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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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 March 31, 2022

or

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

For the transition period from                      to                    

Commission File Number: 001-40925

Xilio Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

Delaware

85-1623397

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

828 Winter Street, Suite 300

Waltham, Massachusetts

02451

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (617) 430-4680

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

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common stock, par value $0.0001 per share

XLO

Nasdaq Global Select 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      No  

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      No  

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 the 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

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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.

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

Number of shares of the registrants common stock, $0.0001 par value per share, outstanding on May 4, 2022: 27,471,607

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References to Xilio

Unless otherwise stated, all references to “us,” “our,” “we,” “Xilio,” “Xilio Therapeutics,” “the Company” and similar references in this Quarterly Report on Form 10-Q refer to Xilio Therapeutics, Inc. and its consolidated subsidiaries. Xilio Therapeutics and its associated logos are registered trademarks of Xilio Therapeutics, Inc. Other brands, names and trademarks contained in this Quarterly Report on Form 10-Q are the property of their respective owners.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “aim,” “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would,” or the negative of these words or other comparable terminology, although not all forward-looking statements contain these identifying words.

The forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

the initiation, timing, progress and results of our research and development programs and preclinical studies and clinical trials;
our plans to develop and, if approved, subsequently commercialize any product candidates we may develop;
the timing of and our ability to submit applications for, and obtain and, if approved, maintain regulatory approvals for our product candidates;
our estimates regarding expenses, future revenue, capital requirements and need for additional capital;
our expectations regarding our ability to fund our operating expenses and capital expenditure requirements with our cash and cash equivalents;
the potential advantages of our current and future product candidates;
the rate and degree of market acceptance of our product candidates, if approved;
our estimates regarding the addressable patient population and potential market opportunity for our current and future product candidates;
our commercialization, marketing and manufacturing capabilities and strategy;
our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates;
our ability to identify additional products, product candidates or technologies with significant commercial potential that are consistent with our commercial objectives;
the impact of government laws and regulations;
our competitive position and expectations regarding developments and projections relating to our current or future competitors and any competing therapies that are or become available;
developments relating to our competitors and our industry;
our ability to establish and maintain collaborations or obtain additional funding;

2

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our expectations regarding the time during which we will be an emerging growth company under the JOBS Act; and
the impact and scope of the COVID-19 pandemic on our business, operations, strategy, goals and anticipated milestones, as well as our response to the pandemic.

Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q, particularly those described below in the “Risk Factor Summary” and in the “Risk Factors” section in Part II, Item 1A of this Quarterly Report on Form 10-Q, that could cause actual results or events to differ materially from the forward-looking statements that we make. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, collaborations, partnerships or investments we may make or enter into.

You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results, performance or achievements may be materially different from what we expect. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

Risk Factor Summary

Our business is subject to numerous risks that, if realized, could materially and adversely affect our business, financial condition, results of operations and future growth prospects. These risks are discussed more fully in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. These risks include, but are not limited to, the following:

Our business is highly dependent on the success of our current product candidates, which are in the early stages of development and will require significant additional preclinical and clinical development before we can seek regulatory approval for and commercially launch a product.
Our approach to the discovery and development of product candidates based on our technological approaches is unproven, and we do not know whether we will be able to develop any products of commercial value.
Preclinical development is uncertain. Our preclinical programs may experience delays or may never advance to clinical trials, which would adversely affect our ability to obtain regulatory approvals or commercialize these programs on a timely basis or at all, which would have an adverse effect on our business.
We may encounter substantial delays in the commencement or completion, or termination or suspension, of our clinical trials, which could result in increased costs to us, delay or limit our ability to generate revenue and adversely affect our commercial prospects.
Our product candidates may cause undesirable or unexpectedly severe side effects that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.
Interim top-line and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.

3

Table of Contents

We expect to develop certain of our product candidates in combination with third-party drugs and we will have limited or no control over the safety, supply, regulatory status or regulatory approval of such drugs.
Manufacturing biologics is complex, and we may experience manufacturing problems that result in delays in our development or commercialization programs.
We face risk related to our reliance on our current and any future third-party contract manufacturers, or CMOs. For example, the CMOs on which we rely may not continue to meet regulatory requirements, may have limited capacity, or may experience interruptions in supply, any of which could adversely affect our development and commercialization plans for our product candidates.
We expect to rely on third parties to conduct, supervise and monitor IND-enabling studies and clinical trials, and if these third parties perform in an unsatisfactory manner, it may harm our business, reputation and results of operations.
We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.
If we are unable to obtain and maintain patent protection for any product candidates we develop or for other proprietary technologies we may develop, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize product candidates and technology similar or identical to our product candidates and technology, and our ability to successfully commercialize any product candidates we may develop, and our technology may be adversely affected.
We rely on in-license agreements for patent rights with respect to our product candidates and may in the future acquire or in-license additional third-party intellectual property rights on which we may similarly rely. We face risks with respect to such reliance, including the risk that we could lose these rights that are important to our business if we fail to comply with our obligations under these licenses or that we may be unable to acquire or in-license third-party intellectual property that may be necessary or important to our business operations.
The COVID-19 pandemic may affect our ability to initiate and complete preclinical studies, delay the initiation of our planned and any future clinical trials, disrupt regulatory activities, or have other adverse effects on our business and operations. In addition, this pandemic has caused substantial disruption in the financial markets and may adversely impact economies worldwide, each of which could result in adverse effects on our business, on raising capital and on our operations.

Availability of Other Information About Xilio Therapeutics

Investors and others should note that Xilio Therapeutics communicates with its investors and the public using its company website (www.xiliotx.com), including but not limited to investor presentations and scientific presentations, filings with the U.S. Securities and Exchange Commission, press releases, public conference calls and webcasts. You can also connect with Xilio Therapeutics on Twitter (@xiliotx) or LinkedIn. The information that Xilio Therapeutics posts on these channels and websites could be deemed to be material information. As a result, Xilio Therapeutics encourages investors, the media and others interested in Xilio Therapeutics to review the information that it posts on these channels, including Xilio Therapeutics’ investor relations website, on a regular basis. This list of channels may be updated from time to time on Xilio Therapeutics’ investor relations website (ir.xiliotx.com) and may include other social media channels than the ones described above. The contents of Xilio Therapeutics’ website or these channels, or any other website that may be accessed from its website or these channels, shall not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended.

4

Table of Contents

TABLE OF CONTENTS

Page

Part I

Financial Information

Item 1.

Financial Statements (unaudited)

6

Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021

6

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2022 and 2021

7

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the three months ended March 31, 2022 and 2021

8

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021

9

Notes to Condensed Consolidated Financial Statements

10

Item 2.

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

20

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

31

Item 4.

Controls and Procedures

31

Part II

Other Information

32

Item 1A.

Risk Factors

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

95

Item 6.

