X4 Pharmaceuticals Inc

1. NATURE OF THE BUSINESS AND BASIS OF PRESENTATION

X4 Pharmaceuticals, Inc. (together with its subsidiaries, the “Company”) is a biopharmaceutical company discovering, developing, and commercializing novel therapeutics for the treatment of rare diseases and those with limited treatment options, with a focus on conditions resulting from dysfunction of the immune system. On April 29, 2024, the Company announced that the FDA approved the Company’s New Drug Application (“NDA”) for mavorixafor, which is being marketed in the U.S. under the trade name XOLREMDI, for use as an oral, once-daily therapy in patients 12 years of age and older with WHIM syndrome (warts, hypogammaglobulinemia, infections, and myelokathexis), to increase the number of circulating mature neutrophils and lymphocytes. WHIM syndrome is a rare combined primary immunodeficiency and chronic neutropenic disorder. The Company is currently engaged in its U.S. launch of XOLREMDI in WHIM syndrome while also planning to seek regulatory approvals to commercialize mavorixafor outside of the U.S. The U.S. approval of XOLREMDI in the WHIM syndrome indication is the first for mavorixafor, which is an orally bioavailable selective antagonist of chemokine receptor CXCR4, a key regulator of the movement of immune cells throughout the body. Due to its ability to increase the mobilization of white blood cells from the bone marrow into the bloodstream, the Company believes that mavorixafor has the potential to provide therapeutic benefit across a variety of immune system disorders in addition to WHIM syndrome. As a result, the Company is completing a Phase 2 clinical trial evaluating the safety and efficacy of mavorixafor as a monotherapy and in combination with human granulocyte colony-stimulating factor (“G-CSF”) in people with certain chronic neutropenic disorders. Positive interim data from this Phase 2 trial were presented in June 2024. The Company initiated a global, pivotal Phase 3 clinical trial of mavorixafor (the 4WARD study) in the second quarter of 2024 that aims to evaluate the efficacy, safety, and tolerability of oral once-daily mavorixafor with or without G-CSF in people with congenital or acquired primary autoimmune and idiopathic chronic neutropenia who are experiencing recurrent and/or serious infections. The Company is headquartered in Boston, Massachusetts and has a research facility in Vienna, Austria.

Going Concern Assessment—In accordance with the requirements of Accounting Standards Codification (“ASC”) 205-40, the Company has evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the condensed consolidated financial statements are issued. Although the Company has an approved drug product, sales of the Company’s drug product over the next 12 months will not be sufficient to fund the Company’s operating expenses. Since inception, the Company has incurred significant operating losses and negative cash flows from operations. During the quarter ended June 30, 2024, the Company sold a Priority Review Voucher (see Note 17) for $105.0 million in cash. As of June 30, 2024, the Company had $168.8 million of cash, cash equivalents and short-term marketable securities, and an accumulated deficit of $438.8 million. Net cash used in operating activities was $63.9 million for the six months ended June 30, 2024.

The Company has a covenant under its Second Amended and Restated Loan and Security Agreement, as amended (the “Hercules Loan Agreement”) with Hercules Capital Inc. (“Hercules”), that requires that the Company currently maintain a minimum level of cash of $20 million, subject to adjustments beginning January 31, 2025, at which time the Company will be required to maintain a minimum level of cash equal to at least 20% of outstanding borrowings under the Hercules Loan Agreement, the (“Minimum Liquidity Covenant”). The Company has incurred losses and negative cash flows from operations since its inception, and the Company expects to continue to generate operating losses and negative cash flows from operations in the foreseeable future. Based on its current operating plan which includes estimates of anticipated cash inflows from product sales and cash outflows from operating expenses, the Company believes that its existing cash, cash equivalents and short-term marketable securities of $168.8 million as of June 30, 2024 will enable it to fund its planned operating expenses, debt service obligations and capital expenditures at least through the next 12 months from the issuance date of these condensed consolidated financial statements, while the Company observes the Minimum Liquidity Covenant.

To finance its future operations beyond the one-year period following the issuance of these condensed consolidated financial statements, the Company will need to raise additional capital, which cannot be assured. Unless and until the Company reaches profitability in the future, it will require additional capital to fund its operations, which could be raised through a combination of equity offerings, debt financings, other third-party funding, marketing and distribution arrangements, or other collaborations and strategic alliances. If the Company is unable to obtain funding, it could be forced to delay, reduce, or eliminate some or all of its research and development programs, product portfolio expansion or commercialization efforts, which would adversely affect its business prospects, or it may be unable to continue operations.

