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AvailableForSaleSecuritiesGrossUnrealizeLoss

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 


 

FORM 10-Q

 

 

(Mark One)

 

 

 

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

 

For the quarterly period ended June 30, 2015

 

or

 

 

 

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

 


 

Commission file number: 001-36182

 

Xencor, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

 

Delaware

 

20-1622502

(State or Other Jurisdiction of Incorporation

or Organization)

 

(I.R.S. Employer Identification No.)

 

 

 

111 West Lemon Avenue, Monrovia, CA

 

91016

(Address of Principal Executive Offices)

 

(Zip Code)

 

(626) 305-5900

(Registrant’s Telephone Number, Including Area Code)

 

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   No  

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  Yes   No 

 

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

 

Large accelerated filer    Accelerated filer    Non-accelerated filer    Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).  Yes   No 

 

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

 

 

 

Class

 

Outstanding at July 24, 2015

Common stock, $0.01 par value

 

40,472,028

 

 

 

 

 

 


 

Table of Contents

Xencor, Inc.

 

Quarterly Report on FORM 10-Q for the quarter ended June  30, 2015

 

Table of Contents

 

 

 

 

 

Page

 

 

 

 

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

PART I. 

FINANCIAL INFORMATION

Item 1. 

Financial Statements

 

Balance Sheets as of June  30, 2015 (unaudited) and December 31, 2014

 

Statements of Comprehensive Loss for the Three Months and Six Months ended June  30, 2015 and 2014 (unaudited)

 

Statement of Stockholders’ Equity as of June  30, 2015 (unaudited)

 

Statements of Cash Flows for the Six Months Ended June  30, 2015 and 2014 (unaudited)

 

Notes to Financial Statements (unaudited)

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

24 

Item 4. 

Controls and Procedures

24 

 

 

 

PART II. 

OTHER INFORMATION

25 

Item 1. 

Legal Proceedings

25 

Item 1A. 

Risk Factors

25 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

49 

Item 6. 

Exhibits

49 

 

 

 

Signatures 

51 

 

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


 

Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of federal securities laws. Forward-looking statements include statements that may relate to our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs and other information that is not historical information. Many of these statements appear, in particular, under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Forward-looking statements can often be identified by the use of terminology such as “subject to”, “believe”, “anticipate”, “plan”, “expect”, “intend”, “estimate”, “project”, “may”, “will”, “should”, “would”, “could”, “can”, the negatives thereof, variations thereon and similar expressions, or by discussions of strategy.

 

All forward-looking statements, including, without limitation, our examination of historical operating trends, are based upon our current expectations and various assumptions. We believe there is a reasonable basis for our expectations and beliefs, but they are inherently uncertain. We may not realize our expectations, and our beliefs may not prove correct. Actual results could differ materially from those described or implied by such forward-looking statements. The following uncertainties and factors, among others (including those set forth under “Risk Factors”), could affect future performance and cause actual results to differ materially from those matters expressed in or implied by forward-looking statements:

 

·

our plans to develop and commercialize our product candidates;

 

·

our ongoing and planned clinical trials;

 

·

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

 

·

our estimates regarding 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;

 

·

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

 

·

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;

 

·

our partners’ ability to advance drug candidates into, and successfully complete, clinical trials;

 

·

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

 

·

our intellectual property position;

 

·

loss or retirement of key members of management;

 

·

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

 

·

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, 2014, as amended, as updated from time to time in Current Reports on Form 8-K. Forward-looking statements should be regarded solely as our current plans, estimates and beliefs. You should not place undue reliance on forward-looking statements. 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.

3


 

Table of Contents

PART I — FINANCIAL INFORMATION

Item1. Financial Statements

 

Xencor, Inc.

Balance Sheets

(In thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

    

June 30, 

    

December 31, 

 

 

 

2015

 

2014

 

 

 

(unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

11,171

 

$

54,649

 

Marketable securities

 

 

56,714

 

 

 —

 

Accounts receivable

 

 

454

 

 

2,966

 

Interest receivable

 

 

670

 

 

 —

 

Prepaid expenses and other current assets

 

 

711

 

 

134

 

Total current assets

 

 

69,720

 

 

57,749

 

Property and equipment

 

 

 

 

 

 

 

Computers, software and equipment

 

 

5,073

 

 

4,270

 

Furniture and fixtures

 

 

102

 

 

97

 

Leasehold improvements

 

 

3,204

 

 

3,086

 

Less accumulated depreciation and amortization

 

 

(6,575)

 

 

(6,554)

 

Property and equipment, net

 

 

1,804

 

 

899

 

Other assets

 

 

 

 

 

 

 

Patents, licenses, and other intangible assets, net

 

 

9,691

 

 

9,116

 

Marketable securities - long term

 

 

91,284

 

 

 —

 

Other assets

 

 

64

 

 

59

 

Total other assets

 

 

101,039

 

 

9,175

 

Total assets

 

$

172,563

 

$

67,823

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable

 

$

3,077

 

$

1,691

 

Accrued expenses

 

 

2,537

 

 

2,251

 

Current portion of deferred revenue

 

 

2,794

 

 

2,254

 

Total current liabilities

 

 

8,408

 

 

6,196

 

Deferred rent, less current portion

 

 

703

 

 

 —

 

Deferred revenue, less current portion

 

 

1,384

 

 

2,337

 

Total liabilities

 

 

10,495

 

 

8,533

 

Commitments and contingencies

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

Common stock, $0.01 par value: 200,000,000 authorized shares at June 30, 2015 and December 31, 2014; 40,460,091 issued and outstanding at June 30, 2015 and 31,434,272 issued and outstanding at December 31, 2014

 

 

405

 

 

314

 

Additional paid-in capital

 

 

421,058

 

 

302,969

 

Accumulated other comprehensive loss

 

 

(90)

 

 

 —

 

Accumulated deficit

 

 

(259,305)

 

 

(243,993)

 

Total stockholders’ equity

 

 

162,068

 

 

59,290

 

Total liabilities and stockholders’ equity

 

$

172,563

 

$

67,823

 

 

 

 

See accompanying notes.