Exhibits

96

Signatures

5

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

XILIO THERAPEUTICS, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

(Unaudited)

    

March 31, 

    

December 31, 

2022

2021

ASSETS

 

  

 

  

Current assets

 

  

 

  

Cash and cash equivalents

$

176,959

$

198,053

Prepaid expenses and other current assets

 

4,128

 

4,464

Total current assets

 

181,087

 

202,517

Restricted cash

 

1,553

 

1,553

Property and equipment, net

 

7,468

 

7,620

Operating lease right-of-use asset

 

5,885

 

5,977

Other non-current assets

 

359

 

393

Total assets

$

196,352

$

218,060

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

Current liabilities

 

  

 

  

Accounts payable

$

2,324

$

3,144

Accrued expenses

 

7,323

 

8,751

Operating lease liability, current portion

 

829

 

801

Notes payable, current portion

 

1,667

 

Other current liabilities

 

82

 

82

Total current liabilities

 

12,225

 

12,778

Notes payable, net of current portion

 

8,012

 

9,628

Operating lease liability, net of current portion

 

9,894

 

10,107

Other liabilities, long-term

 

100

 

118

Total liabilities

 

30,231

 

32,631

Commitments and contingencies (Note 7)

 

  

 

  

Stockholders’ equity

 

  

 

  

Preferred stock, $0.0001 par value; 5,000,000 shares authorized, no shares issued or outstanding at March 31, 2022 and December 31, 2021

Common stock, $0.0001 par value; 200,000,000 shares authorized at March 31, 2022 and December 31, 2021; 27,471,607 shares issued and 27,376,473 shares outstanding at March 31, 2022; 27,468,950 shares issued and 27,358,375 shares outstanding at December 31, 2021

 

3

 

3

Additional paid-in capital

 

348,357

 

346,312

Accumulated deficit

 

(182,239)

 

(160,886)

Total stockholders’ equity

 

166,121

 

185,429

Total liabilities and stockholders’ equity

$

196,352

$

218,060

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

Table of Contents

XILIO THERAPEUTICS, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share data)

(Unaudited)

Three Months Ended March 31, 

    

2022

    

2021

Operating expenses

 

  

 

  

Research and development

$

14,920

$

11,621

General and administrative

 

6,304

 

4,899

Total operating expenses

 

21,224

 

16,520

Loss from operations

 

(21,224)

 

(16,520)

Other expense, net

 

  

 

  

Other expense, net

 

(129)

 

(147)

Total other expense, net

 

(129)

 

(147)

Net loss and comprehensive loss

$

(21,353)

$

(16,667)

Net loss per share, basic and diluted

$

(0.78)

$

(23.53)

Weighted average common shares outstanding, basic and diluted

 

27,367,377

 

708,264

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

Table of Contents

XILIO THERAPEUTICS, INC.

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(In thousands, except share data)

(Unaudited)

    

Series A

    

Series A-1

    

Series B

    

Series C

    

    

    

    

    

    

Convertible

Convertible

Convertible

Convertible

Total

Preferred Stock

Preferred Stock

Preferred Stock

Preferred Stock

Common Stock

Additional

Accumulated

Stockholders’

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

  

  

Shares

    

Amount

    

Paid-In Capital

    

Deficit

    

Deficit

Balance at December 31, 2020

7,500,000

$

7,309

19,565,216

$

20,740

39,723,312

$

49,953

$

689,929

$

$

1,799

$

(85,086)

$

(83,287)

Issuance of Series B convertible preferred stock, net of issuance costs of $50

 

 

 

 

 

39,723,312

 

50,200

 

 

 

 

 

 

 

Issuance of Series C convertible preferred stock, net of issuance costs of $314

 

 

 

 

 

 

 

68,271,641

 

94,686

 

 

 

 

 

Vesting of restricted common stock

 

 

 

 

 

 

 

 

 

27,989

 

 

 

 

Exercise of stock options

 

 

 

 

 

 

4,473

 

 

25

 

 

25

Equity-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

794

 

 

794

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

(16,667)

 

(16,667)

Balance at March 31, 2021

 

7,500,000

$

7,309

 

19,565,216

$

20,740

 

79,446,624

$

100,153

 

68,271,641

$

94,686

 

722,391

 

$

 

$

2,618

 

$

(101,753)

 

$

(99,135)

    

Series A

    

Series A-1

    

Series B

    

Series C

    

    

    

    

    

    

Convertible

Convertible

Convertible

Convertible

Total

Preferred Stock

Preferred Stock

Preferred Stock

Preferred Stock

Common Stock

Additional

Accumulated

Stockholders’

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

    

Shares

    

Amount

  

  

Shares

    

Amount

    

Paid-In Capital

    

Deficit

    

Equity

Balance at December 31, 2021

$

$

$

$

27,358,375

$

3

$

346,312

$

(160,886)

$

185,429

Vesting of restricted common stock

 

 

 

 

 

 

 

 

 

15,441

 

 

 

 

Exercise of stock options

 

 

 

 

 

 

 

 

 

2,657

 

 

16

 

 

16

Equity-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

2,029

 

 

2,029

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

(21,353)

 

(21,353)

Balance at March 31, 2022

 

$

 

$

 

$

 

$

 

27,376,473

$

3

$

348,357

$

(182,239)

$

166,121

The accompanying notes are an integral part of these condensed consolidated financial statements.

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XILIO THERAPEUTICS, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Three Months Ended March 31, 

    

2022

    

2021

Cash flows from operating activities:

Net loss

 

$

(21,353)

 

$

(16,667)

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

 

  

 

  

Depreciation and amortization

 

440

 

350

Non-cash interest expense

 

53

 

38

Equity-based compensation expense

 

2,029

 

794

Change in fair value of warrant and derivative liabilities

 

 

15

Changes in operating assets and liabilities:

 

 

Prepaid and other assets

 

336

 

153

Operating lease right-of-use asset

 

92

 

78

Accounts payable

 

(820)

 

(2,838)

Accrued expenses and other liabilities

 

(1,427)

 

(4,627)

Operating lease liability

 

(185)

 

(30)

Net cash used in operating activities

 

(20,835)

 

(22,734)

Cash flows from investing activities:

 

  

 

  

Purchases of property and equipment

 

(254)

 

(170)

Net cash used in investing activities

 

(254)

 

(170)

Cash flows from financing activities:

 

  

 

  

Payments of finance lease

 

(21)

 

(21)

Proceeds from issuance of convertible preferred stock, net of issuance costs

144,886

Proceeds from exercise of stock options

 

16

 

25

Net cash (used in) provided by financing activities

 

(5)

 

144,890

(Decrease) increase in cash, cash equivalents and restricted cash

 

(21,094)

 

121,986

Cash, cash equivalents and restricted cash, beginning of period

 

199,606

 

20,789

Cash, cash equivalents and restricted cash, end of period

 

$

178,512

 

$

142,775

Supplemental cash flow disclosure:

 

  

 

  

Cash paid for interest

 

$

119

 

$

125

Supplemental disclosure of non-cash activities:

 

 

  

Capital expenditures included in accounts payable or accrued expenses

$

$

249

Deferred offering costs included in accounts payable or accrued expenses

$

$

201

The accompanying notes are an integral part of these condensed consolidated financial statements.