The Company is subject to risks common to companies in the biopharmaceutical industry including, but not limited to, uncertainties relating to conducting preclinical and clinical research and development, the manufacture and supply of products and product candidates for clinical and commercial use, obtaining and maintaining regulatory approvals and pricing and reimbursement for the Company’s products and product candidates, market acceptance, managing global growth and operating expenses, availability of additional capital, competition, obtaining and enforcing patents, stock price volatility, dependence on collaborative relationships and third-party service providers, dependence on key personnel, and from time to time government investigations, litigation, and potential product liability claims.

Principles of Consolidation—The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, including X4 Pharmaceuticals (Austria) GmbH (“X4 Austria”), which is incorporated in Vienna, Austria, and X4 Therapeutics, Inc. All intercompany accounts and transactions have been eliminated.

Unaudited Interim Condensed Consolidated Financial Statements—The condensed consolidated balance sheet at December 31, 2023 that is presented in these interim condensed consolidated financial statements was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). The accompanying condensed consolidated financial statements are unaudited. The accompanying unaudited interim condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto for the year ended December 31, 2023 included in the 2023 Annual Report filed with the SEC on March 21, 2024. In the opinion of management, all adjustments, consisting only of normal recurring adjustments as necessary, for the fair statement of the Company’s condensed financial position, condensed results of its operations, and comprehensive loss and cash flows have been made. The results of operations for the three and six months ended June 30, 2024 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2024.

Use of Estimates—The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of expenses during the reporting period. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, the accrual of research and development expenses, the accrual of operational and financial license milestones (Note 3), the accrual of reserves for variable consideration related to product revenue, and the impairment or lack of impairment of long-lived assets including operating lease right-of-use assets and goodwill. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. As of the date of issuance of these consolidated financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update its estimates, assumptions and judgments or revise the carrying value of its assets or liabilities. Actual results could differ from those estimates, and any such differences may be material to the Company’s consolidated financial statements.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant Accounting Policies—The Company’s significant accounting policies are disclosed in the audited consolidated financial statements and the notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on March 21, 2024. Since the date of those consolidated financial statements, there have been no material changes to the Company’s significant accounting policies other than as follows:

Revenue Recognition—The Company records revenue using the guidance of ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), as amended. Upon the approval by the FDA of the sales and marketing of the Company’s lead product candidate, revenue related to its sale and distribution is accounted for under ASC 606. The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the Company determines it expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (1) identify the customer and contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price, adjusted for variable consideration resulting from potential returns, rebates, discounts, and down-stream charges; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when the Company satisfies its performance obligations, which is upon shipment of the finished product to the customer.

The Company currently sells its product to one U.S. customer, which is a specialty pharmacy. The specialty pharmacy dispenses the Company’s drug product to patients in the U.S.. The Company records revenue when the specialty pharmacy obtains control over the promised good, which occurs at a point in time, typically upon delivery to the specialty pharmacy. The Company has concluded that it provides one performance obligation in its contract with its customer: the delivery of drug product that has been approved for sale and distribution by the applicable regulatory authority.

As part of the accounting for its contract arrangements, the Company makes significant judgments, primarily related to the estimation of the amount of variable consideration to include in the transaction price upon delivery of the Company’s drug product. The variable consideration includes estimates for discounts, product returns, rebates that will be due to U.S. federal and state payors, such as Medicaid, based on agreements that the Company has with these payors who provide medical insurance to the end patient, and estimated co-pay assistance payments for patients who enroll in the Company’s patient assistance program. These variable payments are considered a reduction of the Company’s transaction price with its customer and must be estimated at the time the Company’s product is delivered to the customer. The Company determines the amount of variable consideration by using the expected value method. Net revenue recognized for each period is the amount for which, based on management’s estimate, it is probable that a significant reversal of cumulative revenue recognized will not occur. At the end of each subsequent reporting period, the Company re-evaluates these estimates based on new information and actual operational trends and if necessary, adjusts these variable consideration estimates. Any such adjustments are recorded on a cumulative catch-up basis in the period of the adjustment.

