Xencor Inc

1. Summary of Significant Accounting Policies

Description of Business

Xencor, Inc. (we, us, our, or the Company) was incorporated in California in 1997 and reincorporated in Delaware in September 2004. We are a clinical-stage biopharmaceutical company focused on discovering and developing engineered antibody therapeutics to treat patients with cancer and autoimmune diseases, who have unmet medical needs. We use our protein engineering capabilities to design new technologies and XmAb® drug candidates with improved properties. We advance these candidates into clinical-stage development, where we are conducting Phase 1 and Phase 2 studies for a broad portfolio of programs, to determine which programs we advance into later stages of development and potentially commercialization, which programs we partner to access complementary resources to optimize development, and which programs we discontinue.

Our operations are based in Pasadena, California and San Diego, California.

Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of Xencor, Inc. and its subsidiary Gale Therapeutics Inc. (Gale), a variable interest entity (VIE) in which the Company is the primary beneficiary. As of December 31, 2024, the Company owned less than 100% of Gale, the Company recorded net loss attributable to non-controlling interests in its consolidated statements of loss equal to the percentage of the economic or ownership interests retained in Gale by the non-controlling party. In January 2025, Gale became a wholly-owned subsidiary of the Company and will be fully consolidated from the date on which control is transferred to the Company.

The Company’s consolidated financial statements as of December 31, 2024, 2023, and 2022 and for the years then ended have been prepared in accordance with accounting principles generally accepted in the United States (U.S.).

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, other comprehensive income (loss) and the related disclosures. On an ongoing basis, management evaluates its estimates, including estimates related to its accrued clinical trial and manufacturing development expenses, stock-based compensation expense, evaluation of intangible assets, investments, leases and other assets for evidence of impairment, fair value measurements, and contingencies. Significant estimates in these financial statements include estimates made for royalty revenue, interest expense under the royalty sale agreements, accrued research and development expenses, stock-based compensation expenses, intangible assets, incremental borrowing rate for right-of-use (ROU) asset and lease liability, estimated standalone selling price of performance obligations, estimated time for completing delivery of performance obligations under certain arrangements, the likelihood of recognizing variable consideration, the carrying value of equity instruments without a readily determinable fair value, and recoverability of deferred tax assets.

Recently Adopted Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2023-07, Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures, which requires disclosures about significant segment expenses and additional interim disclosure requirements. The standard also requires a single reportable segment company to provide all disclosures required by Topic 280. The Company adopted ASU 2023-07 during the year ended December 31, 2024. See Note 13 for the segment disclosures as required by Topic 280, as amended by ASU 2023-07.

Pronouncements Not Yet Effective

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures, which is effective for fiscal years beginning on and after December 15, 2024, and interim periods within those fiscal years. The standard provides more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The Company does not anticipate that the standard will have a significant impact on its financial statements.

In November 2024, the FASB issued ASU No. 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40), which is effective for fiscal years beginning on and after December 15, 2026, and interim periods beginning after December 15, 2027. The standard requires disaggregated disclosure of income statement expenses for public business entities. It does not change the expense captions an entity presents on the face of the income statement, but it requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. The Company does not anticipate that the standard will have a significant impact on its financial statements.

Variable Interest Entity

A VIE is a legal entity that, by design, 1) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties, 2) has equity investors that lack the power to direct the entity's activities, 3) has investors with limited obligation to absorb expected losses, or 4) has investors who do not have the right to receive the residual returns of the entity. The primary beneficiary of a VIE is the party with the controlling financial interest and has the power to direct the activities of the VIE that most significantly impact the entity's economic performance and has the obligation to absorb losses of the VIE, or the right to receive benefits of the VIE that could be potentially significant to the VIE.

On December 19, 2023, we entered into the Gale License and Gale Services Agreements, (as defined in Note 10). We consolidated Gale's financial statements in which we have direct controlling financial interest based on the VIE model.

We consider all the facts and circumstances, including our role in establishing Gale and our ongoing rights and responsibilities to assess where we have the power to direct the activities of Gale. In general, the parties that make the most significant decisions affecting the VIE and have the right to remove those decision-makers unilaterally or by majority vote are deemed to have the power to direct the activities of a VIE.

At Gale's inception, we determined whether we were the primary beneficiary and if Gale should be consolidated based on facts and circumstances. Under the rules of determining whether an entity is a VIE, we determined that Gale is a VIE and we are the primary beneficiary. We continuously assess whether we are the primary beneficiary of Gale as changes to existing relationships or future transactions may result in us consolidating or deconsolidating Gale.

Liability Related to the Sale of Future Royalties

We record a liability related to the sale of future royalties as debt, amortized under the effective interest rate method over the estimated life of the royalty sale agreements. See Note 11. The amortization of the liability related to the sale of future royalties is based on our current estimate of future royalty payments to be made to OMERS. Royalty revenue will be recognized as earned, and the payments made will be a reduction of the liability when paid.

Non-Cash Interest Expense on the Liability Related to the Sale of Future Royalties

The total expected royalty payments less the net proceeds received will be recorded as non-cash interest expense over the life of the liability. Interest is imputed on the unamortized portion using the effective interest method and expense is recorded based on the timing of the payments received by OMERS over the term of the royalty sale agreement. The actual interest rate will be affected by the timing of royalty payments made and changes in the forecasted revenue.

Revenue Recognition

We have, to date, earned revenue from research and development collaborations, which may include research and development services, licenses of our internally developed technologies, licenses of our internally developed drug candidates, or combinations of these.

The terms of our license, research and development, and collaboration agreements generally include non-refundable upfront payments, research funding, co-development payments and reimbursements, license fees, and milestone and other contingent payments to us for the achievement of defined collaboration objectives and certain clinical, regulatory and sales-based events, as well as royalties on sales of any commercialized products.

The terms of our licensing agreements include non-refundable upfront fees, annual licensing fees, and contractual payment obligations for the achievement of pre-defined preclinical, clinical, regulatory and sales-based events by our partners. The licensing agreements also include royalties on sales of any commercialized products by our partners.

We recognize revenue through the five-step process in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers, when control of the promised goods or services is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

Deferred Revenue

Deferred revenue arises from payments received in advance of the culmination of the earnings process. We have classified deferred revenue for which we stand ready to perform within the next 12 months as a current liability. We recognize deferred revenue as revenue in future periods when the applicable revenue recognition criteria have been met. There wasno deferred revenue reported at December 31, 2024 or 2023.

Accounts Receivable

Accounts receivable primarily consists of royalty and milestone revenues receivable from our license and collaboration agreements, as well as receivables arising from cost-sharing development activities. We did not record an allowance for credit losses at December 31, 2024 or 2023 due to an immaterial allowance as a result of our evaluation of credit risk under ASC 326, Financial Instruments - Credit Losses. We expect to collect all receivables within the terms, which are generally between 30 and 60 days.

Research and development expenses include costs we incur for our own and for our collaborators’ research and development activities. Research and development costs are expensed as incurred. These costs consist primarily of salaries and benefits, including associated stock-based compensation, laboratory supplies, facility costs, and applicable overhead expenses of personnel directly involved in the research and development of new technology and products, as well as fees paid to other entities that conduct certain research and development activities on our behalf. We estimate preclinical study and clinical trial expenses based on the services performed pursuant to the contracts with research institutions and clinical research organizations that conduct and manage preclinical studies and clinical trials on our behalf based on the actual time and expenses they incurred. Further, we accrue expenses related to clinical trials based on the level of patient enrollment and activity according to the related agreement. We monitor patient enrollment levels and related activity to the extent reasonably possible and adjust estimates accordingly.

We capitalize acquired research and development technology licenses and third-party contract rights where such assets have an alternative use and amortize the costs over the shorter of the license term or the expected useful life. We review the license arrangements and the amortization period on a regular basis and adjust the carrying value or the amortization period of the licensed rights if there is evidence of a change in the carrying value or useful life of the asset.

Cash and Cash Equivalents

We consider cash equivalents to be only those investments which are highly liquid, readily convertible to cash and which mature within three months from the date of purchase.

Restricted Cash

As of December 31, 2024, we had an outstanding letter of credit (LOC) collateralized by a money market account of $0.4 million, to the benefit of the landlord related to our San Diego facility lease. The terms of the lease provide that the amount of the LOC will be reduced on a ratable basis over the term of the lease. The amount of the LOC was classified as long-term restricted cash as of December 31, 2024.

Marketable Debt and Equity Securities

We have an investment policy that includes guidelines on acceptable investment securities, minimum credit quality, maturity parameters, and concentration and diversification. We invest its excess cash primarily in marketable debt securities issued by investment grade institutions.