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XILIO THERAPEUTICS, INC.

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, unless otherwise stated)

(Unaudited)

1. Description of Business, Initial Public Offering and Liquidity and Capital Resources

Description of Business

Xilio Therapeutics, Inc. (“Xilio” or the “Company”), incorporated in Delaware in June 2020, is a clinical-stage biotechnology company focused on harnessing the immune system to achieve deep and durable clinical responses to improve the lives of patients with cancer. The Company’s headquarters are based in Waltham, Massachusetts.

Initial Public Offering

On October 26, 2021, the Company completed its initial public offering (“IPO”) of common stock, in which it issued and sold an aggregate of 7,353,000 shares at a public offering price of $16.00 per share. On November 1, 2021, the Company issued and sold an additional 766,106 shares of common stock at a public offering price of $16.00 per share pursuant to the partial exercise by the underwriters of their option to purchase additional shares. The Company received aggregate gross proceeds of $129.9 million or aggregate net proceeds of $116.4 million from its IPO, including the partial exercise of the underwriters’ option, after deducting underwriting discounts and commissions and offering expenses payable by the Company.

In connection with the IPO, the Company effected a 1-for-9.5 reverse stock split of the Company’s issued and outstanding shares of common stock. The reverse stock split was effective on October 15, 2021. Accordingly, all share and per share amounts of common stock for all periods presented in these condensed consolidated financial statements and related notes have been retroactively adjusted to give effect to the reverse stock split. Upon the closing of the IPO, all shares of the Company’s then outstanding preferred stock automatically converted into an aggregate of 18,398,248 shares of common stock (see Note 8).

Liquidity and Capital Resources

Since inception, the Company has devoted substantially all of its financial resources and efforts to research and development activities.

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including but not limited to, risks associated with the successful research, development and manufacturing of product candidates, and, if approved, any products, obtaining regulatory approvals for product candidates, and, if approved, commercialization of any products, protection and enforcement of intellectual property and proprietary technology, development by third parties of potentially competitive products or product candidates, compliance with governmental regulations, and the ability to secure additional capital to fund operations. Programs currently under development will require significant additional research and development efforts, including preclinical and clinical testing and manufacturing process development and will need to obtain regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize revenue from product sales.

As of March 31, 2022, the Company had cash and cash equivalents of $177.0 million. The Company expects that its cash and cash equivalents will be sufficient to meet its projected operating requirements and capital expenditures for at least twelve months from the date of issuance of these condensed consolidated financial statements. The Company expects to continue to generate negative cash flows from operations and net losses for the foreseeable future and will need additional capital in the future to support its continuing operations and growth strategy as it continues to invest significantly in research and development of its product candidates, including preclinical and clinical testing and manufacturing process

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development. To date, the Company has primarily funded its operations with proceeds from the sale of convertible preferred units and convertible preferred stock, a debt financing and the IPO. Management’s conclusion with respect to its ability to fund operations is based on estimates that are subject to risks and uncertainties that may prove to be incorrect. If actual results differ from management’s estimates, the Company may be required to seek additional capital sooner or curtail planned activities to reduce operating expenses, which may have an adverse impact on the Company’s ability to achieve its business objectives.

2. Summary of Significant Accounting Policies

Basis of Presentation

These condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission, (the “SEC”). Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASUs”) of the Financial Accounting Standards Board (“FASB”).

In April 2012, the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) was enacted. Section 107(b) of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company has elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company can adopt the new or revised standard at the time private companies adopt the new or revised standard and may do so until such time that the Company either (1) irrevocably elects to “opt out” of such extended transition period or (2) no longer qualifies as an emerging growth company. The Company may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of its initial public offering or such earlier time that it is no longer an emerging growth company.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: Xilio Therapeutics LLC, Xilio Concerto LLC, Xilio Development, Inc. and Xilio Securities Corporation, which is a Massachusetts subsidiary created to buy, sell and hold securities. All intercompany accounts and transactions have been eliminated in consolidation.

Significant Accounting Policies

The significant accounting policies used in preparation of the unaudited condensed consolidated financial statements are described in Note 2, “Summary of Significant Accounting Policies” of the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. There have been no material changes to the significant accounting policies previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Unaudited Interim Condensed Consolidated Financial Information

The accompanying condensed consolidated balance sheet as of March 31, 2022, the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2022 and 2021, the statements of cash flows for the three months ended March 31, 2022 and 2021 and the condensed consolidated statements of convertible preferred stock and stockholders’ equity (deficit) for the three months ended March 31, 2022 and 2021 are unaudited. The financial data and other information contained in the notes thereto as of and for the three months ended March 31, 2022 and 2021

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are also unaudited. The condensed consolidated balance sheet data as of December 31, 2021 was derived from the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements, and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments necessary for the fair presentation of the Company’s financial position as of March 31, 2022, the results of its operations for the three months ended March 31, 2022 and 2021 and cash flows for the three months ended March 31, 2022 and 2021. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2021, and the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

The results for the three months ended March 31, 2022 are not necessarily indicative of results to be expected for the year ended December 31, 2022, or any other interim periods, or any future year or period.

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and judgments that may affect the reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the date of the financial statements and the related reporting of expenses during the reporting period. Management considers many factors in selecting appropriate financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these condensed consolidated financial statements. Factors that may affect estimates include expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates. Significant estimates of accounting reflected in these condensed consolidated financial statements include, but are not limited to, estimates related to accrued expenses, the valuation of equity-based compensation, including stock options and restricted common stock, the useful life of long-lived assets and income taxes. Actual results could differ from those estimates.

Cash, Cash Equivalents and Restricted Cash

The Company considers all short-term, highly liquid investments with original maturities of 90 days or less at acquisition date to be cash equivalents. Cash equivalents, which consist of money market accounts, are stated at fair value. Restricted cash primarily represents a letter of credit issued to the landlord of the Company’s facility lease and is reflected in non-current assets on the accompanying condensed consolidated balance sheets. Cash, cash equivalents and restricted cash consists of the following:

March 31, 

March 31, 

    

2022

    

2021

Cash and cash equivalents

$

176,959

$

141,222

Restricted cash

 

1,553

 

1,553

Total cash, cash equivalents and restricted cash as shown on the consolidated statement of cash flows

$

178,512

$

142,775

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326)—Measurement of Credit Losses on Financial Instruments, as amended (“ASU 2016-13”). The provisions of ASU 2016-13 modify the impairment model to utilize an expected loss methodology in place of the previously used incurred loss methodology and require a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company adopted ASU 2016-13 as of January 1, 2022, and the adoption did not have a material effect on its condensed consolidated financial statements and related disclosures.