Inventory— Prior to receiving approval from the FDA in April 2024 to sell XOLREMDI (mavorixafor) in the United States, the Company expensed all costs incurred related to the manufacture of mavorixafor as research and development expense due to the inherent risks associated with the development of a drug candidate, the uncertainty about the regulatory approval process and the lack of history for the Company in obtaining of regulatory approval of drug candidates. The Company has capitalized inventory-related costs that were incurred subsequent to FDA approval, such as the bottling, labelling, and packaging of drug product, and the acquisition of raw materials for the production of drug substance to be used in commercial drug product. In connection therewith, the Company values inventories at the lower of cost or estimated net realizable value. The Company determines the cost of inventories on a first-in, first-out (“FIFO”) basis. Raw materials and work in process include all inventory costs prior to packaging, and labelling, including raw materials and the active pharmaceutical ingredient used in the drug product. Finished goods include packaged and labelled drug products designated for commercial distribution. Clinical drug supplies are expensed to research and development. Raw materials and work in process that may be used for either research and development or commercial sale are classified as inventory until the material is consumed or otherwise allocated for research and development. If the material may only be used for research and development, it is expensed as research and development.

Cost of Revenue—Cost of revenue consists of drug product costs, amortization of intangible assets associated with license agreements, accrued royalty costs and capitalized internal direct and overhead costs associated with the manufacturing, lot release and distribution of XOLREMDI. Cost of revenue may also include costs related to excess or obsolete inventory adjustment charges and abnormal manufacturing costs.

Intangible Assets, Net—Definite-lived intangible assets related to capitalized milestones under license agreements are amortized on a straight-line basis, which aligns with the pattern over which the economic benefit of the intangible assets are consumed, over their remaining useful lives, which are estimated to be the remaining patent life. If the Company’s estimate of the product’s useful life is shorter than the remaining patent life, then a shorter period is used. Amortization expense is recorded as a component of cost of revenue on the consolidated statements of operations and comprehensive income (loss).

Restricted Cash

In connection with the Company’s lease agreements for its facilities in Massachusetts and Austria, the Company maintains letters of credit, which are secured by restricted cash, for the benefit of the respective landlord. The Company’s Waltham lease agreement expired in December 2023; however, the letter of credit was in place as of December 31, 2023 pending the landlord’s completion of its lease expiration procedures. The letter of credit was released in first quarter ended March 31, 2024. In accordance with the Company’s Hercules Loan Agreement and as further described in Note 10, the Company at all times must maintain a minimum level of cash of $20.0 million in an account or accounts in which Hercules has a first priority security interest as further described in Note 10.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets to the sum to the total of amounts shown in the Company’s consolidated statements of cash flows as of June 30, 2024 and December 31, 2023:

Goodwill—Goodwill is tested for impairment at the reporting unit level annually in the fourth quarter, or more frequently when

events or changes in circumstances indicate that the asset might be impaired. Examples of such events or circumstances include,

but are not limited to, a significant adverse change in legal or business climate, an adverse regulatory action or unanticipated

competition. The Company has determined that it operates in a single operating segment and has a single reporting unit.

The Company assesses qualitative factors to determine whether the existence of events or circumstances would indicate that it

is more likely than not that the fair value of the reporting unit is less than its carrying amount. If after assessing the totality of

events or circumstances, the Company were to determine that it is more likely than not that the fair value of the reporting unit is

less than its carrying amount, then the Company would perform an interim quantitative impairment test, whereby the Company

compares the fair value of the reporting unit to its carrying value. If the fair value of the reporting unit exceeds the carrying

value of its net assets, goodwill is not impaired, and no further testing is required. If the fair value of the reporting unit is less

than its carrying value, the Company measures the amount of impairment loss, if any, as the excess of the carrying value over

the fair value of the reporting unit. There were no triggering events during the three months ended June 30, 2024 that

necessitated an interim impairment test of goodwill.

Recently Adopted Accounting Standards

In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07, Segment Reporting (Topic 326) Improvements to Reportable Segment Disclosures (“ASU 2023-07”). Among other disclosure enhancements, ASU 2023-07 requires that entities with one reportable segment, such as the Company, disclose general information for its reportable segment, such as the title and position of the individual identified as the Chief Operating Decision Maker (“CODM”), which for the Company is the Chief Executive Officer, the types of products and services provided by the reportable segment, the measure of profit or loss reviewed by the CODM to evaluate performance of the reportable segment and other financial results such as interest income, interest expense, and depreciation associated with the reportable segment. The amendments in ASU 2023-07 will become effective for the Company in its consolidated financial statements as of and for the three years ending December 31, 2024 and must be adopted retrospectively. Although the Company continues to evaluate the potential impact of

ASU 2023-07, the Company does not believe that the adoption of ASU 2023-07 will have a material impact on its consolidated financial statement when adopted.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) Improvements to Income Tax Disclosures (“ASU 2023-09”). The amendments in ASU 2023-09 require that entities on an annual basis disclose specific categories in the income tax rate reconciliation and provide additional information for reconciling items if the effect of those reconciling items that exceed a certain threshold. ASU 2023-09 will also require more disaggregated disclosures related to income taxes paid. The amendments in ASU 2023-09 will become effective for the Company in its December 31, 2024 consolidated financial statements. Although the Company continues to evaluate the impact of ASU 2023-09, the Company expects that these amendments will require further disclosures in the tax footnote of its annual consolidated financial statements and will not have a material impact on its consolidated financial states when adopted.

