Xencor
Annual Report 2018

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549FORM 10‑K(Mark One) ☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2018or☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission file number: 001‑36182Xencor, Inc.(Exact Name of Registrant as Specified in its Charter)Delaware(State or Other Jurisdiction ofIncorporation or Organization)20‑1622502(I.R.S. EmployerIdentification No.)111 West Lemon Avenue, Monrovia, CA(Address of Principal Executive Offices)91016(Zip Code) (626) 305‑5900(Registrant’s Telephone Number, Including Area Code)Securities registered pursuant to Section 12(b) of the Act:Title of Each Class Name of Each Exchange on Which RegisteredCommon Stock, par value $0.01 per share The NASDAQ Stock Market LLC Securities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well‑known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements forthe past 90 days. Yes ☒ No ☐Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 ofRegulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K is not contained herein, and will not be contained, to thebest of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to thisForm 10‑K. ☐Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or anemerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act. Large accelerated filer ☒Accelerated filer ☐Non-accelerated filer ☐Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new orrevised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Securities Exchange Act of 1934). Yes ☐ No ☒The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the commonequity was last sold as of June 30, 2018 was $2,046,791,343The number of outstanding shares of the registrant’s common stock, par value $0.01 per share, as of February 15, 2019 was 56,292,169.DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant’s proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A in connection with theregistrant’s 2019 Annual Meeting of Stockholders, which will be filed subsequent to the date hereof, are incorporated by reference into Part III of this Form 10‑K.Such proxy statement will be filed with the Securities and Exchange Commission not later than 120 days following the end of the registrant’s fiscal year endedDecember 31, 2018. Table of ContentsXencor, Inc.FORM 10‑KFor the Fiscal Year Ended December 31, 2018Table of Contents PagePART I Item 1 Business 4Item 1A Risk Factors 25Item 1B Unresolved Staff Comments 57Item 2 Properties 57Item 3 Legal Proceedings 57Item 4 Mine Safety Disclosures 57PART II Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchasesof Equity Securities 57Item 6 Selected Financial Data 59Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations 60Item 7A Quantitative and Qualitative Disclosures About Market Risk 78Item 8 Financial Statements and Supplementary Data 78Item 9 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 118Item 9A Controls and Procedures 118Item 9B Other Information 119PART III Item 10 Directors, Executive Officers and Corporate Governance 120Item 11 Executive Compensation 120Item 12 Security Ownership of Certain Beneficial Owners and Management and RelatedStockholder Matters 120Item 13 Certain Relationships and Related Transactions, and Director Independence 120Item 14 Principal Accounting Fees and Services 120PART IV Item 15 Exhibits, Financial Statement Schedules 121Item 16 Form 10-K Summary 125Signatures 126 The Xencor logo is a trademark of Xencor, Inc. XmAb, PDA and Protein Design Automation are also registeredtrademarks of Xencor. All other product and company names are trademarks of their respective companies. References in thisAnnual Report on Form 10-K to “we”, “our”, “us”, “Xencor” or “the Company” refer to Xencor, Inc. 2 Table of Contents PART IForward‑Looking StatementsThis Annual Report on Form 10‑K or this Annual Report, may contain “forward‑looking statements” within themeaning of the federal securities laws made pursuant to the safe harbor provisions of the Private Securities Litigation ReformAct of 1995. We have based these forward‑looking statements largely on our current expectations and projections aboutfuture events and financial trends affecting the financial condition of our business. Forward‑looking statements should not beread as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by,which such performance or results will be achieved. Forward‑looking statements are based on information available at thetime those statements are made and/or management’s good faith belief as of that time with respect to future events, and aresubject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in orsuggested by the forward‑looking statements. Our actual results could differ materially from those anticipated in theseforward‑looking statements as a result of various factors, including those set forth below under Part I, Item 1A, “Risk Factors”in this Annual Report. These statements, which represent our current expectations or beliefs concerning various future events,may contain words such as “may,” “will,” “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate” or other wordsindicating future results. Such statements may include, but are not limited to, statements concerning the following:·the initiation, cost, timing, progress and results of our research and development activities, preclinical studiesand future clinical trials;·our ability to obtain and maintain regulatory approval of our future product candidates, and any relatedrestrictions, limitations, and/or warnings in the label of an approved product candidate;·our ability to obtain funding for our operations;·our plans to research, develop and commercialize our future product candidates;·our strategic alliance partners’ election to pursue development and commercialization;·our ability to attract collaborators with development, regulatory, and commercialization expertise;·our ability to obtain and maintain intellectual property protection for our future product candidates;·the size and growth potential of the markets for our future product candidates, and our ability to serve thosemarkets;·our ability to successfully commercialize our future product candidates;·the rate and degree of market acceptance of our future product candidates;·our ability to develop sales and marketing capabilities, whether alone or with potential future collaborators;·regulatory developments in the United States (U.S.) and foreign countries;·the performance of our third‑party suppliers and manufacturers;·the success of competing therapies that are or become available;·the loss of key scientific or management personnel;·our failure to successfully execute our growth strategy including any delays in our planned future growth;3 Table of Contents·our failure to maintain effective internal controls; and·the accuracy of our estimates regarding expenses, future revenues, capital requirements and need for additionalfinancing.Given these uncertainties, you should not place undue reliance on these forward‑looking statements. Theseforward‑looking statements represent our estimates and assumptions only as of the date of this Annual Report on Form 10‑Kand, except as required by law, we undertake no obligation to update or revise publicly any forward‑looking statements,whether as a result of new information, future events, or otherwise after the date of this Annual Report on Form 10‑K. Wequalify all of our forward‑looking statements by these cautionary statements. Item 1. Business.Our BusinessWe are a clinical‑stage biopharmaceutical company focused on discovering and developing engineered monoclonalantibody and other protein therapeutics to treat severe and life‑threatening diseases with unmet medical needs. We aredeveloping a suite of clinical-stage drug candidates from our proprietary XmAb® technology platforms that are designed totreat cancer, autoimmune and allergic diseases, and other conditions. In contrast to conventional approaches to antibodydesign, which focus on the portion of antibodies that interact with target antigens, our protein engineering efforts and theXmAb technologies are focused on the portion of the antibody that interacts with multiple segments of the immune systemand controls antibody structure. This portion, referred to as the Fc domain, is constant and interchangeable amongantibodies. Our engineered Fc domains, the XmAb technology, can be readily substituted for natural Fc domains.We believe our Fc domains enhance antibody performance by, for example, increasing immune inhibitory activity,improving cytotoxicity, extending circulating half‑life, or stabilizing novel antibody and other protein structures, whilemaintaining 99.5% identity in structure and sequence to natural antibodies. By designing antibodies and other proteinmolecules with improved function, we believe that our XmAb‑engineered proteins offer innovative approaches to treatingdisease and potential clinical advantages over other treatments. In December 2018, the first antibody that incorporates anXmAb technology, ALXN1210, now Ultomiris™, was approved by the United States Food & Drug Administration (FDA) forcommercial marketing. Ultomiris™ is a complement inhibitor indicated for the treatment of adult patients with paroxysmalnocturnal hemoglobinuria (PNH) that was developed by our partner Alexion, and incorporates our Xtend Fc technologywhich allows for a longer duration of action and less frequent dosing regimens compared to the previously approved therapy,Soliris®. Our protein engineering capabilities allow us to continually explore new functionality in the Fc region, whichprovides us with opportunities to:·Identify new technology platforms;·Identify new drug candidates for internal development; and·Provide collaboration and licensing opportunities with partners for access to our technologies, to our drugcandidates, or a combination of both.The most recent expansion of our platform is the XmAb bispecific Fc domains, which enable the rapid design andsimplified development of antibodies and other protein structures that bind two or more different targetssimultaneously. Bispecifics are a rapidly emerging area of biotherapeutics development, particularly in oncology, and weare using our XmAb bispecific Fc domains as a robust scaffold to develop a pipeline of new bispecific antibody and cytokinedrug candidates.4 Table of ContentsOur business strategy is to leverage our bispecific Fc technology and Fc engineering capabilities to develop andadvance a pipeline of oncology candidates. We believe that bispecific technologies and candidates will play a growing rolein the field of oncology, and that our Fc capabilities and technologies position us to be a leader in this field. We will alsocontinue to leverage our other XmAb drug candidates and Fc technologies through partnerships and collaborations.Since we began focusing our efforts in the bispecific field, we have advanced seven bispecific Fc candidates intodevelopment, expanded the functionality of the bispecific Fc technology, and entered into three collaborations with majorpharmaceutical companies that will generate over $300 million in upfront payments. These collaborations provide usopportunities to co-develop drug candidates to leverage our partners’ capabilities and also to potentially earn substantialfuture revenue from potential milestones, royalties, and profit-sharing rights.XmAb Bispecific Fc TechnologyA distinguishing feature of our XmAb technologies is our modular approach to Fc engineering. This provides uswith flexibility to seek out new functionality in the bispecific Fc domain, allows us to design drug candidates with distinctand novel mechanisms-of-action, and also allows for different variable target combinations. This approach is illustratedthrough our expansion of our bispecific Fc platform and the novel candidates that we have designed.CD3 bispecific candidates: the initial bispecific candidates that we designed were created with our engineeredheterodimer Fc domain, or bispecific Fc domain, and are dual-antigen targeting molecules, containing an anti-tumorassociated antigen binding domain and a second binding domain targeted to CD3, an activating receptor on T-cells. Thegoal of the “CD3 bispecific” is to recruit or activate T-cells against the antigen target. We are advancing three CD3 bispecificcandidates through clinical development: XmAb14045, XmAb13676, and XmAb18087.Tumor microenvironment (TME) activator candidates: we expanded the functionality of our bispecific Fc platformwith a suite of tumor microenvironment activators that have been designed to promote tumor-selective T-cell activation bytargeting multiple checkpoints or co-stimulating receptors. These TME activator candidates use our bispecific Fc domainand incorporate our Xtend technology for longer half-life in their design. We are advancing three TME activator candidatesthrough clinical development: XmAb20717, XmAb22841, and XmAb23104.Cytokine candidates: the most recent expansion of our bispecific Fc platform is our novel cytokine candidates.These cytokines are built on our bispecific Fc domain and have potency tuned to improve therapeutic index. Thesecandidates also incorporate our Xtend technology for longer half-life. Our first cytokine candidate is XmAb24306, an IL-15/IL-15Ra cytokine complex built with our bispecific Fc domain. We believe that IL-15 cytokines, like XmAb24306, willbe a promising candidate for oncology combination therapies.We continue to invest in our bispecific Fc engineering efforts to identify additional novel technologies and drugcandidates.Other XmAb Fc TechnologiesOur business, research, and clinical efforts are in developing and advancing our bispecific Fc technology andpipeline of drug candidates in oncology. We have also designed additional Fc technologies and XmAb drug candidates thatwe have partnered with other companies, and we will seek to continue to license and partner to maximize their potential. OurFc domains and technologies include:1.Immune Inhibitor Fc Domain – selective immune inhibition and rapid target clearance, targeting thereceptor FcγRIIb;2.Cytotoxic Fc Domain – increased cytotoxicity, targeting the receptors FcγRIIIa on natural killer (NK) cellsand FcγRIIa on other immune system cells; and3.Xtend™ Fc Domain – extended antibody half-life, targeting the receptor FcRn on endothelial cells.5 Table of ContentsXmAb Bispecific Fc Drug CandidatesThere are currently seven bispecific candidates that have been engineered with our bispecific Fc domain throughclinical or late preclinical development: four candidates are being evaluated in Phase 1 studies, two candidates haveInvestigational New Drug applications (INDs) that have been allowed by the FDA and for which we plan to initiate clinicaltrials in 2019, and one candidate for which we expect to submit an IND application to the FDA in 2019.1.XmAb14045 is a bispecific antibody that targets CD123, an antigen on acute myeloid leukemia (AML)cells and leukemic stem cells, and CD3, a cytotoxic T-cell binding domain. It is being developed incollaboration with our partner Novartis Institutes for BioMedical Research, Inc. (Novartis) and is beingevaluated in a Phase 1 study. In September 2016, we dosed the first patient in an open-label, multiple-dose,dose escalation study to assess the safety, tolerability, and preliminary anti-tumor activity of XmAb14045in patients with relapsed or refractory AML and other CD123-expressing hematologic malignancies.We presented initial data from the study in December 2018 at the American Society of Hematology (ASH)Annual Meeting. The data presented indicated multiple complete remissions had been achieved withweekly dosing of XmAb14045 in this heavily-pretreated patient population. 