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 June 30, 2024

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: (857) 524-2466

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 registrant’s common stock, $0.0001 par value per share, outstanding on August 1, 2024: 43,952,491

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:

● our ability to secure sufficient additional capital in the near term or implement other strategies needed to alleviate our current doubt about our ability to continue as a going concern;

● our estimates regarding expenses, future revenue and capital requirements and our expectations regarding our ability to fund our operating expenses and capital expenditure requirements with our cash and cash equivalents;

● the initiation, timing, progress and results of our research and development programs, including preclinical studies and clinical trials;

● the potential advantages and benefits of our current and future product candidates, including our beliefs regarding the potential benefits of our current and future product candidates in combination with other agents;

● our strategic 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;

● 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;

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● our ability to establish and maintain collaborations and strategic partnerships and realize the expected benefits of such arrangements, including our partnership with Gilead Sciences, Inc., or Gilead, and our clinical collaboration with F. Hoffmann-La Roche Ltd;

● our expectations regarding milestones, equity investments and other contingent payments under our partnership with Gilead;

● our expectations regarding the time during which we will be an emerging growth company under the JOBS Act; and

● the impact of general economic conditions, including inflation.

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 in the “Risk Factor Summary” and “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 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.

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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 recurring losses from operations raise substantial doubt regarding our ability to continue as a going concern. If we are unable to raise sufficient additional capital in the near term, we may in the future need to implement additional cost reduction strategies, which could include delaying, limiting, reducing or eliminating both internal and external costs related to our operations and research and development programs.

● 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.

● 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 development and manufacturing organizations, or CDMOs. For example, the CDMO on which we rely may not continue to meet regulatory requirements, may have limited capacity and 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 have entered into, and may in the future seek to enter into, collaborations, licenses, or similar arrangements with third parties for the research, development and commercialization of certain of our current or future product candidates. If any such arrangements are not successful, we may not be able to capitalize on the market potential of those product candidates.

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● Certain of our research and development and manufacturing activities take place in China through a third-party CDMO. A significant disruption in our ability to rely on this CDMO could materially adversely affect our business, financial condition 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.

● Even if we complete the necessary preclinical studies and clinical trials, the regulatory approval process is expensive, time consuming and uncertain and may prevent us from obtaining approvals for the commercialization of some or all of our product candidates. As a result, we cannot predict when or if, and in which territories, we will obtain marketing approval to commercialize a product candidate.

● The price of our common stock has been and, in the future, could be subject to volatility related or unrelated to our operations, and purchasers of our common stock could suffer a decline in value.

Availability of Other Information About Xilio Therapeutics, Inc.

Investors and others should note that we communicate with our investors and the public using our 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 us on X (@xiliotx) or LinkedIn. The information that we post on these channels and websites could be deemed to be material information. As a result, we encourage investors, the media and others interested in our company to review the information that we post on these channels, including our investor relations website, on a regular basis. This list of channels may be updated from time to time on our investor relations website (ir.xiliotx.com) and may include other social media channels than the ones described above. The contents of our website or these channels, or any other website that may be accessed from our website or these channels, shall not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended.

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TABLE OF CONTENTS

		Page
Part I	Financial Information
Item 1.	Financial Statements (unaudited)	7
	Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023	7
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2024 and 2023	8
	Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2024 and 2023	9
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023	11
	Notes to Condensed Consolidated Financial Statements	12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	38
Item 4.	Controls and Procedures	38
Part II	Other Information	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	107
Item 5.	Other Information	107
Item 6.	Exhibits	109
Signatures

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

XILIO THERAPEUTICS, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

(Unaudited)

	June 30,		December 31,
	2024		2023
ASSETS
Current assets
Cash and cash equivalents	$	74,949	$	44,704
Prepaid expenses and other current assets		3,059		3,423
Total current assets		78,008		48,127
Restricted cash		1,769		1,587
Property and equipment, net		5,137		5,942
Operating lease right-of-use asset		4,867		5,125
Other non-current assets		92		145
Total assets	$	89,873	$	60,926
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	1,264	$	1,050
Accrued expenses		9,737		10,497
Deferred revenue, current portion		26,517		—
Operating lease liability, current portion		1,116		1,047
Note payable, current portion		—		3,315
Other current liabilities		7		48
Total current liabilities		38,641		15,957
Deferred revenue, net of current portion		10,250		—
Operating lease liability, net of current portion		7,566		8,142
Total liabilities		56,457		24,099
Commitments and contingencies (Note 7)
Stockholders’ equity
Preferred stock, $0.0001 par value; 5,000,000 shares authorized, no shares issued or outstanding		—		—
Common stock, $0.0001 par value; 200,000,000 shares authorized at June 30, 2024 and December 31, 2023; 43,951,922 shares issued and outstanding at June 30, 2024; 27,613,263 shares issued and 27,607,646 shares outstanding at December 31, 2023		4		3
Additional paid-in capital		390,052		362,336
Accumulated deficit		(356,640)		(325,512)
Total stockholders’ equity		33,416		36,827
Total liabilities and stockholders’ equity	$	89,873	$	60,926

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

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XILIO THERAPEUTICS, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share data)

(Unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Revenue
License revenue	$	2,357	$	—	$	2,357	$	—
Total revenue		2,357		—		2,357		—
Operating expenses
Research and development	$	11,216	$	13,218	$	21,616	$	29,349
General and administrative		5,815		6,898		11,954		14,293
Restructuring		30		—		978		—
Total operating expenses		17,061		20,116		34,548		43,642
Loss from operations		(14,704)		(20,116)		(32,191)		(43,642)
Other income, net
Other income, net		779		761		1,063		1,641
Total other income, net		779		761		1,063		1,641
Net loss and comprehensive loss	$	(13,925)	$	(19,355)	$	(31,128)	$	(42,001)
Net loss per share, basic and diluted	$	(0.24)		(0.70)	$	(0.73)	$	(1.53)
Weighted average common shares outstanding, basic and diluted		57,760,178		27,468,668		42,836,381		27,451,058