3. LICENSE AND FUNDING AGREEMENTS

Research and Development Incentive Program

The Company participates in a research and development incentive program provided by the Austrian government whereby the Company is entitled to reimbursement by the Austrian government for a percentage of qualifying research and development expenses and capital expenditures incurred by the Company’s subsidiary in Austria. As of June 30, 2024, the amount due under the program is $0.9 million, which amount is included in research and development incentive receivable in the condensed consolidated balance sheet. During each of the six months ended June 30, 2024 and 2023, the Company recorded $0.3 million of income related to the program within the condensed consolidated statements of operations and comprehensive income (loss) as other income.

License Agreements

In July 2014, the Company entered into a license agreement with Genzyme (the “Genzyme Agreement”) pursuant to which the Company was granted an exclusive license to certain patents and intellectual property owned or controlled by Genzyme related to the CXCR4 receptor to develop and commercialize products containing licensed compounds (including but not limited to mavorixafor) for all therapeutic, prophylactic, and diagnostic uses, with the exception of autologous and allogenic human stem cell therapy. Under the terms of the Genzyme Agreement, the Company is obligated to use commercially reasonable efforts to develop and commercialize licensed products for use in the field in the United States and at least one other major market country. The Company has the right to grant sublicenses of the licensed rights that cover mavorixafor to third parties.

As of June 30, 2024, the Company is obligated to make future milestone payments in the aggregate amount of up to $13.0 million, contingent upon the achievement by the Company of certain clinical-stage regulatory and sales milestones with respect to licensed products. During the three months ended June 30, 2024, a $7.0 million regulatory milestone was made after receipt of FDA approval of the Company’s NDA on April 26, 2024. The payment was recorded as a definite-lived intangible asset as discussed in Note 8. The remaining regulatory milestones include (i) $3.0 million for the acceptance by the European Medicines Agency (“EMA”) of the Company’s first drug application and (ii) $5.0 million upon the notification by the EMA of regulatory approval of the Company’s first drug application. The Company must also make one-time sales milestone payments of $0.5 million, $1.5 million, and $3.0 million on cumulative net sales of $50.0 million, $150.0 million, and $300.0 million, respectively. The Company has accrued $3.0 million of regulatory milestones and $0.5 million of sales-based milestones as a component of the definite-lived intangible asset, as management has concluded that the achievement of these milestones is probable.

The Company is also obligated to pay Genzyme tiered royalties based on net sales of licensed products that the Company commercializes under the agreement. Upon the first sale of the Company’s drug product in the U.S., the Company will incur a royalty on annual net sales at a rate of 6% up to $150 million,10% on the portion of annual net sales between $150 million and $300 million, and 12% thereafter on annual sale over $300 million. The Company includes these royalties in cost of revenue.

There were no material modifications of the Company’s license or research and development incentive agreements during the six months ended June 30, 2024.

4. PRODUCT REVENUE, NET

During the three and six months ended June 30, 2024, the Company recorded $0.7 million of gross revenue from the sale of its product to its customer. The Company also recorded an estimate of variable consideration as a provision against gross revenue resulting in net revenue of $0.6 million for the three and six months ended June 30, 2024.

The following table summarizes the activity in each of the product reserve accounts for the six months ended June 30, 2024.

The provision for contractual discounts provided to the Company’s customer is recorded as a reduction of accounts receivable. The provisions for co-pay assistance payments, contractual rebates and product returns are classified within accrued expenses.

The following table provides a rollforward of accounts receivable for the six months ended June 30, 2024. There was no activity in accounts receivable in the six months ended June 30, 2023.

5. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy used to determine such fair values:

All marketable securities are classified as short-term investments as all are due within one year and include investments in U.S. Treasury notes, U.S. Treasury bills and federal government agency notes. The amortized cost of each investment, individually and in aggregate, approximates fair value. The Company evaluated each marketable security for impairment that is other-than-temporary and concluded that no marketable security was impaired as of June 30, 2024.

