells compared to normal 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.
XmAb808 (B7-H3 x CD28): XmAb808 is a tumor-selective, co-stimulatory XmAb 2+1 bispecific antibody designed to bind to the broadly expressed tumor antigen B7-H3, and selectively to the CD28 T-cell co-receptor only when bound to tumor cells, which was demonstrated in in vitro studies. In vivo studies further demonstrated strong potentiation of checkpoint and CD3 cytotoxic activity. Xencor is conducting a Phase 1 study to evaluate XmAb808 in combination with pembrolizumab in patients with advanced solid tumors.
Candidates Co-Developed with Partners
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. Results from the expansion portion of a Phase 1 study in patients with refractory non-Hodgkin lymphoma indicate that intravenous plamotamab monotherapy was well tolerated and demonstrated encouraging clinical activity in heavily pretreated patients at the recommended Phase 2 dose. We are currently enrolling patients into subcutaneous dose escalation cohorts of this study.
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XmAb306/RG6323 (IL15/IL15Rα-Fc Cytokine): XmAb306 is a reduced-potency IL15/IL15Rα-Fc fusion protein that incorporates our Xtend extended half-life technology, and we are co-developing this program in collaboration with Genentech, a member of the Roche Group. Genentech is conducting a Phase 1 study of XmAb306 as a single agent and in combination with atezolizumab in patients with advanced solid tumors. Genentech has initiated two additional Phase 1 studies, evaluating XmAb306 in patients with relapsed/refractory multiple myeloma, either in combination with daratumumab (anti-CD38 antibody) or in combination with cevostamab (FcRH5 x CD3 bispecific antibody).
Advancements Expanding XmAb Bispecific and Cytokine Platforms
We conduct further research into the function and application of antibody components and cytokines in order to expand the scope of our XmAb technology platforms and identify additional XmAb drug candidates.
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.
In April 2023, we presented emerging data from research-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 Annual Meeting.
In 2023, we submitted an investigational new drug (IND) application for XmAb662, a wholly owned, reduced-potency IL12-Fc cytokine. In the first quarter of 2023, we received FDA clearance for our application and are initiating a Phase 1 study in patients with advanced solid tumors.
We are currently completing IND-enabling activities for an additional XmAb 2+1 bispecific antibody candidate, XmAb541 (Claudin-6 x CD3), which we are developing for patients with ovarian cancer. We plan to submit an IND application for XmAb541 in 2023.
Progress Across Partnerships
A key part of our business strategy is to leverage our protein engineering capabilities, XmAb Fc domains and drug candidates with partnerships, collaborations and licenses. Through these arrangements we generate revenues in the form of upfront payments, milestone payments and royalties. For partnerships for our drug candidates, we aim to retain a major economic interest in the form of keeping major geographic commercial rights; profit-sharing; co-development options; and the right to conduct studies with drug candidates developed in the collaboration. The types of arrangements that we have entered into with partners include product licenses, novel bispecific antibody collaborations, technology licensing agreements and strategic collaborations.
Product Licenses
Product licenses are arrangements in which we have internally developed drug candidates and, based on a strategic review, licensed partial or full rights to third parties to continue development and potential commercialization. We seek partners that can provide infrastructure and resources to successfully develop our drug candidates, have a track record of successfully developing and commercializing medicines, or have a portfolio of development-stage candidates and commercialized medicines that could potentially be developed in rational combinations with our drug candidates.