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

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XILIO THERAPEUTICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

For the three months ended June 30, 2024 and 2023

(In thousands, except share data)

(Unaudited)

								Total
	Common Stock			Additional		Accumulated		Stockholders’
	Shares	Amount		Paid-In Capital		Deficit		Equity
Balance at March 31, 2024	34,472,646	$	3	$	368,477	$	(342,715)	$	25,765
Issuance of common stock and prefunded warrants in connection with the Gilead stock purchase agreement, net of issuance costs	485,250		—		3,297		—		3,297
Issuance of common stock and prefunded warrants in connection with a private placement, net of issuance costs	1,953,125		—		9,908		—		9,908
Issuance of common stock in connection with at-the-market offerings, net of issuance costs	7,000,000		1		6,824		—		6,825
Issuance of common stock under employee stock purchase plan	38,998		—		34		—		34
Vesting of restricted common stock	840		—		—		—		—
Exercise of stock options	1,063		—		1		—		1
Stock-based compensation expense	—		—		1,511		—		1,511
Net loss	—		—		—		(13,925)		(13,925)
Balance at June 30, 2024	43,951,922	$	4	$	390,052	$	(356,640)	$	33,416

								Total
	Common Stock			Additional		Accumulated		Stockholders’
	Shares	Amount		Paid-In Capital		Deficit		Equity
Balance at March 31, 2023	27,439,820	$	3	$	356,543	$	(271,754)	$	84,792
Issuance of common stock under employee stock purchase plan	68,929		—		140		—		140
Vesting of restricted common stock	9,978		—		—		—		—
Exercise of stock options	168		—		—		—		—
Stock-based compensation expense	—		—		1,800		—		1,800
Net loss	—		—		—		(19,355)		(19,355)
Balance at June 30, 2023	27,518,895	$	3	$	358,483	$	(291,109)	$	67,377

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

9

XILIO THERAPEUTICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

For the six months ended June 30, 2024 and 2023

(In thousands, except share data)

(Unaudited)

								Total
	Common Stock			Additional		Accumulated		Stockholders’
	Shares	Amount		Paid-In Capital		Deficit		Equity
Balance at December 31, 2023	27,607,646	$	3	$	362,336	$	(325,512)	$	36,827
Issuance of common stock and prefunded warrants in connection with the Gilead stock purchase agreement, net of issuance costs	7,345,473		—		7,605		—		7,605
Issuance of common stock and prefunded warrants in connection with a private placement, net of issuance costs	1,953,125		—		9,908		—		9,908
Issuance of common stock in connection with at-the-market offerings, net of issuance costs	7,000,000		1		6,824		—		6,825
Issuance of common stock under employee stock purchase plan	38,998		—		34		—		34
Vesting of restricted common stock	5,617		—		—		—		—
Exercise of stock options	1,063		—		1		—		1
Stock-based compensation expense	—		—		3,344		—		3,344
Net loss	—		—		—		(31,128)		(31,128)
Balance at June 30, 2024	43,951,922	$	4	$	390,052	$	(356,640)	$	33,416

								Total
	Common Stock			Additional		Accumulated		Stockholders’
	Shares	Amount		Paid-In Capital		Deficit		Equity
Balance at December 31, 2022	27,425,447	$	3	$	354,752	$	(249,108)	$	105,647
Issuance of common stock under employee stock purchase plan	68,929		—		140		—		140
Vesting of restricted common stock	24,195		—		—		—		—
Exercise of stock options	324		—		—		—		—
Stock-based compensation expense	—		—		3,591		—		3,591
Net loss	—		—		—		(42,001)		(42,001)
Balance at June 30, 2023	27,518,895	$	3	$	358,483	$	(291,109)	$	67,377

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)

	Six Months Ended June 30,
	2024		2023
Cash flows from operating activities:
Net loss	$	(31,128)	$	(42,001)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		888		991
Non-cash interest (income) expense		(1)		118
Stock-based compensation expense		3,344		3,591
Loss on disposal of property and equipment		—		2
Changes in operating assets and liabilities:
Prepaid and other assets		364		1,069
Operating lease right-of-use asset		259		221
Accounts payable		205		(2,167)
Accrued expenses and other liabilities		(740)		(3,204)
Deferred revenue		36,767		—
Operating lease liability		(507)		(444)
Net cash provided by (used in) operating activities		9,451		(41,824)
Cash flows from investing activities:
Purchases of property and equipment		(21)		(486)
Net cash used in investing activities		(21)		(486)
Cash flows from financing activities:
Repayments of debt principal		(3,333)		(2,778)
Payments of finance lease		(42)		(42)
Proceeds from issuance of common stock under employee stock purchase plan		34		140
Proceeds from exercise of stock options		1		—
Proceeds from issuance of common stock and prefunded warrants in connection with the Gilead stock purchase agreement, net of issuance costs		7,605		—
Proceeds from issuance of common stock and prefunded warrants in connection with a private placement, net of issuance costs		9,908		—
Proceeds from issuance of common stock in connection with at-the-market offerings, net of issuance costs		6,824		—
Net cash provided by (used in) financing activities		20,997		(2,680)
Increase (decrease) in cash, cash equivalents and restricted cash		30,427		(44,990)
Cash, cash equivalents and restricted cash, beginning of period		46,291		121,947
Cash, cash equivalents and restricted cash, end of period	$	76,718	$	76,957
Supplemental cash flow disclosure:
Cash paid for interest	$	62	$	332
Supplemental disclosure of non-cash activities:
Capital expenditures included in accounts payable or accrued expenses	$	9	$	—
Reconciliation to amounts within the consolidated balance sheets:
Cash and cash equivalents	$	74,949	$	75,383
Restricted cash		1,769		1,574
Cash, cash equivalents and restricted cash, end of period	$	76,718	$	76,957

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, Liquidity and Going Concern

Description of Business

Xilio Therapeutics, Inc. (“Xilio” or the “Company”) is a clinical-stage biotechnology company dedicated to discovering and developing tumor-activated immuno-oncology (“I-O”) therapies with the goal of significantly improving outcomes for people living with cancer without the systemic side effects of current I-O treatments. The Company was incorporated in Delaware in June 2020, and its headquarters are located in Waltham, Massachusetts.