We consider our marketable debt securities to be available-for-sale and do not intend to sell these securities, and it is not more likely than not we will be required to sell the securities before recovery of the amortized cost basis. These assets are carried at fair value and any impairment losses and recoveries related to the underlying issuer’s credit standing are recognized within other income (expense), while non-credit related impairment losses and recoveries are recognized within accumulated other comprehensive income (loss). There wereno impairment losses or recoveries recorded for the years ended in December 31, 2024 and 2023, respectively. Accrued interest on marketable debt securities is included in the marketable securities’ carrying value. Accrued interest was $5.7 million and $2.3 million at December 31, 2024 and 2023, respectively. Each reporting period, we review our portfolio of marketable debt securities, using both quantitative and qualitative factors, to determine if each security’s fair value has declined below its amortized cost basis. During the years ended December 31, 2024 and 2023, we recorded an unrealized loss of $2.0 million and an unrealized gain of $8.2 million, respectively, in our portfolio of marketable debt securities. The unrealized loss was due to the changing interest rate environment and is not due to changes in the credit quality of the underlying securities. The unrealized gain (loss) were recorded in other comprehensive income (loss) for the years then ended.

We receive equity securities in connection with certain licensing transactions with our partners. These investments in equity securities are carried at fair value with changes in fair value recognized each period and reported within other income (expense). For equity securities with a readily determinable fair value, we remeasure these equity investments at each reporting period until such time that the investment is sold or disposed. If the Company sells an investment, any realized gains or losses on the sale of the securities will be recognized within other income (expense) in the consolidated statement of loss in the period of sale.

We also have had investments in equity securities without a readily determinable fair value, where we elect the measurement alternative to record at their initial cost minus impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. In connection with equity securities without readily determinable fair value, we recorded impairment charges of $20.4 million and $0.1 million, for the years ended December 31, 2024 and 2022, respectively. During the year ended December 31, 2023, we didnot record an impairment charge. As of December 31, 2024, we do not hold any equity securities without a readily determinable fair value.

During the years ended December 31, 2024 and 2023, we recorded a net loss of $31.4 million and $0.4 million, respectively, in connection with its equity investments. During the year ended December 31, 2022, we recorded a net gain of $23.4 million.

Concentrations of Risk

Cash, cash equivalents, restricted cash, marketable debt securities and accounts receivable are financial instruments that potentially subject us to concentrations of risk. We invest our cash in corporate debt securities and U.S. sponsored agencies with strong credit ratings. We have established guidelines relative to diversification and maturities that are designed to help ensure safety and liquidity. These guidelines are periodically reviewed to take advantage of trends in yields and interest rates.

Cash, cash equivalents, and restricted cash are maintained at financial institutions, and at times, balances may exceed federally insured limits. We have never experienced any losses related to these balances. Amounts on deposit in excess of federally insured limits at December 31, 2024 and 2023 approximated$40.8 million and $53.8 million, respectively.

Concentration of credit risk with respect to accounts receivable are from our licensing and collaboration agreements. To mitigate such risk, we monitor the amounts owed to us under such agreements. We have receivables withtwo customers that represent 76%of our total receivables and with three customers and service providers that represent 76% of our total receivables at December 31, 2024 and 2023, respectively. The receivables are related to cost share reimbursement and milestones and royalty revenues from our licensing and collaboration agreements. Payment on receivables relating to non-cash royalty revenue earned under the Ultomiris and Monjuvi Royalty Sale Agreements are made directly to OMERS. No other customer accounted for more than 10% of total receivables at December 31, 2024 or 2023.

We have payables with three service providers that represent 39% of our total payables and with two service providers that represented 38% of our total payables at December 31, 2024 and 2023, respectively. We rely onfive critical suppliers for the manufacture of our drug product for use in our clinical trials. While we believe that there are alternative vendors available, a change in manufacturing vendors could cause a delay in the availability of drug product and result in a delay of conducting and completing our clinical trials. No other vendor accounted for more than 10% of total payables at December 31, 2024 or 2023.

Fair Value of Financial Instruments

Our financial instruments primarily consist of cash and cash equivalents, marketable debt and equity securities, accounts receivable, accounts payable, and accrued expenses. Marketable debt securities and cash equivalents are carried at fair value. The fair value of a financial instrument is the amount that would be received in an asset sale or paid to transfer a liability in an orderly transaction between unaffiliated market participants. The fair value of the other financial instruments closely approximates their fair value due to their short maturities.

The Company accounts for recurring and non-recurring fair value measurements in accordance with FASB ASC 820, Fair Value Measurements and Disclosures. ASC 820 defines fair value, establishes a fair value hierarchy for assets and liabilities measured at fair value, and requires expanded disclosure about fair value measurements. The ASC 820 hierarchy ranks the quality of reliable inputs, or assumptions, used in the determination of fair value and requires assets and liabilities carried at fair value to be classified and disclosed in one of the following three categories:

Level 1—Fair value is determined by using unadjusted quoted prices that are available in active markets for identical assets or liabilities.

Level 2—Fair value is determined by using inputs other than Level 1 quoted prices that are directly or indirectly observable. Inputs can include quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in markets that are not active. Related inputs can also include those used in valuation or other pricing models, such as interest rates and yield curves that can be corroborated by observable market data.

Level 3—Fair value is determined by inputs that are unobservable and not corroborated by market data. Use of these inputs involves significant and subjective judgments to be made by the reporting entity – e.g., determining an appropriate discount factor for illiquidity associated with a given security.

The Company measures the fair value of financial assets using the highest level of inputs that are reasonably available as of the measurement date. The assets recorded at fair value are classified within the hierarchy as follows for the periods reported (in thousands):

Our policy is to record transfers of assets between Level 1 and Level 2 at their fair values as of the end of each reporting period, consistent with the date of the determination of fair value. During the years ended December 31, 2024 and 2023, there were no transfers between Level 1 and Level 2.

Property and Equipment

Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Expenditures for repairs and maintenance are charged to expense as incurred, while renewals and improvements are capitalized. Useful lives by asset category are as follows:

Patents, Licenses, and Other Intangible Assets

The cost of acquiring licenses is capitalized and amortized on the straight-line basis over the shorter of the term of the license or its estimated economic life, ranging from 1 to 20.2 years. Third-party costs incurred for acquiring patents are capitalized. Capitalized costs are accumulated until the earlier of the period that a patent is issued, or we abandon the patent claims. Cumulative capitalized patent costs are amortized on a straight-line basis from the date of issuance over the shorter of the patent term or the estimated useful economic life of the patent, ranging from 2 to 27 years. Our senior management, with advice from outside patent counsel, assesses three primary criteria to determine if a patent will be capitalized initially: i) technical feasibility, ii) magnitude and scope of new technical function covered by the patent compared to our existing technology and patent portfolio, particularly assessing the value added to our product candidates or licensing business, and iii) legal issues, primarily assessment of patentability and prosecution cost. We review our intellectual property on a regular basis to determine if there are changes in the estimated useful life of issued patents and if any capitalized costs for unissued patents should be abandoned. Capitalized patent costs related to abandoned patent filings are charged off in the period of the decision to abandon. During the years ended December 31, 2024, 2023, and 2022, we abandoned previously capitalized patent and licensing related charges of $2.3 million, $1.3 million, and $1.5 million, respectively.

The carrying amount and accumulated amortization of patents, licenses, and other intangibles is as follows (in thousands):

Amortization expense for patents, licenses, and other intangible assets was $1.3 million, $1.3 million, and $1.4 million for the years ended December 31, 2024, 2023, and 2022, respectively.

Future amortization expense for patents, licenses, and other intangible assets recorded as of December 31, 2024, and for which amortization has commenced, is as follows:

The above amortization expense forecast is an estimate. Actual amounts of amortization expense may differ from estimated amounts due to additional intangible asset acquisitions, impairment of intangible assets, accelerated amortization of intangible assets, and other events. As of December 31, 2024, the Company has $10.4 million of intangible assets which are in-process and have not been placed in service, and accordingly amortization on these assets has not commenced.

Long-Lived Assets

Management reviews long-lived assets which include fixed assets, amortizable intangibles, and ROU assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.

We did not recognize a loss from impairment for the years ended December 31, 2024, 2023, or 2022.

Income Taxes

We account for income taxes in accordance with accounting guidance which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.

We assess our income tax positions and record tax benefits for all years subject to examination based upon our evaluation of the facts, circumstances, and information available at the reporting date. For those tax positions where there is greater than 50% likelihood that a tax benefit will be sustained, we have recorded the largest amount of tax benefit that may potentially be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where there is a 50% or less likelihood that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. Unrecognized tax benefits were $8.9 million at December 31, 2024 and 2023. We didnot have any material unrecognized tax benefits at December 31, 2022.

