{"url_path":"/sec/xlo/10-q/2026/item-2","section_key":"item-2","section_title":"Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations","topic":"sec","document":{"doc_type":"10-Q","doc_date":"2026-05-12","source_url":"https://www.sec.gov/Archives/edgar/data/1840233/0001193125-26-218200-index.html","accession_number":"0001193125-26-218200","cik":"0001840233","ticker":"XLO","issuer_name":"Xilio Therapeutics, Inc.","edgar_url":"https://www.sec.gov/Archives/edgar/data/1840233/0001193125-26-218200-index.html","primary_entity_key":"0001840233","primary_entity_name":"Xilio Therapeutics, Inc."},"word_count":6035,"has_tables":true,"body_markdown":"# Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations\n\nYou should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2025.\n\nSome of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the section entitled “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.\n\n# Overview\n\nWe are a clinical-stage biotechnology company discovering and developing masked immuno-oncology, or I-O, therapies with the goal of significantly improving outcomes for people living with cancer. Leveraging our clinically-validated masking technology and capabilities, we are developing I-O therapies designed to selectively activate within the tumor microenvironment to achieve durable efficacy without the severe side effects associated with systemically active I-O agents. Our integrated biology and protein engineering approach enables us to design and develop highly potent, masked biologics that are activated, or unmasked, by tumor-specific proteases within the tumor microenvironment. We are currently advancing multiple programs in preclinical and clinical development, including masked multi-specifics, and our clinically-validated masking technology has enabled us to establish top-tier strategic partnerships, including with AbbVie Group Holdings Limited, or AbbVie, and Gilead Sciences, Inc., or Gilead.\n\nLiquidity Overview\n\nTo date, we have financed our operations primarily from proceeds raised through private placements of equity securities, sales of common stock in our initial public offering, or IPO, and through “at-the-market” offerings; the sale of prefunded warrants in our June 2025 and February 2026 follow-on offerings; the exercise of certain common stock warrants issued in connection with our June 2025 follow-on offering; development event payments under our co-funded clinical trial collaboration with F. Hoffmann-La Roche Ltd., or Roche; and upfront payments and milestone payments under our collaboration and license agreements with AbbVie and Gilead. All of our programs are in early clinical or preclinical development. As a result, we have not generated any revenue from product sales and do not expect to generate any revenue from product sales for at least the next several years, if at all. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates, if approved. Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve profitability. Even if we are able to generate revenue from product sales, we may not become profitable.\n\nSince inception, we have incurred significant operating losses, including net losses of $9.5 million and $13.3 million for the three months ended March 31, 2026 and 2025, respectively, and a net loss of $35.0 million for the year ended December 31, 2025. As of March 31, 2026, we had an accumulated deficit of $428.3 million. We expect to continue to incur significant expenses and operating losses for the foreseeable future, particularly to the extent we:\n\n•\ncontinue to advance our current research programs and conduct additional research programs;\n\n•\nadvance our current product candidates and any future product candidates we may develop into preclinical and clinical development;\n\n•\nseek marketing approvals for product candidates that successfully complete clinical trials, if any;\n\n•\nobtain, expand, maintain, defend and enforce our intellectual property;\n\n•\ncontinue to discover, validate and develop additional product candidates;\n\n•\ncontinue to manufacture increasing quantities of our current or future product candidates for use in preclinical studies, clinical trials and for any potential commercialization;\n\n•\nacquire or in-license other product candidates, technologies or intellectual property;\n\n•\nhire additional personnel to support current or future programs;\n\n26\n\n[Table of Contents](#toc_page)\n\n \n\n•\nestablish a commercial and distribution infrastructure to commercialize products for which we may obtain marketing approval, if any; and\n\n•\nincur additional costs associated with current and future research, development and commercialization efforts and operations as a public company.