66 patients withrelapsed/refractory AML received XmAb14045. Patients were a median age of 61 years and were heavilypretreated, having a median of three prior therapies, and 30% (n=20) had a history of allogeneic stem celltransplantation. 86% of patients (n=57) were refractory to their last therapy, and 53% (n=35) werecategorized as adverse risk at diagnosis by the European Leukemia Net system. A maximum tolerated dose(MTD) had not been reached. Cytokine release syndrome (CRS) was the most common toxicity occurringin 55% (n=36) of patients. 6% of patients (n=4) experienced Grade 3 or 4 CRS. CRS was more severe on theinitial dose and was generally manageable with premedication. Additional adverse events consistent withCRS but not reported as such, including chills, fever, tachycardia, hypotension and hypertension within 24hours of infusion, were reported in an additional 29% of patients (n=19). 28% of evaluable patients (5 of18) achieved either complete remission (CR) or CR with incomplete hematologic recovery (CRi) at the twohighest initial dose levels studied (1.3 and 2.3 mcg/kg weekly).In February 2019, we received notice from the FDA placing the XmAb14045 study on partial clinical holddue to safety issues of cytokine release syndrome and pulmonary toxicities. Under the partial hold, existingsubjects on the trial may continue to receive dosing; however, no new subjects may be enrolled pendingFDA review of a clinical hold response.The partial hold was initiated following recent safety reports Xencor submitted to the FDA on two patientdeaths that were considered at least possibly related to XmAb14045. One patient experienced cytokinerelease syndrome (CRS) after their first dose, the treatment of which was complicated by the patient’sdecision to withdraw care. One subject developed acute pulmonary edema following several doses ofXmAb14045. Items to be addressed in the response include analysis of CRS cases per dosing level, efficacyinformation, and strategies to mitigate the observed toxicities. We are coordinating a response to the partial hold by the FDA with our partner, Novartis, and plan tocontinue development of XmAb14045 pending resolution of the partial hold.2.XmAb13676 is a bispecific antibody that targets CD20, an antigen on B-cell tumors, and CD3 for thetreatment of B-cell malignancies. In February 2017, we dosed the first patient in an open-label, Phase 1,multiple-dose, dose escalation study to assess the safety, tolerability, and preliminary anti-tumor activity ofXmAb13676 in patients with B-cell malignancies. This program was also partnered with Novartis as part ofour Novartis collaboration. In December 2018, as part of a strategic pipeline reprioritization, Novartisnotified us of its decision to return its rights to develop and commercialize XmAb13676, which is effectiveJune 21, 2019. We intend to continue development of XmAb13676 as planned, and we expect to presentinitial data from the Phase 1 study in the second half of 2019.6 Table of Contents3.XmAb18087 is a bispecific antibody oncology candidate that targets somatostatin receptor 2, or SSTR2, atarget on neuroendocrine tumors (NET) and gastrointestinal stromal tumors (GIST), and CD3, an activatingreceptor on T-cells. In February 2018, we dosed the first patient in an open-label, Phase 1, dose-escalationstudy to assess the safety, tolerability, and preliminary anti-tumor activity of XmAb18087 in patients withNET or GIST. XmAb18087 is our first CD3 bispecific antibody to be evaluated in solid tumors. We expectto provide initial data from this study in the second half of 2019.4.XmAb20717 is a bispecific antibody that targets PD-1 and CTLA-4, two immune checkpoint receptors, toselectively activate the tumor microenvironment, and is being developed for broad oncology indicationsincluding patients with solid tumors. In July 2018, we dosed the first patient in an open-label Phase 1 dose-escalation study to assess the safety, tolerability, and preliminary anti-tumor activity of XmAb20717 inpatients with selected solid tumors. We expect to provide initial data from this study in the second half of2019. 5.XmAb22841 is a bispecific antibody that targets CTLA-4 and LAG-3, also an immune checkpoint receptor,and is being developed for multiple indications. We intend to advance XmAb22841 in combination withan anti-PD-1 drug to create a triple checkpoint blockade. The FDA approved our IND application for thisdrug candidate in November 2018. We plan to dose patients in an open-label, Phase 1, dose-escalationstudy to assess the safety, tolerability, and preliminary anti-tumor activity of XmAb22841 in patients withselected solid tumors, and we plan to dose the first patient in the first half of 2019.6.XmAb23104 is a bispecific antibody that targets PD-1 and ICOS, an immune co-stimulatory receptor, and isbeing developed for multiple oncology indications. The FDA approved our IND application for this drugcandidate in October 2018. We plan to dose patients in a an open-label, Phase 1, dose-escalation study toassess the safety, tolerability, and preliminary anti-tumor activity of XmAb23104 in patients with selectedsolid tumors, and we plan to dose the first patient in the first half of 2019.7.XmAb24306 is an IL15/IL-15-receptor alpha complex fused to our bispecific Fc domain and incorporatesour Xtend technology for extended half-life. We believe a broad combination development strategy will becritical to realize the potential of IL-15 cytokines. In February 2019, we entered into a research and licenseagreement with Genentech, Inc. and F. Hoffmann-LaRoche Ltd. (collectively Genentech), to develop andcommercialize novel IL-15 cytokine therapeutics, whereby the companies will co-develop XmAb24306and other potential IL-15 programs. XmAb24306 is conducting IND-enabling studies and Xencor willsupport Genentech’s efforts to submit an IND for this candidate in the second half of 2019.XmAb Immune Inhibitor Fc CandidatesWe have developed two clinical candidates using our Immune Inhibitor Fc Domain:XmAb5871 uses our XmAb Immune Inhibitor Fc Domain and targets CD19 with its variable domain, which isdesigned to inhibit the function of B cells, an important component of the immune system. We believe that XmAb5871 hasthe potential to address a key unmet need in autoimmune diseases due to its combination of potent reversible B-cellinhibition without B-cell depletion, enabling the immune system to resume natural function once treatment is no longerneeded. We have completed Phase 2 clinical trials for XmAb5871 in three autoimmune disease areas: Systemic LupusErythematosus (SLE), IgG4-Related Disease (IgG4-RD), and Rheumatoid Arthritis (RA).SLE: in order to assess the effect of XmAb5871 on SLE disease activity in a shorter timeframe and enrolling fewerpatients than standard SLE trials, we completed a Phase 2 study with a novel design that sought to reduce the confoundingeffects of background immunosuppressive medication.7 Table of ContentsThe randomized, double-blind, placebo-controlled, Phase 2 study enrolled 104 patients with moderate to severe,non-organ threatening SLE across 20 sites in the United States. Patients discontinued background immunosuppressivemedication and received a short course of intramuscular steroids to quiet SLE disease activity. Patient lupus activity wasevaluated using the SLE Disease Activity Index (SLEDAI) and the British Isles Lupus Activity Group (BILAG) scoring.Patients achieving the required disease activity improvement (SLEDAI decrease ≥4 points, or ≥1 grade decrease in ≥1 BILAGA or B score) were randomized 1:1 to receive XmAb5871 (n = 52) or placebo (n = 52) every 14 days for up to 16 doses.In October 2018, we presented topline data from the study at the American College of Rheumatology (ACR) annualmeeting. The primary endpoint of the study was the proportion of patients with no loss of improvement (LOI) (i.e.,maintenance of improvement) in the efficacy-evaluable population, defined as those who completed Day 225, had LOI, ordiscontinued due to a drug-related adverse event. LOI was defined as a SLEDAI increase ≥4 points or a new BILAG A or Bscore and physician intent to treat with rescue medication. Improvement was maintained at Day 225 by 42% of patients(21/50) in the XmAb5871-treated arm, compared to 28.6% of patients (12/42) in the placebo-treated arm, which did not meetthe primary endpoint for statistical significance (p = 0.18). The efficacy-evaluable population excludes 10/52 (19%) placebopatients and 2/52 (4%) XmAb5871-treated patients who withdrew from the study for reasons other than LOI or adverse event.These exclusions resulted in higher placebo response rates compared to the intent-to-treat (ITT) population. In the ITTpopulation, improvement was maintained by 40.4% of patients (21/52) in the XmAb5871-treated arm, compared to 23.1% ofpatients (12/52) in the placebo-treated arm which results in an improved statistical significance (p = 0.06).Secondary endpoints included evaluations of time to LOI and safety and tolerability of XmAb5871. Patients in theefficacy-evaluable population treated with XmAb5871 experienced a statistically significant longer time to LOI (median =230 days, hazard ratio = 0.53, p = 0.025), compared to placebo-treated patients (median = 131 days), a 76% improvement inmedian time to LOI and a 47% reduction in risk of LOI. XmAb5871 was well tolerated, and its safety profile was consistentwith previous trials.IgG4-RD: In November 2017, we presented final data from a Phase 2 study of XmAb5871 in patients with IgG4-RDat the ACR annual meeting for the 15 patients that had been enrolled and received one or more doses of 5 mg/kg ofXmAb5871. The data indicated that XmAb5871 was well tolerated by patients receiving drug in the study. Three patientshad minor, transient gastrointestinal side-effects during the first infusion; all completed the study. Two serious adverseevents (SAEs) unrelated to XmAb5871 were observed in one patient, pneumonia and recurrence of pneumonia due to non-compliance with antibiotic therapy (patient completed study). All other XmAb5871-related adverse events (AEs) were gradedas mild or moderate, and no treatment related AE was reported in more than two patients. Three patients discontinued thestudy early.12 of the 15 patients (80%) completed the trial and all 12 achieved the primary endpoint of at least a 2-pointreduction in IgG4-RD Responder Index (RI) on day 169. None of the 12 required corticosteroids (CS) after month two. Eightpatients achieved remission (IgG4-RD RI of zero and no CS after two months) and the other four patients achieved an IgG4-RD Responder Index score of <=4 at Day 169. 