Our policy is to recognize interest and penalties on taxes, if any, as a component of income tax expense. Interest and penalties of $1.7 million have been recorded through the year ended December 31, 2024.

The Tax Cuts and Jobs Act of 2017 (TCJA) enacted on December 22, 2017 included several key provisions impacting the accounting for and reporting of income taxes. The most significant provisions reduced the U.S. corporate statutory tax rate from 35% to 21%, eliminated the corporate Alternative Minimum Tax (AMT) system, and made changes to the carryforward of net operating losses beginning on January 1, 2018. The TCJA changed the income tax treatment of research and development expenses requiring such costs to be capitalized and amortized over several years beginning effective January 1, 2022. We recorded income tax expense of $1.6 million, $13.7 million and $0.7 million for the years ended December 31, 2024, 2023 and 2022, respectively.

Stock-Based Compensation

We recognize compensation expense using a fair-value-based method for costs related to all share-based payments, including stock options, restricted stock units (RSUs), and shares issued under our Employee Stock Purchase Plan (ESPP). Stock-based compensation cost related to employees, directors and consultants is measured at the grant date, based on the fair-value-based measurement of the award using the Black-Scholes method, and is recognized as expense over the requisite service period on a straight-line basis. We account for forfeitures when they occur. We recorded stock-based compensation and expense for stock-based awards to employees, directors, and consultants of approximately $53.3 million, $53.8 million, and $48.9 million for the years ended December 31, 2024, 2023, and 2022, respectively.

Net Loss Per Share

Basic net loss per common share attributable to Xencor is computed by dividing the net loss attributable to Xencor by the weighted-average number of common shares outstanding during the period without consideration of common stock equivalents. Diluted net loss per common share attributable to Xencor is computed by dividing the net loss attributable to Xencor by the weighted-average number of common stock equivalents outstanding for the period. Potentially dilutive securities consisting of stock issuable pursuant to outstanding options and restricted stock units (RSUs), and stock issuable pursuant to the 2013 Employee Stock Purchase Plan (ESPP) are not included in the per common share calculation in periods when the inclusion of such shares would have an anti-dilutive effect.

Basic and diluted net loss per common share attributable to Xencor for the years ended December 31, 2024, 2023, and 2022, is computed by dividing the net loss attributable to Xencor by the weighted-average number of common shares outstanding during the period. In 2024, 2023, and 2022, we excluded all options and awards from the calculations of diluted net income per common share attributable to Xencor because we reported net losses in the period, and the inclusion of such shares would have had an antidilutive effect.

For the years ended December 31, 2024, 2023, and 2022, all outstanding potentially dilutive securities were excluded from the calculation as the effect of including such securities would have been anti-dilutive.

Segment Reporting

The Company determines its segment reporting based upon the way the business is organized for making operating decisions, allocating resources and assessing performance by the chief operating decision maker (CODM) or decision-making group. The Company has onlyone operating segment related to the development of pharmaceutical products. See Note 13 to these consolidated financial statements for additional discussion.

2. Comprehensive Loss

Comprehensive loss is comprised of net loss and other comprehensive income (loss). For the years ended December 31, 2024, 2023, and 2022, the only component of other comprehensive income (loss) is net unrealized gain (loss) on marketable debt securities. There were no material reclassifications out of accumulated other comprehensive income (loss) during the year ended December 31, 2024.

3. Marketable Debt and Equity Securities

The Company’s marketable debt securities held as of December 31, 2024 and 2023 are summarized below:

The maturities of the Company’s marketable debt securities as of December 31, 2024 are as follows:

The unrealized losses on available-for-sale investments and their related fair values as of December 31, 2024 and 2023 are as follows:

The unrealized losses from the available-for-sale securities are due to changes in the interest rate environment and not changes in the credit quality of the underlying securities in the portfolio.

The Company’s equity securities include securities with a readily determinable fair value and have included securities without a readily determinable fair value. Equity securities with a readily determinable fair value are carried at fair value with changes in fair value recognized each period and reported within other income (expense), net. For equity securities without a readily determinable fair value, the Company elects the measurement alternative to record these investments at their initial cost and evaluates such investments at each reporting period for evidence of impairment, or observable price changes in orderly transactions for the identical or similar investment of the same issuer.

In 2018, the Company received common and preferred stock in Astria Therapeutics, Inc. (Astria) (formerly Quellis Biosciences, Inc.) in connection with a licensing transaction.The Company recorded shares in Astria common stock at their fair value each reporting period, and the adjustment in the fair value of the Astria common stock was recorded in unrealized gain (loss) in equity securities. The Company recorded its investment in the shares of Astria preferred stock as an equity interest without a readily determinable fair value. The Company elected to record the original shares of preferred stock at their initial cost and to review the carrying value for impairment or other changes in carrying value at each reporting period. The Company subsequently recorded impairment charges of $0.1 million related to its investment in Astria’s preferred stock in 2022.

In 2023, the Company exchanged its preferred shares for additional shares of common stock in Astria. The common stock had a readily determinable fair value, and difference in the fair value of the common stock and the carrying value of the preferred stock was recorded as a gain in equity securities for the year ended December 31, 2023.

In 2024, the Company sold all of its 697,867 shares of common stock of Astria, and the Company no longer held any share of common stock of Astria as of December 31, 2024. The Company recognized realized gain of $1.3 million from the sale of the common stock for the year ended December 31, 2024. The Company recognized unrealized (loss) gain of $(4.3) million and $6.1 million related to its equity interest in Astria for the years ended December 31, 2023 and 2022, respectively.

In 2017, the Company received shares of common stock of INmune Bio, Inc. (INmune) and an option to acquire additional shares of INmune’s common stock in connection with a licensing transaction. The Company subsequently exchanged the option for additional shares of INmune common stock. The Company recorded the INmune common stock at its fair value each reporting period, and the adjustment in the fair value of the shares of INmune common stock was recorded in gain (loss) on equity securities. The Company recorded $(12.4) million, $9.3 million, and $(7.3) million of unrealized (loss) gain related to its investment in INmune for the years ended December 31, 2024, 2023, and 2022, respectively.

In 2021, the Company received shares of common stock of Viridian Therapeutics, Inc. (Viridian) in connection with a licensing transaction. In 2022, the Company received additional shares of common stock of Viridian in connection with a second licensing transaction. The shares of Viridian common stock are classified as equity securities with a readily determinable fair value, and the adjustment in the fair value of the shares of Viridian common stock was recorded in gain (loss) on equity securities. The Company recorded $(1.9) million, $(5.3) million, and $6.8 million of unrealized (loss) gain related to its investment in Viridian for the years ended December 31, 2024, 2023, and 2022, respectively.

In 2020, the Company received an equity interest in preferred stock in Zenas BioPharma (Cayman) Limited, now Zenas BioPharma, Inc. (Zenas) with a fair value of $16.1 million, in connection with the Zenas Agreement (defined below). The Company elected the measurement alternative to carry the Zenas equity at cost minus impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or a similar investment of the same issuer. In 2021, the Company received a warrant to receive equity from Zenas with a fair value of $14.9 million in connection with the Second Zenas Agreement (defined below). In addition, the Company purchased a convertible promissory note from Zenas.

In 2022, Zenas completed a financing transaction, pursuant to which a warrant to purchase Zenas equity that was held by the Company was automatically exercised, and a convertible promissory note issued to the Company by Zenas was automatically converted, with both converting into shares of Zenas’ preferred stock. After the financing transaction, the Company continued to record our investment in Zenas at fair value adjusted at each reporting period for impairment or other evidence of change in value. As a result of the Zenas financing transaction, the estimated fair value of our investment in equity securities increased by $17.9 million.

In 2023, Zenas initiated a Phase 3 trial, and the Company received a milestone payment of additional equity in preferred stock in Zenas with a fair value of $10.0 million. In the first half of 2024, the Company recorded an impairment charge of $20.4 million related to its investment in Zenas' preferred stock as a result of an impairment analysis using the measurement alternative for the valuation of a security without a readily determinable fair value.

On September 16, 2024, following the closing of Zenas’ initial public offering, the Company’s preferred stock in Zenas was automatically converted to 3,098,380 shares of common stock which were then classified as equity securities with a readily determinable fair value. The Company subsequently discontinued the use of the measurement alternative in valuing its equity interest in Zenas. The Company subsequently recorded an unrealized loss of $18.4 million for the year ended December 31, 2024.