\n\nAs a result, we will need substantial additional capital to support our continuing operations and pursue our strategy. As of March 31, 2026, we had cash and cash equivalents of $150.3 million. In the second quarter of 2026, we achieved a $6.0 million development milestone related to the collaboration agreement with AbbVie. Based on our current operating plans, we anticipate that our existing cash and cash equivalents as of March 31, 2026, together with the development milestone achieved under the AbbVie collaboration in the second quarter of 2026, will be sufficient to enable us to fund our operating expenses and capital expenditure requirements into early 2028. This estimate excludes any potential additional milestone payments, option-related fees or other contingent payments under our existing collaboration and partnership agreements with AbbVie and Gilead and excludes the potential receipt of up to $36.2 million in additional gross proceeds in the second half of 2026 if all outstanding Series C warrants are exercised at their current exercise price.\n\nIn addition, we have based our estimates on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we anticipate. We expect our operating losses and negative operating cash flows to continue for the foreseeable future as we continue to advance our pipeline of novel, masked I-O molecules through preclinical and clinical development, maintain the infrastructure necessary to support these activities and continue to incur costs associated with operating as a public company.\n\n# Financial Operations Overview\n\n## Revenue\n\nWe have not generated any revenue from the sale of products since inception and do not expect to generate any revenue from the sale of products for at least the next several years, if at all. If our development efforts for our current or future product candidates are successful and result in regulatory approval, we may generate revenue in the future from product sales. For the foreseeable future, we expect substantially all of our revenue, if any, would be generated from our collaboration and license agreements with AbbVie and Gilead. For more information on our collaboration, license and option agreement with AbbVie and our license agreement with Gilead, please see Note 6 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.\n\n## Operating Expenses\n\nResearch and Development Expenses\n\nResearch and development expenses consist primarily of costs incurred for our discovery efforts, research activities and development and testing of our programs and product candidates. These expenses include:\n\n•\npersonnel-related expenses, including salaries, bonuses, benefits and stock-based compensation expense for employees engaged in research and development functions;\n\n•\ncosts incurred with third-party contract development and manufacturing organizations, or CDMOs, to acquire, develop and manufacture materials for both preclinical studies and current or future clinical trials;\n\n•\ncosts of funding research performed by third parties that conduct research and development and preclinical activities on our behalf;\n\n•\ncosts incurred with third-party contract research organizations, or CROs, and other third parties in connection with the conduct of our current or future clinical trials;\n\n•\ncosts of sponsored research agreements and outside consultants, including their fees and related expenses;\n\n•\ncosts incurred to maintain compliance with regulatory requirements;\n\n•\nfees for maintaining licenses and other amounts due under our third-party licensing agreements;\n\n•\nexpenses incurred for the procurement of materials, laboratory supplies and non-capital equipment used in the research and development process; and\n\n27\n\n[Table of Contents](#toc_page)\n\n \n\n•\ndepreciation, amortization and other direct and allocated expenses, including rent, maintenance of facilities and other operating costs, incurred as a result of our research and development activities.\n\nWe expense research and development costs as incurred. We recognize external development costs based on an evaluation of the progress to completion of specific deliverables using information provided to us by our vendors. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our condensed consolidated balance sheets as prepaid expenses or accrued research and development expenses. We record cost-sharing payments under our clinical trial collaboration with Roche as a reduction of research and development costs upon the achievement of each study development event specified in the clinical supply agreement. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are capitalized as assets, even when there is no alternative future use for the research and development. The capitalized amounts are expensed as the related goods are delivered or the services are performed.