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In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”), which reduces the number of accounting models for convertible debt instruments and convertible preferred stock as well as amends the derivatives scope exception for contracts in an entity’s own equity. The Company adopted ASU 2020-06 as of January 1, 2022, and the adoption did not have a material effect on its condensed consolidated financial statements and related disclosures.

3. Fair Value Measurements

The Company measures the following financial assets at fair value on a recurring basis. The fair value of these assets was determined as follows:

Quoted

Prices in

Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

March 31, 

Assets

Inputs

Inputs

    

2022

    

Level 1

    

Level 2

    

Level 3

Financial assets:

Cash equivalents—money market funds

$

934

$

934

$

$

Total financial assets

$

934

$

934

$

$

Quoted

Prices in

Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

December 31, 

Assets

Inputs

Inputs

    

2021

    

Level 1

    

Level 2

    

Level 3

Financial assets:

 

 

  

 

  

 

  

Cash equivalents—money market funds

$

8,534

$

8,534

$

$

Total financial assets

$

8,534

$

8,534

$

$

During the three months ended March 31, 2022 and March 31, 2021, the Company did not hold any investments and there were no transfers between Level 1, Level 2, and Level 3.

4. Property and Equipment, Net

Property and equipment, net consists of the following as of March 31, 2022 and December 31, 2021:

    

March 31, 

    

December 31, 

2022

2021

Laboratory equipment

$

4,369

$

3,805

Computers and software

 

228

 

228

Furniture and fixtures

 

636

 

636

Leasehold improvements

 

5,124

 

5,124

Construction in process

 

229

 

539

Total property and equipment

$

10,586

$

10,332

Less accumulated depreciation

 

(3,118)

 

(2,712)

Property and equipment, net

$

7,468

$

7,620

The Company incurred depreciation and amortization expense related to property and equipment, net of $0.4 million for each of the three months ended March 31, 2022 and 2021, respectively.

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5. Accrued Expenses

Accrued expenses consist of the following as of March 31, 2022 and December 31, 2021:

    

March 31, 

    

December 31, 

2022

2021

External research and development

$

4,987

$

2,794

Personnel-related

 

1,483

 

5,145

Professional and consulting fees

 

659

 

491

Other

194

321

Total accrued expenses

$

7,323

$

8,751

6. Loan and Security Agreement

Initial Loan Agreement

In November 2019, the Company entered into a loan and security agreement with Pacific Western Bank (“PacWest”), as amended by a first amendment, dated March 12, 2021, and a second amendment, dated May 10, 2021 (the “Initial Loan Agreement”). Pursuant to the Initial Loan Agreement, the Company borrowed $10.0 million under a term loan. Interest on the outstanding initial loan balance accrued at a variable annual rate equal to the greater of (i) the prime rate, as defined in the Initial Loan Agreement, plus 0.25% or (ii) 5.00%. The Company was required to make interest only payments on the loan on a monthly basis through May 21, 2021. Subsequent to the interest-only period, the Company was required to make equal monthly payments of principal plus interest until the scheduled loan maturity on November 21, 2023. In addition, under the Initial Loan Agreement, the Company was obligated to pay a one-time $0.5 million fee to PacWest upon the occurrence of specified liquidation events, including an initial public offering. The fee represented a derivative instrument that the Company bifurcated from the debt arrangement and carried at fair value with any changes in such fair value recorded to other income (expense), net in the Company’s consolidated statements of operations and comprehensive loss. Upon the closing of the loan, the fair value of the debt derivative liability was $0.4 million that, together with certain legal and other fees incurred by the Company and associated with the Initial Loan Agreement, was recognized as a debt discount and reflected as a reduction in the carrying value of the debt. The debt discount has been accreted and recognized as additional interest expense over the term of the Initial Loan Agreement using the effective interest method.

Amended Loan Agreement

On September 17, 2021, the Company entered into a third amendment (the “Third Amendment”) to the Initial Loan Agreement (as amended, and together with the Initial Loan Agreement, the “Loan Agreement”), pursuant to which the Company borrowed $10.0 million under a new term loan and used the proceeds of such new term loan to repay the outstanding balance on the prior term loan. In addition, as a result of the amendment, prior to December 31, 2022, the Company has the ability to request one or more additional term loans in an aggregate principal amount of $10.0 million. Interest on amounts outstanding under the Loan Agreement accrue at a variable annual rate equal to the greater of (i) the prime rate plus 0.25% or (ii) 4.75%. As a result of the Third Amendment, the Company is required to make interest-only payments on any outstanding balances through December 31, 2022. Subsequent to the interest-only period, the Company will be required to make equal monthly payments of principal plus interest until the loan matures on June 30, 2024. In addition, as a result of the Third Amendment, the one-time fee the Company was obligated to pay to PacWest upon the occurrence of specified liquidation events, including an initial public offering, was increased from $0.5 million to an amount between $0.8 million and $1.0 million, depending on the timing and occurrence of specified events, including the closing of the IPO. The Company paid the one-time fee of $0.8 million to PacWest in October 2021 upon the closing of the IPO. As a result of the Third Amendment, the Company is also obligated to pay PacWest a fee of 1.0% of the aggregate principal amounts then outstanding if any term loans are repaid prior to September 17, 2022, which is approximately one year from the date of the Third Amendment. Using the net present value method, the Company concluded the amendment should be accounted for as a debt modification as the present value of the remaining cash flows of the amended term loan are not substantially different from the present value of the remaining cash flows of the initial term loan.

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The Loan Agreement contains customary representations, warranties and covenants and also includes customary terms covering events of default, including payment defaults, breaches of covenants, a change of control provision and occurrence of a material adverse effect. As security for its obligations under the Loan Agreement, the Company granted PacWest a first priority security interest on substantially all of the Company’s assets (other than intellectual property), subject to certain exceptions.

The Company has determined that the risk of subjective acceleration under the material adverse effect clause is not probable and therefore has classified the long-term portion of the outstanding principal in non-current liabilities. Upon the occurrence and continuation of an event of default, a default interest rate of an additional 5% per annum may be applied to the outstanding loan balance, and the administrative agent, collateral agent, and lender may declare all outstanding obligations immediately due and payable and exercise all of their rights and remedies as set forth in the Loan Agreement and under applicable law. As of March 31, 2022, the Company was in compliance with all covenants under the Loan Agreement.

The Company has the following minimum aggregate future loan payments under the Loan Agreement at March 31, 2022:

    

Minimum Loan

Payments

2022

$

2023

 

6,667

2024

3,333

Total future principal payments

 

10,000

Less: unamortized discount

 

(321)

Total notes payable

$

9,679

The Company recognized $0.2 million of interest expense related to the Loan Agreement during each of the three months ended March 31, 2022 and 2021, respectively, which is reflected in other expense, net on the consolidated statements of operations and comprehensive loss.