14 of 15 patients (93%) achieved a decrease of ≥ 5 in the IgG4-RD RI.In May 2017, we received Orphan Drug designation from the FDA for XmAb5871 for the treatment of IgG4-RD. InJanuary 2018, we received Orphan Medicinal Product designation from the European Commission.RA: In June 2015, we announced results from a Phase 1b/2a placebo-controlled trial of XmAb5871 in patients withrheumatoid arthritis (RA). The results indicated that XmAb5871 was generally well tolerated. Although the trial was notdesigned to observe a statistically significant difference in efficacy results between XmAb5871 and placebo treated patients,sufficient efficacy trends were seen to warrant continued clinical development of XmAb5871 in autoimmune indications. Anumerically increased proportion of patients with improvements across several measurements of disease activity wereobserved in the XmAb5871 treated groups compared to placebo.8 Table of ContentsSubcutaneous bioequivalence: In October 2016, we completed a Phase 1 bioequivalence trial for XmAb5871 usinga subcutaneous (SC) formulation. XmAb5871 had a favorable safety profile and was well-tolerated. Pharmacokinetics andbioavailability data from the trial support an every-other-week dosing schedule, and we expect that further clinical studieswill be conducted with XmAb5871 in a SC formulation.We believe that the clinical trials that we have conducted with XmAb5871 show the potential of this molecule intreating B-cell mediated autoimmune indications. We are looking to continue developing XmAb5871 in additional late-stage clinical trials with a partner that has the resources and infrastructure to maximize the potential of this compound.XmAb7195 uses our Immune Inhibitor Fc Domain and targets IgE with its variable domain, and this drug candidateis being developed for the treatment of severe asthma and allergic diseases. XmAb7195 uses three distinct mechanisms ofaction to reduce blood serum levels of IgE, which mediates allergic responses and allergic disease. In January 2015, we reported top-line interim data from Part 1 of the Phase 1a trial of XmAb7195, in which healthyvolunteers received a single intravenous (IV) dose. In 2015, we continued the Phase 1a trial of XmAb7195, treating subjectswith high baseline IgE levels, and in June 2015, we announced an expansion of the trial, adding cohorts of subjects thatreceive two IV doses of XmAb7195. We announced complete data from these studies in May 2016.In September 2016, we initiated a multi-dose Phase 1b trial for XmAb7195 with a SC formulation. The first part ofthis study was an open-label bioequivalence trial evaluating four once-weekly doses of SC XmAb7195 ranging from 0.1 to1.0 mg/kg in cohorts of six healthy volunteers. The second part of the trial, which we began in October 2016, was arandomized, double-blinded, placebo-controlled multiple-ascending dose study in atopic patients of SC XmAb7195 at dosesof 1.5 and 2.0 mg/kg. Half-life of SC XmAb7195 ranged from 3.6 - 4.9 days, comparable to the previously reported half-lifeof 3.9 days of intravenously administered XmAb7195. Bioavailability after the fourth dose exceeded 50%, which is typicalfor monoclonal antibodies, and drug concentration levels increased with successive doses.SC administration of XmAb7195 was well tolerated. No severe AEs or serious treatment-emergent AEs occurredduring the study. The most frequently occurring treatment-emergent AEs were injection-site related, including erythema,pruritus and/or urticaria, and most were mild. No diffuse urticaria or other systemic hypersensitivity reactions were reported.No apparent consistent effect of SC XmAb7195 on platelet count was seen when dosed at 0.1 - 1.0 mg/kg weekly for fourweeks. At 1.5 - 2.0 mg/kg weekly for four weeks mild platelet count reductions were observed. Four of 15 patients in the 2.0mg/kg group had at least one platelet count of less than 150 x 103/mL at some time point. The lowest count observed was126 x 103/mL, and a recovery to within normal range occurred within a few days of the doses. In 23 of 27 (85%) subjects with detectable baseline free IgE (≥ 9.59 ng/mL) (median 76.2 ng/mL, range: 17.4-846ng/mL), treated with four weekly SC XmAb7195 doses of 0.3 to 2.0 mg/kg, free IgE was suppressed to below the level ofquantification (BLQ) at some time point during the treatment period. In 20 of the 27 (74%) subjects, once suppression of freeIgE to BLQ was observed, BLQ values were maintained for the remainder of the treatment period and for at least seven daysfollowing the last dose. Similarly, in the subgroup of atopic subjects, 14 of 14 (100%) subjects with detectable baseline freeIgE (median 150.0 ng/mL, range: 46.4-846 ng/mL) treated with four weekly SC XmAb7195 doses of 1.5 to 2.0 mg/kg, freeIgE was suppressed to BLQ at some time point during the treatment period. In 12 (86%) atopic subjects, once suppression offree IgE to BLQ was observed, BLQ values were maintained for the remainder of the treatment period and for at least sevendays following the last dose.9 Table of ContentsIn 28 of 31 (90%) subjects with detectable baseline total IgE (≥ 2.0 IU/mL) (median 68.1 IU/mL, range: 7.13-736IU/mL) treated with four weekly SC XmAb7195 doses of 0.3 to 2.0 mg/kg, total IgE was suppressed to BLQ at some timepoint during the treatment period. In the other three subjects, total IgE levels were reduced to < 1% of baseline values. In 23of 28 (82%) subjects, once suppression of total IgE to BLQ was observed, BLQ values were maintained for the remainder ofthe treatment period and for at least seven days following the last dose. Similarly, in the subgroup of atopic subjects, 12 of 14(86%) subjects with detectable baseline total IgE (median 153.5 IU/mL, range: 38.9-736.0 IU/mL) treated with four weeklySC XmAb7195 doses of 1.5 to 2.0 mg/kg, total IgE was suppressed to BLQ at some time point during the treatment period. Inthe other two atopic subjects, total IgE levels were reduced to < 1% of baseline values. In eight of 12 (67%) subjects oncesuppression of free IgE to BLQ was observed, BLQ values were maintained for the remainder of the treatment period and forat least seven days following the last dose. In three of the other four atopic subjects that had suppression of total IgE level toBLQ, subsequent total IgE levels through seven days after the fourth dose were < 2% of baseline values.These results support SC delivery for future development, and pharmacokinetic/pharmacodynamic modeling isproceeding to determine the optimal dosing schedule. Xencor is seeking a partner for continued development of XmAb7195.CollaborationsAn important part of our business strategy is to leverage the value of our bispecific Fc technologies and drugcandidates with partnerships and collaborations. Our goal in such partnerships is to a retain a major economic interest in drugcandidates that we develop or, are developed with our bispecific technologies, in the form of retention of U.S. commercialrights, profit-sharing interest, co-development opportunities, upfront payments, milestones, and potential royalties onapproved drug candidates. We seek to partner with companies that can provide infrastructure for late stage development,have a track record of developing and commercializing oncology drug candidates, or have a pipeline of development andcommercial compounds for potential combination with our bispecific compounds. The plug-and-play nature of ourtechnologies allows us to license access to our bispecific Fc platform to partners with limited effort or resources on our part.We are co-developing two of our current drug candidates with partners, another partner has advanced into development twocandidates that have been designed using our bispecific Fc technology, and there are others in preclinical development.Our bispecific collaborations include: Genentech In February 2019, we entered into a research and license agreement with Genentech (the Genentech Agreement) todevelop and commercialize novel IL-15 cytokine therapeutics that use our bispecific Fc technology, including XmAb24306,and other Collaboration Products, in the areas of cancer immunotherapy. We will jointly collaborate on the worldwidedevelopment of XmAb24306 and other IL-15 cytokine therapeutics, each a Collaboration Product, with Genentechmaintaining worldwide commercialization rights, subject to us having a co-promotion option in the U.S. We retained theright to perform clinical studies of Collaboration Products in combination with other therapeutic agents, subject to certainrequirements. Genentech received a worldwide exclusive license to XmAb24306 and other Collaboration Products. The keyaspects of the agreement include:·We will receive an upfront payment of $120 million and are eligible to receive up to $160 million inclinical milestone payments for each Collaboration Product that advances to Phase 3 clinical trials,·We are eligible to receive a 45% share of net profits from sales of XmAb24306 and Collaboration Products,while also sharing in the net losses at the same percentage rate,·We will jointly share in 45% of development and commercialization costs, while Genentech will pay forcommercial launch costs, and10 Table of Contents·We will conduct a two-year joint research program with Genentech to discover additional programs aroundthe IL-15 cytokine technology and will receive a $20 million milestone payment upon the initiation ofeach Phase 1 clinical trial for each new Collaboration Product developed under a research plan. The Genentech Agreement is subject to customary closing conditions, including clearance under the Hart-Scott-Rodino Antitrust Improvements Act, and closing is expected to occur in the first quarter of 2019.We believe that the Genentech collaboration maximizes the potential value of our XmAb24306 candidate and otherpotential Collaboration Products. Novartis In June 2016, we entered into a Collaboration and License Agreement (the Novartis Agreement) with Novartis todevelop and commercialize bispecific and other Fc engineered antibody drug candidates. Key aspects to the agreementinclude:·We received a $150 million upfront payment and are eligible to receive up to $2.1 billion in milestonepayments,·We granted Novartis certain exclusive rights to research, develop and commercialize XmAb14045 andXmAb13676, our two lead bispecific clinical candidates. In December 2018, Novartis returned all theirrights to XmAb13676 to us,·We are eligible to receive up to $325 million in milestone payments in connection with the developmentof XmAb14045, including $90 million in development milestones, $110 million in regulatory milestones,and $125 million in sales milestones. We are also eligible to receive low double-digit royalties on sales ofapproved products in all territories outside the United States (ex-U.S. rights). We retained thecommercialization rights to all XmAb14045 candidates in the U.S., ·We and Novartis are co-developing XmAb14045 worldwide and sharing development costs equally.Novartis is also obligated to fund its share of development costs for XmAb13676 through June 2020,·We will also apply our bispecific technology to up to four target pair antibodies selected by Novartis, ifsuch target pairs are available for exclusive license to Novartis and are not subject to a Xencor internalprogram. Novartis will assume full responsibility for development and commercialization of each productcandidate under each of these global discovery programs. Assuming successful development andcommercialization of each global discovery program compound, we could receive up to $250.0 million inmilestone payments for each global discovery program which includes $50.0 million in developmentmilestones, $100.0 million in regulatory milestones, and $100.0 million in sales milestones. Ifcommercialized, we are eligible to receive mid-single digit royalties on global net sales of approvedproducts,·We have the right to participate in the development and commercialization of one of the global discoveryprograms prior to submission of an IND for such program. If we elect to participate in development, we willassume responsibility for 25% of the worldwide development costs for the program and 50% ofcommercialization costs, and will receive 50% of the U.S. profits on net sales of the product,·We completed delivery of one bispecific antibody candidate for a global discovery program in 2017 andone bispecific antibody candidate for a global discovery program in 2018 and11 Table of Contents·We also granted Novartis a non-exclusive research license to certain of our Fc technologies, specificallyCytotoxic, Xtend, and Immune Inhibitor Fc domains to research, develop, commercialize and manufactureantibodies against up to 10 targets selected by Novartis, if such targets are available for non-exclusivelicense and not subject to a Xencor internal program. For each program that is advanced into development,we are eligible to receive up to $76 million in milestone payments and also low single-digit royalties onglobal net sales of approved products. Amgen In September 2015, we entered into a research and license agreement with Amgen, Inc. (Amgen) (the AmgenAgreement) to develop and commercialize products using our bispecific technology. Under the Amgen Agreement, welicensed the rights to our internally developed, preclinical CD38 x CD3 bispecific antibody candidate to Amgen and alsoagreed to apply our bispecific technology to five previously identified Amgen antibodies. We have received $55.5 million inupfront payments and milestone payments, and are eligible to receive up to an additional $600 million in milestonepayments and royalties on approved products. Amgen is responsible for all development of the bispecific candidates underthe Amgen Agreement. Current programs in development from the Amgen collaboration include:·AMG424, a bispecific antibody that targets CD38 and CD3 and is in clinical development for multiplemyeloma. The program is currently in a Phase 1 clinical study, and we are eligible to receive up to $345million in milestones payments and royalties from high-single to low-double digit percentages on the saleof approved products from this program, and·AMG509, a bispecific antibody that is being developed for prostate cancer and is currently in preclinicaldevelopment. We are eligible to receive up to $260 million in milestone payments and tiered royalties inthe mid-to high-single digit percentages on the sale of approved products. XmAb Licensing and Technology PartnershipsThere are currently four partnerships with XmAb candidates in development. Alexion In 2013 we licensed Alexion Pharmaceuticals, Inc. (Alexion) the right to access our Xtend Fc domain and Alexionincorporated it in developing Ultomiris, an improved version of Alexion’s commercialized Soliris product. The Xtendtechnology has increased the half-life of Ultomiris by over three fold compared to Soliris and extended the dosing scheduleto bimonthly for Ultomiris compared to biweekly for Soliris.In 2018, Alexion submitted marketing authorization applications for Ultomiris to the regulatory authorities in theU.S., Europe and Japan; for the treatment of adult patients with paroxysmal nocturnal hemoglobinuria (PNH), and inDecember 2018, Alexion received FDA approval. During 2018, we received $20.0 million in milestone payments from thispartnership and to date we have received a cumulative total of $37.5 million in milestone and upfront payments. We areeligible to receive up to an additional $38.0 million in regulatory and sales milestones, and royalties on the sale of approvedproducts in the low single-digit percent range. MorphoSys In June 2011 we entered into a collaboration and license agreement (the MorphoSys Agreement) with MorphoSysAG (MorphoSys) to license the worldwide rights to XmAb5574 (now known as MOR208). MOR208 is an antibody drugcandidate originally developed by us and it incorporates our XmAb cytotoxic Fc domain. 