Liquidity and Going Concern

Since its inception, the Company has devoted substantially all of its financial resources and efforts to research and development activities. As of June 30, 2024, the Company had an accumulated deficit of $356.6 million and has incurred significant operating losses, including net losses of $31.1 million and $42.0 million for the six months ended June 30, 2024 and 2023, respectively. The Company expects its operating losses and negative operating cash flows to continue for the foreseeable future as it continues to advance its product candidates through clinical trials, maintains the infrastructure necessary to support these activities and continues to incur costs associated with operating as a public company. As of June 30, 2024, the Company had cash and cash equivalents of $74.9 million. Based on its current operating plans, the Company anticipates that its existing cash and cash equivalents as of June 30, 2024 will be sufficient to fund the Company’s operating expenses and capital expenditure requirements into the second quarter of 2025. However, the Company has based this estimate on assumptions that may prove to be wrong, and the Company could exhaust its available capital resources sooner than it anticipates. In addition, since these amounts may not be sufficient to fund its operations for at least twelve months from the date of issuance of the condensed consolidated financial statements, there is substantial doubt about the Company’s ability to continue as a going concern.

To continue to fund the operations of the Company, management has developed plans, which in the near term primarily consist of raising additional capital through one or more of the following: additional equity or debt financings; additional collaborations, partnerships or licensing transactions; or other sources. However, there can be no assurance that the Company will be able to complete any such transaction on acceptable terms or otherwise, and the Company may be unable to obtain sufficient additional capital. If the Company is not able to secure sufficient additional capital in the near term, the Company may in the future need to implement additional cost reduction strategies, which could include delaying, limiting, further reducing or eliminating both internal and external costs related to its operations and research and development programs.

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

2. Summary of Significant Accounting Policies

Basis of Presentation

The Company’s unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASUs”) of the Financial Accounting Standards Board (“FASB”). Certain information

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and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from this report, as is permitted by such rules and regulations. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2023 and notes thereto, included in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on April 1, 2024. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited financial statements. In the opinion of the Company’s management, the unaudited interim condensed consolidated financial statements contain all adjustments which are necessary to present fairly the Company’s financial position as of June 30, 2024 and the results of its operations for the three and six months ended June 30, 2024 and 2023 and cash flows for the six months ended June 30, 2024 and 2023. Such adjustments are of a normal and recurring nature. The results for the three and six months ended June 30, 2024 are not necessarily indicative of the results for the year ending December 31, 2024 or for any future period.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: Xilio Development, Inc., a Delaware corporation and Xilio Securities Corporation, a Massachusetts security corporation. 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, 2023. Except as described below, 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, 2023.

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 revenue recognition, accrued expenses, the valuation of stock-based compensation, including stock options and restricted common stock, useful life of long-lived assets and income taxes. Actual results could differ from those estimates.

Revenue Recognition

The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). The Company has entered into, and may in the future enter into, collaboration and licensing agreements that are within the scope of ASC 606, under which the Company has granted licenses to certain of the Company’s product candidates and performs research, development and other services in connection with such arrangements. The terms of these arrangements may include payment of one or more of the following: non-refundable upfront fees; reimbursement of research and development costs; development, regulatory and sales-based milestone payments; and royalties on annual net sales of licensed products.

Under ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine the appropriate amount of revenue to be recognized for arrangements that the Company determines are within

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the scope of ASC 606, the Company performs the following five steps: (i) identification of the contract with the customer; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

● Performance Obligations. The promised goods or services in the Company’s arrangements typically consist of a license, or option to license, rights to the Company’s intellectual property or research and development services. The Company may provide options to additional items in such arrangements, which are accounted for as separate contracts when the customer elects to exercise such options, unless the option provides a material right to the customer. Performance obligations are promised goods or services in a contract to transfer a distinct good or service to the customer and are considered distinct when (i) the customer can benefit from the good or service on its own or together with other readily available resources and (ii) the promised good or service is separately identifiable from other promises in the contract. In assessing whether promised goods or services are distinct, the Company considers factors such as the stage of development of the underlying intellectual property, the capabilities of the customer to develop the intellectual property on its own or whether the required expertise is readily available and whether the goods or services are integral or dependent to other goods or services in the contract.

● Customer Options. If an arrangement is determined to contain customer options that allow the customer to acquire additional goods or services, the goods and services underlying the customer options that are not determined to be material rights are not considered to be performance obligations at the outset of the arrangement, as they are contingent upon option exercise. The Company evaluates the customer options for material rights, or options to acquire additional goods or services for free or at a discount. If the customer options are determined to represent a material right, the material right is recognized as a separate performance obligation at the outset of the arrangement. The Company allocates the transaction price to material rights based on the relative standalone selling price, which is determined based on the identified discount and the probability that the customer will exercise the option. Amounts allocated to a material right are not recognized as revenue until, at the earliest, the option is exercised or the option expires.

● Transaction Price. The Company estimates the transaction price based on the amount expected to be received for transferring the promised goods or services in the contract. The consideration may include fixed consideration or variable consideration. At the inception of each arrangement that includes variable consideration, the Company evaluates the amount of potential payments and the likelihood that the payments will be received. The Company utilizes either the most likely amount method or expected value method to estimate the amount expected to be received based on which method best predicts the amount expected to be received. The amount of variable consideration that is included in the transaction price may be constrained and is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. At the end of each subsequent reporting period, the Company reevaluates the probability of achievement of all variable consideration subject to constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues in the period of adjustment.