\n\nWe use our personnel and infrastructure resources for our discovery efforts, including the advancement of our platform technology, developing programs and product candidates and managing external research efforts. A significant portion of our research and development costs have been, and will continue to be, external costs. We track these external costs, such as fees paid to CDMOs, CROs, preclinical study vendors and other third parties in connection with our manufacturing and manufacturing process development, clinical trials, preclinical studies and other research activities by program. Due to the number of ongoing programs and our ability to use resources across several projects, personnel-related expenses and indirect or shared operating costs incurred for our research and development programs are not recorded or maintained on a program-by-program basis.\n\nResearch and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will remain approximately the same or will continue to increase for the foreseeable future as we advance our programs and our current or future product candidates into and through the development phase. We expect our discovery research efforts and our related personnel costs to remain consistent with historical levels. In addition, as we progress our most advanced product candidates in clinical development, we may incur additional expenses related to milestone and royalty payments payable to third parties with whom we have entered into, or may enter into license, acquisition, option or other agreements to acquire the rights to future products and product candidates. In the event we are unable to raise sufficient additional capital to fund our operations in the future, we may need to implement cost reduction strategies that seek to maintain our ability to continue the development of our most advanced product candidates in clinical development while otherwise reducing our overall research and development expenses.\n\nAt this time, we cannot reasonably estimate or know the nature, timing and projected costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, any of our product candidates or programs. This is due to the numerous risks and uncertainties associated with drug development, including the uncertainty of:\n\n•\nthe scope, timing, costs and progress of preclinical and clinical development activities;\n\n•\nthe number and scope of preclinical and clinical programs we decide to pursue;\n\n•\nour ability to implement and maintain cost reduction strategies, as well as the timing of such cost reductions;\n\n•\nour ability to maintain our current research and development programs;\n\n•\nour ability to establish an appropriate safety profile for our product candidates with IND-enabling studies;\n\n•\nour ability to hire and retain key research and development personnel;\n\n•\nthe costs associated with the development of any additional product candidates we acquire or develop through collaborations, partnerships, licenses or similar transactions;\n\n•\nour successful enrollment in and completion of clinical trials;\n\n•\nour ability to successfully complete clinical trials with safety, potency and purity profiles that are satisfactory to the U.S. Food and Drug Administration, or the FDA, or any comparable foreign regulatory authority;\n\n•\nour receipt of regulatory approvals from applicable regulatory authorities;\n\n28\n\n[Table of Contents](#toc_page)\n\n \n\n•\nour ability to successfully develop, obtain regulatory approval for, and then successfully commercialize, our product candidates;\n\n•\nour ability to commercialize products, if and when approved, whether alone or in collaboration with others;\n\n•\nthe continued acceptable safety profiles of the product candidates following approval, if any;\n\n•\nour ability to establish and maintain agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing, if any of our product candidates are approved;\n\n•\nthe terms and timing of any collaboration, license or other arrangement, including the terms and timing of any milestone payments thereunder, if any;\n\n•\nour ability to obtain and maintain patent, trade secret and other intellectual property protection and regulatory exclusivity for our product candidates if and when approved; and\n\n•\ngeneral economic conditions, including inflation and the imposition of new or revised global trade tariffs.\n\nA change in any of these variables with respect to the development of any of our product candidates would significantly change the costs, timing and viability associated with the development of that product candidate. We may never succeed in obtaining regulatory approval for any product candidate we may develop.