12 Table of ContentsMorphoSys is currently conducting Phase 3 clinical trials of MOR208 in patients with non-Hodgkin lymphomas(NHL) and a Phase 2 clinical trial in chronic lymphocytic leukemia (CLL). MorphoSys has indicated that it has receivedBreakthrough Therapy designation from the FDA for targeting diffuse large B-cell lymphoma (DLBCL) in combination withlenalidomide. MorphoSys has indicated it will be submitting MOR208 for regulatory approval in 2019. We have received a total of $28.5 million in upfront and milestone payments under the MorphoSys Agreement andwe are eligible to receive additional milestones for development of the MorphoSys compounds in oncology and additionalmilestones for development of compounds in different indications. Total additional milestones for MorphoSys compoundscurrently in development total $111 million which include: $6 million in development milestones, $55 million in regulatorymilestones, and $50 million of aggregate milestone payments for the achievement of certain product sales goals. If licensedproducts are commercialized, we are entitled to receive tiered royalties in the high single‑digit to low‑double digit percentrange.The term of this agreement will continue until all of MorphoSys’ royalty payment obligations have expired unlessterminated earlier. CSLIn February 2009, we entered into a research license and commercialization agreement (CSL Agreement) with CSLLimited (CSL) in which we provided CSL with a research license to our cytotoxic Fc technology and options to non-exclusive commercial licenses. CSL elected to exercise one commercial license for a compound, CSL362.In 2013 CSL sublicensed CSL362 to Janssen Biotech Inc. (Janssen Biotech). In August 2015, CSL, through itssublicensee, Janssen Biotech, initiated a Phase 2 clinical trial for CSL362. In March 2017, Janssen Biotech initiated a Phase3 trial for CSL362 and we received a milestone payment of $3.5 million. In July 2017, Janssen discontinued the Phase 3 trialfor CSL362 and returned the compound to CSL. Boehringer IngelheimIn February 2007, we entered into a research and option agreement (BI Agreement) with Boehringer IngelheimInternational GmbH (BI). Under the terms of the BI Agreement we provided a research license to our XmAb cytotoxictechnology and options to non-commercial licenses. BI elected to take options to two licenses and there is currently onecompound in a Phase 1 clinical trial. NIHIn January 2016, we announced that the National Institutes of Health (NIH) initiated a Phase 1 clinical trial ofVRC01LS, a therapeutic antibody for the treatment of human immunodeficiency virus (HIV) that uses our Xtend technologyto enhance antibody half-life. VRC01LS is a humanized monoclonal antibody targeted to the CD4 binding site of HIV-1.VRC01LS is a modification of the VRC01 monoclonal antibody, which demonstrated a suppression of HIV viral load in aPhase 1 trial conducted by NIH. NIH has not entered into an agreement with us for this technology.13 Table of ContentsOur StrategyOur goal is to become a leading biopharmaceutical company focused on developing and commercializingengineered monoclonal antibodies and other proteins in oncology to treat patients with severe and life-threatening diseaseswith unmet medical needs. Key elements of our strategy are to:1.Advance the clinical development of our bispecific Fc domain development candidates. Our XmAb bispecifictechnology allows us the opportunity to rapidly develop multiple antibody drug candidates with dual targetingmechanisms for the treatment of various cancers including solid tumors. We have initiated Phase 1 trials for fourbispecific oncology candidates, XmAb14045, XmAb13676, XmAb18087, and XmAb20717, and we will beinitiating Phase 1 clinical trials for two candidates, XmAb23014 and XmAb22841, in the first half of 2019. Weare in preclinical development for our first bispecific Fc domain cytokine candidate, XmAb24306, and plan tosubmit an IND for this candidate in the second half of 2019. 2.Build a large and diversified portfolio of product candidates. We aim to create new XmAb-engineered antibodyproduct candidates that exploit the novel properties of our XmAb technology platform for preclinical and clinicaldevelopment by us or, if appropriate, license certain candidates to leading pharmaceutical and biotechnologycompanies.3.Continue to monetize and expand the use of our XmAb technology platform. We continuously seekopportunities to maximize the value of our XmAb technologies and will selectively license access to certain ofthe technologies to leading pharmaceutical and biotechnology companies for use in their proprietary programs. In2019, we announced a collaboration agreement with Genentech and we are eligible to receive an upfront paymentof $120 million, milestone payments of $160 million per program developed under the agreement, and a 45%share of net profits on global net sales of products. In 2016, we received $150 million upfront in connection withthe Novartis Agreement and are eligible to receive up to $2.41 billion in potential milestone payments. In 2018,we received $20 million in milestone payments from our partner Alexion.4.Broaden the functionality of our XmAb technology platform. We are conducting further research into thefunction and application of antibody Fc domains in order to expand the scope of our XmAb technology platform.Our bispecific technology, which uses our heterodimeric Fc domain enabling molecules with dual target binding,is an example of the expanding functionality of our XmAb technology platform. We expanded the functionalityof the bispecific platform with the development of a series of tumor microenvironment (TME) activator drugcandidates and the first bispecific Fc domain cytokine candidate, XmAb24306. Both the TME activator andcytokine candidates incorporate our Xtend Fc technology for longer duration of action.5.Continue to expand our patent portfolio protecting our XmAb technology platform. We seek to expand andprotect our development programs and product candidates by filing and prosecuting patents in the United Statesand other countries.Our Research and Development PipelineWe have used our XmAb Fc platforms and antibody optimization capabilities to produce a growing pipeline of drugcandidates in clinical and preclinical development. These include multiple oncology candidates using our bispecific Fcdomain, including CD3 candidates, TME activator checkpoint, and cytokine candidates, and drug candidates using ourimmune inhibitor Fc domain. We will continue to progress these candidates as additional options for clinical developmentby us or as out‑licensing opportunities. We also from time to time in-license antibody technologies and compounds fromother companies which we believe may allow us to create potential product candidates by incorporating our XmAbtechnology. These licenses may require us to pay up-front fees, development and commercial milestone payments, and ifcommercial products are approved, royalties on net sales.14 Table of ContentsMarket OpportunityOur drug candidates that use the XmAb bispecific Fc domain, including XmAb14045, XmAb13676, XmAb18087,XmAb20717, XmAb22841, XmAb23104, and XmAb24306: We are pursuing the development of our bispecific Fccandidates for applications in oncology, whereby the immune system is modulated to treat cancer. Cancer is a broad group ofdiseases in which cells divide and grow in an uncontrolled fashion, forming malignancies that can invade other parts of thebody, and it is the second leading cause of death in the United States (U.S.). The American Cancer Society estimates that in2018 there were approximately 1.7 million new cases of cancer and approximately 609,000 deaths from cancer. The NationalInstitutes of Health (NIH) estimates that based on growth and aging of the U.S. population, medical expenditures for cancer inthe year 2020 are projected to reach at least $158 billion (in 2010 dollars).XmAb5871: We have advanced development of XmAb5871 through Phase 2 trials for SLE, IgG4-RD, and otherautoimmune diseases. The unmet need in SLE remains high for the estimated 240,000 Americans with a lupus diagnosis. SLEis a serious and potentially fatal disease that primarily affects women. It is an autoimmune disease that affects many parts ofthe body, including the joints, skin, kidneys, heart, lungs, blood vessels and brain. Patients are often subject to prolonged useof systemic corticosteroids and potent immunosuppressive agents with significant short and long term side effects. Currentbiologic treatments are limited by their modest efficacy or safety risks. Because B cells play a significant role in SLEpathogenesis, we believe that XmAb5871is a potential treatment. IgG4-RD is a fibro-inflammatory autoimmune disorder thatwe estimate impacts approximately 40,000 patients in the United States. IgG4-RD affects multiple organ systems and webelieve is characterized by the distinct pathologies in diseased organs, frequently including the presence of IgG4-positiveplasma blast cells. There are currently no approved therapies for IgG4-RD and glucocorticoids (hormone steroids) are thecurrent standard of care treatment.XmAb7195: The potential indication for which we are currently pursuing XmAb7195 development is allergicasthma. According to the Centers for Disease Control and Prevention, asthma affects approximately one in 12Americans. More than half of asthma sufferers have at least one attack each year and thousands of people die from asthmaattacks each year. Disease severities cover a wide range, and the treatment landscape is multi-tiered for asthma patients.Patients with mild and moderate asthma are generally well controlled with inhaled corticosteroids and long-acting betaagonists. However, a small percentage of the estimated 25 million asthma patients in the U.S. have severe asthma and arerefractory to high-dose combination therapy. This severe population is commonly treated with oral corticosteroids, which areassociated with many undesirable side effects and are often insufficient to control the disease.Intellectual PropertyThe foundation for our XmAb technology and our product candidates and partnering is the generation andprotection of intellectual property for novel antibody therapeutics. We combine proprietary computational methods foramino acid sequence design with laboratory generation and testing of new antibody compositions. Our design andengineering team prospectively assesses, with patent counsel, the competitive landscape with the goal of building broadpatent positions and avoiding third-party intellectual property.As a pioneer in Fc domain engineering, we systematically scanned the structure of the Fc domain to discover Fcvariants. We have filed patent applications relating to thousands of specific Fc domain variants with experimental data onspecific improvements of immune function, pharmacokinetics, structural stability, and novel structural constructs. We havefiled additional patent applications derived from these applications as we discover new properties of the Fc variants and asnew business opportunities arise. We continually seek to expand the intellectual property coverage of our technology andcandidates, and invest in discovering new Fc domain technologies and antibody product candidates.Our patent estate, on a worldwide basis, includes over 750 issued patents and pending patent applications which weown or for which we have a fully-paid exclusive license, with claims directed to XmAb Fc domains, all of our clinical andpreclinical stage antibodies and our computational protein design methods and platforms. We also have a large number ofissued patents and pending patent applications with claims directed specifically to our XmAb technology and candidates.15 Table of ContentsThe patent expiration in the U.S. and major foreign countries for our key technologies and drug candidates is:Technology Patent ExpiryCytotoxic 2025 U.S.; 2023 Ex-U.S.Immune Inhibitor 2025 U.S.; 2023 Ex-U.S.Xtend 2028 U.S. and Ex-U.S.Bispecific 2033 U.S. and Ex-U.S. Drug candidate Patent ExpiryMOR208 2028 U.S. and Ex-U.S.XmAb5871 2028 U.S. and Ex-U.S.XmAb7195 2031 U.S. and Ex-U.S.XmAb14045 and XmAb13676 2034 U.S. and Ex-U.S.XmAb18087 2037 U.S. and Ex-U.S.XmAb20717, XmAb22841, and XmAb23104 2037-2038 U.S. and Ex-U.S.XmAb24306 2037 U.S. and Ex-U.S. In addition to patent protection, we rely on trade secret protection and know-how to expand our proprietary positionaround our technology and other discoveries and inventions that we consider important to our business. We seek to protectthis intellectual property in part by entering into confidentiality agreements with our employees, consultants, scientificadvisors, clinical investigators, and other contractors and also by requiring our employees, commercial contractors, andcertain consultants and investigators, to enter into invention assignment agreements that grant us ownership of certaindiscoveries or inventions made by them.Further, we seek trademark protection in the United States and in certain other jurisdictions where available andwhen we deem appropriate. We have obtained registrations for the Xencor trademark, as well as certain other trademarks,which we use in connection with our pharmaceutical research and development services and our clinical-stage products,including XmAb, PDA and Protein Design Automation. We currently have registrations for Xencor and PDA in the UnitedStates, Australia, Canada, the European Community, and Japan, for Protein Design Automation in the United States,Australia, Canada and the European Community, and for XmAb in the United States, Australia, and the EuropeanCommunity.ManufacturingWe are able to internally manufacture the quantities of our product candidates required for relatively shortpreclinical animal studies. We believe that this allows us to accelerate the drug development process by not having to rely onthird parties for all of