The Company allocates the transaction price to the identified performance obligations based on the estimated standalone selling price. The Company must develop assumptions that require judgment to determine the standalone selling price for each performance obligation identified in the contract. The Company utilizes key assumptions to determine the standalone selling price, which may include other comparable transactions, pricing considered in negotiating the transaction and the estimated costs. Variable consideration is allocated specifically to one or more performance obligations in a contract when the terms of the variable consideration relate to the satisfaction of the performance obligation and the resulting amounts allocated are consistent with the amounts the Company would expect to receive for the satisfaction of each performance obligation.

● Milestone Payments. At the inception of each arrangement that includes development or regulatory milestone payments, the Company evaluates whether the milestones are considered probable of being achieved and

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estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the Company’s control or the licensee’s control, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The Company evaluates factors such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the particular milestone in making this assessment. There is considerable judgment involved in determining whether it is probable that a significant revenue reversal would not occur.

● Royalties. For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any royalty revenue resulting from any of the Company’s collaboration or licensing arrangements.

● Recognition. The consideration allocated to each performance obligation is recognized as revenue when control is transferred for the related goods or services. For performance obligations that consist of licenses and other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

The Company receives payments from its customers based on billing schedules established in each contract. Non-refundable upfront payments are included in the estimation of the transaction price, allocated to the performance obligation(s) based upon relative standalone selling price and recognized for each performance obligation based upon the measure of progress (point in time or over time) for each performance obligation. Payments received for goods and services not yet provided are recorded as deferred revenue. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional.

For a discussion of accounting for collaboration and license revenues, see Note 6, Collaboration and License Agreements.

Concentrations of Credit Risk

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company holds all cash and cash equivalents at accredited financial institutions. Bank accounts in the United States are generally insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. Substantially all of the Company’s cash and cash equivalents are FDIC insured, including funds held through an insured cash sweep program. The Company has not experienced any losses in its cash and cash equivalents and does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

Recent Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses that are regularly provided to the chief operating decision maker. The guidance is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The guidance is to be applied retrospectively to all prior periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. The Company is currently evaluating the potential impact of adopting this new guidance on its condensed consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which modifies the rules on income tax disclosures to require entities to disclose (1) specific

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categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. The guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. This Company is currently evaluating the potential impact of adopting this new guidance on its condensed consolidated financial statements and related disclosures.

3. Property and Equipment, Net

Property and equipment, net consists of the following as of June 30, 2024 and December 31, 2023:

	June 30,		December 31,
	2024		2023
Laboratory equipment	$	5,836	$	5,815
Computers and software		183		183
Furniture and fixtures		681		681
Leasehold improvements		5,124		5,124
Construction in process		9		—
Total property and equipment		11,833		11,803
Less: accumulated depreciation		(6,696)		(5,861)
Property and equipment, net	$	5,137	$	5,942

The Company recognized depreciation and amortization expense related to property and equipment of $0.8 million and $0.9 million for the six months ended June 30, 2024 and 2023, respectively.

4. Accrued Expenses and Restructuring

Accrued expenses consist of the following as of June 30, 2024 and December 31, 2023:

	June 30,		December 31,
	2024		2023
External research and development	$	6,471	$	4,867
Personnel-related		2,511		4,690
Restructuring		292		—
Professional and consulting fees		332		845
Other		131		95
Total accrued expenses	$	9,737	$	10,497

In March 2024, the Company’s board of directors approved a strategic portfolio reprioritization and workforce reduction. As part of the workforce reduction, the Company recognized restructuring charges of $1.0 million during the six months ended June 30, 2024, primarily related to employee severance, benefits continuation and outplacement service costs. The workforce reduction was completed in April 2024. The Company made payments of $0.7 million related to the restructuring during the six months ended June 30, 2024. All employee severance, benefits continuation and outplacement service cost payments are expected to be completed by the end of the third quarter of 2024.

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The following table summarizes the accrued restructuring liability activity for the Company’s workforce reduction for the six months ended June 30, 2024:

	Severance and
	Related Benefits
Accrued restructuring liability as of December 31, 2023	$	—
Restructuring charges		978
Restructuring payments		(686)
Accrued restructuring liability as of June 30, 2024	$	292

5. Loan and Security Agreement

In November 2019, the Company’s wholly owned subsidiary, Xilio Development, Inc. (“Xilio Development”), entered into a loan and security agreement (as amended and restated in May 2023, the “Loan Agreement”) with Pacific Western Bank (“PacWest”), with the Company as a guarantor, and borrowed $10.0 million under a term loan. Interest on amounts outstanding under the Loan Agreement accrued at a variable annual rate equal to the greater of (i) the prime rate plus 0.25% or (ii) 4.75%. In the first quarter of 2024, Xilio Development repaid all amounts outstanding under the Loan Agreement, and PacWest released all security interests in Xilio Development’s and its affiliates’ assets.

The Company recognized $0.1 million and $0.4 million of interest expense related to the Loan Agreement for the six months ended June 30, 2024 and 2023, respectively, which is reflected in other income, net on the condensed consolidated statements of operations and comprehensive loss.

6. Collaboration and License Agreements

License Agreement with Gilead Sciences, Inc.

In March 2024, Xilio Development entered into a license agreement with Gilead Sciences, Inc (“Gilead”), pursuant to which it granted Gilead an exclusive global license to develop and commercialize XTX301, the Company’s tumor-activated IL-12 product candidate, and specified other molecules directed to IL-12.

Xilio Development is responsible for conducting clinical development for XTX301 in the ongoing Phase 1 clinical trial through an initial planned Phase 2 dose expansion clinical trial. Following the delivery by Xilio Development of a specified clinical data package for XTX301 related to the Phase 1 clinical trial and planned Phase 2 clinical trial, Gilead can elect to transition responsibilities for the development and commercialization of XTX301 to Gilead, subject to the terms of the license agreement and payment by Gilead of a $75.0 million transition fee.