7. Commitments and Contingencies

Leases

The Company has an operating lease for its facility and a finance lease for certain lab equipment. In August 2019, the Company entered into a lease agreement with a landlord providing funding for tenant improvements and occupancy of approximately 27,830 square feet of office and laboratory space at 828 Winter Street, Waltham, Massachusetts. The initial term of the lease expires in March 2030, unless terminated earlier in accordance with the terms of the lease. The Company has an option to extend the lease for a period of five years at then-market rates. The Company is obligated to pay its portion of real estate taxes and costs related to the premises, including costs of operations, maintenance, repair, replacement, and management of the leased premises, which it began paying simultaneous with the rent commencement date in March 2020. As of March 31, 2022, the Company has a letter of credit for the benefit of its landlord in the amount of $1.6 million, collateralized by a money market fund, which is classified as restricted cash on the condensed consolidated balance sheets.

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8. Preferred Stock and Common Stock

Undesignated Preferred Stock

As of March 31, 2022 and December 31, 2021, the Company’s certificate of incorporation, as amended, authorized the Company to issue up to 5,000,000 shares of undesignated preferred stock at $0.0001 par value per share.

Convertible Preferred Stock

Upon the closing of the IPO in October 2021, all shares of the Company’s then outstanding preferred stock automatically converted into an aggregate of 18,398,248 shares of common stock.

Common Stock

As of March 31, 2022 and December 31, 2021, the Company’s certificate of incorporation, as amended, authorized the Company to issue up to 200,000,000 shares of common stock, $0.0001 par value per share.

Shares Reserved for Future Issuance

As of March 31, 2022 and December 31, 2021, the Company had reserved shares of common stock for future issuance, including under the Company’s 2020 Stock Incentive Plan (as amended, the “2020 Plan”), 2021 Stock Incentive Plan (the “2021 Plan”) and 2021 Employee Stock Purchase Plan (the “2021 ESPP”) as follows:

March 31, 

December 31, 

2022

2021

Shares of common stock reserved for exercise of a warrant

 

2,631

 

2,631

Shares of common stock reserved for exercise of outstanding stock options under the 2021 and 2020 Stock Incentive Plans

 

4,948,376

 

4,088,456

Shares of common stock reserved for future awards under the 2021 Stock Incentive Plan

 

2,860,745

 

2,349,875

Shares of common stock reserved for purchase under the 2021 Employee Stock Purchase Plan

566,720

292,031

Total shares reserved for future issuance

 

8,378,472

 

6,732,993

9. Equity-Based Compensation

Equity Incentive Plans

2020 Stock Incentive Plan

In July 2020, the Company’s stockholders approved the 2020 Plan. Under the 2020 Plan, the Company was authorized to issue shares of common stock to the Company’s employees, officers, directors, consultants, and advisors in the form of options, restricted stock awards or other stock-based awards. Upon the effectiveness of the 2021 Plan in October 2021, the Company ceased granting awards under the 2020 Plan.

2021 Stock Incentive Plan

In September 2021, the Company’s board of directors adopted the 2021 Plan, which was approved by the Company’s stockholders and became effective immediately prior to the effectiveness of the Company’s registration statement on Form S-1, as amended (File No. 333-259973), which was declared effective by the SEC on October 21, 2021 (the “Registration Statement”). The 2021 Plan provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock units, and other stock-based awards. The number of shares of the Company’s common stock initially reserved for issuance under the 2021 Plan was the sum of (1) 2,654,828; plus (2) the number of shares (up to 3,967,038 shares) as is equal to the sum of (x) the number of shares of the Company’s common

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stock reserved for issuance under the 2020 Plan that remained available for grant under the 2020 Plan immediately prior to the effectiveness of the Registration Statement and (y) the number of shares of the Company’s common stock subject to outstanding awards whether granted under the 2020 Plan or outside of the 2020 Plan which awards expire, terminate or are otherwise surrendered, canceled, forfeited or repurchased by us at their original issuance price pursuant to a contractual repurchase right and that, prior to the effectiveness of the 2021 Plan, would have become available for issuance under the 2020 Plan; plus (3) an annual increase, to be added on the first day of each fiscal year, beginning with the fiscal year, commencing on January 1, 2022 and continuing until, and including, January 1, 2031, equal to the lesser of (i) 5% of the number of shares of the Company’s common stock outstanding on the first day of such fiscal year and (ii) the number of shares of common stock determined by the Company’s board of directors (the “Evergreen Provision”). Effective January 1, 2022, the number of shares reserved for issuance under the 2021 Plan increased by 1,373,447 shares in accordance with the Evergreen Provision.

As of March 31, 2022, there were 2,860,745 shares available for future issuance under the 2021 Plan.

2021 Employee Stock Purchase Plan

In September 2021, the Company’s board of directors adopted the 2021 ESPP, which was approved by the stockholders and became effective on October 21, 2021, immediately prior to the effectiveness of the Registration Statement. The Company initially reserved 292,031 shares of the Company’s common stock for future issuance under the 2021 ESPP. The number of shares of common stock reserved for issuance under the 2021 ESPP will automatically increase on each January 1, beginning on January 1, 2022 and ending on January 1, 2031, by the lesser of (i) 584,062 shares of common stock, (ii) 1% of the number of shares of the Company’s common stock outstanding on such date, and (iii) a number of shares of common stock as determined by the Company’s board of directors (the “ESPP Evergreen Provision”). Effective January 1, 2022, the number of shares reserved for issuance under the 2021 ESPP increased by 274,689 shares in accordance with the ESPP Evergreen Provision. As of March 31, 2022, no offering periods have commenced under the 2021 ESPP.

Equity-Based Compensation Expense

During the three months ended March 31, 2022 and 2021, the Company recorded compensation expense related to stock options and restricted common stock for employees and non-employees, which was allocated as follows in the condensed consolidated statements of operations and comprehensive loss:

Three Months Ended March 31, 

    

2022

    

2021

    

Research and development expense

$

596

$

135

General and administrative expense

 

1,433

 

659

Total equity-based compensation expense

$

2,029

$

794

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Stock Options

A summary of stock option activity under the 2021 Plan is as follows:

    

    

Weighted  

    

Average 

Remaining 

Aggregate 

Weighted  

Contractual

Intrinsic 

Number of 

Average 

  Term 

Value 

    

Stock Options

    

Exercise Price

    

(In years)

    

(In thousands)

Outstanding as of December 31, 2021

 

4,088,456

 

$

8.59

 

9.13

$

30,291

Granted

 

874,830

$

12.67

 

  

 

  

Exercised

 

(2,657)

$

5.89

 

  

 

  

Cancelled/forfeited

 

(12,253)

$

13.71

 

  

 

  

Outstanding as of March 31, 2022

 

4,948,376

$

9.30

 

9.07

$

2,832

Exercisable as of March 31, 2022

 

1,064,255

$

7.09

 

8.27

$

1,115

Vested and expected to vest as of March 31, 2022

 