our manufacturing needs. We have adopted a manufacturing strategy of contracting with third partiesin accordance with current good manufacturing practices (cGMPs) for the manufacture of drug substance and product,including our pipeline of bispecific development candidates and also our XmAb5871 and XmAb7195 developmentcandidates. We have used third party manufacturers for all our bispecific Fc candidates which include: XmAb14045,XmAb13676, XmAb18087, XmAb20717, XmAb22841, XmAb23104, and XmAb24306. Additional contract manufacturersare used to fill, label, package and distribute investigational drug products. This allows us to maintain a more flexibleinfrastructure while focusing our expertise on developing our products. XmAb5871 and XmAb7195 are produced bymammalian cell culture of a Chinese hamster ovary cell line that expresses the antibody, followed by multiple purificationand filtration steps typical of those used for monoclonal antibodies. We do not have any long-term manufacturingagreements in place and will ultimately depend on contract manufacturers for the manufacture of our products for commercialsale, as well as for process development. We have successfully completed clinical trials with subcutaneous formulations forboth XmAb5871 and XmAb7195 which have been manufactured with third party contract manufacturers.16 Table of Contents KBI Biopharma, Inc.In July 2014, we entered into a master services agreement (KBI Agreement) with KBI Biopharma, Inc. (KBI). Wehave engaged KBI under the KBI Agreement for process development, clinical scale-up, analytical method development,formulation development, and other services related to drug substance and drug product for our bispecific developmentcandidates: XmAb14045, XmAb13676, XmAb18087, XmAb20717, XmAb22841, XmAb23104, and XmAb24306 inaccordance with cGMP regulations. For each bispecific program, we have entered into a separate agreement with the termsand conditions of services and payment. The KBI Agreement is for a three-year term but is automatically extended on anannual basis until the services are completed. The KBI Agreement may be terminated by either party for a breach that is notremedied within 30 days after notice or 60 days after notice of the existence of an incurable scientific or technical issue thatrenders KBI unable to render services under the KBI Agreement, by after 60 day notice, or in the event of a bankruptcy of aparty. For termination other than a material breach by KBI, we must pay for all services conducted prior to the terminationand to wind down the activities. Cell Line Agreements with SelexisIn December 2015, we entered into a master service agreement (Selexis Agreement) with Selexis SA (Selexis) for themanufacture of Selexis cell lines. Under the terms of the Selexis Agreement, Selexis will manufacture cell lines for theantibody candidates provided by us and upon completion of the cell lines, we have the option to take an unrestrictedcommercial license to the cell line. The terms of each commercial license require us to make payments upon achievement ofcertain development and regulatory milestones and we will also pay royalties based on a percentage of net sales for productsthat are derived from or utilize the Selexis cell line. The royalty percentage is less than 1%.Selexis has manufactured cell lines for all our bispecific Fc drug candidates, and we currently have commerciallicenses to the Selexis cell line for the following bispecific Fc candidates: XmAb14045, XmAb13676, XmAb18087,XmAb20717, XmAb22841, XmAb23104, and XmAb24306.License Agreements with BIO-TECHNEIn February 2015, we entered into a license agreement with BIO-TECHNE Corporation (BIO-TECHNE) for a non-exclusive license to certain antibody technology including monoclonal antibodies which recognize human somatostatinreception 2. The variable domain of this antibody is incorporated in our XmAb18087 drug candidate.Under the terms of this agreement, we made an upfront payment and are obligated to make payments upon theachievement of certain development and regulatory milestones, and royalties based on a percentage of net sales fromproducts that are derived from the XmAb18087 program. The royalty percentage is less than 1%.We entered into a second agreement with BIO-TECHNE effective February 2018 for a non-exclusive license tocertain recombinant monoclonal antibody reactive with human programmed death protein, PD-1 antibody. We expect to usethis protein in certain of our oncology drug candidates.Under the terms of this agreement, we made an upfront payment and are obligated to make payments upon theachievement of certain development, regulatory and sales milestones, and royalties based on a percentage of net sales fromproducts that are derived from the PD-1 antibody. The royalty percent is 1%. Development and Manufacturing and Cell Line Sale Agreements with CatalentIn September 2005, we entered into a development and manufacturing services agreement (the CatalentManufacturing Agreement) with Catalent Pharma Solutions LLC (Catalent). Under the terms of the agreement, Catalent will,from time to time, provide development and manufacturing services for us.17 Table of ContentsWe have also entered into separate cell line sale agreements (Cell Line Agreements) with Catalent for theXmAb5871 and XmAb7195 cell lines. Catalent manufactured the cell lines for the XmAb5871 and XmAb7195 programsusing their proprietary GPEx® technology. Under the Catalent Manufacturing Agreement, we have an unrestricted license tothe GPEx cell lines provided that Catalent is manufacturing drug substance material from the cell line. The Cell LineAgreements allow us to transfer the manufacturing processes for either XmAb5871 or XmAb7195 to a third partymanufacturer. In 2018, we transferred the manufacturing process for XmAb5871 from Catalent to a third party manufacturer.Upon transfer of the XmAb5817 or XmAb7195 cell line to a third party manufacturer, we will be required to makepayments to Catalent based upon the achievement of certain development and regulatory milestones and will also payroyalties based on a percentage of net sales for products that are derived from or utilize the GPEx cell line. The royaltypercentages under each Cell Line Agreement are less than 1.0%. In 2017, we transferred the cell line for XmAb5871 to a thirdparty manufacturer. We have not made any payments under the Cell Line Agreement to date.We have the unilateral right to terminate the Catalent Manufacturing Agreement upon 30 days written notice toCatalent. Absent early termination, the agreement will remain in effect. If we terminate the agreement without cause or ifCatalent terminates the agreement for our material breach of the agreement, our ownership rights in the cell line willautomatically terminate, and title will revert to Catalent. Master Bioprocessing Services Agreement with FUJIFILM Diosynth BiotechnologiesIn June 2017, we entered into a bioprocessing services agreement (FUJI Agreement) with FUJIFILM DiosynthBiotechnologies U.S.A. (FUJI). We have engaged FUJI under the FUJI Agreement for manufacturing and developmentservices related to drug substance for our XmAb5871 program in accordance with cGMP regulations. The FUJI Agreementmay be terminated by either party for a breach or default that is not remedied within 45 days or for an additional 45 days ifsuch cure has commenced by the responsible party but it is unable to cure it within the original 45-day notice period. If suchcure is not completed within the 90-day period, we have the right to terminate the FUJI Agreement. We have the unilateralright to terminate the Agreement upon 30 days written notice to FUJI.CompetitionWe compete in an industry that is characterized by rapidly advancing technologies, intense competition, and astrong emphasis on proprietary products. Our competitors include pharmaceutical companies, biotechnology companies,academic institutions, and other research organizations. We compete with these parties for promising targets forantibody‑based therapeutics, new technology for optimizing antibodies, and in recruiting highly qualified personnel. Manycompetitors and potential competitors have substantially greater scientific, research, and product development capabilities aswell as greater financial, marketing and sales, and human resources than we do. In addition, many specialized biotechnologyfirms have formed collaborations with large, established companies to support the research, development, andcommercialization of products that may be competitive with ours. Accordingly, our competitors may be more successful thanwe may be in developing, commercializing, and achieving widespread market acceptance. In addition, our competitors’products may be more effective or more effectively marketed and sold than any treatment we or our development partnersmay commercialize, and may render our product candidates obsolete or noncompetitive before we can recover the expensesrelated to developing and commercializing any of our product candidates.Competition in the field of cancer drug development is intense, with more than 250 compounds in clinical trials bylarge multinational pharmaceutical companies. We are aware of companies with competing bispecific technologies includingAmgen, MacroGenics, Inc. (MacroGenics), Merus, Inc., Regeneron Pharmaceuticals, Inc., F. Hoffmann-LaRoche Ltd.(Roche), Genentech, and Zymeworks, Inc. Several companies have competing bispecific molecules as both Roche andRegeneron have CD20 x CD 3 candidates in Phase 1 development and MacroGenics has a CD123 x CD3 bispecific antibodyin clinical development . The field of oncology has multiple large pharmaceutical companies with competing oncologyprograms including Bristol Myers-Squib, Merck & Co., and Roche. In addition, we are aware of a number of other companieswith development stage programs that may compete with the drug candidates we and our licensees are developing in thefuture. We anticipate that we will face intense and increasing competition as new treatments enter the market and advancedtechnologies become available.18 Table of ContentsRegulatory OverviewOur business and operations are subject to a variety of U.S. federal, state and local and foreign supranational,national, provincial and municipal laws, regulations and trade practices. The FDA and comparable regulatory authorities instate and local jurisdictions and in other countries impose substantial and burdensome requirements upon companiesinvolved in the clinical development, manufacture, marketing, and distribution of drugs and biologics. These agencies andother federal, state and local entities regulate research and development activities and the testing, manufacture, qualitycontrol, safety, effectiveness, labeling, storage, recordkeeping, approval, advertising and promotion, and export and importof our product candidates.U.S. Government RegulationU.S. Drug Development ProcessIn the United States, the FDA regulates drugs and biologic products under the Federal Food, Drug and Cosmetic Act(FDCA), its implementing regulations, and other laws including, in the case of biologics, the Public Health Service Act. Ourantibody product candidates are subject to regulation by the FDA as a biologic. Biologics require the submission of aBiologics License Application (BLA) to the FDA and approval of the BLA by the FDA before marketing in the United States.The process of obtaining regulatory approvals for commercial sale and distribution and the subsequent compliance withapplicable federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financialresources. Failure to comply with the applicable requirements at any time during the product development process, approvalprocess or after approval, may subject an applicant to administrative or judicial civil or criminal sanctions. These sanctionscould include the FDA’s refusal to approve pending applications, license suspension or revocation, withdrawal of anapproval, imposition of a clinical hold on clinical trials, warning letters, product recalls, product seizures, total or partialsuspension of production, or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement orcivil and/or criminal penalties. The process required by the FDA before a biologic may be marketed in the United Statesgenerally involves the following:1.completion of preclinical laboratory tests, animal studies, and formulation studies performed in accordancewith the FDA’s current Good Laboratory Practices (GLP) regulations;2.submission to and acceptance by the FDA of an IND which must become effective before human clinical trialsin the United States may begin;3.performance of adequate and well‑controlled human clinical trials in accordance with the FDA’s current goodclinical practices (GCP) regulations to establish the safety and efficacy of the product candidate for its intendeduse;4.submission to and acceptance by the FDA of a BLA;5.satisfactory completion of an FDA inspection (if the FDA deems it as a requirement) of the manufacturingfacility or facilities where the product is produced to assess compliance with the FDA’s cGMP regulations toassure that the facilities, methods, and controls are adequate to preserve the product’s identity, strength, quality,and purity;6.potential audits by the FDA of the nonclinical and clinical trial sites that generated the data in support of theBLA;7.potential review of the BLA by an external Advisory Committee to the FDA, whose recommendations are notbinding on the FDA; and8.FDA review and approval of the BLA prior to any commercial marketing or sale.19 Table of ContentsBefore testing any compounds with potential therapeutic value in humans, the product candidate enters thepreclinical testing stage. Preclinical tests include laboratory evaluations of product chemistry, stability, and formulation, aswell as animal studies to assess the potential toxicity and activity of the product candidate. Clinical trials involve theadministration of the product candidate to human patients under the supervision of qualified investigators, generallyphysicians