Equity securities with a readily determinable fair value and their fair values (in thousands) as of December 31, 2024 and 2023 are as follows:

Equity securities without a readily determinable fair value and their carrying values (in thousands) as of December 31, 2024 and 2023 are as follows:

Net (loss) gain recorded related to these equity securities are recorded under other income (expense). Below is a reconciliation of net gain (loss) recorded on equity securities (in thousands) during the year ended December 31, 2024 and 2023:

4. Sale of Additional Common Stock

In September 2024, the Company completed an underwritten public offering pursuant to an automatic universal shelf registration statement on Form S-3 of 8,093,712 shares of common stock which included 1,458,600 shares issued pursuant to our underwriters’ exercise of their over-allotment option, as well as pre-funded warrants to purchase up to an aggregate of 1,458,600 shares of common stock with an exercise price of $0.01 per share. The Company received net proceeds of $189.2 million after deducting underwriting discounts, commissions, and offering expenses.

5. Property and Equipment

Property and equipment consist of the following:

Leasehold and tenant improvements consist primarily of leasehold construction at our Pasadena headquarters.

Depreciation expense related to property and equipment in 2024, 2023, and 2022 was $10.8 million, $10.1 million, and $7.4 million, respectively.

6. Income Taxes

Our effective tax rate differs from the statutory federal income tax rate, primarily as a result of the changes in valuation allowance. The provision for income taxes for the years ended December 31, 2024, 2023 and 2022 is as follows (in thousands):

A reconciliation of the federal statutory income tax to our effective income tax is as follows (in thousands):

The tax effect of temporary differences that give rise to a significant portion of the deferred tax assets and liabilities at December 31, 2024 and 2023 is presented below (in thousands):

The Tax Cuts and Jobs Act of 2017 (TCJA) was enacted in December 2017 and made substantial changes in the U.S. tax system. The significant changes made by the TCJA include a reduction in the maximum corporate income tax rate and the requirement that research and development costs incurred after December 31, 2021 to be capitalized and amortized over several years. We have recorded a deferred asset for each year ended December 31, 2024 and 2023, respectively, for such capitalized research and development costs. We have net deferred tax assets relating primarily to capitalized research and development costs, net loss carryforwards and research and development tax credit carryforwards. Due to the uncertainty surrounding the realization of the benefits of our deferred tax assets in future tax periods, we have placed a valuation allowance against our deferred tax assets at December 31, 2024 and 2023. The Company recognizes valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. The Company’s net deferred income tax asset is not more likely than not to be realized due to the lack of sufficient sources of future taxable income and cumulative losses that have resulted over the years. During the year ended December 31, 2024, the valuation allowance increased by $56.8 million. The Company is under examination for tax year 2022 by the Internal Revenue Service. Tax years starting in 2020 through 2021 and 2023 remain open to potential examination by the U.S. and state taxing authorities due to carryforwards of net operating losses and income tax credits.

As of December 31, 2024, we had cumulative net operating loss carryforwards for federal and state income tax purposes of $114.3 million and $176.9 million, respectively, and available tax credit carryforwards of approximately $26.0 million for federal income tax purposes and $28.4 million for state income tax purposes, which can be carried forward to offset future taxable income, if any. All of the federal net operating loss carryforwards were incurred prior to January 1, 2018, which are subject to carryforward limitations. To the extent allowed by law, taxing authorities may examine prior periods where net operating losses were carried forward and were claimed and offset against current year taxable income, and may make adjustments up to the amount of the net operating loss carryforward amount.

Our federal net operating loss carryforwards expire starting in 2027, and our state net operating loss carryforwards expire starting in 2035. Our federal tax credit carryforwards begin to expire in 2034. Utilization of our net operating loss and tax credit carryforwards are subject to a substantial annual limitation under Section 382 of the Internal Revenue Code due to the fact that we have experienced ownership changes. As a result of these changes, certain of our net operating loss and tax credit carryforwards may expire before we can use them.

A reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows (in thousands):

Unrecognized tax benefits were $8.9 million at December 31, 2024 and 2023. We did not have any material uncertain tax positions at December 31, 2022. Our policy is to recognize interest and penalties on taxes, if any, as a component of income tax expense. The amount accrued for interest and penalties was $1.7 million as of December 31, 2024. Interest and penalties as of December 31, 2023 were not significant. If recognized, $8.3 million would affect the effective tax rate, subject to changes in the valuation allowance. We do not expect a significant change to unrecognized tax benefits in the next twelve months.

7. Stock-Based Compensation

In June 2023, the Company's Board of Directors (the Board) and shareholders approved the 2023 Plan, which became effective as of June 14, 2023, and superseded the 2013 Equity Incentive Plan (the 2013 Plan). No additional awards may be granted under the 2013 Plan.

The 2023 Plan reserve consists of 3,000,000 shares and the remaining available shares from the 2013 Plan as of the effective date of the 2023 Plan. In addition, any shares of common stock covered by awards granted under the 2013 Plan that terminate on or after June 14, 2023 by expiration, forfeiture, cancellation, or other means without the issuance of such shares will be added to the 2023 Plan reserve. The 2023 Plan does not include a provision for an automatic increase in shares, also known as an evergreen provision. As of December 31, 2024, the total number of shares of common stock available for issuance under the 2023 Plan was 18,367,000, which includes shares of common stock that were available for issuance under the 2013 Plan as of the effective date of the 2023 Plan.

During the year ended December 31, 2024, the Company awarded 2,401,251 options under the 2023 Plan to certain employees, consultants and non-employee directors. As of December 31, 2024, a total of 2,614,649 options were granted under the 2023 Plan. During the year ended December 31, 2024, the Company awarded 1,078,070 RSUs under the 2023 Plan to certain employees and non-employee directors. The standard vesting of these awards is generally inthree equal annual installments and is contingent on continued employment terms. As of December 31, 2024, a total of 1,164,737 RSUs were granted under the 2023 Plan.

In November 2013, the Board and shareholders approved the 2013 Employee Stock Purchase Plan (2013 ESPP), which became effective as of December 5, 2013. Under the ESPP, the Company's employees may elect to have between 1% and 15% of their compensation withheld to purchase shares of the Company’s common stock at a discount. The ESPP had an initialtwo-year term that included four six-month purchase periods, and employee withholding amounts could be used to purchase Company stock during eachsix-month purchase period. The initialtwo-year term ended in December 2015 and, pursuant to the provisions of the ESPP, subsequenttwo-year terms began automatically upon the end of the previous term. The total number of shares that can be purchased with the withholding amounts are based on the lower of 85% of the Company’s common stock price at the initial offering date or 85% of the Company’s stock price at each purchase date.

As of December 31, 2024, the total number of shares of common stock available for issuance under the ESPP is 945,106. Under the 2013 ESPP, the total number shares of common stock available for issuance under the ESPP will automatically increase annually on January 1 by the lesser of (i)1% of the total number of issued and outstanding shares of common stock as of December 31 of the immediately preceding year, or (ii)621,814 shares of common stock. The automatic increase has expired, and the number of shares of common stock available for issuance under the ESPP was not increased on January 1, 2024. As of December 31, 2024, a total of 829,712 shares of common stock have been issued under the ESPP.

The Company extended vesting periods and expiration dates of equity awards for employees who retired in April 2024. There was a $3.1 million incremental expense as a result of the extension of the expiration dates, and there was a $1.2 million expense as a result of the extension of the vesting periods.

Total employee, director, and non-employee stock-based compensation expense recognized was as follows:

Information with respect to stock options outstanding is as follows:

The following table summarizes stock option activity for the years ended December 31, 2024, 2023, and 2022:

(1)The weighted average exercise price per share is determined using exercise price per share for stock options.

(2)The aggregate intrinsic value is calculated as the difference between the exercise price of the option and the fair value of our common stock for in-the-money options at December 31, 2024, 2023, and 2022.

(3)The total intrinsic value of stock options exercised was $3.8 million, $4.8 million, and $1.6 million for the years ended December 31, 2024, 2023, and 2022, respectively.

The Company estimated the fair value of employee and non-employee option awards and ESPP using the Black-Scholes valuation model. The fair value of employee stock options is being amortized on a straight-line basis over the requisite service period of the awards. Management estimates the probability of non-employee awards being vested based upon an evaluation of the non-employee achieving their specific performance goals. The fair value of the RSU awards is determined based on the intrinsic value of the stock on the date of grant and will be recognized as stock-based compensation expense over the requisite service period.

Options are issued at the fair market value of the Company's stock on the date of grant.