 

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Table of Contents

Xencor, Inc.

Statements of Comprehensive Loss

(unaudited)

(In thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

    

2015

    

2014

 

2015

    

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

Collaborations, licenses and milestones

 

$

1,014

 

$

824

 

$

2,505

 

$

3,008

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

7,476

 

 

4,283

 

 

12,681

 

 

8,511

General and administrative

 

 

2,524

 

 

1,594

 

 

5,288

 

 

3,317

Total operating expenses 

 

 

10,000

 

 

5,877

 

 

17,969

 

 

11,828

Loss from operations 

 

 

(8,986)

 

 

(5,053)

 

 

(15,464)

 

 

(8,820)

Other income (expenses)

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

290

 

 

11

 

 

391

 

 

29

Interest expense

 

 

(4)

 

 

(3)

 

 

(8)

 

 

(5)

Other income (expenses)

 

 

(168)

 

 

1

 

 

(231)

 

 

1

Total other income (expense), net

 

 

118

 

 

9

 

 

152

 

 

25

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

(8,868)

 

 

(5,044)

 

$

(15,312)

 

$

(8,795)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized loss on marketable securities available-for-sale

 

 

(55)

 

 

 —

 

 

(90)

 

 

 —

Comprehensive loss

 

$

(8,923)

 

$

(5,044)

 

$

(15,402)

 

$

(8,795)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per common share

 

$

(0.22)

 

$

(0.16)

 

$

(0.41)

 

$

(0.28)

Weighted average common shares outstanding used to compute basic and diluted net loss per share

 

 

40,389,648

 

 

31,372,618

 

 

37,518,271

 

 

31,366,781

 

 

 

 

 

 

 

 

 

 

See accompanying notes. 

5


 

Table of Contents

Xencor, Inc.

Statement of Stockholders’ Equity

(in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

 

Total

 

 

Common Stock

 

Paid

 

Comprehensive

 

Accumulated

 

Stockholders’

Stockholders’ Equity

 

Shares

 

Amount

 

in-Capital

 

Loss

 

Deficit

 

Equity

Balance, December 31, 2014

 

31,434,272

 

 

314

 

 

302,969

 

 

 —

 

 

(243,993)

 

 

59,290

Sale of common stock, net of issuance cost of $7.7 million

 

8,625,000

 

 

86

 

 

115,118

 

 

 —

 

 

 —

 

 

115,204

Issuance of common stock upon exercise and vesting of stock awards

 

352,831

 

 

4

 

 

425

 

 

 —

 

 

 —

 

 

429

Issuance of common stock from employee stock purchase plan

 

47,988

 

 

1

 

 

246

 

 

 —

 

 

 —

 

 

247

Comprehensive loss

 

 —

 

 

 —

 

 

 —

 

 

(90)

 

 

(15,312)

 

 

(15,402)

Stock-based compensation

 

 —

 

 

 —

 

 

2,300

 

 

 —

 

 

 —

 

 

2,300

Balance, June 30, 2015 (unaudited)

 

40,460,091

 

$

405

 

$

421,058

 

$

(90)

 

$

(259,305)

 

$

162,068

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes. 

 

 

 

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Table of Contents

Xencor, Inc.

Statements of Cash Flows

(unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Six Months ended

 

 

 

June 30,

 

 

    

2015

    

2014

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net loss

 

$

(15,312)

 

$

(8,795)

 

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

494

 

 

486

 

Amortization of premium on marketable securities

 

 

240

 

 

 —

 

Stock-based compensation

 

 

2,300

 

 

639

 

Abandonment of capitalized intangible assets

 

 

54

 

 

131

 

Gain on disposal of assets

 

 

(9)

 

 

(1)

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

2,513

 

 

(1)

 

Interest receivable

 

 

(670)

 

 

 —

 

Prepaid expenses and other current assets

 

 

(534)

 

 

(300)

 

Other assets

 

 

(4)

 

 

 —

 

Accounts payable

 

 

1,387

 

 

(1,259)

 

Accrued expenses

 

 

328

 

 

(62)

 

Deferred rent

 

 

617

 

 

 —

 

Deferred revenue

 

 

(413)

 

 

(1,605)

 

Net cash used in operating activities

 

 

(9,009)

 

 

(10,767)

 

Cash flows from investing activities

 

 

 

 

 

 

 

Purchase of marketable securities

 

 

(148,328)

 

 

 —

 

Purchase of intangible assets

 

 

(915)

 

 

(788)

 

Purchase of property and equipment

 

 

(1,115)

 

 

(336)

 

Proceeds from sale of property and equipment

 

 

9

 

 

1

 

Net cash used in investing activities

 

 

(150,349)

 

 

(1,123)

 

Cash flows from financing activities

 

 

 

 

 

 

 

Proceeds from issuance of common stock

 

 

122,906

 

 

137

 

Proceeds from issuance of common stock upon exercise of stock awards

 

 

429

 

 

 —

 

Proceeds from issuance of common stock under the Employee Stock Purchase Plan

 

 

247

 

 

 —

 

Common stock issuance costs

 

 

(7,702)

 

 

 —

 

Payments on capital lease obligations

 

 

 —

 

 

(4)

 

Net cash provided by financing activities

 

 

115,880

 

 

133

 

Net increase (decrease) in cash and cash equivalents

 

 

(43,478)

 

 

(11,757)

 

Cash and cash equivalents, beginning of period

 

 

54,649

 

 

77,975

 

Cash and cash equivalents, end of period

 

$

11,171

 

$

66,218

 

 

 

 

 

 

 

 

 

Supplemental disclosures of non-cash investing activities

 

 

 

 

 

 

 

Net unrealized loss on marketable securities available for sale

 

$

90

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes. 

 

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Table of Contents

Xencor, Inc.

 

Notes to Financial Statements

(unaudited)

 

June 30, 2015

 

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. 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 2014 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on February 23, 2015, as amended.