\n\nGeneral and Administrative Expenses\n\nGeneral and administrative expenses consist primarily of personnel-related costs, including salaries, bonuses, benefits, recruiting and stock-based compensation, for personnel in our executive, finance, legal, business development, human resources and other administrative functions. General and administrative expenses also include legal fees relating to corporate matters; professional and consulting fees for accounting, auditing, tax, human resources and administrative consulting services; board of directors’ fees; insurance costs; and facility-related expenses, which include depreciation costs and other allocated expenses for rent, maintenance of facilities and other general administrative costs. These costs relate to the operation of the business and are in support of but separate from the research and development function and our individual development programs. Costs to secure and defend our intellectual property are expensed as incurred and are classified as general and administrative expenses.\n\nWe anticipate that our general and administrative expenses will remain consistent with historical levels as we maintain our infrastructure to support our research and development activities. We also expect to continue to incur significant expenses associated with operating as a public company, including increased costs for accounting, audit, legal, regulatory and tax-related services attributable to maintaining compliance with exchange listing standards and U.S. Securities and Exchange Commission, or SEC, requirements, directors’ and officers’ liability insurance costs and investor and public relations costs. We also expect to continue to incur additional expenses related to intellectual property as we file patent applications to protect intellectual property arising from our research and development activities. In the event we are unable to obtain sufficient additional capital in the future, we may need to implement cost reduction strategies that seek to reduce our general and administrative expenses while maintaining sufficient infrastructure to support our planned research and development activities and operations as a public company.\n\n## Other Income, Net\n\nChange in Fair Value of Common Stock Warrant Liabilities\n\nThe change in fair value of common stock warrant liabilities consists of the change in the fair value of the common stock warrant liabilities from December 31, 2025 to March 31, 2026.\n\nOther Income, Net\n\nOther income, net consists primarily of interest income earned from our cash and cash equivalents.\n\n29\n\n[Table of Contents](#toc_page)\n\n \n\n# Results of Operations\n\n## Comparison of the three months ended March 31, 2026 and 2025\n\nThe following table summarizes our results of operations for the three months ended March 31, 2026 and 2025 (in thousands):\n\n \n\n \n\n \n\nThree Months Ended\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nMarch 31,\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\n \n\nChange\n\n \n\nRevenue\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nCollaboration and license revenue\n\n \n\n$\n\n \n\n12,648\n\n \n\n \n\n$\n\n \n\n2,930\n\n \n\n \n\n$\n\n \n\n9,718\n\n \n\nTotal revenue\n\n \n\n \n\n \n\n12,648\n\n \n\n \n\n \n\n \n\n2,930\n\n \n\n \n\n \n\n \n\n9,718\n\n \n\nOperating expenses\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nResearch and development\n\n \n\n$\n\n \n\n19,832\n\n \n\n \n\n$\n\n \n\n8,266\n\n \n\n \n\n$\n\n \n\n11,566\n\n \n\nGeneral and administrative\n\n \n\n \n\n \n\n6,928\n\n \n\n \n\n \n\n \n\n8,515\n\n \n\n \n\n \n\n \n\n(1,587\n\n)\n\nTotal operating expenses\n\n \n\n \n\n \n\n26,760\n\n \n\n \n\n \n\n \n\n16,781\n\n \n\n \n\n \n\n \n\n9,979\n\n \n\nLoss from operations\n\n \n\n \n\n \n\n(14,112\n\n)\n\n \n\n \n\n \n\n(13,851\n\n)\n\n \n\n \n\n \n\n(261\n\n)\n\nOther income, net\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nChange in fair value of common stock warrant liabilities\n\n \n\n \n\n \n\n3,300\n\n \n\n \n\n \n\n \n\n—\n\n \n\n \n\n \n\n \n\n3,300\n\n \n\nOther income, net\n\n \n\n \n\n \n\n1,283\n\n \n\n \n\n \n\n \n\n586\n\n \n\n \n\n \n\n \n\n697\n\n \n\nTotal other income, net\n\n \n\n \n\n \n\n4,583\n\n \n\n \n\n \n\n \n\n586\n\n \n\n \n\n \n\n \n\n3,997\n\n \n\nNet loss\n\n \n\n$\n\n \n\n(9,529\n\n)\n\n \n\n$\n\n \n\n(13,265\n\n)\n\n \n\n$\n\n \n\n3,736\n\n \n\n \n\nCollaboration and License Revenue\n\nCollaboration and license revenue increased by $9.7 million from $2.9 million for the three months ended March 31, 2025 to $12.6 million for the three months ended March 31, 2026. The increase was due to an increase in collaboration and license revenue recognized under our collaboration and license agreements with AbbVie and Gilead.