In connection with the execution of the license agreement, in March 2024, the Company also entered into a stock purchase agreement with Gilead. Under the stock purchase agreement, Gilead agreed to purchase up to an aggregate of $25.0 million of the Company’s common stock (or at Gilead’s election, prefunded warrants in lieu of shares of common stock) in an initial private placement in connection with the execution of the license agreement and in up to three additional private placements through March 2025 at a predetermined mechanism for the purchase price per share, at all times subject to Gilead not being deemed the beneficial owner of greater than 19.9% of the Company’s common stock upon the closing of the applicable private placement. In March 2024, the Company initially issued and sold 6,860,223 shares of common stock to Gilead at a purchase price of $1.97 per share and received approximately $13.5 million in aggregate gross proceeds. In April 2024, the Company exercised its right to a first additional private placement with Gilead and issued and sold an additional 485,250 shares of its common stock at a purchase price of $0.76 per share and prefunded warrants to purchase up to an aggregate of 3,882,450 shares of its common stock at a purchase price of $0.7599 per prefunded warrant. The prefunded warrants are exercisable any time at an exercise price of $0.0001 per share, subject to Gilead not being deemed a beneficial owner of greater than 19.9% of the Company’s common stock upon the exercise of the prefunded warrants. The Company received approximately $3.3 million in aggregate gross proceeds from the additional private placement with Gilead.

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As of June 30, 2024, the Company has received approximately $46.8 million in payments under the Gilead agreements, consisting of the $30.0 million upfront cash payment under the license agreement and approximately $16.8 million in gross proceeds from private placements under the stock purchase agreement. As of June 30, 2024, the Company is eligible to receive up to $600.7 million in additional contingent payments, which consist of (i) approximately $8.2 million in proceeds from up to two additional private placements, (ii) the $75.0 million transition fee and (iii) up to $517.5 million in specified development, regulatory and sales-based milestones. Prior to the potential transition fee, up to $25.7 million of the total additional contingent payments are related to the potential additional private placements and a near-term development milestone. In addition, the Company is eligible to receive tiered royalties ranging from high single digits to mid-teens on annual global net product sales.

The Company considered the ASC 606 criteria for combining contracts and determined the license agreement and the stock purchase agreement should be combined into a single contract because they were negotiated and entered into in contemplation of one another. The Company concluded the initial private placement and the additional private placements do not represent freestanding financial instruments as such instruments are not legally detachable due to contractual transfer restrictions. The Company accounted for the common stock issued to Gilead in the initial private placement based on the fair market value of the common stock on the date of issuance. The fair market value of the common stock issued to Gilead in the initial private placement was $4.4 million, based on the closing price of the Company’s common stock on the date of issuance, resulting in a $9.1 million premium. The Company determined that the premium paid by Gilead for the common stock purchased in the initial private placement should be attributed to the transaction price of the license agreement.

The Company determined that the license agreement represents a contract with a customer within the scope of ASC 606 and identified two promises under the license agreement: (i) the exclusive licenses granted to Gilead related to the Company’s IL-12 program and (ii) the provision by Xilio Development and its affiliates of development services related to ongoing and planned clinical trials for XTX301 through an initial planned Phase 2 clinical trial. The Company determined that the exclusive license and development services were not capable of being distinct on the basis that the development services to be provided by Xilio Development are specialized in nature, specifically with respect to its specialized expertise related to XTX301, the IL-12 program and the Company’s proprietary platform for tumor-activated biologics. Accordingly, the Company concluded that there is a single identified combined performance obligation consisting of the exclusive license and the development services.

For purposes of ASC 606, the transaction price of the license agreement at the outset of the arrangement was determined to be $39.1 million, which consisted of the upfront cash payment of $30.0 million under the license agreement and the $9.1 million premium on the sale of common stock to Gilead in the initial private placement, which was allocated to the single combined performance obligation. The Company used the most likely amount method to estimate variable consideration. All contingent payments are fully constrained as of June 30, 2024, as the achievement of the milestones underlying such contingent payments is uncertain and highly susceptible to factors outside of the Company’s control. Accordingly, all such contingent payments are excluded from the transaction price. The Company reevaluates the transaction price at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur and may adjust the transaction price as necessary. Sales-based royalties, including milestone payments based on the level of sales, were also excluded from the transaction price, as the license is deemed to be the predominant item to which the royalties relate. The Company plans to recognize such revenue at the later of (i) when the related sales occur or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

Revenue associated with the combined performance obligation is recognized as services are provided as control is transferred over time. The Company measures progress based on the amount of costs incurred relative to the total costs expected to fulfill the combined performance obligation. In management’s judgment, this input method is the best measure of progress towards satisfying the combined performance obligation and reflects a faithful depiction of the transfer of goods and services.

During the three and six months ended June 30, 2024, the Company recognized license revenue of $2.4 million under the license agreement and the stock purchase agreement. As of June 30, 2024, the Company recorded deferred revenue of

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$36.7 million, of which $26.5 million was recorded as a current liability on the Company’s condensed consolidated balance sheet as of June 30, 2024.

Summary of Contract Assets and Liabilities

The following table presents changes in the balances of the Company's contract liabilities:

	Deferred
	Revenue
Deferred revenue as of December 31, 2023	$	—
Additions		39.1
License revenue recognized		(2.4)
Deferred revenue as of June 30, 2024	$	36.7

Clinical Trial Collaboration with F. Hoffmann-La Roche Ltd.

In July 2023, the Company and F. Hoffmann-La Roche Ltd. (“Roche”) entered into a clinical trial collaboration (the “Roche Clinical Collaboration”) pursuant to a clinical supply agreement to evaluate XTX101 in combination with atezolizumab (Tecentriq®) in a Phase 1/2 clinical trial consisting of Phase 1 dose escalation assessing the combination in patients with advanced solid tumors and Phase 2 assessing the combination in patients with microsatellite stable colorectal cancer.