The fair value of employee stock options and ESPP was estimated using the following weighted-average assumptions for the years ended December 31, 2024, 2023 and 2022:

The expected term of stock options represents the average period the stock options are expected to remain outstanding. The expected stock price volatility for our stock options for the years ended December 31, 2024, 2023, and 2022 was determined using the volatility of our stock on a national stock exchange.

The Company determined the average expected life of stock options based on the anticipated time period between the measurement date and the exercise date by examining the option holders’ past exercise patterns.

The risk-free interest rate assumption is based on the U.S. Treasury instruments for which the term was consistent with the expected term of our stock options.

The expected dividend assumption is based on our history and expectation of dividend payouts. The Company has not paid dividends and did not have any dividend payout at December 31, 2024.

The following table summarizes RSU activity for the years ended December 31, 2024, 2023, and 2022:

As of December 31, 2024 and 2023, the unamortized compensation expense related to unvested stock options was $45.2 million and $49.2 million, respectively. The remaining unamortized compensation expense will be recognized over the next 2.5 years and 2.4 years, respectively.

At December 31, 2024 and 2023, the unamortized compensation expense under our ESPP was $0.9 million and $1.8 million, respectively. The remaining unamortized expense will be recognized over the next 0.9 years and 1.9 years, respectively.

At December 31, 2024 and 2023, the unamortized compensation expense related to unvested RSUs was $27.2 million and $29.6 million, respectively. The remaining unamortized compensation expense will be recognized over the next 1.8 years and 1.9 years, respectively.

8. Leases

The Company has leased office and laboratory space in Monrovia, California undertwo separate leases; one lease expired in January 2023, and a second lease will expire in December 2025. The second lease includes an option to renew for an additional five years at then market rates, and the Company assessed that it is unlikely to exercise the lease term extension option. In January 2023, an 18-month lease for additional office space in Monrovia, California had expired.

The Company has leased additional office space in San Diego, California under two separate leases; one lease expired on December 31, 2023. In August 2023, the Company entered into a Sublease Agreement for office space in San Diego, California. The term of the Sublease Agreement began in September 2023 and ends in December 2027. In connection with the Sublease Agreement, the Company provided a $0.4 million Letter of Credit (LOC) to the landlord. The Letter of Credit will decline ratably over the term of the lease. In connection with the LOC, Company entered into a Cash Collateral Agreement for $0.4 million, which is classified as restricted cash in the consolidated balance sheets.

In June 2021, the Company entered into an Agreement of Lease (the Pasadena Lease) relating to 129,543 rentable square feet, for laboratory and office space, in Pasadena, California. The term of the Pasadena Lease became effective intwo phases. The first phase commenced on July 14, 2021 and encompasses 83,083 square feet while the second phase commences no later than July 1, 2025 and encompasses an additional 46,460 square feet. The term of the Pasadena Lease is 13 years from the first phase commencement date. The Company received delivery of the first phase premises on July 1, 2021 and completed construction of office, laboratory, and related improvements in 2023. The Pasadena Lease provides the Company with improvement allowances of up to $17.0 million and $3.3 million in connection with the Phase 1 and Phase 2 building improvements, respectively. The initial base monthly rent is $386,336, or $4.65 per square foot, and includes increases ofthree percent annually. The Company will also be responsible for its proportionate share of operating expenses, tax expense, and utility costs.

In July 2021, the Pasadena Lease was amended to clarify the start date of the new lease to August 1, 2022 and to amend other provisions of the Pasadena Lease to reflect the new start date of the lease. In August 2022, the Halstead lease was amended to increase the amount of the tenant allowance by $5.0 million with a corresponding increase in total rental payments. The Company is eligible to receive total tenant allowance under the lease for the phase 1 space of $22.0 million and the initial base rent is increased to $416,246, or $5.01 per square foot.

The second phase premises were made available on December 1, 2022. In January 2024, the Company entered into an amendment, in which the Company was paid $0.7 million of tenant improvement allowance from the second phase for HVAC costs in the first phase.

The Company’s lease agreements do not contain any residual value guarantees or restrictive covenants.

The following table reconciles the undiscounted cash flows for the operating leases at December 31, 2024 to the operating lease liabilities recorded on the balance sheet (in thousands):

The following table summarizes lease costs, cash, and other disclosures for the years ended December 31, 2024, 2023, and 2022 (in thousands):

9. Commitments and Contingencies

Contingencies

From time to time, the Company may be subject to various litigation and related matters arising in the ordinary course of business. The Company does not believe it is currently subject to any material matters where there is at least a reasonable possibility that a material loss may be incurred.

The Company is obligated to make future payments to third parties under in-license agreements, including sublicense fees, royalties, and payments that become due and payable on the achievement of certain development and commercialization milestones. As the amount and timing of sublicense fees and the achievement and timing of these milestones are not probable and estimable, such commitments have not been included on our balance sheet. The Company has also entered into agreements with third-party vendors which will require us to make future payments upon the delivery of goods and services in future periods.

Guarantees

In the normal course of business, the Company indemnifies certain employees and other parties, such as collaboration partners and other parties that perform certain work on behalf of, or for the Company or take licenses to our technologies. The Company has agreed to hold these parties harmless against losses arising from our breach of representations or covenants, intellectual property infringement or other claims made against these parties in performance of their work with us.

These agreements typically limit the time within which the party may seek indemnification by us and the amount of the claim. It is not possible to prospectively determine the maximum potential amount of liability under these indemnification agreements since the Company has not had any prior indemnification claims on which to base the calculation. Further, each potential claim would be based on the unique facts and circumstances of the claim and the particular provisions of each agreement. The Company is not aware of any potential claims, and the Company did not record a liability as of December 31, 2024 and 2023.

10. Collaboration and Licensing Agreements

Following is a summary description of the material revenue arrangements, including arrangements that generated revenue in the period ended December 31, 2024, 2023, and 2022.

Alexion Pharmaceuticals, Inc.

In January 2013, the Company entered into an Option and License Agreement (the Alexion Agreement) with Alexion Pharmaceuticals, Inc. (Alexion). Under the terms of the agreement, the Company granted to Alexion an exclusive research license, with limited sublicensing rights, to make and use our Xtend technology. Alexion exercised its rights to include our technology in ALXN1210, which is now marketed as Ultomiris®.

The Company is eligible to receive royalties based on a percentage of net sales of Ultomiris sold by Alexion, its affiliates, or its sub licensees, which percentage is in the low single digits. Alexion’s royalty obligations continue on a product-by-product and country-by-country basis until the expiration of the last-to-expire valid claim in a licensed patent covering the applicable product in such country.

In 2022, the Company recorded royalty revenue of $29.4 million in connection with reported net sales of Ultomiris by Alexion.

On November 3, 2023, the Company entered into the Ultomiris Royalty Sale Agreement with OMERS, in which OMERS acquired the rights to certain royalties associated with the existing license relating to Ultomiris in exchange for an upfront payment of $192.5 million. Included in the proceeds is $29.5 million of accounts receivable that the Company sold for royalties and milestone receivable at September 30, 2023. For the year ended December 31, 2023, the Company earned and recognized $44.9 million in royalty revenue, $12.5 million of which was non-cash royalty revenue under the Ultomiris Royalty Sale Agreement. In addition, Alexion completed certain sales milestones for Ultomiris in 2023, and the Company received a milestone payment of $20.0 million.

For the year ended December 31, 2024, the Company recognized $58.2 million of non-cash royalty revenue under the Ultomiris Royalty Sale Agreement.

The total revenue recognized under this arrangement was $58.2 million, $64.9 million, and $29.4 million for the years ended December 31, 2024, 2023, and 2022, respectively. As of December 31, 2024, the Company recorded a receivable of $16.1 million for royalties due related to the Ultomiris Royalty Sale Agreement and there isno deferred revenue related to the Alexion Agreement. Payment of this receivable will be made directly to OMERS.

Amgen Inc.

In September 2015, the Company entered into a research and license agreement (the Amgen Agreement) with Amgen Inc. (Amgen) to develop and commercialize bispecific antibody product candidates using the Company’s proprietary XmAb® bispecific Fc technology. Amgen has advanced one of the discovery programs, xaluritamig, into Phase 3 clinical development. The Company is eligible to receive future regulatory and sales milestones for the xaluritamig program and royalties on any global net sales of approved products. In December 2024, Amgen initiated a Phase 3 study of xaluritamig, and the Company recorded milestone revenue of $30.0 million.

The Company recognized $30.0 million of revenue for the year ended December 31, 2024. No revenue was recognized for the year ended December 31, 2023 or 2022. As of December 31, 2024, there is a receivable of $30.0 million, but there isno deferred revenue related to the Amgen Agreement.

Astellas Pharma Inc.