 

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”, as defined by authoritative guidance issued by the Financial Accounting Standards Board (“FASB”). These assets are carried at fair value and the unrealized gains and losses are included in accumulated other comprehensive income (loss). 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.

 

There have been no other material changes to the significant accounting policies previously disclosed in the Company’s 2014 Annual Report on Form 10-K, as amended.

 

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 May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, which establishes principles for reporting revenue and cash flows arising from an entity’s contracts with customers. This new revenue recognition standard will replace most of the recognition guidance within the United States GAAP. In July 2015, the FASB announced that the new pronouncement will be effective for reporting periods beginning after December 15, 2017. The new pronouncement permits the use of either the retroactive or cumulative effect transition method. Early adoption is not permitted.

 

The Company is evaluating the effect that ASU 2014-09 will have on its financial statements and related disclosures.

 

 

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Table of Contents

2. Fair Value of Financial Instruments

 

The fair values of the financial instruments included in the financial statements, which include cash equivalents, money markets, US government and corporate securities approximate their carrying values at June  30, 2015 due to their short term maturities. Our financial instruments also include accounts receivable, accounts payable and accrued expenses. Marketable securities and cash equivalents are carried at fair value.

 

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):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2015

 

 

    

Total

    

    

 

 

 

 

    

 

 

Fair Value

 

Level 1

 

Level 2

 

 

 

 

 

 

 

 

 

 

 

 

                                            Money Market Funds

 

$

1,379

 

$

1,379

 

$

 —

 

                                            Corporate Securities

 

 

89,766

 

 

 —

 

 

89,766

 

                                            Government Securities

 

 

58,232

 

 

 —

 

 

58,232

 

 

 

$

149,377

 

$

1,379

 

$

147,998

 

 

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 and six months ended June  30, 2015, there were no transfers between Level 1 and Level 2. The Company does not have any Level 3 assets or liabilities.

 

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 per share data)

 

 

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Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

    

2015

    

2014

    

2015

    

2014

 

 

(in thousands, except

 

 

per share data)

Basic and diluted numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to common stockholders

 

$

(8,868)

 

$

(5,044)

 

$

(15,312)

 

$

(8,795)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding used in computing basic and diluted net loss

 

 

40,389,648

 

 

31,372,618

 

 

37,518,271

 

 

31,366,781

Basic and diluted net loss per common share

 

$

(0.22)

 

$

(0.16)

 

$

(0.41)

 

$

(0.28)

 

The following shares of 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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30, 

 

 

June 30, 

 

    

2015

    

2014

 

    

2015

    

2014

 

 

(in thousands)

 

 

(in thousands)

Employee stock purchase plan shares

 

29

 

29

 

 

29

 

29

Options to purchase common stock

 

3,384

 

2,594

 

 

3,384

 

2,594

 

 

3,413

 

2,623

 

 

3,413

 

2,623

 

In March 2015, the Company issued 8,625,000 shares of common stock in a follow-on stock offering. The issuance of these shares resulted in a significant increase in the Company’s weighted average shares outstanding for the three months and six months ended June 30, 2015 when compared to the comparable prior year period and is expected to continue to impact the year-over-year comparability of the Company’s income (loss) per share calculations for the remainder of 2015.

 

 

 

4. Comprehensive loss

 

Comprehensive loss is comprised of net loss and other comprehensive loss. For the three months and six months ended June  30, 2015, the only component of other comprehensive loss is net unrealized gains and losses on marketable securities. There were no material reclassifications out of accumulated other comprehensive loss during the three months and six months ended June  30, 2015.

 

 

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5. Marketable Securities

 

The Company’s marketable securities held as of June 30, 2015 are summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross

 

Gross

 

 

 

 

    

Amortized

    

Unrealized

 

Unrealized

    

 

 

 

Cost

 

Gains

 

Losses

 

Fair Value

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Money Market Funds

 

$

1,379

 

$

 —

 

$

 —

 

$

1,379

Corporate Securities

 

 

89,839

 

 

16

 

 

(89)

 

 

89,766

Government Securities

 

 

58,249

 

 

10

 

 

(27)

 

 

58,232

 

 

$

149,467

 

$

26

 

$

(116)

 

$

149,377

 

 

 

 

 

 

 

 

 

 

 

 

 

Reported as

 

 

 

 

 

 

 

 

 

 

 

 

    Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

$

1,379

    Marketable securities

 

 

 

 

 

 

 

 

 

 

 

147,998

Total investments

 

 

 

 

 

 

 

 

 

 

$

149,377

 

The maturities of the Company’s marketable securities are as follows:

 

 

 

 

 

 

 

 

 

Amortized

    

Estimated

 

 

Cost

 

Fair Value

    (in thousands)

 

 

 

 

 

 

    Mature in one year or less

 

$

56,745

 

$

56,714

    Mature after one year through five years

 

 

91,342

 

 

91,284

 

 

$

148,087

 

$

147,998

 

 

 

 

 

6.  Stock Based Compensation

 

Our Board of Directors and the requisite stockholders previously approved the Amended and Restated 2000 Stock Incentive Plan (the 2000 Plan), and the 2010 Equity Incentive Plan (the 2010 Plan, and collectively with the 2000 Plan the Prior Plans). The 2000 Plan terminated August 2010 and no further awards may be issued under the 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 Prior Plans 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 June 30, 2015 the total number of shares of common stock available for issuance under the 2013 Plan is  6,705,683, which includes 2,684,456 of common stock that were available for issuance under the Prior Plans 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. As of June 30, 2015 a total of 1,973,250 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. As of June 30, 2015, a total of 581,286 shares of common stock have been reserved 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

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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. As of June 30, 2015, we have issued a total of 111,852 shares of common stock under the ESPP.