The Company’s cash equivalents consisted of money market funds invested in U.S. Treasury securities and direct investments in U.S. Treasury securities. The money market funds were valued based on quoted prices in active markets for identical assets, which represents a Level 1 measurement. U.S. Treasury securities were valued by using inputs observable in active markets for similar securities, which represents a Level 2 measurement in the fair value hierarchy.

The following table provides amortized cost, unrealized gains and losses and the carrying amount of available-for-sale debt marketable securities as of June 30, 2024:

The following table provides a roll-forward of the aggregate fair values financial instruments for which fair values are determined using Level 3 inputs:

Valuation of Embedded Derivative Liability— The fair value of the embedded derivative liability recognized in connection with the Company’s loan agreement with Hercules (see Note 10), which is associated with additional fees due to Hercules upon events of default, was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The fair value of this embedded derivative liability, which is reported within other non-current liabilities on the consolidated balance sheets, is estimated by the Company at each reporting date based, in part, on the results of third-party valuations, which were prepared based on a discounted cash flow model that considered the timing and probability of occurrence of a redemption upon an event of default, the potential amount of prepayment fees or contingent interest upon an event of default and the Company’s risk-adjusted discount rate of 17%.

Class C Warrant Liability—In December 2022, the Company issued Class C Warrants for the purchase of shares of its common stock in a public offering. The Class C Warrants are accounted for as a liability on the consolidated balance sheet and are adjusted to fair value at period end through “other income (expense)” on the condensed consolidated statements of operations and comprehensive loss.

The Company calculated the fair value of the Class C Warrants using the Black-Scholes option pricing model, which represents a Level 3 measurement within the fair value hierarchy, with the following inputs:

6. INVENTORY

Inventory consists of the following:

7. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following:

Depreciation and amortization expense related to property and equipment was $131 thousand and $253 thousand for the six months ended June 30, 2024 and 2023, respectively.

8. INTANGIBLE ASSET, NET

As of June 30, 2024, the Company’s definite-lived intangible asset, which totaled$10.4 million, resulted from the capitalization of certain milestone payments made or accrued related to its license agreement for the intellectual property contained in its drug product. The Company amortizes the intangible asset to cost of revenue over the remaining life of the underlying patent protecting the intellectual property through 2038.

As of June 30, 2024, amortization expense for the next five years and beyond is summarized as follows (in thousands):

The Company began amortizing its finite-lived intangible assets in April 2024 over a 14-year period based on the expected patent exclusivity period for XOLREMDI. Amortization expense totaled$0.1 million for thethree and six months ended June 30, 2024. Amortization expense is recorded as a component of cost of revenue on the consolidated statements of operations and comprehensive income (loss).

9. ACCRUED EXPENSES

Accrued expenses consisted of the following:

10. LONG-TERM DEBT

Long-term debt consisted of the following:

Hercules Loan Agreement

The Company entered into a Loan and Security Agreement, as most recently amended, with Hercules Capital, Inc., the (“Hercules Loan Agreement”). The Hercules Loan Agreement provides for an aggregate term loan facility of up to $115.0 million, under which the Company has borrowed an aggregate of $75.0 million of term loans, representing the maximum borrowings allowable as of June 30, 2024. During the quarter ended June 30, 2024, the Company borrowed an additional $20.0 million term loan, which became available based on the achievement of an operational milestone. The Hercules Loan Agreement allows for $40.0 million of additional borrowings:

(i.) an additional tranche of $7.5 million, which will become available following achievement of a certain clinical development-related milestone through the earlier of (a) 45 days following achievement of such milestone and (b) December 15, 2024; and

(ii.) an additional tranche of up to $32.5 million, which will be available subject to approval by Hercules in its sole discretion.

Borrowings under the Hercules Loan Agreement accrue interest at a variable rate equal to the greater of (i)10.15% or (ii)The Wall Street Journal prime rate plus 3.15%. In an event of default and until such event is no longer continuing, the interest rate applicable to borrowings would be increased by 4.0%. Borrowings are repayable in monthly interest-only payments through July 1, 2027, which is the maturity date of the loans. At the Company’s option, the Company may prepay all, but not less than all, of the outstanding borrowings, subject to a prepayment premium of 2% during the 12-month period ending January 5, 2025 and 1% thereafter. In addition, the Hercules Loan Agreement provides for payment of end-of-term fees of $2.8 million plus 3.5% of the aggregate principal amount of future loans drawn, if any, payable upon the earlier of maturity or the repayment in full of all obligations under the Hercules Loan Agreement. Borrowings under the Hercules Loan Agreement are collateralized by substantially all of the Company’s personal property and other assets except for its intellectual property (but including rights to payment and proceeds from the sale, licensing or disposition of the intellectual property).