not employed by or under the clinical trial sponsor’s control. Clinical trials are conducted under protocolsdetailing, among other things, the objectives of the clinical trial, dosing procedures, subject selection and exclusion criteria,and the parameters to be used to monitor subject safety and effectiveness. The FDA or responsible Institutional Review Boardmay place a trial on hold at any time related to perceived risks to patient safety.1.Phase 1. The product candidate is initially introduced into a limited population of healthy human subjects, orin some cases, patients with the disease for which the drug candidate is intended, and tested for safety, dosagetolerance, absorption, metabolism, distribution, and excretion. In the case of some products for some diseases,or when the product may be too inherently toxic to ethically administer to healthy volunteers, the initial humantesting is often conducted in patients with the disease or condition for which the product candidate is intendedto gain an early indication of its effectiveness.2.Phase 2. The product candidate is evaluated in a limited patient population (but larger than in Phase 1) toidentify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product forspecific targeted indications, and to assess dosage tolerance, optimal dosage, and dosing schedule.3.Phase 3. Clinical trials are undertaken to further evaluate dosage and provide substantial evidence of clinicalefficacy and safety in an expanded patient population (such as several hundred to several thousand) atgeographically dispersed clinical trial sites. Phase 3 clinical trials are intended to establish the overallrisk/benefit ratio of the product and provide an adequate basis for product labeling. Generally, two adequateand well‑controlled Phase 3 clinical trials are required by the FDA for approval of a BLA.Concurrent with clinical trials, companies usually complete additional animal studies and must also developadditional information about the chemistry and physical characteristics of the biologic and finalize a process formanufacturing the product in commercial quantities in accordance with cGMP requirements.U.S. Review and Approval ProcessesThe results of product development, preclinical studies and clinical trials, along with descriptions of themanufacturing process, analytical tests, proposed labeling, and other relevant information are submitted to the FDA in theform of a BLA requesting approval to market the product for one or more specified indications. The standard time for theFDA to accept a BLA filing is two months.If the FDA determines that the BLA is substantially complete, it will accept the BLA for filing. Once accepted for filing, the FDA reviews the BLA to determine, among other things, whether the proposed productis safe and effective for its intended use, and whether the product is being manufactured in accordance with cGMP to assureand preserve the product’s identity, strength, quality, and purity, and it may inspect the manufacturing facilities to assurecGMP compliance and clinical sites used during the clinical trials to assure cGMP compliance. The standard FDA reviewprocess is 10 months once a BLA is accepted for review but it can take longer. During the review process, the FDA also willdetermine whether a risk evaluation and mitigation strategy (REMS) is necessary to assure the safe use of the product. If theFDA concludes a REMS is needed, the sponsor of the BLA must submit a proposed REMS prior to approval. A REMS cansubstantially increase the costs of obtaining approval. In addition, under the Pediatric Research Equity Act, a BLA orsupplement to a BLA must contain data that are adequate to assess the safety and effectiveness of the product for the claimedindications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatricsubpopulation for which the product is safe and effective. The FDA may, on its own initiative or at the request of theapplicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, orfull or partial waivers from the pediatric data requirements.20 Table of ContentsThe FDA will issue a complete response letter describing deficiencies in the BLA and recommend actions if theagency decides not to approve the BLA. The applicant will have to address all of the deficiencies which could takesubstantial time to address.If the product receives regulatory approval, the approval may be significantly limited to specific diseases anddosages or the indications for use may otherwise be limited, and may require that certain contraindications, warnings, orprecautions be included in the product labeling. In addition, the FDA may require post marketing studies, sometimes referredto as Phase 4 testing, which involves clinical trials designed to further assess drug safety and effectiveness and may requiretesting and surveillance programs to monitor the safety of approved products that have been commercialized.Post‑Approval RequirementsAny biologic products for which we or our collaborators receive FDA approvals are subject to continuing regulationby the FDA, including, among other things, cGMP compliance for product manufacture, record‑keeping requirements,reporting of adverse experiences with the product, providing the FDA with updated safety and efficacy information, productsampling and distribution requirements, complying with certain electronic records and signature requirements, andcomplying with FDA promotion and advertising requirements, which include, among others, restrictions ondirect‑to‑consumer advertising, promoting biologics for uses or in patient populations that are not described in the product’sapproved labeling (known as “off‑label use”), industry‑sponsored scientific and educational activities, and promotionalactivities involving the internet. Failure to comply with these or other FDA requirements can subject a manufacturer topossible legal or regulatory action, such as product reclass, warning letters, suspension of manufacturing, seizure of product,injunctive action, mandated corrective advertising or communications with healthcare professionals, possible civil orcriminal penalties, or other negative consequences, including adverse publicity.U.S. Patent Term Restoration and Marketing ExclusivityDepending upon the timing, duration and specifics of the FDA approval of any of our biologic product candidates,we may apply for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984,commonly referred to as the Hatch-Waxman Amendments. The Hatch‑Waxman Amendments permit a patent restoration termof up to five years for one patent per product as compensation for patent term lost during product development and the FDAregulatory review process of that product. The U.S. Patent and Trademark Office, in consultation with the FDA, reviews andapproves the application for any patent term extension or restoration.Market exclusivity provisions under the FDCA can also delay the submission or the approval of certain applicationsof other companies seeking to reference another company’s BLA. Specifically, the Biologics Price Competition andInnovation Act established an abbreviated pathway for the approval of biosimilar and interchangeable biological productsgenerally not earlier than 12 years after the original BLA approval. The abbreviated regulatory pathway establishes legalauthority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as“interchangeable” based on their similarity to existing brand product.U.S. Foreign Corrupt Practices ActThe U.S. Foreign Corrupt Practices Act, to which we are subject, prohibits corporations and individuals fromengaging in certain activities to obtain or retain business or to influence a person working in an official capacity. It is illegalto pay, offer to pay or authorize the payment of anything of value to any foreign government official, government staffmember, political party or political candidate in an attempt to obtain or retain business or to otherwise influence a personworking in an official capacity.21 Table of ContentsPharmaceutical Coverage, Pricing and ReimbursementThe cost of pharmaceuticals continues to generate substantial governmental and third‑party payor interest. Weexpect that the pharmaceutical industry will experience pricing pressures due to the trend toward managed healthcare, theincreasing influence of managed care organizations and additional legislative proposals. Significant uncertainty exists andwill continue to exist as to the coverage and reimbursement status of any product candidate for which we obtain regulatoryapproval. In the United States and markets in other countries, sales of any product for which we receive regulatory approvalfor commercial sale will depend in part on the availability of coverage and adequate reimbursement from third-party payors.Third-party payors include government payor programs at the federal and state levels, including Medicare and Medicaid,managed care providers, private health insurers and other organizations. Third‑party payors are increasingly challenging theprice and examining the medical necessity and cost‑effectiveness of medical products and services, in addition to their safetyand efficacy. Formulary placement by third-party payors is very competitive and can lead to lower prices and may effectivelyrestrict patient access to our drugs. We may need to conduct expensive pharmacoeconomic studies in order to demonstratethe medical necessity and cost-effectiveness of our products, in addition to the costs required to obtain the FDA approvals.Our product candidates may not be considered medically necessary or cost-effective.The U.S. government, state legislatures and foreign governments have shown significant interest in implementingcost containment programs to limit the growth of government-paid healthcare costs, including price controls, restrictions onreimbursement and requirements for substitution of generic products for branded prescription drugs. In the United States,there has been heightened government scrutiny over the manner in which manufacturers set prices for their marketedproducts, which has resulted in several Congressional inquiries and proposed and enacted federal and state legislationdesigned to, among other things, bring more transparency to product pricing, review the relationship between pricing andmanufacturer patient programs, reduce the cost of products under Medicare, and reform government program reimbursementmethodologies for products. For example, at the federal level, on May 11, 2018, President Trump laid out hisadministration’s “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contains additional proposalsto increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivizemanufacturers to lower the list price of their products and reduce the out of pocket costs of drug products paid by consumers.On January 31, 2019, the Department of Health and Human Services (HHS) Office of Inspector General proposedmodifications to federal Anti-Kickback Statute safe harbors which, among other things, if finalized, will affect discounts paidby manufacturers to Medicare Part D plans, Medicaid managed care organizations and pharmacy benefit managers workingwith these organizations. Although some of these and other proposals may require additional authorization to becomeeffective, Congress and the Trump administration have each indicated that it will continue to seek new legislation and/oradministrative measures to control pharmaceutical costs. In other countries, pricing and reimbursement schemes differ. In theEuropean Community, governments influence the price of pharmaceutical products through their pricing and reimbursementrules and control of national healthcare systems that fund a large part of the cost of those products to consumers. Thedownward pressure on healthcare costs in general, and particularly prescription drugs, has become very intense. As a result,increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross‑border importsfrom low‑priced markets exert a commercial pressure on pricing within a country. There can be no assurance that any countrythat has price controls or reimbursement limitations for drug products will allow favorable reimbursement and pricingarrangements for any of our products.Healthcare ReformIn the United States and foreign jurisdictions, there have been and will continue to be a number of legislative andregulatory proposals to change the healthcare system in ways that could affect our ability to sell our product candidatesprofitably, once they are approved for sale. Among policy makers and payors in the United States and elsewhere, there issignificant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs,improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus ofthese efforts and has been significantly affected by major legislative initiatives.22 Table of ContentsFor example, in March 2010, President Obama signed into law the Patient Protection and Affordable Care Act,which, as amended by the Health Care and Education Reconciliation act of 2010 (Affordable Care Act) is a sweeping lawintended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remediesagainst fraud and abuse, add new transparency requirements for the healthcare and health insurance industries, impose newtaxes and fees on the health industry and impose additional health policy reforms. In the years since its enactment, there havebeen, and continue to be, significant developments in, and continued legislative activity around, attempts to repeal or repealand replace the Affordable Care Act. On December 14, 2018, a Texas U.S. District Court Judge ruled that the Affordable CareAct is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Cuts andJobs Act of 2017. While the Texas U.S. District Court Judge, as well as the Trump administration and Centers for Medicare &Medicaid Services, have stated that the ruling will have no immediate effect pending appeal of the decision, it is unclear howthis decision, subsequent appeals, and other efforts to repeal and replace the Affordable Care Act will impact