 

Total employee, director and non-employee stock-based compensation expense recognized for the three months and six months ended June 30, 2015 and 2014 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

    

2015

    

2014

 

2015

    

2014

General and administrative

 

$

520

 

$

164

 

$

1,035

 

$

292

Research and development

 

 

673

 

 

197

 

 

1,265

 

 

347

 

 

$

1,193

 

$

361

 

$

2,300

 

$

639

 

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, 2014

 

2,826,794

 

$

5.12

 

 

 

 

 

 

Options granted

 

909,750

 

$

15.84

 

 

 

 

 

 

Options exercised

 

(352,831)

 

$

1.21

 

 

 

 

 

 

Balance at June 30, 2015

 

3,383,713

 

$

8.41

 

 

7.47

 

$

45,875

Exercisable

 

1,390,857

 

$

3.16

 

 

5.14

 

$

26,159

 

We calculate the intrinsic value as the difference between the exercise price of the options and the closing price of common stock of $21.97 per share as of June 30, 2015.

 

Weighted average fair value of options granted during the six-month period ended June 30, 2015 and 2014 was $10.58 and $7.35 per share, respectively.  There were 810,500 options granted during the period ended June 30, 2014. 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 and six months ended June 30, 2015 and 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options

 

Options

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30, 

 

June 30, 

 

 

    

2015

    

2014

    

2015

    

2014

 

Expected term (years)

 

5.9

 

6.0

 

6.0

 

6.0

 

Expected volatility

 

75.6

%

75.2

%

76.4

%  

75.2

%

Risk-free interest rate

 

1.60

%

1.93

%

1.61

%  

1.93

%

Expected dividend yield

 

 —

%  

 —

%  

 —

%  

 —

%  

 

 

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ESPP

 

ESPP

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30, 

 

June 30, 

 

 

    

2015

    

2014

    

2015

    

2014

 

Expected term (years)

 

0.5 - 2.0

 

0.5 - 2.0

 

0.5 - 2.0

 

0.5 - 2.0

 

Expected volatility

 

70.6 - 82.9

%

70.6

%

70.6 - 82.9

%

70.6

%

Risk-free interest rate

 

.06% - .46

%

.07% - .46

%

.06% - .46

%

.07% - .46

%

Expected dividend yield

 

 —

%

 —

%

 —

%

 —

%

 

At June 30, 2015, the Company had $11.9 million of total unrecognized compensation expense, net of estimated forfeitures, related to outstanding stock options and shares issued under our ESPP that will be recognized over the next 3.2 years.

 

7. Commitments and Contingencies

 

Operating Leases

 

The Company leases office and laboratory space in Monrovia, CA. In January 2015, we entered into a new lease agreement for the property. The new lease replaces the previous lease and extends our lease term to June 2020 with an option to renew for an additional five years. The new lease is a non-cancelable operating lease.

 

The Company also leases office space in San Diego, CA. In February 2015, we entered into an amended lease agreement for the San Diego property. The amended lease replaces the previous lease and provides for additional space in a building located in the same multi-building development. The amended lease expires in April 2018 and includes an option to renew for a period of one year.

 

Future minimum payments under the non-cancelable operating leases consist of the following (in thousands):

 

 

 

 

 

 

 

 

Operating

Years ending December 31,

 

Leases

For the remainder of the fiscal year

 

$

330

2016

 

 

679

2017

 

 

699

2018

 

 

602

2019

 

 

581

Thereafter

 

 

299

 

Net rent expense for the six months ended June  30, 2015 and 2014 was $272,000 and $277,000 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

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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.   The Company intends to vigorously defend the action. Based on the preliminary nature of the claim, the Company believes that it is not possible to estimate a potential loss related to the claim.

 

 

8. Collaboration and Licensing Agreements

 

Following is a summary description of the arrangements that generated revenue in the six months ended June 30, 2015 and 2014.

 

Amgen, Inc.

 

In December 2010, we entered into a Collaboration and Option Agreement (Collaboration Agreement) with Amgen, Inc. (Amgen), pursuant to which we agreed to collaborate with Amgen on development of XmAb5871 in rheumatoid arthritis (“RA”) through completion of a Phase 2 proof-of-concept (“POC”) trial. During development and through completion of the POC trial, we would continue to own and would control and pay for all development activities. After completion of the POC trial, we would deliver a data package to Amgen and they would have 90 days to review and decide whether to exercise an option to obtain worldwide rights to XmAb5871. Upon exercise of the option and payment of a $50 million option fee, Amgen would own all rights to the compound and be responsible for further development. In addition to the option fee, upon exercise of the option we would be eligible to receive $437 million in future development, regulatory and sales milestones as Amgen advanced XmAb5871 into later stages of development.

 

We received a nonrefundable upfront payment of $11 million upon execution of the Collaboration Agreement and a $2 million milestone in January 2013 upon the initiation of a Phase 1b clinical trial. We were also eligible to receive an additional $12 million in pre-option payments upon continued development of XmAb5871 through completion of the Phase 2 POC trial and delivery of the clinical study reports to Amgen. 

 

In October 2014, we entered into an agreement with Amgen to terminate the Collaboration Agreement pursuant to which all worldwide rights to develop and commercialize XmAb5871 reverted back to us. Our obligations to continue development of XmAb5871 under the terms of the Collaboration Agreement terminated effective as of the date of the termination agreement. As a result of and effective as of the date of the termination agreement, all of Amgen’s rights to XmAb5871 terminated including the right to exercise an exclusive option to acquire the worldwide rights to XmAb5871. Amgen’s obligations to make any further payments to us are also terminated. In connection with the termination, we granted Amgen a right of first negotiation (ROFN) to obtain an exclusive license to develop and commercialize any XmAb5871 product.

 

The Company has evaluated the termination agreement with Amgen and determined that the termination results in a cancellation of all our obligations to Amgen under the Collaboration Agreement. We have evaluated the ROFN and determine that its value is de minimis because Amgen’s rights are limited. As a result of the termination, we recognized the remaining balance in deferred revenue as revenue in the period of the termination, October 2014. There is no remaining revenue or obligations to be reported under this agreement.

 

There were no revenues recognized during the three and six months ended June 30, 2015. During the three and six months ended June 30, 2014 we recognized $0.6 million and $1.1 million of revenue under this arrangement, respectively. As of June 30, 2015, there is no remaining deferred revenue under this agreement.

 

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

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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.