Effective March 2019, the Company entered into a Research and License Agreement (Astellas Agreement) with Astellas Pharma Inc. (Astellas) pursuant to which the Company and Astellas conducted a discovery program to characterize compounds and products for development and commercialization. Under the Astellas Agreement, Astellas was granted a worldwide exclusive license, with the right to sublicense products in the field created by the research activities.

The Company received an upfront payment and is eligible to receive development, regulatory and sales milestones. If commercialized, the Company is eligible to receive royalties on net sales that range from the high-single to low-double digit percentages.

In 2022, Astellas advanced ASP2138 into clinical development and initiated a Phase 1 study, and the Company received a $5.0 million milestone.

No revenue was recognized for the year ended December 31, 2024 or 2023. The Company recognized $5.0 million of revenue for the year ended December 31, 2022 under the Astellas Agreement. There isno deferred revenue as of December 31, 2024.

Genentech, Inc., and F. Hoffmann-La Roche Ltd.

In February 2019, the Company entered into a collaboration and license agreement (the Genentech Agreement) with Genentech, Inc. and F. Hoffman-La Roche Ltd (collectively, Genentech) for the development and commercialization of novel IL-15 collaboration products (Collaboration Products), including efbalropendekin alfa (XmAb306), the Company’s IL-15/IL15Rα-Fc candidate.

Under the terms of the Genentech Agreement, Genentech received an exclusive worldwide license to XmAb306 and the Company shares in 45% of development and commercialization costs of Collaboration Products, and the Company is eligible to share in 45% of net profits and losses from the sale of approved products. In the fourth quarter of 2023, the Company agreed with Genentech to convert our current development cost and profit-sharing arrangement into a royalty and milestone payment-based arrangement. Pursuant to the terms of the amended agreement with Genentech, effective June 1, 2024, Genentech assumed sole responsibility over all clinical, regulatory and commercial activities. The Company is eligible to receive up to $600.0 million in milestones, including $115.0 million in development milestones, $185.0 million in regulatory milestones and $300.0 million in sales-based milestones and tiered royalties ranging from low double-digit to mid-teens percentages.

The Company determined that the transaction price of the Genentech Agreement at inception was $120.0 million consisting of the upfront payment, and allocated the transaction price to each of the separate performance obligations using the relative standalone selling price with $111.7 million allocated to the license to XmAb306, $4.1 million allocated to the additional program and $4.2 million allocated to the research services. The performance obligations have been met during the periods between 2019 and 2021 and revenues have been recognized.

No revenue was recognized for the years ended December 31, 2024, 2023, and 2022 from the Genentech Agreement. As of December 31, 2024, there was a $0.8 million receivable related to cost-sharing development activities during the second half of 2024. There isno deferred revenue as of December 31, 2024.

Gilead Sciences, Inc.

In January 2020, the Company entered into a Technology License Agreement (the Gilead Agreement) with Gilead Sciences, Inc. (Gilead), in which the Company provided Gilead an exclusive license to its Cytotoxic Fc and Xtend Fc technologies for an initial identified antibody and options for up tothree additional antibodies directed to the same molecular target. Gilead is responsible for all development and commercialization activities for all target candidates. The

Company received an upfront payment and is eligible to receive development, regulatory and, sales milestones for each product incorporating the antibodies selected. In addition, the Company is eligible to receive royalties in the low-single digit percentage range on net sales of approved products.

The Company recognized $6.0 million in milestone revenue for the year ended December 31, 2023. No revenue was recognized for the years ended December 31, 2024 and 2022. There isno deferred revenue as of December 31, 2024 related to the Gilead Agreement.

Janssen Biotech, Inc., a Johnson & Johnson company

J&J Agreement

In November 2020, the Company entered into a Collaboration and License Agreement (the J&J Agreement) with Janssen Biotech, Inc., a Johnson & Johnson company, pursuant to which Xencor and J&J conducted research and development activities to discover novel CD28 bispecific antibodies for the treatment of prostate cancer. Xencor together with J&J conducted joint research activities to discover XmAb bispecific antibodies against CD28 and against an undisclosed prostate tumor-target with J&J maintaining exclusive worldwide rights to develop and commercialize Licensed Products identified from the research activities.

Under the J&J Agreement, the Company conducted research activities and apply its bispecific Fc technology to antibodies targeting prostate cancer provided by J&J. Upon completion of the research activities Janssen will have a candidate selection option to advance an identified candidate for development and commercialization. The activities will be conducted under a research plan agreed to by both parties. J&J will assume full responsibility for development and commercialization of the CD28 bispecific antibody candidate. Pursuant to the J&J Agreement, the Company received an upfront payment and is eligible to receive development, regulatory and, sales milestones. If commercialized, the Company is eligible to receive royalties on net sales that range from the high-single to low-double digit percentages.

Pursuant to the J&J Agreement, upon development of a bispecific candidate by J&J through proof of concept, the Company has the right to opt-in to fund 20% of development costs and to perform 30% of detailing efforts in the U.S. If the Company exercises this right, the Company will be eligible to receive tiered royalties in the low-double digit to mid-teen percentage range.

The Company allocated the transaction price to the single performance obligation, delivery of CD28 bispecific antibodies to J&J and recognized the $50.0 million transaction price as it satisfied its performance obligation to deliver CD28 bispecific antibodies to J&J in 2021.

In 2023, J&J completed filing of regulatory submission for a CD28 candidate and initiated Phase 1 clinical trial, and the Company received $17.5 million in milestone payments.

Second J&J Agreement

On October 1, 2021, the Company entered into a second Collaboration and License Agreement (the Second J&J Agreement) with J&J pursuant to which J&J received an exclusive worldwide license to develop, manufacture, and commercialize plamotamab, the Company’s CD20 x CD3 development candidate, and the Company will collaborate with J&J on further clinical development of plamotamab with J&J and share development costs with J&J paying 80% and the Company paying 20% of certain development costs. The Second J&J Agreement became effective on November 5, 2021.

In June 2024, J&J notified the Company that it was terminating its rights to plamotamab.

Under the terms of the Second J&J Agreement, Xencor and J&J will also conduct research and development activities to discover novel CD28 bispecific antibodies. The parties will conduct joint research activities for up to atwo-year period to discover XmAb bispecific antibodies against CD28 and undisclosed B cell tumor-targets with J&J receiving exclusive worldwide rights, subject to certain Xencor opt-in rights, to develop, manufacture and commercialize pharmaceutical products that contain one or more of such discovered antibodies (CD28 Licensed Antibodies). The Company is generally responsible for conducting research activities under the Second J&J Agreement, and J&J is generally responsible for all development, manufacturing, and commercialization activities for CD28 Licensed Antibodies that are advanced. Upon completion of the research activities J&J will have options to advance up tofour identified candidates for development and commercialization. The activities will be conducted under a research plan agreed to by both parties. J&J will assume full responsibility for development and commercialization of the CD28 bispecific antibody candidate. If commercialized, the Company is eligible to receive royalties on net sales that range from the high-single to low-double digit percentages.

The Company evaluated the Second J&J Agreement under the provisions of ASC 606. The Company identified two performance obligations under the Second J&J Agreement: (1) the license to the plamotamab program and (2) research services during atwo-year period to create up tofour CD28 bispecific candidates targeting B-cell antigens. The Company determined that the transaction price of the Second J&J Agreement at inception was $96.1 million consisting of the $100.0 million upfront payment reduced by the $3.9 million discount on the proceeds received from the sale of Company common stock to J&J. The Company allocated the transaction price to each of the separate performance obligations using the relative standalone selling price with $58.5 million allocated to the license to the plamotamab program and $37.6 million allocated to the research services.

The Company recognized the $58.5 million allocated to the license when it satisfied its performance obligation and transferred the license to J&J in November 2021.

The $37.6 million allocated to the research services is being recognized over a period of time through the end of the research term that services are rendered as the Company determined that the input method is the appropriate approach to recognize income for such services. The Company completed its performance obligations under the research services in December 2023.

During 2023, J&J exercised its options on three CD28 candidates developed under the collaboration, and it completed regulatory submissions for a selected candidate and initiated a Phase 1 study for it. During the year ended December 31, 2023, the Company received $30.0 million in milestone revenue and recognized $30.3 million in revenue related to completion of the research services. A total of $7.0 million and $0.3 million of revenue related to the research services were recognized in the years ended December 31, 2022 and 2021, respectively.

No revenue was recognized for the year ended December 31, 2024. The Company recognized $77.8 million and $7.0 million of revenue related to thetwo J&J agreements for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2024, there was a $3.1 million receivable related to cost-sharing development activities during the second and third quarters of 2024, prior to the termination of plamotamab. There isno deferred revenue as of December 31, 2024 related to our obligation to complete research activities under the two J&J Agreements.