the AffordableCare Act. In addition, other reform measures have been proposed and adopted since the Affordable Care Act was enacted.Additional new laws may result in additional reductions in funding to Medicare and other healthcare programs andother healthcare funding, which could have a material adverse effect on our customers and our financial operations. Further,new laws may, among other things, increase drug rebates or discounts owed under federal health care programs, imposeadditional reporting or compliance obligations, and/or otherwise put additional downward pressure on drug prices orincrease the burden of compliance on pharmaceutical manufacturers.Other Healthcare Laws and Compliance RequirementsIn the United States, the research, manufacturing, distribution, sale and promotion of drug products and medicaldevices are potentially subject to regulation by various federal, state and local authorities in addition to the FDA, includingthe Centers for Medicare & Medicaid Services, other divisions of Health and Human Services (e.g., the Office of InspectorGeneral), the U.S. Department of Justice, state Attorneys General, and other state and local government agencies. Forexample, sales, marketing and scientific/educational grant programs must comply with fraud and abuse laws such as thefederal Anti‑Kickback Statute, as amended, the federal civil False Claims Act, as amended, and similar state laws. Pricing andrebate programs must comply with the Medicaid Drug Rebate Program requirements of the Omnibus Budget ReconciliationAct of 1990, as amended, and the Veterans Health Care Act of 1992, as amended. If products are made available to authorizedusers of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. All ofthese activities are also potentially subject to federal and state consumer protection and unfair competition laws.The federal Anti‑Kickback Statute prohibits, among other things, any person, including a prescription drugmanufacturer (or a party acting on its behalf), from knowingly and willfully soliciting, receiving, offering or providingremuneration, directly or indirectly, to induce or reward either the referral of an individual, or the furnishing, recommendingor arranging for a good or service, for which payment may be made under a federal healthcare program such as the Medicareand Medicaid programs. The federal civil False Claims Act imposes liability on any person or entity that, among otherthings, knowingly presents or causes to be presented, a false or fraudulent claim for payment by a federal healthcare program.The qui tam provisions of the federal civil False Claims Act allow a private individual to bring civil actions on behalf of thefederal government alleging that the defendant has submitted a false claim to the federal government, and to share in anymonetary recovery. In recent years, the number of suits brought by private individuals has increased dramatically. Inaddition, various states have enacted anti-kickback statues and false claims laws analogous to the federal civil False ClaimsAct. Also, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) created several additional federal crimes,including healthcare fraud, and false statements relating to the delivery of or payments for healthcare benefits, items orservices. HIPAA, as amended the Health Information Technology for Economic and Clinical Health Act (HITECH), and itsimplementing regulations also established uniform federal standards for certain “covered entities” (certain healthcareproviders, health plans and healthcare clearinghouses) and their “business associates” (individuals and entities that create,receive, maintain or transmit individually identifiable health information for or on behalf of a covered entity) governing theconduct of certain electronic healthcare transactions and protecting the security and privacy of protected health information.In addition, we may be subject to physician payment transparency laws and patient privacy and security regulation by thefederal government and by the states and foreign jurisdictions in which we conduct our business.23 Table of ContentsBecause of the breadth of these laws and the narrowness of available statutory exceptions and regulatory safeharbors, it is possible that some of our business activities could be subject to challenge under one or more of such laws. If ouroperations are found to be in violation of any of the federal and state laws described above or any other governmentalregulations that apply to us, we may be subject to penalties, including criminal and significant civil monetary penalties,damages, fines, imprisonment, exclusion from participation in government healthcare programs, injunctions, recall or seizureof products, total or partial suspension of production, denial or withdrawal of pre‑marketing product approvals, private “quitam” actions brought by individual whistleblowers in the name of the government or refusal to allow us to enter into supplycontracts, including government contracts, additional oversight and reporting obligations, and the curtailment orrestructuring of our operations, any of which could adversely affect our ability to operate our business and our results ofoperations.Europe / Rest of World Government RegulationIn addition to regulations in the United States, we, and our collaborators, will be subject to a variety of regulationsin other jurisdictions governing, among other things, clinical trials and any commercial sales, marketing and distribution ofour products, similar or more stringent than the U.S. laws.Whether or not we, or our collaborators, obtain FDA approval for a product, we must obtain the requisite approvalsfrom regulatory authorities in foreign countries prior to the commencement of clinical trials or marketing of the product inthose countries. The requirements and process governing the conduct of clinical trials, product licensing, pricing andreimbursement vary from country to country. In addition, we and our collaborators may be subject to foreign laws andregulations and other compliance requirements, including, without limitation, anti‑kickback laws, false claims laws and otherfraud and abuse laws, as well as laws and regulations requiring transparency of pricing and marketing information andgoverning the privacy and security of health information, such as the European Union’s Directive /46 on the Protection ofIndividuals with regard to the Processing of Personal Data.If we, or our collaborators, fail to comply with applicable foreign regulatory requirements, we may be subject to,among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operatingrestrictions and criminal prosecution.EmployeesAs of December 31, 2018, we had 156 employees, all of whom were full‑time, 46 of whom hold Ph.D. or M.D.degrees, 128 of whom were engaged in research and development activities and 28 of whom were engaged in businessdevelopment, finance, information systems, facilities, human resources or administrative support. None of our employees arerepresented by any collective bargaining unit. We believe that we maintain good relations with our employees.Corporate InformationWe were incorporated in California in August 1997 under the name Xencor. In September 2004, we reincorporatedin the state of Delaware under the name Xencor, Inc. Our principal offices are located at 111 West Lemon Avenue, Monrovia,CA 91016, and our telephone number is (626) 305‑5900. Our website address is www.xencor.com. Our website and theinformation contained on, or that can be accessed through, the website will not be deemed to be incorporated by reference in,and are not considered part of, this Annual Report on Form 10‑K (the Annual Report). Our Annual Reports on Form 10‑K,Quarterly Reports on Form 10‑Q, Current Reports on Form 8‑K and amendments to reports filed or furnished pursuant toSection 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on the InvestorRelations portion of our web site at www.xencor.com as soon as reasonably practical after we electronically file such materialwith, or furnish it to, the Securities and Exchange Commission. 24 95Table of Contents Item 1A. Risk Factors.Except for the historical information contained herein or incorporated by reference, this Annual Report and theinformation incorporated by reference contains forward‑looking statements that involve risks and uncertainties. Thesestatements include projections about our accounting and finances, plans and objectives for the future, future operating andeconomic performance and other statements regarding future performance. These statements are not guarantees of futureperformance or events. Our actual results may differ materially from those discussed here. Factors that could cause orcontribute to differences in our actual results include those discussed in the following section, as well as those discussed inPart II, Item 7 entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” andelsewhere throughout this Annual Report and in any other documents incorporated by reference into this Annual Report.You should consider carefully the following risk factors, together with all of the other information included or incorporatedin this Annual Report. Each of these risk factors, either alone or taken together, could adversely affect our business,operating results and financial condition, as well as adversely affect the value of an investment in our common stock. Theremay be additional risks that we do not presently know of or that we currently believe are immaterial which could alsoimpair our business and financial position.Risks Relating to Our Business and to the Discovery, Development, Regulatory Approval of Our Product Candidates andother Legal Compliance Matters We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses forthe foreseeable future.We are a clinical‑stage biopharmaceutical company. To date, we have financed our operations primarily throughequity and debt financings and our research and development licensing agreements and have incurred significant operatinglosses since our inception in 1997. For the year ended December 31, 2018, our net loss was $70.5 million and our net loss forthe year ended December 31, 2017 was $38.5 million. The only year that we did not sustain a net loss was the year endedDecember 31, 2016 when we earned a net income of $45.1 million. As of December 31, 2018, we had an accumulated deficitof $323.3 million. We expect to incur additional losses in future years as we execute our plan to continue our discovery,research and development activities, including the ongoing and planned clinical development of our antibody productcandidates, and incur the additional costs of operating as a public company. We are unable to predict the extent of any futurelosses or when we will become profitable, if ever. Even if we do achieve profitability, we may not be able to sustain orincrease profitability on an ongoing basis which would adversely affect our business, prospects, financial condition andresults of operations. Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree ofuncertainty. We have never generated any revenue from product sales and may never be profitable.We have devoted substantially all of our financial resources and efforts to developing our proprietary XmAbtechnology platform, identifying potential product candidates and conducting preclinical studies and clinical trials. We andour partners are still in the early stages of developing our product candidates, and we have not completed development ofany products. Our revenue to date has been primarily revenue from the license of our proprietary XmAb technology platformfor the development of product candidates by others or revenue from our partners. Our ability to generate revenue andachieve profitability depends in large part on our ability, alone or with partners, to achieve milestones and to successfullycomplete the development of, obtain the necessary regulatory approvals for, and commercialize, product candidates. We donot anticipate generating revenues from sales of products for the foreseeable future. Our ability to generate future revenuesfrom product sales depends heavily on our and our partners’ success in:1.completing clinical trials through all phases of clinical development of our current productcandidates, including XmAb5871, XmAb7195, XmAb14045, XmAb13676, XmAb18087, XmAb20717,XmAb22841, and XmAb23104 and advancing into clinical development our current earlier stage programs,including XmAb24306 as well as the product candidates that are being developed by our partners andlicensees;2.seeking and obtaining marketing approvals for product candidates that successfully complete clinical trials;25 Table of Contents3.obtaining satisfactory acceptance, formulary placement and coverage, and adequate reimbursement for ourapproved products from third-party payors, including private health insurers, managed care providers andgovernmental payor programs, including Medicare and Medicaid;4.launching and commercializing product candidates for which we obtain marketing approval, with a partner or,if launched independently, successfully establishing a sales force, marketing and distribution infrastructure;5.identifying and developing new XmAb‑engineered therapeutic antibody candidates;6.establishing and maintaining supply and manufacturing relationships with third parties;7.obtaining additional licensing and partnering opportunities, similar to our partnerships with Genentech,Novartis, Amgen and MorphoSys, with leading pharmaceutical and biotechnology companies;8.achieving the milestones set forth in our agreements with our partners;9.conducting further research into the function and application of antibody Fc domains in order to expand thescope of our proprietary XmAb technology platform;10.maintaining, protecting, expanding and enforcing our intellectual property; and11.attracting, hiring and retaining qualified personnel. Because of the numerous risks and uncertainties associated with biologic product development, we are unable topredict the timing or