\n\nResearch and Development Expenses\n\nThe following table summarizes our research and development expenses for the three months ended March 31, 2026 and 2025 (in thousands):\n\n \n\n \n\n \n\nThree Months Ended\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nMarch 31,\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\n \n\nChange\n\n \n\nXTX501\n\n \n\n$\n\n \n\n6,144\n\n \n\n \n\n$\n\n \n\n469\n\n \n\n \n\n$\n\n \n\n5,675\n\n \n\nefarindodekin alfa\n\n \n\n \n\n \n\n1,401\n\n \n\n \n\n \n\n \n\n979\n\n \n\n \n\n \n\n \n\n422\n\n \n\nvilastobart\n\n \n\n \n\n \n\n1,084\n\n \n\n \n\n \n\n \n\n(193\n\n)\n\n \n\n \n\n \n\n1,277\n\n \n\nOther early programs and indirect research and development\n\n \n\n \n\n \n\n5,212\n\n \n\n \n\n \n\n \n\n2,427\n\n \n\n \n\n \n\n \n\n2,785\n\n \n\nPersonnel-related\n\n \n\n \n\n \n\n5,991\n\n \n\n \n\n \n\n \n\n4,584\n\n \n\n \n\n \n\n \n\n1,407\n\n \n\nTotal research and development expenses\n\n \n\n$\n\n \n\n19,832\n\n \n\n \n\n$\n\n \n\n8,266\n\n \n\n \n\n$\n\n \n\n11,566\n\n \n\n \n\nResearch and development expenses increased by $11.6 million from $8.3 million for the three months ended March 31, 2025 to $19.8 million for the three months ended March 31, 2026. The changes in research and development expenses were primarily due to the following:\n\n•\nXTX501 costs increased by $5.7 million, primarily driven by an increase in manufacturing activities related to IND-enabling studies and preclinical development activities;\n\n•\nother early programs and indirect research and development costs increased by $2.8 million, primarily driven by an increase in external expenses related to preclinical research and development activities, including costs related to our CLDN18.2 program, prostrate program and AbbVie collaboration;\n\n30\n\n[Table of Contents](#toc_page)\n\n \n\n•\nvilastobart costs increased by $1.3 million, primarily driven by a $2.0 million cost-sharing payment earned under our Roche clinical collaboration during the three months ended March 31, 2025, which we recorded as a reduction in research and development expenses and for which there was no corresponding cost-sharing payment during the three months ended March 31, 2026, partially offset by a $0.7 million decrease in clinical development activities related to our ongoing Phase 1/2 clinical trial evaluating vilastobart in combination with atezolizumab;\n\n•\npersonnel-related costs increased by $1.4 million, primarily driven by a $1.0 million increase in salaries, bonuses and benefits due to higher research and development headcount, and a $0.4 million increase in stock-based compensation; and\n\n•\nefarindodekin alfa costs increased by $0.4 million, primarily driven by an increase in clinical development activities related to our ongoing our Phase 2 clinical trial evaluating efarindodekin alfa as a monotherapy in patients with certain advanced solid tumors.\n\nGeneral and Administrative Expenses\n\nThe following table summarizes our general and administrative expenses for the three months ended March 31, 2026 and 2025 (in thousands):\n\n \n\n \n\n \n\nThree Months Ended\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nMarch 31,\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\n \n\nChange\n\n \n\nPersonnel-related\n\n \n\n$\n\n \n\n4,171\n\n \n\n \n\n$\n\n \n\n4,444\n\n \n\n \n\n$\n\n \n\n(273\n\n)\n\nProfessional and consulting fees\n\n \n\n \n\n \n\n1,997\n\n \n\n \n\n \n\n \n\n3,238\n\n \n\n \n\n \n\n \n\n(1,241\n\n)\n\nFacility-related and other general and administrative expenses\n\n \n\n \n\n \n\n760\n\n \n\n \n\n \n\n \n\n833\n\n \n\n \n\n \n\n \n\n(73\n\n)\n\nTotal general and administrative expenses\n\n \n\n$\n\n \n\n6,928\n\n \n\n \n\n$\n\n \n\n8,515\n\n \n\n \n\n$\n\n \n\n(1,587\n\n)\n\n \n\nGeneral and administrative expenses decreased by $1.6 million from $8.5 million for the three months ended March 31, 2025 to $6.9 million for the three months ended March 31, 2026. The changes in general and administrative expenses were primarily due to the following:\n\n•\npersonnel-related costs decreased by $0.3 million, primarily driven by a decrease in severance costs and discretionary bonus costs; and\n\n•\nprofessional and consulting fees decreased by $1.2 million, primarily driven by a decrease in legal fees and other professional costs.\n\nChange in Fair Value of Common Stock Warrant Liabilities\n\nThe change in fair value of common stock warrant liabilities for the three months ended March 31, 2026 was due to a gain of $3.3 million due to the decrease in the fair value of the common stock warrant liabilities between December 31, 2025 and March 31, 2026, which was primarily driven by a decrease in the price per share of our common stock.\n\nOther Income, Net\n\nOther income, net, increased by $0.7 million from $0.6 million for the three months ended March 31, 2025 to $1.3 million for the three months ended March 31, 2026. The increase in other income, net was primarily due to an increase in interest income due to a higher average cash balance.