Under the clinical supply agreement, the Company is eligible to receive specified cost-sharing payments from Roche, and each company will supply its respective anti-cancer agent to support the Phase 1/2 clinical trial. The Company is responsible for sponsoring and conducting the Phase 1/2 clinical trial and retains global development and commercialization rights to XTX101.

The Company concluded that the cost-sharing payments from the Roche Clinical Collaboration are not in the scope of ASC 606 because the Company does not consider performing research and development services for reimbursement to be part of its ongoing major or central operations. Therefore, the Company applied a reasonable, rational, and consistently applied accounting policy election to record the cost-sharing payments from the Roche Clinical Collaboration as a reduction of research and development expenses in the condensed consolidated statements of operations and comprehensive loss for the period in which a study development event is achieved. During the three months ended June 30, 2024, the Company did not recognize a reduction of research and development expenses under the Roche Clinical Collaboration. During the six months ended June 30, 2024, the Company recognized a reduction of research and development expenses of $2.0 million under the Roche Clinical Collaboration.

7. Commitments and Contingencies

The Company has an operating lease for its headquarters and a finance lease for certain lab equipment. In August 2019, the Company entered into a facility lease agreement with a landlord providing funding for tenant improvements and occupancy of approximately 27,830 square feet of office and laboratory space (the “premises”) 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 an additional term 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 June 30, 2024 and December 31, 2023, the Company had a letter of credit for the benefit of its landlord in the amount of $1.6 million and $1.6 million, respectively, collateralized by a money market account, which is recorded as restricted cash on the condensed consolidated balance sheets.

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8. Preferred Stock and Common Stock

Undesignated Preferred Stock

As of June 30, 2024 and December 31, 2023, 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. As of June 30, 2024 and December 31, 2023, there were no shares of preferred stock issued or outstanding.

Common Stock

As of June 30, 2024 and December 31, 2023, the Company is authorized to issue up to 200,000,000 shares of common stock, $0.0001 par value per share under its certificate of incorporation, as amended.

Private Placement

In March 2024, the Company entered into a securities purchase agreement with certain existing accredited investors pursuant to which the Company issued and sold an aggregate of 1,953,125 shares of its common stock at a purchase price of $0.64 per share and, in lieu of shares of the Company’s common stock, prefunded warrants to purchase up to an aggregate of 15,627,441 shares of its common stock at a purchase price of $0.6399 per prefunded warrant, through a private placement. The prefunded warrants are exercisable any time at an exercise price of $0.0001 per share. The private placement closed in April 2024. The Company received aggregate gross proceeds of $11.3 million from the private placement, before deducting placement agent fees and expenses payable by the Company. The shares of common stock issued and sold in the private placement were registered for resale pursuant to the Company’s registration statement on Form S-3 filed with the SEC on April 30, 2024, which became effective on May 6, 2024.

Sales Agreement

In November 2022, the Company filed a universal shelf registration statement on Form S-3 with the SEC to register for sale up to $250,000,000 of its common stock, preferred stock, debt securities, units and warrants, which the Company may issue and sell from time to time in one or more offerings, which became effective on November 18, 2022 (333-268264). In November 2022, the Company also entered into a sales agreement (the “Sales Agreement”) with Cowen and Company LLC, under which the Company may issue and sell shares of its common stock at prevailing market prices from time to time, having an aggregate offering price of up to $75.0 million, subject to the terms and conditions of the Sales Agreement. Issuances or sales of common stock pursuant to the Sales Agreement are made under the Form S-3 and the corresponding prospectus related to the Sales Agreement, as supplemented by a prospectus supplement filed on April 15, 2024. During the three and six months ended June 30, 2024, the Company issued and sold 7,000,000 shares of its common stock pursuant to the Sales Agreement at a weighted average price of $1.00 per share for aggregate gross proceeds of $7.0 million, before deducting commissions.

Shares Reserved for Future Issuance

The Company has reserved for future issuances the following shares of common stock as of June 30, 2024 and December 31, 2023:

	June 30,	December 31,
	2024	2023
Stock options and unvested restricted stock units	10,835,837	9,456,237
Employee stock purchase plan	938,378	701,244
Prefunded warrants	19,509,891	—
Warrants	2,631	2,631
Total shares reserved for future issuance	31,286,737	10,160,112

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9. Stock-Based Compensation

Equity Incentive Plans

2020 Stock Incentive Plan

Under the 2020 Stock Incentive Plan (as amended, 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.

2021 Stock Incentive Plan

In September 2021, the Company’s board of directors and stockholders adopted the 2021 Stock Incentive Plan (the “2021 Plan”), which became effective immediately prior to the IPO in October 2021. Upon effectiveness of the 2021 Plan, the Company ceased granting awards under the 2020 Plan. 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 Company initially reserved 6,579,016 shares of common stock under the 2021 Plan. The 2021 Plan provides that the number of shares reserved and available for issuance under the 2021 Plan will be cumulatively increased on January 1 of each calendar year by 5% of the number of shares of common stock outstanding on such date or such lesser amount determined by the Company’s board of directors. On January 1, 2024, the number of shares reserved for issuance under the 2021 Plan automatically increased by 1,380,663 shares. As of June 30, 2024, there were 2,134,645 shares of common stock available for future issuance under the 2021 Plan.

2022 Inducement Plan

In 2022, the Company’s board of directors adopted the 2022 Inducement Stock Incentive Plan pursuant to Nasdaq Rule 5635(c)(4) (the “2022 Inducement Plan”). In accordance with Rule 5635(c)(4), stock-based incentive awards under the 2022 Inducement Plan may only be made to a newly hired employee who has not previously been a member of the Company’s board of directors, or an employee who is being rehired following a bona fide period of non-employment by the Company as a material inducement to the employee’s entering into employment with the Company. An aggregate of 275,000 shares of the Company’s common stock has been reserved for issuance under the 2022 Inducement Plan. As of June 30, 2024, there were 220,000 shares of common stock available for future issuance under the 2022 Inducement Plan.