The FDA approved Monjuvi® (tafasitamab-cxix) under accelerated approval in July 2020. Monjuvi is a CD19-directed cytolytic antibody indicated in combination with lenalidomide for the treatment of adult patients with relapsed or refractory diffuse large B-cell lymphoma (DLBCL) not otherwise specified, including DLBCL arising from low grade lymphoma, and who are not eligible for autologous stem cell transplant (ASCT). This indication is approved under accelerated approval based on overall response rate. Continued approval for this indication may be contingent upon verification and description of clinical benefit in a confirmatory trial(s). In August 2021, the European Commission granted conditional marketing authorization for Minjuvi® (tafasitamab) in combination with lenalidomide, followed by tafasitamab monotherapy, for the treatment of adult patients with relapsed or refractory diffuse large B-cell lymphoma (DLBCL) who are not eligible for autologous stem cell transplantation (ASCT). Tafasitamab was created and initially developed by us. Tafasitamab is co-marketed by Incyte and MorphoSys under the brand name Monjuvi in the U.S. and is marketed by Incyte
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under the brand name Minjuvi in the E.U. Incyte has exclusive commercialization rights to tafasitamab outside the U.S. Monjuvi® and Minjuvi® are registered trademarks of MorphoSys AG. We earned $1.8 million in estimated royalties from MorphoSys for the three months ended March 31, 2023.
Technology License Agreements
We enter into technology licensing agreements in which we license access to one or more of our XmAb Fc domains on a restricted basis, typically to an XmAb Cytotoxic Fc Domain and/or the Xtend Fc Domain. Our partners are responsible for all research, development, and commercialization activities of the drug candidates. The plug-and-play nature of XmAb technologies allows us to license access to our platforms with limited or no internal research and development activities.
Alexion’s Ultomiris® uses Xtend Fc technology for longer half-life. Ultomiris has received marketing authorizations from regulatory agencies in the U.S. and multiple global markets for the treatment of patients with paroxysmal nocturnal hemoglobinuria (PNH) and for patients with atypical hemolytic uremic syndrome (aHUS). In April 2022, Ultomiris was approved by the FDA for the treatment of adult patients with generalized myasthenia gravis (gMG) who are anti-acetylcholine receptor antibody positive. Alexion is also evaluating Ultomiris in a broad late-stage development program across many indications in neurology and nephrology, and in April 2023, Ultomiris was recommended for marketing authorization in the EU for the treatment of adult patients with neuromyelitis optica spectrum disorder (NMOSD) who are anti-aquaporin-4 antibody positive. We earned $10.5 million in royalties from Alexion for the three months ended March 31, 2023.
In March 2020, we entered an agreement with Vir Biotechnology, Inc., under which Vir has non-exclusive access to our Xtend Fc technology to extend the half-life of novel antibodies Vir investigated 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; in the first quarter of 2022, the FDA deauthorized sotrovimab in treating patients with COVID-19. In December 2021, the EU granted a temporary 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 sotrovimab has diminished significantly and future revenue from this license are expected to continue to decline. We earned $1.5 million in royalties from Vir for the three months ended March 31, 2023.
Vir has also advanced two additional programs under our August 2019 agreement. VIR-2482 is being evaluated in a Phase 2 study as a universal prophylactic for influenza A. Additionally, VIR-3434 is being evaluated in Phase 2 studies as a potential treatment for patients with hepatitis B virus infection and hepatitis D virus infection.
Refer to Part I, Item 1, Note 9, Collaboration and Licensing Agreements of the Notes to Financial Statements included in this Quarterly Report on Form 10-Q for a description of the key terms of our arrangements.
We have over 1,400 issued and pending patents worldwide to protect our XmAb technology platform and XmAb drug candidates.
Since we commenced active operations in 1998, we have devoted substantially all our resources to staffing our Company, business planning, raising capital, developing our technology platforms, identifying potential product candidates, undertaking pre-clinical 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.
As of March 31, 2023, we had an accumulated deficit of $399.0 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.
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Results of Operations
Comparison of the Three Months Ended March 31, 2023 and 2022
The following table summarizes our results of operations for the three months ended March 31, 2023 and 2022 (in millions):
Three Months Ended
March 31,
20232022Change
Revenues:
Research collaboration$0.2 $1.8 $(1.6)
  Milestone5.0 5.0 — 
Royalties13.8 78.7 (64.9)
Total revenues19.0 85.5 (66.5)
Operating expenses:
 Research and development64.4 47.7 16.7 
 General and administrative14.0 11.3 2.7 
Total operating expenses78.4 59.0 19.4 
Other expense, net(1.4)(2.9)1.5 
Net (loss) income$(60.8)$23.6 $(84.4)
Revenues
Revenues for the three months ended March 31, 2023 are primarily from royalty revenue from Alexion and milestone revenue from our collaboration with Janssen. Revenues for the three months ended March 31, 2022 are primarily milestone revenue from Astellas and royalty revenue from Alexion and Vir.