\n\nLiquidity and Capital Resources\n\n## Sources of Liquidity\n\nSince our inception, we have incurred significant operating losses and negative cash flows from operations. We have not yet commercialized any of our product candidates, which are in preclinical or early clinical development, and we do not expect to generate revenue from sales of any products for several years, if at all. To date, we have financed our operations primarily from proceeds raised through private placements of equity securities; sales of common stock in our IPO, and through “at-the-market” offerings; the sale of prefunded warrants in our June 2025 and February 2026 follow-on offerings; the exercise of certain common stock warrants issued in\n\n31\n\n[Table of Contents](#toc_page)\n\n \n\nconnection with our June 2025 follow-on offering; development event payments under our co-funded clinical trial collaboration with Roche; and upfront and milestone payments under our collaboration and license agreements with AbbVie and Gilead. All of our programs are in early clinical or preclinical development. As a result, we have not generated any revenue from product sales and do not expect to generate any revenue from product sales for at least the next several years, if at all. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates, if approved. Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve profitability. Even if we are able to generate revenue from product sales, we may not become profitable.\n\n## At-the-Market Offering Program\n\nIn March 2025, we filed a universal shelf registration statement on Form S-3 with the SEC to register for sale up to $250.0 million of our common stock, preferred stock, debt securities, units and warrants, which we may issue and sell from time to time in one or more offerings, which became effective on May 8, 2025 (333-285703). In March 2025, we entered into a sales agreement with Leerink Partners, LLC, under which we could initially issue and sell shares of our common stock from time to time at an aggregate offering price of up to $50.0 million. In February 2026, we filed a prospectus supplement to our prospectus dated May 8, 2025 (333-285793) to reduce the amount of common stock we may offer and sell under the sales agreement to an aggregate offering price of up to $9.5 million.\n\n## Cash Flows\n\nThe following table provides information regarding our cash flows for each period presented (in thousands):\n\n \n\n \n\n \n\nThree Months Ended\n\n \n\n \n\n \n\nMarch 31,\n\n \n\n \n\n \n\n2026\n\n \n\n \n\n2025\n\n \n\nNet cash (used in) provided by:\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nOperating activities\n\n \n\n$\n\n \n\n(22,343\n\n)\n\n \n\n$\n\n \n\n28,978\n\n \n\nInvesting activities\n\n \n\n \n\n \n\n(556\n\n)\n\n \n\n \n\n \n\n(22\n\n)\n\nFinancing activities\n\n \n\n \n\n \n\n35,707\n\n \n\n \n\n \n\n \n\n4,832\n\n \n\nNet increase in cash, cash equivalents and restricted cash\n\n \n\n$\n\n \n\n12,808\n\n \n\n \n\n$\n\n \n\n33,788\n\n \n\n \n\nOperating Activities\n\nOur cash flows from operating activities are greatly influenced by our use of cash for operating expenses and working capital requirements to support our business. We have historically experienced negative cash flows from operating activities as we invested in research and development of our product candidates, including preclinical studies, clinical trials, manufacturing and manufacturing process development. The cash used in operating activities resulted primarily from our net losses adjusted for non-cash charges, which are generally due to stock-based compensation, depreciation and amortization, as well as changes in components of operating assets and liabilities, which are generally due to increased expenses and timing of vendor payments.\n\nDuring the three months ended March 31, 2026, net cash used in operating activities of $22.3 million was primarily driven by net changes in operating assets and liabilities of $12.1 million, our net loss of $9.5 million and the $3.3 million gain recorded on the change in fair value of our common stock warrant liabilities, partially offset by $2.2 million of stock-based compensation expense and $0.3 million of depreciation and amortization expense.\n\nDuring the three months ended March 31, 2025, net cash provided by operating activities of $29.0 million was primarily driven by changes in operating assets and liabilities of $40.2 million, which includes the $49.1 million recorded as deferred revenue in connection with our collaboration, license and option agreement and stock purchase agreement with AbbVie, and net non-cash expenses of $2.0 million, partially offset by our net loss of $13.3 million.\n\nInvesting Activities\n\nDuring the three months ended March 31, 2026 and 2025, net cash used in investing activities consisted of purchases of property and equipment.\n\n32\n\n[Table of Contents](#toc_page)\n\n \n\nFinancing Activities\n\nDuring the three months ended March 31, 2026, net cash provided by financing activities of $35.7 million primarily consisted of proceeds from the sale of prefunded warrants through a follow-on offering.\n\nDuring the three months ended March 31, 2025, net cash provided by financing activities of $4.8 million consisted of proceeds from the sale and issuance of common stock to AbbVie in a private placement and proceeds from the sale and issuance of common stock through ATM offerings.