 

In the first quarter of 2014, Merck initiated a Phase 1 clinical trial which triggered a $0.5 million milestone payment to us. During the three and six months ended June 30, 2015 we recognized $25,000 and $50,000 of revenue respectively. During the three and six months ended June 30, 2014 we recognized zero and $0.5 million of revenue respectively. As of June 30, 2015, there is $0.1 million 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 initiated a Phase 1 clinical trial with an undisclosed molecule to be used against an undisclosed target. It is the first human clinical trial with a molecule incorporating our Xtend Fc Domain technology.  We received a milestone related to this trial in March 2015 upon issuance of certain patents related to our Xtend technology.

 

During the three and six months ended June 30, 2015 we recognized $0.3 million and $1.0 million of revenue respectively. During the three and six months ended June 30, 2014 we recognized $0.3 million and $0.5 million of revenue respectively. As of June 30, 2015, we have deferred revenue related to this arrangement of $1.6 million.

 

CSL Limited

 

In February 2009, we entered into a Research License and Commercialization Agreement (February 2009 Agreement) with CSL Limited (CSL). Under the agreement, we provided CSL with a research license to one of our technologies and up to five commercial options. The upfront payment of $0.75 million received at inception and the annual research license renewal payments are being recognized as revenue ratably over the five-year term of the research license. 

 

In May 2013, we entered into an amendment to the February 2009 Agreement with CSL, which eliminated a contingent milestone payment requirement and reduced the royalty rate on net sales for the licensed product CSL362. The amendment provided for a payment upon signing of $2.5 million. We determined that the amendment was a material modification to the original agreement and evaluated the remaining deliverables at the date of the amendment. We

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determined that the remaining deliverables were the research license which expired in February 2014 and four additional options to take commercial licenses through the term of the research period. The options are considered to be substantive and contingent and we did not allocate any of the proceeds received in the amendment to the options. The amendment proceeds were recognized into income over the remaining period of the research term.

 

There were no revenues during the three and six months ended June 30, 2015. During the three and six months ended June 30, 2014, we recognized zero and $0.7 million of revenue respectively. As of June 30, 2015, we have no deferred revenue related to this arrangement.

 

In March 2013, we entered into a license agreement (March 2013 License Agreement) with CSL. Under the terms of the agreement, we provided CSL with a non-exclusive commercial license to apply our technology to one of their compounds. The agreement provided for an upfront payment of $0.5 million and we were eligible to receive future milestones as CSL advanced the compound into clinical development. We determined that the deliverables under this agreement were the non-exclusive commercial license. We determined that the future milestones and related payments were substantive and contingent and we did not allocate any of the upfront consideration to the milestone.

 

In March 2015, CSL notified us that they were terminating the March 2013 License Agreement. We have no remaining obligations under the agreement. For the three and six months ended June 30, 2015 and 2014, we did not recognize any revenue related to this arrangement. As of June 30, 2015 there is no remaining deferred revenue under this agreement.   

 

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, Immune Inhibitor, Xtend and other technologies during a two-year research term. We will provide research support for four FTE’s in collaboration with Novo to apply our technologies to Novo provided targets to identify compounds with improved properties. Novo has an option to extend the research term for another twelve months upon written notice to us and payment of another year of research funding. At the end of the research term, Novo will have a commercial license to develop and commercialize any new targets identified during the research term.

 

The agreement provided for an upfront payment of $2.5 million and research funding of $1.6 million per year over the research term. We are also eligible to receive $2.0 million in milestone payments upon the successful completion of certain projects during the research term. In addition, if Novo identifies a compound from the collaboration to advance into clinical development, we are eligible to receive future development, regulatory and commercial milestone payments and royalties.

 

We determined that the deliverables under the arrangement were the research license to our technologies and the research support. We believe that the research support and the technologies are integral to each other and are not separate units of accounting. The commercial license did not have standalone value at inception of the agreement due to the uncertainty of identifying a commercial target. 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.

 

During the three and six months ended June 30, 2015, we recognized $0.7 million and $1.4 million of revenue respectively. As of June 30, 2015, we have $2.2 million in deferred revenue related to this arrangement.

 

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 alloawance.

 

 

 

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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, 2014 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, 2014, as amended. This Quarterly Report on Form 10-Q may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Such forward-looking statements, which represent our intent, belief, or current expectations, involve risks and uncertainties. We use words such as “may,” “will,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “predict,” “potential,” “believe,” “should” and similar expressions to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Such statements may include, but are not limited to, statements concerning: (i) the initiation, cost, timing, progress and results of our research and development activities, preclinical studies and future clinical trials, including our expected timeline for nominating clinical development candidates under our strategic alliances and our expected timeline for filing applications with regulatory authorities;(ii) our ability to obtain and maintain regulatory approval of our future product candidates, and any related restrictions, limitations, and/or warnings in the label of an approved product candidate; (iii) our ability to obtain funding for our operations; (iv) our plans to research, develop and commercialize our future product candidates; (v) our ability to attract collaborators with development, regulatory and commercialization expertise; (vi) our ability to obtain and maintain intellectual property protection for our technology; (vii) the size and growth potential of the markets for our technology and future product candidates, and our ability to serve those markets; (viii)our ability to successfully commercialize our technology and our future product candidates; (ix) our ability to develop sales and marketing capabilities, whether alone or with potential future collaborators; (x) regulatory developments in the United States and foreign countries; and (xi) the performance of our collaboration partners, licensees, third-party suppliers and manufacturers.  Although we believe the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risk and we can give no assurances that our expectations will prove to be correct. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q. As a result of many factors, including without limitation those set forth under “Risk Factors” under Item 1A of Part II below, and elsewhere in this Quarterly Report on Form 10-Q, our actual results may differ materially from those anticipated in these forward-looking statements. We undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect actual outcomes.