4,948,376

$

9.30

 

9.07

$

2,832

Using the Black-Scholes option pricing model, the weighted average fair value of options granted to employees and directors during the three months ended March 31, 2022 and 2021 was $8.83 and $4.32, respectively. The following assumptions were used in determining the fair value of options granted to employees the three months ended March 31, 2022 and 2021:

Three Months Ended March 31, 

2022

    

2021

Risk-free interest rate

1.47 – 1.89

%  

    

0.63 – 1.15

%  

Expected dividend yield

0

%

 

0

%

Expected term (in years)

6.00 – 6.08

 

5.52 – 10.00

Expected volatility

80.75 – 80.92

%

 

84.61 – 85.26

%

The achievement of the performance conditions underlying outstanding performance-based awards was not probable as of March 31, 2022; therefore, no compensation expense was recorded for these awards. As of March 31, 2022, total unrecognized compensation costs related to performance-based awards was less than $0.1 million. As of March 31, 2022, total unrecognized compensation cost related to unvested stock options, excluding performance-based awards, was approximately $25.4 million, which is expected to be recognized over a weighted-average period of 3.04 years.

Restricted Stock

A summary of the Company’s restricted stock activity and related information is as follows:

    

Number

    

Weighted

of Shares

Average

of Restricted

Grant Date

    

Stock

    

Fair Value

Unvested as of December 31, 2021

110,575

$

5.51

Vested

(15,441)

$

5.51

Canceled/Forfeited

 

 

$

Unvested as of March 31, 2022

 

95,134

 

$

5.51

In June 2020, the Company granted 552,546 shares of common stock underlying restricted stock awards, and the Company has not subsequently granted any additional restricted stock awards. During the three months ended March 31, 2022, the aggregate fair value of the restricted stock awards that vested was $0.2 million. As of March 31, 2022, total unrecognized compensation cost related to unvested restricted stock awards was approximately $0.6 million, which is expected to be recognized over a weighted-average period of 1.57 years.

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10. Income Taxes

The Company did not record a provision or benefit for income taxes during the three months ended March 31, 2022 and 2021. The Company continues to maintain a full valuation allowance against all of its deferred tax assets.

The Company has evaluated the positive and negative evidence involving its ability to realize its deferred tax assets and has considered its history of cumulative net losses incurred since inception and its lack of any commercially ready products. The Company has concluded that it is more likely than not that it will not realize the benefits of its deferred tax assets. The Company reevaluates the positive and negative evidence at each reporting period.

11. Net Loss Per Share

The following table sets forth the outstanding shares of common stock equivalents, presented based on amounts outstanding at each period end, that were excluded from the calculation of diluted net loss per share attributable to common stockholders during each period because including them would have been anti-dilutive:

    

Three Months Ended

March 31, 

2022

2021

Convertible preferred stock

 

 

18,398,248

Unvested restricted common stock

 

95,134

 

251,599

Outstanding stock options

 

4,948,376

 

2,775,671

Warrants

 

2,631

 

2,631

Total common stock equivalents

 

5,046,141

 

21,428,149

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2021.

Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the section entitled “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

We are a clinical-stage biotechnology company focused on harnessing the immune system to achieve deep and durable clinical responses to improve the lives of patients with cancer. We have built our geographically precise solutions, or GPS, platform to rapidly engineer novel molecules, including cytokines and other biologics, that are designed to optimize their therapeutic index by geographically localizing their activity inside tumors. Current immuno-oncology, or I-O, therapies have curative potential for patients with cancer; however, their potential is significantly curtailed by systemic toxicity that results from activity of the therapeutic molecule outside the tumor microenvironment, or TME. Our molecules are engineered to localize activity within the TME with minimal systemic effects, resulting in the potential to achieve enhanced anti-tumor activity. We are advancing a number of geographically precise, or tumor-selective, agents through preclinical and clinical development. Our most advanced tumor-selective product candidates are the following: XTX101, an anti-cytotoxic T-lymphocyte-associated protein 4, or anti-CTLA 4, monoclonal antibody, or mAb; XTX202, an interleukin 2, or IL-2, therapy; and XTX301, an interleukin 12, or IL-12, therapy. We are currently evaluating XTX101 and XTX202 in Phase 1 of our Phase 1/2 clinical trials, and we plan to submit an investigational new drug application, or IND, to the U.S. Food and Drug Administration, or FDA, in the second half of 2022 for XTX301 for evaluation in patients with solid tumors. We have determined to deprioritize preclinical development for our tumor-selective IL-15 product candidate, XTX401, in order to focus and prioritize research and development efforts across our pipeline. In addition to our most advanced product candidates, we are continuing to leverage our GPS platform with the goal of expanding our pipeline and developing additional tumor-selective immunotherapies, including product candidates with a range of tumor targeting approaches.

To date, we have financed our operations primarily from proceeds raised through private placements of preferred units and convertible preferred stock, a debt financing and our initial public offering, or IPO, of common stock in October 2021. Through March 31, 2022, we have received an aggregate of $350.9 million in net proceeds from such transactions, including aggregate net proceeds of $116.4 million from our IPO, an aggregate of $224.5 million in net proceeds from the sale and issuance of preferred units and convertible preferred stock, and $10.0 million in net proceeds from our debt financing with Pacific Western Bank, or PacWest.

We have not generated any revenue from product sales, and do not expect to generate any revenue from product sales for at least the next several years, if at all. All of our programs are in early clinical or preclinical development. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates, if approved. Since inception, we have incurred significant operating losses. Our net losses were $21.4 million and $16.7 million for the three months ended March 31, 2022 and 2021, respectively, and $75.8 million for the year ended December 31, 2021. As of March 31, 2022, we had an accumulated deficit of $182.2 million. We expect to incur significant expenses and operating losses for the foreseeable future. We anticipate that our expenses will continue to increase significantly in connection with our ongoing activities, particularly as we:

continue to advance our current research programs and conduct additional research programs;
advance our current product candidates and any future product candidates we may develop into preclinical and clinical development;

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seek marketing approvals for product candidates that successfully complete clinical trials, if any;
obtain, expand, maintain, defend and enforce our intellectual property;
hire additional research, clinical, regulatory, quality, manufacturing and general and administrative personnel;
establish a commercial and distribution infrastructure to commercialize products for which we may obtain marketing approval, if any;
continue to discover, validate and develop additional product candidates;
continue to manufacture increasing quantities of our current or future product candidates for use in preclinical studies, clinical trials and for any potential commercialization;
acquire or in-license other product candidates, technologies or intellectual property; and
incur additional costs associated with current and future research, development and commercialization efforts and operations as a public company.

As a result, we will need substantial additional capital to support our continuing operations and pursue our strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings and other sources of funding, such as collaborations, licensing arrangements or other strategic transactions. We may be unable to raise additional capital or enter into such other agreements or arrangements when needed on acceptable terms, or at all. Our failure to raise capital or enter into such agreements as and when needed could have a material adverse effect on our business, results of operations and financial condition.

Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve profitability. Even if we are able to generate revenue from product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

As of March 31, 2022, we had cash and cash equivalents of $177.0 million. We believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements into the first half of 2024.

Note on the COVID-19 Pandemic

The ongoing COVID-19 pandemic is having widespread, rapidly-evolving, and unpredictable impacts on global societies, economies, financial markets, and business practices. We are closely monitoring the impact of the pandemic, the identification of new variants of the COVID-19 virus and related developments, and our focus remains on promoting employee health and safety while continuing to advance the research and development of our product candidates. However, the extent of the impact of the COVID-19 pandemic, including variants of the COVID-19 virus, on our business, operations, and clinical development timelines and plans remains uncertain and will depend on future developments that cannot be predicted with confidence at this time. For a discussion regarding risks and uncertainties related to the COVID-19 pandemic and its potential impact on our business and financial results, please refer to our Risk Factors in Part II, Item 1A of this Quarterly Report on Form 10-Q.

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Financial Operations Overview

Revenue

We have not generated any revenue since inception and do not expect to generate any revenue from the sale of products for at least the next several years, if at all. If our development efforts for our current or future product candidates are successful and result in regulatory approval or if we enter into collaboration or license agreements with third parties, we may generate revenue in the future from product sales or payments from third-party collaborators or licensors.

Operating Expenses

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for our discovery efforts, research activities and development and testing of our programs and product candidates. These expenses include:

personnel-related expenses, including salaries, bonuses, benefits and equity-based compensation expense for employees engaged in research and development functions;
costs incurred with third-party contract development and manufacturing organizations, or CDMOs, to acquire, develop and manufacture materials for both preclinical studies and current or future clinical trials;
costs of funding research performed by third parties that conduct research and development and preclinical activities on our behalf;
costs incurred with third-party contract research organizations, or CROs, and other third parties in connection with the conduct of our current or future clinical trials;
costs of sponsored research agreements and outside consultants, including their fees, equity-based compensation and related expenses;
costs incurred to maintain compliance with regulatory requirements;
fees for maintaining license and other amounts due under our third-party licensing agreements;
expenses incurred for the procurement of materials, laboratory supplies and non-capital equipment used in the research and development process; and
depreciation, amortization and other direct and allocated expenses, including rent, insurance, maintenance of facilities and other operating costs, incurred as a result of our research and development activities.

We expense research and development costs as incurred. We recognize external development costs based on an evaluation of the progress to completion of specific deliverables using information provided to us by our vendors. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our financial statements as prepaid expenses or accrued research and development expenses. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are capitalized as assets, even when there is no alternative future use for the research and development. The capitalized amounts are expensed as the related goods are delivered or the services are performed.

We use our personnel and infrastructure resources for our discovery efforts, including the advancement of our platform, developing programs and product candidates and managing external research efforts. A significant portion of our research and development costs have been, and will continue to be, external costs. We track these external costs, such as fees paid to CDMOs, CROs, preclinical study vendors and other third parties in connection with our manufacturing and

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manufacturing process development, clinical trials, preclinical studies and other research activities by program. Due to the number of ongoing programs and our ability to use resources across several projects, personnel-related expenses and indirect or shared operating costs incurred for our research and development programs are not recorded or maintained on a program-by-program basis.

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will continue to increase for the foreseeable future as we advance our programs and product candidates into and through clinical development, and as we continue to develop additional product candidates. We also expect our discovery research efforts and our related personnel costs will increase and, as a result, we expect our research and development expenses, including costs associated with equity-based compensation, will increase above historical levels. In addition, we may incur additional expenses related to milestone and royalty payments payable to third parties with whom we have entered into, or may enter into, license, acquisition and option agreements to acquire the rights to future products and product candidates.

At this time, we cannot reasonably estimate or know the nature, timing and projected costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, any of our product candidates or programs. This is due to the numerous risks and uncertainties associated with drug development, including the uncertainty of:

the scope, timing, costs and progress of preclinical and clinical development activities;
the number and scope of preclinical and clinical programs we decide to pursue;
our ability to maintain our current research and development programs and to establish new ones;
our ability to establish an appropriate safety profile for our product candidates with IND-enabling studies;
our ability to hire and retain key research and development personnel;
the costs associated with the development of any additional product candidates we develop or acquire through collaborations;
the effects of the COVID-19 pandemic on our research and development employees, contractors and those who may participate in our planned studies;
our successful enrollment in and completion of clinical trials;
our ability to successfully complete clinical trials with safety, potency and purity profiles that are satisfactory to the FDA or any comparable foreign regulatory authority;
our receipt of regulatory approvals from applicable regulatory authorities;
our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize, our product candidates;
our ability to commercialize products, if and when approved, whether alone or in collaboration with others;
the continued acceptable safety profiles of the product candidates following approval, if any;
our ability to establish and maintain agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing, if any of our product candidates are approved;

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the terms and timing of any collaboration, license or other arrangement, including the terms and timing of any milestone payments thereunder, if any; and
our ability to obtain and maintain patent, trade secret and other intellectual property protection and regulatory exclusivity for our product candidates if and when approved.

A change in any of these variables with respect to the development of any of our product candidates would significantly change the costs, timing and viability associated with the development of that product candidate. We may never succeed in obtaining regulatory approval for any product candidate we may develop.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel-related costs, including salaries, benefits, recruiting and equity-based compensation, for personnel in our executive, finance, legal, business development, human resources and other administrative functions. General and administrative expenses also include legal fees relating to corporate matters; professional and consulting fees for accounting, auditing, tax, human resources and administrative consulting services; insurance costs; and facility-related expenses, which include depreciation costs and other allocated expenses for rent, maintenance of facilities, recruiting and other general administrative costs. These costs relate to the operation of the business and are in support of but separate from the research and development function and our individual development programs. Costs to secure and defend our intellectual property are expensed as incurred and are classified as general and administrative expenses.

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount and infrastructure to support the expected growth in our research and development activities. We also expect to incur increased expenses associated with operating as a public company, including increased costs of accounting, audit, legal, regulatory and tax-related services attributable to maintaining compliance with exchange listing standards and Securities and Exchange Commission, or SEC, requirements, director and officer insurance costs and investor and public relations costs.

We also expect to incur additional intellectual property-related expenses as we file patent applications to protect intellectual property arising from our research and development activities.

Other Expense, Net

Other expense, net consists primarily of interest expense principally on the note payable under our debt arrangement with PacWest and gains or losses associated with changes in the fair value of contingent liabilities associated with the consummation of specified transactions, including our IPO. These expenses are partially offset by interest income earned from our cash and cash equivalents. Upon completion of our IPO in October 2021, our contingent liability with PacWest and our other contingent derivative liability became due and payable. These fees were paid during the fourth quarter of 2021 and as a result, no further gains or losses will be recognized related to those contingent liabilities.