\n\n## Capital Requirements\n\nWe expect our future capital requirements to increase substantially over time in connection with our ongoing research and development activities, particularly as we advance our current and planned clinical development of our product candidates and maintain the research efforts and preclinical activities associated with our other existing programs and discovery platform. In addition, we expect to continue to incur additional costs associated with operating as a public company. As a result, we expect to incur substantial operating losses and negative operating cash flows for the foreseeable future.\n\nInflation generally affects us by increasing our cost of labor and certain services. We do not believe that inflation had a material effect on our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. However, the United States has recently experienced historically high levels of inflation. If the inflation rate continues to increase it may affect our expenses, such as employee compensation and research and development charges due to, for example, increases in the costs of labor and supplies. Additionally, the biotechnology industry is subject to a competitive wage environment that may also increase our operating costs in the future.\n\nAs of March 31, 2026, we had cash and cash equivalents of $150.3 million. In the second quarter of 2026, we achieved a $6.0 million development milestone related to the collaboration agreement with AbbVie. Based on our current operating plans, we anticipate that our existing cash and cash equivalents as of March 31, 2026, together with the development milestone achieved under the AbbVie collaboration in the second quarter of 2026, will be sufficient to enable us to fund our operating expenses and capital expenditure requirements into early 2028. This estimate excludes any potential additional milestone payments, option-related fees or other contingent payments under our existing collaboration and partnership agreements with AbbVie and Gilead and excludes the potential receipt of up to $36.2 million in additional gross proceeds in the second half of 2026 if all outstanding Series C warrants are exercised at their current exercise price.\n\nIn addition, we have based our estimates on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we anticipate. In addition, we expect our operating losses and negative operating cash flows to continue for the foreseeable future as we continue to advance our pipeline of novel, masked I-O molecules through preclinical and clinical development, maintain the infrastructure necessary to support these activities and continue to incur costs associated with operating as a public company.\n\nBecause of the numerous risks and uncertainties associated with product development, and because the extent to which we may enter into additional collaborations with third parties for the development of our product candidates is unknown, we may incorrectly estimate the timing and amounts of increased capital outlays and operating expenses associated with advancing the research and development of our product candidates.\n\nOur future capital requirements, both short-term and long-term, will depend on many factors, including, but not limited to:\n\n•\nthe scope, progress, results and costs of research and development for our current and future product candidates, including our current and planned clinical trials for our clinical-stage product candidates, vilastobart and efarindodekin alfa, and ongoing preclinical development for our current and future product candidates;\n\n•\nour ability to maintain our collaboration and license agreements with AbbVie and Gilead;\n\n•\nthe timing and amount of milestones, option-related fees and other contingent payments under our collaboration, license and option agreement with AbbVie for masked immunotherapies and our license agreement with Gilead for efarindodekin alfa, as well as the scope, costs and timing of our development obligations under these agreements;\n\n33\n\n[Table of Contents](#toc_page)\n\n \n\n•\nthe potential receipt of up to $36.2 million in additional gross proceeds in the second half of 2026 if all of the outstanding Series C common stock warrants issued in connection with our June 2025 follow-on offering are exercised at their current exercise price of $10.50 per warrant;\n\n•\nour ability to secure additional capital in the future;\n\n•\nthe scope, prioritization and number of our research and development programs;\n\n•\nthe costs of securing manufacturing materials for use in preclinical studies, clinical trials and, for any product candidates for which we receive regulatory approval, if any, commercial supply;\n\n•\nthe costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property and proprietary rights and defending any intellectual property-related claims;\n\n•\nthe extent to which we may acquire or in-license other products, product candidates, technologies or intellectual property, as well as the terms of any such arrangements;\n\n•\nthe scope, costs, timing and outcome of regulatory review of our product candidates;\n\n•\nthe costs and timing of future commercialization activities for any of our product candidates for which we receive regulatory approval;\n\n•\nthe amount and timing of revenue, if any, received from commercial sales of any product candidates for which we receive regulatory approval;\n\n•\ngeneral economic conditions, including inflation and the imposition of new or revised global trade tariffs; and\n\n•\nthe costs of maintaining our operations and continuing to operate as a public company.