 

Company Overview

 

We are a clinical-stage biopharmaceutical company focused on discovering and developing engineered monoclonal antibodies to treat severe and life-threatening diseases with unmet medical needs. We use our proprietary XmAb technology platform to create next-generation antibody product candidates designed to treat autoimmune and allergic diseases, cancer and other conditions. In contrast to conventional approaches to antibody design, which focus on the portion of antibodies that interact with target antigens, we focus on the portion of the antibody that interacts with multiple segments of the immune system. This portion, referred to as the Fc domain, is constant and interchangeable among antibodies. Our engineered Fc domains, the XmAb technology, can be readily substituted for natural Fc domains. We believe our Fc domains enhance antibody performance by, for example, increasing immune inhibitory activity, improving cytotoxicity or extending circulating half-life, while maintaining 99.5% identity in structure and sequence to natural antibodies. By improving over natural antibody function, we believe that our XmAb-engineered antibodies offer innovative approaches to treating disease and potential clinical advantages over other treatments.

 

Our business strategy is based on the plug-and-play nature of the XmAb technology platform to modify features of natural antibodies and create numerous differentiated antibody product candidates. We have internally generated a pipeline that has allowed us to selectively partner certain development programs while maintaining full ownership of other programs. We also have a number of technology licenses under which we have licensed the XmAb technology platform to pharmaceutical and biotechnology companies for use in a limited number of programs, providing potential revenue streams that require no further resources from Xencor. There are currently eight antibody product candidates in clinical trials that have been engineered with XmAb technology, including six candidates being advanced by licensees

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and development partners. We have several U.S. patents and U.S patent applications, in addition to foreign counterparts, on file to protect our XmAb technology platform.

 

We were founded in 1997 based on protein engineering technology developed by our co-founders Bassil Dahiyat, Ph.D. and Stephen Mayo, Ph.D. at the California Institute of Technology. We began our first therapeutic monoclonal antibody engineering and discovery programs in 2002 and entered into our first XmAb technology license in 2004.

 

Since we commenced active operations in 1998, we have devoted substantially all of 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 products approved for commercial sale and have not generated any revenues from 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 convertible promissory notes and through payments generated from our product development partnership and licensing arrangements. We raised $80.5 million ($72.5 million net of expenses) in December 2013 through the sale of common stock in connection with our Initial Public Offering (IPO) and full exercise by the underwriters of their over-allotment.  We raised an additional $122.9 million ($115.2 million net of expenses) through a follow-on public offering of our common stock and full exercise by the underwriters of their over-allotment in March 2015. Although it is difficult to predict our funding requirements, based upon our current operating plan, we anticipate that our cash and cash equivalents and related marketable securities as of June 30, 2015, combined with collaboration payments that we anticipate receiving, will enable us to fund operations, including clinical development of XmAb5871, XmAb7195, XmAb14045 and XmAb 13676, our second bispecific clinical candidate, through 2019. 

 

We have incurred losses in each year since our inception. Our net losses were $15.3 million and $8.8 million for the six months ended June 30, 2015 and 2014, respectively. As of June 30, 2015, we had an accumulated deficit of $259 million. Substantially all of our operating losses resulted from expenses incurred in connection with our product candidate development programs, our research activities and general and administrative costs associated with our operations. 

 

Company Programs

 

XmAb5871.  XmAb5871 uses our XmAb Immune Inhibitor Fc Domain and targets B cells, an important component of the immune system.  In December 2010, we entered into the Collaboration Agreement with Amgen for an option for the acquisition by Amgen of exclusive rights to our XmAb5871 product candidate. In October 2014, pursuant to a request by us, Amgen agreed to terminate the Collaboration Agreement for convenience, provided we grant them a ROFN to obtain an exclusive license to develop and commercialize any future XmAb5871 product.

 

In January 2015, we announced top line data from our Phase 1b/2a clinical trial. In addition to the study’s primary objective characterizing safety and tolerability, the data showed promising activity in patients with rheumatoid arthritis (RA), including multiple DAS28_CRP remissions and ACR50 and ACR70 responses. The Phase 1b part of the trial was a multiple ascending dose trial involving 29 patients.  In the Phase 2a cohort of the trial, 15 XmAb5871 treated patients and eight placebo treated patients were evaluable for RA disease activity at the protocol specified disease activity assessment time point of two weeks following the sixth biweekly infusion. 33% of patients (5 of 15) that received all six biweekly doses of XmAb5871 achieved DAS28-CRP remission or low disease activity versus zero on placebo. This difference was also seen when evaluating across both parts of the study; 41.7% of patients who received any dose of XmAb5871 in Phase 1b or Phase 2a parts of the trial had low disease activity or remission on Day 85 (16.7% low and 25.0% remission) as compared to only 6.7% of patients in the placebo group (0% low and 6.7% remission). ACR responses were also enhanced in XmAb5871 treated patients.  In the Phase 2a part of the trial, 86.7%, 40.0% and 20.0% of patients in the XmAb5871 treated group achieved an ACR20, ACR50 and ACR70 response, respectively, compared to 62.5%, 12.5% and 0% for the placebo group. Over the entire Phase 1b/2a trial, there were increased numbers of ACR20, ACR50 and ACR70 responders in the XmAb5871 treated cohorts compared to placebo (77.8% vs. 46.7%, 33.3% vs. 13.3% and 13.9% vs. 0.  ACR70 and ACR50 responses refer, respectively to 70% and 50% reductions in the American College of Rheumatology rheumatoid arthritis symptom scale, a common measure of RA disease activity, and each is considered evidence of a substantial improvement in a patient’s diseaseAn ACR20 score represents at least a 20% improvement in these criteria and is considered a modest improvement in a patient's disease..

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Biweekly intravenous administration of XmAb5871 for 12 weeks was generally well tolerated. The most common XmAb5871 treatment related adverse events (AEs) observed were predominantly mild to moderate gastrointestinal toxicities (nausea, vomiting, diarrhea) occurring during the first infusion of XmAb5871. These gastrointestinal AEs did not typically recur on subsequent infusions and no infusions were discontinued due to these AEs. Treatment related serious adverse events (SAEs) occurred in two patients that received XmAb5871: infusion related reaction and venous thrombosis. Two patients in the placebo treated group also reported SAEs.  In June 2015 we presented full study results at the European League Against Rheumatism (EULAR) 2015 Annual Meeting.