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Research and Development Expenses
The following tables summarize our research and development expenses for the three months ended March 31, 2023 and 2022 (in millions):
Three Months Ended
March 31,
20232022Change
Product programs:
Bispecific programs:
CD3 programs:
Plamotamab*5.6 5.4 0.2 
XmAb819 (ENPP3 x CD3)4.4 3.5 0.9 
XmAb541 (CLDN6 X CD3)4.5 1.0 3.5 
Total CD3 programs14.5 9.9 4.6 
XmAb808 (B7-H3 x CD28)3.7 4.8 (1.1)
Tumor micro environment (TME) activator programs:
Vudalimab7.5 5.5 2.0 
XmAb1047.0 5.5 1.5 
Total TME activators programs14.5 11.0 3.5 
Subtotal bispecific programs32.7 25.7 7.0 
Cytokine programs:
XmAb306/RG6323 programs*4.9 3.3 1.6 
XmAb5646.5 3.1 3.4 
XmAb662 (IL-12-Fc)3.2 2.7 0.5 
Total cytokine programs14.6 9.1 5.5 
Other, research and early stage programs 14.0 5.4 8.6 
Wind down costs of terminated programs (1)
3.1 7.5 (4.4)
Total research and development expenses$64.4 $47.7 $16.7 
*Includes net reimbursements to and from our partners pursuant to agreements that include cost-sharing arrangements.
(1)Research and development expenses in 2023 include wind down costs of programs that terminated in prior periods including the vibecotamab, tidutamab and XmAb841 programs
.

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Three Months Ended
March 31,
20232022Change
External research and development expenses$27.7 $20.7 $7.0 
Internal research and development expenses28.4 19.9 8.5 
Stock based compensation8.3 7.1 1.2 
Total research and development expenses$64.4 $47.7 $16.7 
Research and development expenses increased by $16.7 million for the three months ended March 31, 2023 over the same period in 2022 primarily due to increased spending on our new development programs XmAb564, XmAb541, other research and early stage programs.
General and Administrative Expenses
The following table summarizes our general and administrative expenses for the three months ended March 31, 2023 and 2022 (in millions):
Three Months Ended
March 31,
20232022Change
General and administrative$14.0 $11.3 $2.7 
General and administrative expenses increased by $2.7 million for the three months ended March 31, 2023 over the same period in 2022 primarily due to increased facility expenses and additional spending on professional fees.
Other Income, Net
Other expense, net was $1.4 million and $2.9 million for the three months ended March 31, 2023 and 2022, respectively. Other expense, net for the three months ended March 31, 2023 consists of unrealized loss recognized from the change in fair value of our equity investments and loss on disposal of fixed assets offset by interest income earned on investments, while other expense, net for the same period in 2022 consist primarily of unrealized loss recognized from the change in fair value of our equity investments.
Cash Flows
The following table sets forth the primary sources and uses of cash for each of the periods presented below (in thousands):
Three Months Ended
March 31,
20232022Change
Net cash provided by (used in):
Operating activities$(30,614)$5,815 $(36,429)
Investing activities48,144 (71,759)119,903 
Financing activities922 731 191 
Net increase (decrease) in cash$18,452 $(65,213)$83,665 
Operating Activities
Cash used in operating activities for the three months ended March 31, 2023 was $30.6 million, while cash provided by operating activities for the three months ended March 31, 2022 was $5.8 million. The increase in cash used in operating activities is primarily due to lower royalty revenue recognized and increased research and development expenses in the three months ended March 31, 2023.
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Investing Activities
Investing activities consist primarily of investments in marketable debt securities available-for-sale, purchases of intangible assets, capitalization of patent and licensing costs and purchases of property and equipment.