\n\nIdentifying potential product candidates and conducting preclinical studies and clinical trials is a time consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain regulatory approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for several years, if ever. Accordingly, we will need to obtain substantial additional capital to achieve our business objectives.\n\nOur expectation with respect to our ability to fund our currently planned operations is based on estimates that are subject to various risks and uncertainties. Our operating plan may change as a result of many factors currently unknown to management and there can be no assurance that our current operating plan will be achieved in the time frame anticipated by us, and we may exhaust our available capital resources sooner than we expect.\n\nAdequate additional capital may not be available to us on acceptable terms, or at all. Market volatility resulting from adverse changes in domestic and international fiscal, monetary and other policies and political relations, regional or global conflicts, uncertainty around global economic conditions, instability in the financial markets, current or future pandemics or other factors could also adversely impact our ability to access capital as and when needed. To the extent that we raise additional capital through the sale of equity or securities convertible into or exchangeable for equity, the ownership interest of our existing stockholders may be diluted, and the terms of such securities may include liquidation or other preferences that adversely affect the rights of our existing stockholders. Additional debt and preferred equity, if available, may also involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends and may require that we issue additional warrants, which could potentially dilute the ownership interest of our existing stockholders.\n\n# Contractual Obligations\n\nDuring the three months ended March 31, 2026, there have been no material changes to our contractual obligations as reported in our Annual Report on Form 10-K for the year ended December 31, 2025.\n\n34\n\n[Table of Contents](#toc_page)\n\n \n\n# Critical Accounting Policies and Use of Estimates\n\nOur management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements, as well as the reported revenue and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions. Except as described in Note 2, Summary of Significant Accounting Policies, to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, there have been no changes to our critical accounting policies appearing in our Annual Report on Form 10-K for the year ended December 31, 2025.\n\n# Emerging Growth Company and Smaller Reporting Company Status\n\nAs an emerging growth company, or EGC, under the Jumpstart Our Business Startups Act of 2012, or JOBS Act, we may delay the adoption of certain accounting standards until such time as those standards apply to private companies. Other exemptions and reduced reporting requirements under the JOBS Act for EGCs include presentation of only two years of audited financial statements in a registration statement for an IPO, an exemption from the requirement to provide an auditor’s report on internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, an exemption from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation, and less extensive disclosure about our executive compensation arrangements.\n\nIn addition, the JOBS Act provides that an EGC can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an EGC to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we can adopt the new or revised standard at the time private companies adopt the new or revised standard and may do so until such time that we either (1) irrevocably elect to “opt out” of such extended transition period or (2) no longer qualify as an emerging growth company. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. We expect to remain classified as an EGC until December 31, 2026.\n\nWe are also a “smaller reporting company,” as defined in the Securities Exchange Act of 1934, as amended, or the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an EGC, in which case we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies."}