 

We plan to start a clinical trial with XmAb5871 in IgG4-Related Disease (IgG4-RD) later this year and will be exploring other indications in 2015. IgG4-Related Disease is a rare fibro-inflammatory autoimmune disorder that impacts approximately 10,000-20,000 patients in the United States. IgG4-Related Disease affects multiple organ systems and is characterized by the distinct microscopic appearance of disease organs, including dense presence of IgG4-positive plasma cells that is required for diagnosis. This objective diagnostic criterion is atypical for autoimmune diseases and offers advantages for accurately identifying patients. There are currently no approved therapies for this newly recognized disorder and corticosteroids are the current standard of care. The initial IgG4-RD trial is planned to be an open-label pilot trial and will enroll approximately 15 subjects with scheduled treatment for up to 24 weeks. The recently reported IgG4-RD Responder Index will be used to assess treatment activity (Carruthers 2012, International Journal of Rheumatology).    

 

XmAb7195.    XmAb7195 is our wholly-owned program being developed for the treatment of severe asthma and allergic diseases. It uses our XmAb Immune Inhibitor Fc Domain and is designed to reduce blood serum levels of IgE, which mediates allergic responses and allergic disease. In January 2015, we reported that interim data from Part 1 of the Phase 1 trial, where healthy subjects in consecutive dose cohorts received a single intraveneous dose of XmAb7195 or placebo, showed rapid reduction of circulating free IgE levels to below the limit of detection at the end of the XmAb7195 infusion in 90% of XmAb7195 treated subjects that had detectable free IgE pre-dose, including those at the lowest dose evaluated of 0.3 mg/kg. Total IgE levels were also reduced in a parallel fashion. Two subjects with high pre-dose IgE levels (above 400 IU/mL) were treated with XmAb7195, one each at 0.75 mg/kg and 3.0 mg/kg doses, and both had reduction of free IgE levels to below the limit of detection lasting for at least one week.   A dose limiting toxicity of transient, asymptomatic thrombocytopenia (low blood platelet count) was observed at the 3.0 mg/kg dose. The decrease in platelet count was transient with a minimum by 24 hours post-dose, recovery starting by 48 hours post-dose and near full platelet count recovery by study Day 8 in all cases, at which time serum drug concentrations still exceeded levels that eliminate detectable IgE. No evidence of thrombocytopenia has been observed in any of the clinical trials of XmAb5871, an anti-CD19 antibody with the identical XmAb Immune Inhibitor Fc domain as that of XmAb7195. Moderate urticaria (hives) was reported in a total of seven XmAb7195 treated subjects with an apparent correlation of dose with frequency of occurrence. In all cases regardless of dose, the signs/symptoms of urticaria were mild, non-diffuse and easily treated with oral antihistamine, and the study drug infusions were continued to completion without worsening of symptoms. Otherwise, there were no other adverse events that occurred in more than two XmAb7195 treated subjects. There were no serious adverse events reported and no subject discontinued Part 1 of the trial early.  We continue to conduct an analysis of safety, pharmacokinetics, immunogenicity and efficacy data of Part 1 of the Phase 1a study and have finished enrolling patients in Part 2 of the study, where otherwise healthy subjects with a history of allergic rhinitis and/or allergic conjunctivitis and/or atopic dermatitis and serum IgE levels greater than 300 IU/ml are enrolled in consecutive dose cohorts and given a single intravenous dose of XmAb7195 or placebo.  In June 2015 we announced commencement of an expansion of the Phase 1 trial of XmAb7195, in which subjects will receive two doses of XmAb7195. This new part of the trial will allow the Company to examine IgE reduction and the safety profile of XmAb7195 after a second infusion. Data from this trial is expected in the first half of 2016. Additionally, we are planning a clinical trial with a subcutaneous formulation of XmAb7195 for 2016.

 

Bispecific programs: We continue to advance our XmAb® bispecific pipeline which allows us to create dual-antigen targeting molecules. Our Fc domain technology is designed to maintain full-length antibody properties in a bispecific antibody, potentially enabling stable molecules with favorable in vivo half-life and allowing for the use of standard antibody production methods.  These bispecific Fc domains are used to generate a broad array of novel drug candidates.  For example, we can readily create bispecific antibodies that bind both CD3 and a tumor antigen in order to recruit cytotoxic T cells to the tumor cell. Because of the Fc domain, these bispecific antibodies retain the long half-life and ease of production typical of standard antibodies. We have generated a number of bispecific antibody discovery programs using our XmAb heterodimer Fc domains and have demonstrated that several bispecific antibodies built on these Fc domains are highly active in primate models.

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In November 2014, we announced preclinical data from three programs using our XmAb bispecific Fc technology showing that bispecific antibodies targeting CD123, CD20 and CD38 antigens each activated T-cells to rapidly kill target cells from a single dose IV bolus in cynomolgus monkeys and demonstrated prolonged half-life of approximately one week in mice.  Our initial bispecific programs are tumor-targeted antibodies that contain both a tumor antigen binding domain (CD123, CD20, or CD38) and a cytotoxic T-cell binding domain (CD3). We have selected our lead anti-CD123xCD3 bispecific antibody, XmAb14045, for IND-enabling studies and cGMP process development and manufacturing.  We plan to initiate clinical trials in acute myeloid leukemia with XmAb14045 in 2016.  In June we announced that we have selected XmAb13676 as our second bispecific candidate for clinical development. XmAb13676 is an anti- CD20xCD3 bispecific antibody that targets B-cell malignancies. We plan on initiating clinical trials for this candidate in 2016. Additional bispecific development candidates against additional tumor targets are also in discovery.