Under the Hercules Loan Agreement, the Company has agreed to affirmative and negative covenants. Prior to January 31, 2025, the Company must maintain cash in an account or accounts in which Hercules has a first priority security interest (“Qualified Cash”) in an aggregate amount equal to at least $20.0 million.

•On and after January 31, 2025, such amount must equal at least 20% of the aggregate principal amount of loans outstanding under the Hercules Loan Agreement.

•From and after January 31, 2025, the Company must maintain trailing six month net product revenue of at least 55% of its forecast as approved by the Company’s Board of Directors (the “Performance Covenant”). However, the Performance Covenant will be waived during any period in which:

(i.) the Company maintains Qualified Cash in an aggregate amount equal to at least 75% of loans outstanding under the Amended Loan Agreement or

(ii.) both (a) the Company maintains a market capitalization (as defined in the Hercules Loan Agreement) of at least $450.0 million and (b) the Company maintains Qualified Cash, as defined in the Hercules Loan Agreement, in an aggregate amount equal to at least 45% of loans outstanding.

The Hercules Loan Agreement also restricts the Company’s ability to incur additional indebtedness, pay dividends, encumber its intellectual property, or engage in certain fundamental business transactions, such as mergers or acquisitions of other businesses, with certain exceptions.

The Company recognized interest expense under the Hercules Loan Agreement as follows:

The annual effective interest rate of the Hercules Loan Agreement as of June 30, 2024 is 12.6%. There wereno principal payments due or paid under the Hercules Loan Agreement during the three months ended June 30, 2024. During the quarter ended June 30, 2024, the Company borrowed an additional $20.0 million term loan, which became available based on the achievement of an operational milestone.

As of June 30, 2024, future principal and accrued end-of-term payments of $75.8 million under the Hercules Loan Agreement are due on July 1, 2027.

11. LEASES

The Company has lease agreements for its facility in Boston, Massachusetts, which is the Company’s principal executive office and Vienna, Austria, which is the Company’s research and development center. There are no restrictions or financial covenants associated with any of the lease agreements. The Company has an operating lease for approximately 1,200 square meters of laboratory and office space in Vienna, Austria (“Vienna Lease”), that commenced in February 2021 for a term of 7 years. The annual base rent for the Vienna Lease is approximately $282 thousand. The Company also leases approximately 28,000 square feet of office space in Boston, Massachusetts (“Boston Lease”), which serves as the Company’s headquarters. Base rental payments are approximately $1.1 million annually, plus certain operating expenses. The term of the Boston Lease will continue until November 2026, unless earlier terminated. The Company has the right to renew the Boston Lease for an additional five years at the then prevailing effective market rental rate. The Company is required to maintain a security deposit in the form of a letter of credit for $0.6 million for the benefit of the landlord.

As the Company’s leases do not provide an implicit rate, the Company estimated the incremental borrowing rate in calculating the present value of the lease payments. The Company utilizes its incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment.

The components of lease expense for the three and six months ended June 30, 2024 and 2023 were as follows:

Maturities of lease liabilities due under lease agreements that have commenced as of June 30, 2024 are as follows (in thousands):

12. COMMITMENTS AND CONTINGENCIES

The Company has agreements with clinical research organizations (“CROs”) pursuant to which the Company and the CROs are conducting clinical trials. The Company may terminate these agreements by providing notice pursuant to the contractual provisions of such agreements and would incur early termination fees. The Company has agreements with contract manufacturing organizations (“CMOs”) for the production of mavorixafor for use in clinical trials. The Company’s agreement with the CMO who produces batches of drug substance for use in the Company’s clinical and commercial drug supply contains cancellation provisions that would require the Company to pay up to the full contract value upon cancellation. As of June 30, 2024, the Company has approximately $2.7 million of such commitments in place subject to cancellation provisions.

Indemnification Agreements—In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of its board of directors and its executive officers that will require the Company to, among other things, indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnification obligations. The Company is not currently aware of any indemnification claims and hasnot accrued any liabilities related to such obligations in its condensed consolidated financial statements as of June 30, 2024 or December 31, 2023.