Income Taxes

Since our inception, we have not recorded any U.S. federal or state income tax benefits for the net losses we have incurred in each year or for our earned research and development tax credits, due to our uncertainty of realizing a benefit from those items. As of December 31, 2021, we had federal and state net operating loss, or NOL, carryforwards of approximately $149.5 million and $141.0 million, respectively, which may be available to offset future taxable income. As of December 31, 2021, federal NOLs of $144.6 million have an indefinite carryforward period. The remaining federal NOL carryforwards and our state NOL carryforward will expire beginning in 2035. These loss carryforwards are available to reduce future federal taxable income, if any. As of December 31, 2021, we also had federal and state research and development carryforwards of approximately $2.8 million and $1.4 million, respectively, which may be available to offset any future income tax and which will begin to expire in 2033. These loss and credit carryforwards are subject to review and possible adjustment by the appropriate taxing authorities.

Utilization of our NOL carryforwards and research and development credit carryforwards may be subject to a substantial

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annual limitation due to ownership change limitations that have occurred previously or that could occur in the future in accordance with Section 382 of the Internal Revenue Code of 1986, or Section 382, as well as similar state provisions. These ownership changes may limit the amount of NOL and research and development credit carryforwards that can be utilized annually to offset future taxable income and taxes, respectively. In general, an ownership change as defined by Section 382 results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50% over a three-year period. Since our formation, we have raised capital through the issuance of units and capital stock on several occasions. These financings may have resulted in a change of control as defined by Section 382. We have not yet completed a detailed study of our inception to date ownership change activity.

In addition, we have not yet conducted a study of our research and development credit carry forwards. Such a study may result in an adjustment to our research and development credit carryforwards; however, until a study is completed and any adjustment is known, no amount is being presented as an uncertain tax position. A full valuation allowance has been provided against our research and development credits, and, if an adjustment is required, this adjustment would be offset by an adjustment to the valuation allowance. Thus, there would be no impact to the balance sheet or statement of operations and comprehensive loss if an adjustment were required.

Income taxes are determined at the applicable tax rates adjusted for non-deductible expenses, research and development tax credits and other permanent differences. Our income tax provision may be significantly affected by changes to our estimates.

Results of Operations

Comparison of the three months ended March 31, 2022 and 2021

The following tables summarize our results of operations for the three months ended March 31, 2022 and 2021 (in thousands):

Three Months Ended

    

March 31, 

   

2022

   

2021

   

Change

Operating expenses

  

  

  

Research and development

$

14,920

$

11,621

$

3,299

General and administrative

 

6,304

 

4,899

 

1,405

Total operating expenses

 

21,224

 

16,520

 

4,704

Loss from operations

 

(21,224)

 

(16,520)

 

(4,704)

Other expense, net

 

  

 

  

 

  

Other expense, net

 

(129)

 

(147)

 

18

Total other expense, net

 

(129)

 

(147)

 

18

Net loss

$

(21,353)

$

(16,667)

$

(4,686)

Research and Development Expenses

The following tables summarize our research and development expenses for the three months ended March 31, 2022 and 2021 (in thousands):

Three Months Ended

    

March 31, 

  

2022

  

2021

   

Change

XTX101

$

1,257

$

1,735

$

(478)

XTX202

1,571

3,543

(1,972)

XTX301

3,165

343

2,822

Other early programs and indirect research and development

4,325

2,782

1,543

Personnel-related (including equity-based compensation)

4,602

3,218

1,384

Total research and development expenses

$

14,920

$

11,621

$

3,299

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Research and development expenses increased by $3.3 million from $11.6 million for the three months ended March 31, 2021 to $14.9 million for the three months ended March 31, 2022. The increase in research and development expenses was primarily due to the following:

$2.8 million increase in expenses incurred to advance our XTX301 program, primarily driven by an increase of approximately $1.5 million in manufacturing activities and approximately $1.3 million related to preclinical development activities;
$1.5 million increase in other early programs and indirect research and development expenses, primarily driven by an increase in external expenses related to preclinical research and development activities; and
$1.4 million increase in personnel-related costs, primarily driven by higher research and development headcount and related increases of approximately $1.1 million in salaries, bonuses and benefits, and an approximately $0.5 million increase in equity-based compensation.

These increases were partially offset by the following:

$2.0 million decrease in expenses incurred to advance our XTX202 program, primarily driven by a decrease of approximately $1.5 million due to the timing of manufacturing activities in the comparable period and approximately $1.0 million in preclinical development activities, partially offset by an increase of approximately $0.7 million in clinical development activities; and
$0.5 million decrease in expenses incurred to advance our XTX101 program, primarily driven by a decrease of approximately $0.9 million in preclinical development activities and approximately $0.2 million in manufacturing activities, partially offset by an increase of approximately $0.8 million in clinical development activities.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for the three months ended March 31, 2022 and 2021 (in thousands):

Three Months Ended

    

March 31, 

  

2022

  

2021

   

Change

Personnel-related (including equity-based compensation)

$

3,637

$

2,458

$

1,179

Professional and consulting fees

1,400

1,912

(512)

Facility-related and other general and administrative expenses

1,267

529

738

Total general and administrative expenses

$

6,304

$

4,899

$

1,405

General and administrative expenses increased $1.4 million from $4.9 million for the three months ended March 31, 2021 to $6.3 million for the three months ended March 31, 2022. The increase in general and administrative expenses was primarily due to the following:

$1.2 million increase in personnel-related costs, primarily driven by higher general and administrative headcount and related increases of approximately $0.6 million in salaries, bonuses and benefits, and an approximately $0.8 million increase in equity-based compensation; and
$0.7 million increase in facility-related and other general and administrative expenses, primarily driven by increases in costs incurred as a result of becoming a publicly traded company, including directors and officers’ liability insurance and other corporate related costs associated with increased overall corporate headcount.

These increases were partially offset by a $0.5 million decrease in professional and consulting fees, primarily driven by a decrease in general and administrative consulting costs.

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Other Income (Expense), Net

Other income (expense), net, remained consistent at $0.1 million during the three months ended March 31, 2022 compared to the same period in the prior year.

Liquidity and Capital Resources

Sources of Liquidity

Since our inception, we have incurred significant operating losses and negative cash flows from operations. We have not yet commercialized any of our product candidates, which are in preclinical or early clinical development, and we do not expect to generate revenue from sales of any products for several years, if at all. To date, we have financed our operations primarily from proceeds raised through private placements of preferred units and convertible preferred stock, a debt financing and our IPO. Through March 31, 2022, we have received an aggregate of $350.9 million in net proceeds from such transactions, including aggregate net proceeds of $116.4 million from our IPO, an aggregate of $224.5 million in net proceeds from the sale and issuance of preferred units and convertible preferred stock, and $10.0 million in net proceeds from our debt financing with PacWest. As of March 31,