 

Licensing Partnerships: We currently have seven licensing partnerships for the licensing of our XmAb technology. These arrangements provide upfront payments and annual licensing fees in addition to potential milestones and contractual payments as our partners advance compounds that incorporate our technology into clinical development. In the first quarter of 2014, Merck initiated a Phase 1 clinical trial with an undisclosed product with our Fc optimization technology which triggered a milestone payment. In the third quarter of 2014, Alexion initiated a Phase 1 clinical trial with an undisclosed product incorporating our Xtend technology. In December 2014, we announced a discovery collaboration with Novo Nordisk to jointly discover novel biologic drug candidates for an undisclosed target by combining multiple Xencor XmAb technologies. In March 2015, CSL notified us that they were terminating the March 2013 License Agreement. There are currently six compounds in clinical development from our partners that have incorporated our XmAb technology.

 

Results of Operations

 

Comparison of the Three Months Ended June 30, 2015 and 2014

 

The following table summarizes our results of operations for the three months ended June 30, 2015 and 2014 (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

June 30, 

 

 

    

2015

    

2014

    

Change

 

Revenues:

 

 

 

 

 

 

 

 

 

 

Research collaboration

 

$

0.7

 

$

0.6

 

$

0.1

 

Licensing

 

 

0.3

 

 

0.3

 

 

(0.0)

 

Total revenues

 

$

1.0

 

$

0.9

 

$

0.1

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

7.5

 

 

4.3

 

 

3.2

 

General and administrative

 

 

2.5

 

 

1.6

 

 

0.9

 

Total operating expenses

 

 

10.0

 

 

5.9

 

 

4.1

 

Other income (expense), net

 

 

0.1

 

 

 —

 

 

0.1

 

Net loss

 

$

(8.9)

 

$

(5.0)

 

$

(3.9)

 

 

Research Collaboration Revenues

 

Research collaboration revenues were $0.7 million and $0.6 million for the three months ended June 30, 2015 and 2014 respectively. The $0.1 million increase in revenue reflects the revenue earned under our agreement with Novo Nordisk in 2015 compared with the revenue earned from our Amgen collaboration in 2014 which terminated in the fourth quarter of 2014.

 

Licensing Revenues

 

Licensing revenues were $0.3 million for the three months ended June 30, 2015 and 2014 respectively. The licensing revenue of $0.3 million in each three-month period reflects revenue earned under our agreement with Alexion.

 

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Research and Development Expenses

 

The following table summarizes our research and development expenses for the three months ended June 30, 2015 and 2014, (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

June 30, 

 

    

2015

    

2014

    

Change

Product programs:

 

 

 

 

 

 

 

 

 

XmAb5871

 

$

1.7

 

$

0.7

 

$

1.0

XmAb7195

 

 

1.1

 

 

1.6

 

 

(0.5)

Bi-specific

 

 

4.2

 

 

1.2

 

 

3.0

Early research and discovery

 

 

0.5

 

 

0.8

 

 

(0.3)

Total research and development expenses

 

$

7.5

 

$

4.3

 

$

3.2

 

Research and development expenses were $7.5 million for the three months ended June 30, 2015 compared to $4.3 million for the same period in 2014, an increase of $3.2 million. Spending on the XmAb5871and bispecific   programs increased during the three months ended June 30, 2015 compared to the same period in 2014, while spending on the  XmAb 7195 and early research and discovery programs decreased during the same periods. The $1 million increase in spending associated with the XmAb5871 program is primarily due to expenses related to the development and planned clinical trial in  IgG4-RD. There was an increase in spending of $3 million in the three months ended June 30, 2015 on our bispecific program as we advanced our initial bispecific candidates, XmAb14045 and XmAb13676 into IND enabling studies and manufacturing of drug supply  and conducted additional work on our bispecific platform and programs.

 

General and Administrative Expenses

 

The following table summarizes our general and administrative expenses for the three months ended June 30, 2015 and 2014 (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

June 30, 

 

 

    

2015

    

2014

    

Change

 

General and administrative

 

$

2.5

 

$

1.6

 

$

0.9

 

 

General and administrative expenses were $2.5 million and $1.6 million for the three months ended June 30, 2015 and 2014, respectively, an increase of $0.9 million. The increase is primarily due to an increase in staffing of legal and accounting personnel, professional fees and stock based compensation costs.

 

Comparison of the Six Months Ended June 30, 2015 and 2014

 

The following table summarizes our results of operations for the six months ended June 30, 2015 and 2014 (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

June 30, 

 

    

2015

    

2014

    

Change

Revenues:

 

 

 

 

 

 

 

 

 

Research collaboration

 

$

1.4

 

$

1.3

 

$

0.1

Licensing

 

 

0.6

 

 

1.2

 

 

(0.6)

Milestone

 

 

0.5

 

 

0.5

 

 

 —

Total revenues

 

$

2.5

 

$

3.0

 

$

(0.5)

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

 

12.7

 

 

8.5

 

 

4.2

General and administrative

 

 

5.3

 

 

3.3

 

 

2.0

Total operating expenses

 

 

18.0

 

 

11.8

 

 

6.2

Other income (expense), net

 

 

0.2

 

 

 —

 

 

0.2

Net loss

 

$

(15.3)

 

$

(8.8)

 

$

(6.5)

 

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Research Collaboration Revenues

 

Research collaboration revenues were $1.4 million and $1.3 million for the six months ended June 30, 2015 and 2014 respectively. The $0.1 million increase in revenue reflects the revenue earned under our agreement with Novo Nordisk in 2015 compared with the revenue earned from our Amgen collaboration in 2014 which terminated in the fourth quarter of 2014.

 

Licensing Revenues

 

Licensing revenues were $0.6 million and $1.2 million for the six months ended June 30, 2015 and 2014 respectively.  The lower licensing revenue of $0.6 million in 2015 over 2014 amounts reflects the revenue earned under our CSL agreement.

 

Milestone Revenues

 

Milestone and contingent payments for the six months ended June 30, 2015 and 2014 were $0.5 million from Alexion and Merck respectively.

 

Research and Development Expenses

 

The following table summarizes our research and development expenses for the six months ended June 30, 2015 and 2014, (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

June 30, 

 

    

2015

    

2014

    

Change

Product programs:

 

 

 

 

 

 

 

 

 

XmAb5871

 

$

2.9