Legal Proceedings—The Company is not a party to any litigation and does not have contingency reserves established for any litigation liabilities. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company expenses as incurred the costs related to any legal proceedings.

13. COMMON STOCK AND COMMON STOCK WARRANTS

As of June 30, 2024, the Company’s Restated Certificate of Incorporation authorized the Company to issue 500 million shares of common stock, par value $0.001 per share. The voting, dividend, and liquidation rights of the holders of the Company’s common stock are subject to and qualified by the rights, powers and preferences of the holders of any preferred stock that may be issued. Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Common stockholders are entitled to receive dividends, as may be declared by the board of directors, if any. No cash dividends have been declared or paid to date.

Warrants and Pre-Funded Warrants

In connection with public and private sales of shares of its common stock, the Company has issued warrants and pre-funded warrants, which are exercisable for the purchase shares of the Company’s common stock. All outstanding warrants and pre-funded warrants are currently exercisable and do not have price reset provisions. Upon the closing of these public and private offerings, the Company received approximately 99% of the exercise price for the pre-funded warrants, for which the remaining exercise price is equal to or less than $0.01 per share. There were no warrant exercises during the three or six months ended June 30, 2024.

As of June 30, 2024, the Company’s outstanding warrants and pre-funded warrants to purchase shares of common stock consisted of the following:

(a) In November 2019, the Company received $11.999 per pre-funded warrant, or $21.0 million in aggregate proceeds. Each pre-funded

warrant may be exercised for an additional $0.001 per pre-funded warrant. (b) In March 2021, the Company received $8.69 per pre-funded warrant, or $435 thousand in aggregate proceeds. Each pre-funded warrant may be exercised for an additional $0.01 per pre- funded warrant. (c) In November 2021, the Company received $4.97 per pre-funded warrant, or $10.0 million in aggregate proceeds. Each pre-funded warrant may be exercised for an additional $0.01 per pre-funded warrant. (d) In March 2022, the Company received $1.79 per pre-funded warrant, or $1.4 million in aggregate proceeds. Each pre-funded warrant may be exercised for an additional $0.01 per pre-funded warrant. (e) In July 2022, the Company received $1.094 per pre-funded warrant, or $14.5 million in aggregate proceeds. Each pre-funded warrant may be exercised for an additional $0.001 per pre-funded warrant. (f) In December 2022, the Company received $1.099 per pre-funded warrant, or $7.5 million in aggregate proceeds. (g) In May 2023, the Company received $1.519 per pre-funded warrant, or $12.6 million in aggregate proceeds. Each pre-funded warrant may be exercised for an additional $0.001 per pre-funded warrant.

14. STOCK-BASED COMPENSATION

As of June 30, 2024, there is an aggregate of approximately 2.0 million shares of common stock available for issuance under the Company’s equity incentive plans. Approximately 4.7 million shares of common stock remain available for issuance under the 2017 ESPP.

Stock Option Valuation—The following table presents, on a weighted average basis, the assumptions used in the Black-Scholes option-pricing model to determine the grant-date fair value of stock options granted to employees, directors and non-employees.

Stock Options

The following table summarizes the Company’s stock option activity for the six months ended June 30, 2024:

The weighted average grant-date fair value per share of stock options granted during the six months ended June 30, 2024 and 2023 was $0.86 and $1.05, respectively.

Restricted Stock Units— The following table summarizes the Company's restricted stock unit activity for the six months ended June 30, 2024:

During the six months ended June 30, 2024, the Company granted performance-based restricted stock units (“PRSUs”) to its employees. The PRSUs vest 50% based on the Company’s achievement of each of two operational milestones conditioned on the grantee’s continued employment with the Company. As of June 30, 2024, neither of the two performance criteria had been met. Stock-based compensation expense has been recognized for awards for which vesting is considered probable using the accelerated attribution model based on the fair value of the awards as of the date of grant and management’s best estimate of the date the probable operational milestone will be achieved. The Company updates its estimates related to the probability and timing of achievement of the operational milestones each period until the award either vests or is forfeited.

Stock-Based Compensation—As of June 30, 2024, total unrecognized compensation expense related to unvested stock options and restricted stock units was $8.5 million, which is expected to be recognized over a weighted average period of 2.2 years.