Financing Activities
Net cash provided by financing activities represents net proceeds from the exercise of stock options for the three months ended March 31, 2023 and March 31, 2022, respectively. The proceeds received from option exercises increased by $0.2 million
Liquidity and Capital Resources
We have financed our operations primarily through private placements of our equity securities, the issuance of convertible notes, public offerings of our common stock, and payments received under our product development partnerships and licensing arrangements.
As of March 31, 2023, we had $568.2 million of cash, cash equivalents, receivables, and marketable debt securities compared to $613.5 million as of December 31, 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.
On February 27, 2023, we entered into a sales agreement (the Sales Agreement) with SVB Securities LLC (SVB Securities) pursuant to which we may issue and sell from time to time, at our option, up to an aggregate of $200 million of shares of common stock, $0.01 par value per share, of the Company through SVB Securities as sales agent. The issuance and sale of these shares by Xencor will be pursuant to a sales agreement prospectus filed with the Securities and Exchange Commission (SEC) on February 27, 2023 pursuant to our shelf registration statement on Form S-3ASR (Registration no. 333-2700030) filed with the SEC on February 27, 2023.
SVB Securities may sell the common stock by any method permitted under law deemed to be an "at the market" offering as defined by Rule 415 of the Securities Act of 1933, as amended including without limitation sales made by means of ordinary brokers on the NASDAQ Global market or otherwise at market prices prevailing at the time of sale or as otherwise directed by the Company. SVB Securities will use commercially reasonable efforts to sell the common stock from time to time, based on instructions from Xencor.
We are not obligated to sell any shares of common stock under the Sales Agreement. To date, we have not sold any shares under the Sales Agreement.
Funding Requirements
We have not generated any revenue from the sale of products developed by us to date and do not expect to do so until we obtain regulatory approval of and commercialize one or more of our internal product development candidates. As we are currently in the clinical stage of development, it will be some time before we expect to achieve this, and it is uncertain that we ever will commercialize one or more of our internal product development candidates. We expect that we will continue to increase our operating expenses in connection with ongoing as well as additional clinical and preclinical development of product candidates in our pipeline and also development candidates that we are co-developing with our partners.
Although it is difficult to predict our funding requirements, based upon our current operating plan, we expect that our existing cash, cash equivalents, marketable securities, and certain potential milestone payments will fund our operating expenses and capital expenditure requirements through the end of 2025. We have based these estimates on assumptions that may prove to be wrong which would cause us to use our capital resources sooner than we currently expect.
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Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements.
Contractual Obligations and Commitments
There were no material changes outside of the ordinary course of business to our specific contractual obligations during the three months ended March 31, 2023.
Critical Accounting Policies
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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes in the quantitative or qualitative aspects of our market risk profile. For additional information regarding the Company’s exposure to certain market risks, see “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” included in the Form 10-K for the fiscal year ended December 31, 2022.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
As required by Rule 13a-15(b) and Rule 15d-15(b) of the Exchange Act, our management, with the supervision of our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(b) and 15d-15(e)) as of March 31, 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 March 31, 2023.
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable assurance, not absolute assurance, that the objectives of our disclosure control system are met and, as set forth above, our principal executive officer and principal financial officer have concluded, that based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective to provide reasonable assurance that the objective of our disclosure control system were met.
Changes in Internal Control
There were no changes in our internal control over financial reporting that occurred during the three months ended March 31, 2023 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 effectiveness.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
The disclosure in Note 8, Commitments and Contingencies, of the Notes to Financial Statements included in this Quarterly Report on Form 10-Q includes a discussion of our legal proceedings and is incorporated herein by reference.
Item 1A. Risk Factors
You should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 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, 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.
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Item 6. Exhibits
Exhibit
Number		Description of Document
3.1
3.2
4.1
4.2
10.1
31.1
31.2
32.1
101.INSInline 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.SCHInline XBRL Schema Document
101.CALInline XBRL Calculation Linkbase Document
101.DEFInline XBRL Definition Linkbase Document
101.LABInline XBRL Labels Linkbase Document
101.PREInline XBRL Presentation Linkbase Document
104104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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: May 8, 2023
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