MorphoSys AG/Incyte Corporation

In June 2010, the Company entered into a Collaboration and License Agreement with MorphoSys AG (MorphoSys), which was subsequently amended in March 2012, 2020 and 2024 (collectively, the MorphoSys Agreement). The MorphoSys Agreement provides MorphoSys with an exclusive worldwide license to the Company’s patents and know-how to research, develop, and commercialize the Company’s XmAb5574 product candidate (subsequently renamed MOR208 and tafasitamab) with the right to sublicense under certain conditions. If certain developmental, regulatory, and sales milestones are achieved, the Company is eligible to receive future milestone payments and royalties.

On November 3, 2023, the Company entered into the Monjuvi Royalty Sale Agreement with OMERS, pursuant to which OMERS acquired the rights to certain royalties earned after July 1, 2023 associated with the existing license relating to Monjuvi in exchange for an upfront payment of $22.5 million. The upfront payment included $2.2 million of accounts receivable the Company recorded as a royalty receivable at September 30, 2023. The payment for the receivable was received by OMERS. For the year ended December 31, 2023, the Company earned and recognized $8.7 million in royalty revenue, $2.1 million of which was non-cash royalty revenue under the Monjuvi Royalty Sale Agreement.

In February 2024, Incyte Corporation acquired exclusive global development and commercialization rights to tafasitamab. For the year ended December 31, 2024, the Company recognized $8.7 million of non-cash royalty revenue under the Monjuvi Royalty Sale Agreement.

The Company recognized a total of $8.7 million, $8.7 million, and $7.8 million of royalty revenue on net sales of Monjuvi for the years ended December 31, 2024, 2023, and 2022. As of December 31, 2024, the Company hasno deferred revenue related to the MorphoSys Agreement and has recorded a receivable of $2.1 million for royalties due related to the Monjuvi Royalty Sale Agreement. Payment of this receivable will be made directly to OMERS.

Novartis Institute for Biomedical Research, Inc.

In June 2016, the Company entered into a Collaboration and License Agreement (Novartis Agreement) with Novartis Institutes for BioMedical Research, Inc. (Novartis), to develop and commercialize bispecific and other Fc engineered antibody drug candidates using the Company’s proprietary XmAb technologies and drug candidates. Pursuant to the Novartis Agreement, the Company provided Novartis with a non-exclusive license to certain of its Fc technologies to apply against up toten targets identified by Novartis (Fc candidates).

In June 2021, Novartis selected an Fc candidate and received a non-exclusive license to the Company’s Fc technology. Novartis assumed full responsibility for development and commercialization of the licensed Fc product candidate. The Company is eligible to receive development, clinical, and sales milestones and royalties on net sales of approved products for the licensed Fc candidate. During the year ended December 31, 2024, Novartis initiated a Phase 2 clinical study for the Fc candidate, and the Company recognized $4.0 million of milestone revenue.

The Company recognized $4.0 million of revenue during the year ended December 31, 2024. No revenue was recognized during the years ended December 31, 2023 and 2022. As of December 31, 2024, the Company hasno deferred revenue and has recorded a $4.0 million receivable related to the Novartis Agreement.

Omeros Corporation

In August 2020, the Company entered into a Technology License Agreement (the Omeros Agreement) with Omeros Corporation (Omeros), in which the Company provided Omeros a non-exclusive license to its Xtend Fc technology, an exclusive license to apply its Xtend technology to an initial identified antibody and options to apply its Xtend technology tothree additional antibodies. Omeros is responsible for all development and commercialization activities for all target candidates. The Company received an upfront payment and is eligible to receive development, regulatory and, sales milestones for each product incorporating the antibodies selected. In addition, the Company is eligible to receive royalties in the mid-single digit percentage range on net sales of approved products.

During 2023, Omeros advanced a candidate that incorporates the Company's Xtend Fc technology into a Phase 2 clinical study, and the Company received a$5.0 million milestone.

The Company recognized $5.0 million of revenue related to the Omeros Agreement for the year ended December 31, 2023. There wasno revenue recognized for the years ended December 31, 2024 and 2022. There isno deferred revenue as of December 31, 2024 related to the Omeros Agreement.

Shanghai Mabgeek Biotech Co., Ltd.

On December 22, 2023, the Company entered into a Technology License Agreement with Shanghai Mabgeek Biotech Co., Ltd. (Mabgeek), and the Company and Mabgeek entered into Amendment No. 1 on June 21, 2024 (collectively, the Mabgeek Agreement). Under the Mabgeek Agreement, the Company received an upfront payment of $1.5 million and up to $11.9 million of milestones. In addition, the Company is eligible to receive royalties on the net sales of approved products in the low-single digit percentage range.

The Company evaluated the Mabgeek Agreement and determined that the single performance obligation was access to a non-exclusive license to certain patents of the Company which were transferred to Mabgeek in June 2024.

The Company recognized $1.5 million of license revenue related to the Mabgeek Agreement for the year ended December 31, 2024. There isno deferred revenue as of December 31, 2024 related to the Mabgeek Agreement.

Vega Therapeutics, Inc.

In October 2021, the Company entered into a Technology License Agreement (the Vega Agreement) with Vega Therapeutics, Inc. (Vega), in which the Company provided Vega a non-exclusive license to its Xtend Fc technology. In March 2024, Vega notified the Company that it initiated a Phase 1 study, and the Company recorded milestone revenue of $0.5 million.

The Company recognized $0.5 million of revenue for the year ended December 31, 2024. No revenue was recognized for the the years ended December 31, 2023 and 2022. There isno deferred revenue as of December 31, 2024 related to the Vega Agreement.

Vir Biotechnology, Inc.

In 2019, the Company entered into a Patent License Agreement (the Vir Agreement) with Vir Biotechnology, Inc. (Vir) pursuant to which the Company provided a non-exclusive license to its Xtend technology for up totwo targets.

In March 2020, the Company entered into a second Patent License Agreement (the Second Vir Agreement) with Vir pursuant to which the Company provided a non-exclusive license to its Xtend technology to extend the half-life of novel antibodies Vir developed as potential treatments for patients with COVID-19. Under the terms of the Second Vir Agreement, Vir is responsible for all research, development, regulatory and commercial activities for the antibody, and the Company is eligible to receive royalties on the net sales of approved products in the mid-single digit percentage range. Vir and its marketing partner, GSK, began recording sales for sotrovimab beginning in June 2021. In 2024, 2023, and 2022, the Company recognized royalty revenue of$0.6 million, $2.2 million, and $114.9 million, respectively, related to this agreement.

In October 2022, Vir completed dosing of the first patient in Phase 2 study for VIR-2482, and the Company recorded$0.5 million revenue in connection with this milestone event.

The Company recognized $0.6 million, $2.2 million, and $115.4 million of revenues related to the two Vir Agreements for the years ended December 31, 2024, 2023, and 2022, respectively. There isno deferred revenue as of December 31, 2024 related to this agreement. As of December 31, 2024, the Company has recorded a receivable of $0.5 million for royalties due related to the Second Vir Agreement.

Zenas BioPharma, Inc.

In November 2020, the Company entered into a License Agreement (the Zenas Agreement) with Zenas BioPharma (Cayman) Limited, now Zenas BioPharma, Inc., (Zenas) pursuant to which the Company granted Zenas exclusive worldwide rights to develop and commercialize three preclinical-stage Fc-engineered drug candidates. The Company received an upfront payment in equity in Zenas with a fair value of $16.1 million, and the Company is eligible to receive royalties on net sales of approved products in the mid-single digit to mid-teen percentage range.

In November 2021, the Company entered into a second License Agreement (Second Zenas Agreement) with Zenas, in which the Company licensed the exclusive worldwide rights to develop and commercialize the Company’s obexelimab (XmAb5871) drug candidate. The Company received a warrant to acquire additional equity in Zenas with a fair value of $14.9 million, and the Company is eligible to receive royalties on net sales of approved products in the mid-single digit to mid-teen percentage range.

The total transaction price is $14.9 million, which includes the upfront payment for a warrant to acquire up to 15% of the equity of Zenas in connection with a future financing at its fair value at the date of the Second Zenas Agreement. The Second Zenas Agreement includes variable consideration for potential future royalties that were contingent on future success factors for the licensed programs. The Company used the “most likely amount” method to determine the variable consideration. None of the royalties were included in the transaction price. The Company will re-evaluate the transaction price in each reporting period as uncertain events are resolved or other changes in circumstances occur.