2021 Employee Stock Purchase Plan

In 2021, the Company’s board of directors and stockholders adopted the 2021 Employee Stock Purchase Plan (the “2021 ESPP”), which became effective immediately prior to the IPO in October 2021. The Company initially reserved 292,031 shares of common stock for issuance under the 2021 ESPP. The 2021 ESPP provides that the number of shares of common stock reserved for issuance under the 2021 ESPP will be cumulatively increased on January 1 of each calendar year by 1% of the number of shares of the Company’s common stock outstanding on such date or such lesser amount determined by the Company’s board of directors (up to a maximum increase of 584,062 shares of common stock per year). On January 1, 2024, the number of shares reserved for issuance under the 2021 ESPP was increased by 276,132 shares. During the six months ended June 30, 2024 and 2023, the Company issued 38,998 shares of common stock and 68,929 shares of common stock under the 2021 ESPP, respectively. As of June 30, 2024, there were 938,378 shares of common stock available for future issuance under the 2021 ESPP.

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Stock-Based Compensation Expense

During the three and six months ended June 30, 2024 and 2023, the Company recorded compensation expense related to stock options, restricted stock units and restricted common stock for employees and non-employees and share purchases under the 2021 ESPP for employees, which was allocated as follows in the condensed consolidated statements of operations and comprehensive loss:  

	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Research and development expense	$	385	$	549	$	891	$	1,122
General and administrative expense		1,126		1,251		2,453		2,469
Total stock-based compensation expense	$	1,511	$	1,800	$	3,344	$	3,591

Stock Options

A summary of stock option activity under the Company’s 2020 Plan, 2021 Plan and 2022 Inducement Plan is as follows:

				Weighted
				Average
				Remaining	Aggregate
		Weighted		Contractual	Intrinsic
	Number of	Average		Term	Value (1)
	Stock Options	Exercise Price		(In years)	(In thousands)
Outstanding as of December 31, 2023	7,455,795	$	5.52	8.0	$	—
Granted	1,825,103	$	0.89
Exercised	(1,063)	$	0.55
Cancelled/forfeited	(1,244,143)	$	5.07
Outstanding as of June 30, 2024	8,035,692	$	4.54	7.9	$	175
Exercisable as of June 30, 2024	3,443,607	$	6.46	6.5	$	22

(1) The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock as of the end of the period.

Using the Black-Scholes option pricing model, the weighted average fair value of options granted to employees and directors during the six months ended June 30, 2024 and 2023 was $0.68 and $1.96, respectively. The following assumptions were used in determining the fair value of options granted during the six months ended June 30 2024 and 2023:

	Six Months Ended June 30,
	2024			2023
Risk-free interest rate		3.9 - 4.6	%		3.6 - 4.0	%
Expected dividend yield		0	%		0	%
Expected term (in years)		5.5 - 6.0			5.5 - 6.1
Expected volatility		87.7 - 91.4	%		81.7 - 87.1	%

As of June 30, 2024, the Company had unrecognized stock-based compensation expense of $8.5 million related to stock options issued to employees and directors, which is expected to be recognized over a weighted-average period of 2.1 years.

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Restricted Stock Units

In January 2024, the Company awarded 481,500 restricted stock units to certain employees of the Company. The restricted stock units vest in four equal annual installments beginning on the first anniversary of the grant date. The restricted stock units are generally forfeited if the individual’s service relationship with the Company or any subsidiary terminates prior to vesting.

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

	Number	Weighted
	of Shares	Average
	of Restricted	Grant Date
	Stock Units	Fair Value
Unvested as of December 31, 2023	—	$	—
Granted	481,500	$	0.55
Forfeited	(36,000)	$	0.55
Unvested as of June 30, 2024	445,500	$	0.55

For the six months ended June 30, 2024, the Company recognized less than $0.1 million of stock-based compensation expense related to these awards. As of June 30, 2024, the Company had unrecognized stock-based compensation expense of $0.1 million related to these restricted stock units, which is expected to be recognized over 3.5 years.

Restricted Common Stock

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

	Number	Weighted
	of Shares	Average
	of Restricted	Grant Date
	Common Stock	Fair Value
Unvested as of December 31, 2023	5,617	$	5.51
Vested	(5,617)	$	5.51
Unvested as of June 30, 2024	—	$	—

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. The aggregate fair value of the restricted stock awards that vested during the six months ended June 30, 2024 and 2023 was less than $0.1 million.

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10. Net Loss Per Share

The Company calculates basic net loss per share by dividing net loss by the weighted average number of shares of common stock outstanding. The weighted average number of shares of common stock used in the basic and diluted net loss per share calculation includes the prefunded warrants issued in connection with the Company’s private placements with certain existing investors and Gilead, as the prefunded warrants are exercisable at any time for nominal cash consideration. As of June 30, 2024, no prefunded warrants have been exercised and 19,509,891 prefunded warrants are outstanding.

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:

	Six Months Ended
	June 30,
	2024	2023
Unvested restricted common stock	—	20,725
Unvested restricted stock units	445,500	—
Outstanding stock options	8,035,692	5,975,240
Warrants	2,631	2,631
Unvested employee stock purchase plan shares	40,721	62,988
Total common stock equivalents	8,524,544	6,061,584

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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, 2023.