Stock-based compensation expense was classified in the condensed consolidated statements of operations and comprehensive income (loss) as follows:

Stock Appreciation Rights— On February 13, 2024, (the “Grant Date”), the compensation committee of the Board of Directors approved the grant of stock appreciation rights (“SARs”), pursuant to the 2017 Plan, to the Company’s executive officers. The SARs have a measurement price per SAR equal to $0.92, the closing price per share of the Company’s common stock on the Grant Date, and each grant of SARs will have a maximum term of ten years from the Grant Date. Unless otherwise determined by the Board of Directors, the SARs will be settled in cash upon exercise. The settlement value will be based on the difference between the closing price of the Company’s common stock on the date of settlement less $0.92 multiplied by the number of SARs exercised. The SARs will vest and become exercisable in equal annual installments on the first, second, and third anniversaries of the Grant Date, subject to the recipient remaining an employee of the Company through and including each applicable vesting date.

15. INCOME TAXES

The income tax provision recorded for the three and six months ended June 30, 2024 and 2023 is primarily related to the Company’s Austrian subsidiary and its Security Corporation subsidiary that holds a portion of its investment portfolio.

The Company did not record a U.S. federal or state provision or benefit for income taxes in its consolidated statement of operations and comprehensive income (loss) for the three and six month periods ended June 30, 2024 and 2023. For the six months ended June 30, 2024, the Company generated net income and ordinary income. However, as the Company is projecting an ordinary loss before income taxes for the full year and as the Company has a full valuation allowance on its net operating loss carryforwards, the Company has not recorded a U.S. federal or state income tax expense or benefit for the three month and six months ended June 30, 2024.

The Company continues to maintain a valuation allowance against all remaining net deferred tax assets. The Company believes that it is more likely than not that it will not realize a future tax benefit of these attributes as the Company expects to continue to generate operating losses. Ultimate realization of any deferred tax asset is dependent on the Company’s ability to generate sufficient future taxable income in the appropriate tax jurisdiction before the expiration of carryforward periods, if any. The Company will continue to monitor the valuation allowance assessment throughout the year.

16. NET INCOME (LOSS) PER SHARE

Basic and diluted net income (loss) per share was calculated as follow:

Basic and diluted weighted average shares of common stock outstanding for the three and six months ended June 30, 2024 and June 30, 2023 include the weighted average effect of outstanding pre-funded warrants for the purchase of shares of common stock for which the remaining unfunded exercise price is $0.01 or less per share. The Company’s potentially dilutive securities include outstanding stock options, unvested restricted stock units and warrants to purchase shares of common stock for the three and six months ended June 30, 2024 and 2023. For the three and six month periods ended June 30, 2023, during which the Company recorded a net loss, all potentially dilutive securities have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share, and thus they are considered “anti-dilutive.” For these periods, the weighted average number of shares of common stock outstanding used to calculate both basic and diluted net loss per share of common stock is the same. For the three and six month ended June 30, 2024, the Company reported net income. For these periods, the dilutive effect of outstanding stock options, restricted stock units and warrants were calculated using the treasury stock method, whereby all such awards were assumed to be exercised at the beginning of the period. The hypothetical proceeds from such exercises, including the average unrecognized stock compensation expense for outstanding stock options and restricted stock units, were assumed to be used to purchase outstanding common stock at the average price during the period. The net share impact of dilutive securities was added to the weighted average basic common shares outstanding to calculate weighted average diluted shares outstanding.

The Company excluded the following potential shares of common stock, presented based on amounts outstanding at each period end, from the computation of diluted net income (loss) per share for the periods indicated because including them would have had an anti-dilutive effect:

17. GAIN ON SALE OF NON-FINANCIAL ASSET

During the quarter ended June 30, 2024, the Company entered into contractual arrangement with a third party that transferred the rights to a Priority Review Voucher (“PRV”) awarded to the Company by FDA under its Rare Pediatric Disease program upon the approval of XOLREMDI. The FDA awards PRVs to sponsors of rare pediatric disease product applications that meet certain criteria to encourage development of new drugs and biologics for the prevention and treatment of rare pediatric diseases.The PRV is accounted for as an intangible asset with no accounting cost basis. The third party purchased the PRV for $105.0 million. There were no fees associated with the sale and the Company has no continuing obligations with respect to the PRV. The Company concluded that the third party is “non-customer” as the underlying PRV is not an output of the Company's ordinary commercial activities. Accordingly, the Company accounted for this transaction under ASC Topic 610-20, Gains and Losses from the Derecognition of Nonfinancial Assets (“ASC 610-20”). As a result of the transfer of control of the PRV to the third party, the Company derecognized the associated intangible asset and recorded a gain through “gain on transfer of nonfinancial assets.”