The Company determined the transaction price at inception of the Second Zenas Agreement and allocated it to the performance obligation, delivery of the obexelimab license.

The Company completed delivery of its performance obligations in December 2021. The licenses to obexelimab were transferred to Zenas at inception of the Second Zenas Agreement, and the related research data and documentation was transferred to Zenas in December 2021.

In 2023, Zenas initiated a Phase 3 study with obexelimab, and the Company received additional equity in Zenas as a milestone payment. The Company recorded milestone revenue of $10.0 million, which is the fair value of the equity shares at the date of issuance.

No revenue was recognized for the year ended December 31, 2024 and 2022. The Company recognized $10.0 million of revenue related to thetwo Zenas Agreements for the years ended December 31, 2023. There isno deferred revenue as of December 31, 2024 related to the two Zenas Agreements.

Third-Party Licensee

In May 2024, the Company entered into a Patent License Agreement (Third-Party Licensee Agreement) with a third-party licensee. The Company completed delivery of the performance obligation under the agreement, and the Company received a payment of $7.0 million in August 2024.

The Company recognized $7.0 million of license revenue for the year ended December 31, 2024. There is ano deferred revenue as of December 31, 2024 related to the Third-Party Licensee Agreement.

Technology License Agreement and Services Agreement with Gale Therapeutics Inc.

In the fourth quarter of 2023, the Company formed a subsidiary, Gale, to develop novel drug candidates with its Fc technologies. On December 19, 2023, the Company entered into the Technology License Agreement (Gale License Agreement) and a Service Agreement (Gale Services Agreement) with Gale. Under the Gale License Agreement, Gale received an exclusive license to certain preclinical candidates and related Xencor technologies. The Company also has an option on future compounds Gale will develop. Under the Gale Services Agreement, the Company will provide research and development services as well as accounting and administrative support.

Pursuant to the Gale Agreement, the Company acquired a majority stake in Gale in exchange for $7.5 million of funding. The Company is deemed to be the primary beneficiary of Gale, a VIE, and they are under common control; therefore, the assets, liabilities and non-controlling interests of Gale are initially recorded at their previous carrying amounts, with no adjustment to current fair values and no gain or loss is recognized. In July 2024, September 2024, and November 2024, we entered into preferred stock purchase agreements to purchase additional shares in Gale for $3.0 million each, for a total of $9.0 million. In January 2025, Gale became a wholly-owned subsidiary of the Company and will be fully consolidated from the date on which control is transferred to the Company.

The value of the preclinical assets and technology had no value on Xencor's financial statements, and the license to Gale at inception had no carrying value. The Company did not recognize license revenue related to the transfer for the year ended December 31, 2023. Total charges under the Services Agreement during 2024 and 2023 of $12.4 million and $1.0 million, respectively, have been eliminated in consolidation.

Revenue Earned

The $110.5 million, $174.6 million, and $164.6 million of revenue recorded for the years ended December 31, 2024, 2023, and 2022, respectively, were earned principally from the following licensees (in millions):

*Includes non-cash royalty revenue from the Ultomiris and Monjuvi Royalty Sale Agreements.

The table below summarizes the disaggregation of revenue recorded for the years ended December 31, 2024, 2023, and 2022 (in millions):

Remaining Performance Obligations and Deferred Revenue

The Company doesnot have any remaining performance obligation under the Company's arrangements as of December 31, 2024 or 2023. As of December 31, 2022, the Company had deferred revenue of $30.3 million. The Company's performance obligation as of December 31, 2022 was completing research activities pursuant to the Second J&J Agreement. All of the deferred revenue was classified as short term as of December 31, 2022, as the Company’s obligations to perform research services were due on demand when requested by J&J under the Second J&J Agreement.

11. Sale of Future Royalties

Ultomiris Royalty Sale Agreement

On November 3, 2023, the Company and OMERS entered into the Ultomiris Royalty Sale Agreement. Pursuant to the Ultomiris Royalty Sale Agreement, OMERS acquired the rights to a portion of royalties and milestones earned after

July 1, 2023 associated with the existing license relating to Ultomiris® (ravulizumab-cwvz) in exchange for an upfront payment of $192.5 million.

Pursuant to the Ultomiris Royalty Sale Agreement and subject to the Company’s existing license with Alexion, OMERS acquired the right to receive: (i)100% of royalties payable on past and potential sales related to Ultomiris that occur from July 1, 2023 through December 31, 2025; (ii) up to $35.0 million annually in royalties on potential sales related to Ultomiris that occur from January 1, 2026 through December 31, 2028 with any royalties in excess of $35.0 million reverting to the Company; (iii) up to $12.0 million annually in royalties on potential sales related to Ultomiris that occur from and after January 1, 2029, with any royalties in excess of $12.0 million reverting to the Company; and (iv) $18.0 million of a certain potential sales based milestone payment pursuant to the existing license with Alexion. OMERS would have paid an additional $12.0 million in 2024 to the Company if certain potential sales-based milestones had been reached.

The Company determined that $29.5 million of the upfront payment is for a recorded receivable for royalties and a milestone payment earned in the third quarter of 2023 and $163.0 million is for the sale of future royalties. The Company evaluated the arrangement and determined that the proceeds from the sale of future royalties should be classified as debt according to ASC 470. As of December 31, 2024, the estimated effective rate under the agreement was 21.1%. The Company periodically reassesses the estimate of total future royalty payments and prospectively adjusts the imputed interest rate and related amortization if the estimate is materially different. For the years ended December 31, 2024 and 2023, the Company recognized $58.2 million and $12.5 million of non-cash royalty revenue, respectively. For the years ended December 31, 2024 and 2023, the Company recorded $33.2 million and $5.5 million of non-cash interest expense, respectively.

Monjuvi Royalty Sale Agreement

On November 3, 2023, the Company and OMERS entered into the Monjuvi Royalty Sale Agreement. Pursuant to the Monjuvi Royalty Sale Agreement, OMERS acquired the rights to a portion of royalties earned after July 1, 2023 associated with the existing license relating to Monjuvi®/Minjuvi® (tafasitamab-cxix) in exchange for an upfront payment of $22.5 million.

Pursuant to the Monjuvi Royalty Sale Agreement and subject to the Company’s existing license with MorphoSys, OMERS acquired the right to receive up to $29.3 million in royalties earned after July 1, 2023 related to sales of Monjuvi/Minjuvi, with any royalties in excess of $29.3 million paid to OMERS reverting to the Company.

The Company determined that $2.2 million of the upfront payment is for a recorded receivable for royalties earned in the third quarter of 2023 and $20.3 million is from the sale of future royalties. The Company evaluated the arrangement and determined that the proceeds from the sale of future royalties should be classified as debt according to ASC 470. As of December 31, 2024, the estimated effective rate under the agreement was 17.5%. The Company periodically reassesses the estimate of total future royalty payments and prospectively adjusts the imputed interest rate and related amortization if the estimate is materially different. For the years ended December 31, 2024 and 2023, the Company recognized $8.7 million and $2.1 million of non-cash royalty revenue, respectively. For the years ended December 31, 2024 and 2023, the Company recorded $3.4 million and $0.7 million of non-cash interest expense, respectively.

The following table shows the activities within debt for both Ultomiris and Monjuvi Royalty Agreements for the years ended December 31, 2024 and 2023 (in thousands):

12.401(k) Plan

The Company has a 401(k) plan covering all full-time employees. Employees may make pre-tax and Roth contributions up to the maximum allowable by the Internal Revenue Code. Effective April 1, 2023, the Company contributes 100% of the first 2.0% of participating employees’ contribution and 50% of the next 5.0% of participating employees’ contribution, for a maximum of 4.5% of employer contribution. Prior to the change, the Company contributed 100% of the first 1.0% of participating employees’ contribution and 50% of the next 6.0% of participating employees’ contribution, for a maximum of 4.0% of employer contribution. Participants are immediately vested in their employee contributions; employer contributions are vested over athree-year period with one-third for each year of a participating employee’s service. Employer contributions made for the years ended December 31, 2024, 2023, and 2022 were $1.6 million, $1.7 million, and $1.4 million, respectively.

13. Segment Reporting

The Company operates as a single reportable segment focused on discovering and developing engineered antibody therapeutics to treat patients with cancer and autoimmune diseases, who have unmet medical needs. The Company's chief executive officer, who is the CODM, uses financial information as reported on, and derived from, the consolidated statements of loss in evaluating performance, allocating resources, and planning and forecasting for future periods. The CODM also uses financial information as reported on research and development expenses by program, as disclosed in Item 7. The CODM does not review segment assets at a different asset level or category than the consolidated balance sheets.