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 discovering and developing tumor-activated immuno-oncology, or I-O, therapies with the goal of significantly improving outcomes for people living with cancer without the systemic side effects of current I-O treatments. We are leveraging our proprietary platform to build a pipeline of novel, tumor-activated I-O molecules that are designed to optimize the therapeutic index by localizing anti-tumor activity within the tumor microenvironment, including tumor-activated cytokines and antibodies (including bispecifics) and immune cell engagers (including tumor-activated cell engagers and tumor-activated effector-enhanced cell engagers). Current 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. Our molecules are engineered to localize activity within the tumor microenvironment with minimal systemic effects, resulting in the potential to achieve enhanced anti-tumor activity and increasing the population of patients who may be eligible to receive our medicines. To date, we have presented data across our clinical-stage programs showing initial clinical validation for each of those molecules and our tumor-activated approach. Our most advanced clinical-stage product candidates are XTX101, an Fc-enhanced, tumor-activated, anti-CTLA-4 monoclonal antibody, or mAb, and XTX301, a tumor-activated, engineered interleukin 12, or IL-12, therapy. We are currently focusing on rapidly advancing clinical development for XTX101 in combination with atezolizumab (Tecentriq®) through our clinical trial collaboration with F. Hoffmann-La Roche Ltd., or Roche, and XTX301 through our exclusive license agreement with Gilead Sciences, Inc., or Gilead. In March 2024, we announced plans to discontinue further investment in XTX202, a tumor-activated, engineered interleukin 2, or IL-2, which was being evaluated in a Phase 2 clinical trial as a monotherapy, and to explore strategic opportunities to continue to develop XTX202 in combination with other agents. In addition to our clinical-stage product candidates, we are continuing to leverage our differentiated research platform and expertise in developing tumor-activated I-O therapies to advance preclinical development for differentiated tumor-activated bispecifics and immune cell engagers (including tumor-activated cell engagers and tumor-activated effector-enhanced cell engagers).

To date, we have financed our operations primarily from proceeds raised through private placements of preferred units and convertible preferred stock, a debt financing, our initial public offering, or IPO, of common stock in October 2021, private placements of our common stock and prefunded warrants, an upfront payment under our license agreement with Gilead and our at-the-market, or ATM, offering program. 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. 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.

Since inception, we have incurred significant operating losses, including net losses of $31.1 million and $42.0 million for the six months ended June 30, 2024 and 2023, respectively, and a net loss of $76.4 million for the year ended December

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31, 2023. As of June 30, 2024, we had an accumulated deficit of $356.6 million. We expect to continue to incur significant expenses and operating losses for the foreseeable future, particularly to the extent 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;

● 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. As of June 30, 2024, we had cash and cash equivalents of $74.9 million. Based on our current operating plans, we anticipate that our existing cash and cash equivalents as of June 30, 2024 will be sufficient to enable us to fund our operating expenses and capital expenditure requirements into the second quarter of 2025. Since these amounts may not be sufficient to fund our operations for at least twelve months from the date of issuance of the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, there is substantial doubt about our ability to continue as a going concern. For more information, refer to “—Liquidity and Capital Resources—Capital Requirements and Going Concern” below and Note 1 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Financial Operations Overview

Revenue

We have not generated any revenue from the sale of products 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, we may generate revenue in the future from product sales. For the foreseeable future, we expect substantially all of our revenue, if any, would be generated from our license agreement with Gilead. For more information on our license agreement with Gilead, please see Note 6 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

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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 stock-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 and related expenses;

● costs incurred to maintain compliance with regulatory requirements;

● fees for maintaining licenses 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, 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 condensed consolidated balance sheets as prepaid expenses or accrued research and development expenses. We record cost-sharing payments under our clinical trial collaboration with Roche as a reduction of research and development costs upon the achievement of each study development event specified in the clinical supply agreement. 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 technology, 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 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

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remain approximately the same or will continue to increase for the foreseeable future as we advance our programs and our current or future product candidates into and through the development phase. We expect our discovery research efforts and our related personnel costs to remain consistent with historical levels. In addition, as we progress our most advanced product candidates in clinical development, 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, option or other agreements to acquire the rights to future products and product candidates. In the event we are unable to raise sufficient additional capital in the near term to fund our operations, we will be required to adopt cost reduction strategies that seek to maintain our ability to continue the development of our most advanced product candidates in clinical development while otherwise reducing our overall research and development expenses.

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 implement and maintain cost reduction strategies, as well as the timing of such cost reductions;

● our ability to maintain our current research and development programs;

● 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;

● 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 U.S. Food and Drug Administration, or 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;

● the terms and timing of any collaboration, license or other arrangement, including the terms and timing of any milestone payments thereunder, if any;

● 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; and

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● general economic conditions, including inflation.

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, bonuses, benefits, recruiting and stock-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; board of directors’ fees; insurance costs; and facility-related expenses, which include depreciation costs and other allocated expenses for rent, maintenance of facilities 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 remain consistent with historical levels as we maintain our infrastructure to support our research and development activities. We also expect to continue to incur significant expenses associated with operating as a public company, including increased costs for accounting, audit, legal, regulatory and tax-related services attributable to maintaining compliance with exchange listing standards and U.S. Securities and Exchange Commission, or SEC, requirements, directors’ and officers’ liability insurance costs and investor and public relations costs. We also expect to continue to incur additional expenses related to intellectual property as we file patent applications to protect intellectual property arising from our research and development activities. In the event we are unable to obtain sufficient additional capital in the near term, we will need to implement cost reduction strategies that seek to reduce our general and administrative expenses while maintaining sufficient infrastructure to support our planned research and development activities and operations as a public company.

Restructuring

In connection with the March 2024 strategic portfolio reprioritization and restructuring, we undertook efforts to reduce our expenses and streamline our operations, including a reduction in headcount of 15 employees, representing approximately 21% of our workforce immediately prior to the workforce reduction. Restructuring expense consists of costs directly incurred as a result of restructuring initiatives, and includes employee severance payments, benefits continuation, outplacement services and related expenses.

Other Income, Net

Other income, net consists primarily of interest income earned from our cash and cash equivalents, interest expense principally on the note payable under our former debt arrangement with Pacific Western Bank, or PacWest, and amortization of the debt discount related to debt issuance costs.

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Results of Operations

Comparison of the three months ended June 30, 2024 and 2023

The following table summarizes our results of operations for the three months ended June 30, 2024 and 2023 (in thousands):

Three Months Ended

June 30,