amount of increased expenses and when we will be able to achieve or maintain profitability, if ever. Inaddition, our expenses could increase beyond expectations if we are required by the U.S. Food and Drug Administration(FDA), or foreign regulatory agencies, to perform studies and trials in addition to those that we currently anticipate, or if thereare any delays in our or our partners completing clinical trials or the development of any of our product candidates. If one ormore of the product candidates that we independently develop is approved for commercial sale, we anticipate incurringsignificant costs associated with commercializing such product candidates. Even if we or our partners are able to generaterevenues from the sale of any approved products, we may not become profitable and may need to obtain additional fundingto continue operations, which may not be available to us on favorable terms, if at all. Even if we do achieve profitability, wemay not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitablewould depress the value of our company and could impair our ability to raise capital, expand our business, maintain ourresearch and development efforts, diversify our product offerings or even continue our operations. A decline in the value ofour company could also cause you to lose all or part of your investment. We will require additional financing and may be unable to raise sufficient capital, which could lead us to delay, reduce orabandon research and development programs or commercialization.As of December 31, 2018, we had $530.5 million in cash, cash equivalents and marketable securities. We expect ourexpenses to increase in connection with our ongoing development activities, including the continued development of ourpipeline of bispecific drug candidates including XmAb14045, XmAb13676, XmAb18087, XmAb20717, XmAb22841, XmAb23104, and XmAb24306 and other research activities. Identifying potential product candidates and conductingpreclinical testing and clinical trials are time‑consuming, expensive and uncertain processes that take years to complete, andwe or our partners may never generate the necessary data or results required to obtain regulatory approval and achieveproduct sales. In addition, our product candidates, if approved, may not achieve commercial success.26 Table of ContentsOur commercial revenues, if any, will be derived from sales of products that we do not expect to be commerciallyavailable for many years, if at all. If we obtain regulatory approval for any of our product candidates, we expect to incursignificant commercialization expenses related to product manufacturing, marketing, sales and distribution. Accordingly, wewill need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raisecapital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and developmentprograms or any future commercialization efforts.We believe our existing cash, together with interest thereon, will be sufficient to fund our operations beyond the endof 2024. However, changing circumstances or inaccurate estimates by us may cause us to use capital significantly faster thanwe currently anticipate, and we may need to spend more money than currently expected because of circumstances beyondour control. For example, our current and our planned clinical trials for XmAb14045, XmAb13676, XmAb18087,XmAb20717, XmAb22841, XmAb23104, and XmAb24306 or clinical trials for other drug candidates may encountertechnical, enrollment or other issues that could cause our development costs to increase more than we expect. Under theGenentech Agreement, we will be sharing 45% of development costs worldwide for XmAb24306 and other IL-15 programs,and under the Novartis Agreement, we are co-developing XmAb14045 worldwide and sharing development costs. We do nothave sufficient cash to complete the clinical development of any of our product candidates and will require additionalfunding to complete the development activities required for regulatory approval of XmAb14045, XmAb13676, XmAb18087,XmAb20717, XmAb22841, XmAb23104, or XmAb24306 or any other future product candidates that we developindependently. Because successful development of our product candidates is uncertain, we are unable to estimate the actualfunds we will require to complete research and development and commercialize our product candidates. Adequate additionalfinancing may not be available to us on acceptable terms, or at all. In addition, we may seek additional capital due tofavorable market conditions or strategic considerations; even if we believe we have sufficient funds for our current or futureoperating plans. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce oreliminate our research and development programs or any future commercialization efforts. The development and commercialization of biologic products is subject to extensive regulation, and we may not obtainregulatory approvals for any of our product candidates.The clinical development, manufacturing, labeling, packaging, storage, recordkeeping, advertising, promotion,export, import, marketing and distribution and other possible activities relating to XmAb14045, XmAb13676, XmAb18087,XmAb20717, XmAb22841, XmAb23104, and XmAb24306 our current lead antibody product candidates, as well as anyother antibody product candidate that we may develop in the future, are subject to extensive regulation in the United Statesas biologics. Biologics require the submission of a Biologics License Application (BLA) to the FDA and we are not permittedto market any product candidate in the United States until we obtain approval from the FDA of a BLA for that product. ABLA must be supported by extensive clinical and preclinical data, as well as extensive information regarding chemistry,manufacturing and controls (CMC) sufficient to demonstrate the safety, purity, potency and effectiveness of the applicableproduct candidate to the satisfaction of the FDA.Regulatory approval of a BLA is not guaranteed, and the approval process is an expensive and uncertain processthat may take several years. The FDA and foreign regulatory entities also have substantial discretion in the approval process.The number and types of preclinical studies and clinical trials that will be required for BLA approval varies depending on theproduct candidate, the disease or the condition that the product candidate is designed to target and the regulationsapplicable to any particular product candidate. Despite the time and expense associated with preclinical studies and clinicaltrials, failure can occur at any stage, and we could encounter problems that require us to repeat or perform additionalpreclinical studies or clinical trials or generate additional CMC data. The FDA and similar foreign authorities could delay,limit or deny approval of a product candidate for many reasons, including because they:1.may not deem our product candidate to be adequately safe and effective;2.may not find the data from our preclinical studies and clinical trials or CMC data to be sufficient to support aclaim of safety and efficacy;3.may not approve the manufacturing processes or facilities associated with our product candidate;27 Table of Contents4.may conclude that we have not sufficiently demonstrated long‑term stability of the formulation of the drugproduct for which we are seeking marketing approval;5.may change approval policies or adopt new regulations; or6.may not accept a submission due to, among other reasons, the content or formatting of the submission.Generally, public concern regarding the safety of drug and biologic products could delay or limit our ability toobtain regulatory approval, result in the inclusion of unfavorable information in our labeling, or require us to undertake otheractivities that may entail additional costs.We have not submitted an application for approval or obtained FDA approval for any product. This lack ofexperience may impede our ability to obtain FDA approval in a timely manner, if at all, for our product candidates.To market any biologics outside of the United States, we and current or future collaborators must comply withnumerous and varying regulatory and compliance related requirements of other countries. Approval procedures vary amongcountries and can involve additional product testing and additional administrative review periods, including obtainingreimbursement and pricing approval in select markets. The time required to obtain approval in other countries might differfrom that required to obtain FDA approval. The regulatory approval process in other countries may include all of the risksassociated with FDA approval as well as additional, presently unanticipated, risks. Regulatory approval in one country doesnot ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country maynegatively impact the regulatory process in others, including the risk that our product candidates may not be approved for allindications requested and that such approval may be subject to limitations on the indicated uses for which the drug may bemarketed. Certain countries have a very difficult reimbursement environment and we may not obtain reimbursement orpricing approval, if required, in all countries where we expect to market a product, or we may obtain reimbursement approvalat a level that would make marketing a product in certain countries not viable.If we experience delays in obtaining approval or if we fail to obtain approval of our product candidates, thecommercial prospects for our product candidates may be harmed and our ability to generate revenues will be materiallyimpaired which would adversely affect our business, prospects, financial condition and results of operations.Even if we receive regulatory approval for any of our product candidates, we will be subject to ongoing regulatoryobligations and continued regulatory review, which may result in significant additional expense. Additionally, our productcandidates, if approved, could be subject to labeling and other restrictions and market withdrawal and we may be subjectto penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our products.Any regulatory approvals that we or our partners receive for our product candidates may also be subject tolimitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, orcontain requirements for potentially costly post‑marketing testing, including Phase 4 clinical trials, and surveillance tomonitor the safety and efficacy of the product candidate. In addition, if the FDA or a comparable foreign regulatory authorityapproves any of our product candidates, the manufacturing processes, labeling, packaging, distribution, adverse eventreporting, storage, advertising, promotion, import, export and recordkeeping for the product will be subject to extensive andongoing regulatory requirements. These requirements include submissions of safety and other post‑marketing informationand reports, registration, as well as continued compliance with current good manufacturing practices (cGMPs), and currentgood clinical practices (cGCPs), for any clinical trials that we conduct post‑approval. Later discovery of previously unknownproblems with a product, including adverse events of unanticipated severity or frequency, undesirable side effects caused bythe product, problems encountered by our third‑party manufacturers or manufacturing processes, or failure to comply withregulatory requirements, either before or after product approval, may result in, among other things:1.restrictions on the marketing or manufacturing of the product;2.requirements to include additional warnings on the label;28 Table of Contents3.requirements to create a medication guide outlining the risks to patients;4.withdrawal of the product from the market;5.voluntary or mandatory product recalls;6.requirements to change the way the product is administered or for us to conduct additional clinical trials;7.fines, warning letters or holds on clinical trials;8.refusal by the FDA to approve pending applications or supplements to approved applications filed by us or ourstrategic partners, or suspension or revocation of product license approvals;9.product seizure or detention, or refusal to permit the import or export of products;10.injunctions or the imposition of civil or criminal penalties; and11.harm to our reputation.Additionally, if any of our product candidates receives marketing approval, the FDA could require us to adopt aREMS to ensure that the benefits of the therapy outweigh its risks, which may include, among other things, a medicationguide outlining the risks for distribution to patients and a communication plan to health care practitioners.Moreover, the FDA strictly regulates marketing, labeling, advertising and promotion of products. Drugs may bepromoted only for the approved indications and in accordance with the provisions of the approved label, althoughphysicians, in the practice of medicine, may prescribe approved drugs for unapproved indications. However, companies mayshare truthful and not misleading information that is otherwise consistent with the labeling. The FDA and other agenciesactively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to haveimproperly promoted off-label uses may be subject to significant liability.Any of these events could prevent us from achieving or maintaining market acceptance of the product or theparticular product candidate at issue and could significantly harm our business, prospects, financial condition and results ofoperations.The FDA’s policies may change and additional government regulations may be enacted that could prevent, limit ordelay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of governmentregulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slowor unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not ableto maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieveor sustain profitability, which would adversely affect our business, prospects, financial condition and results of operations.If we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatoryapprovals could be delayed or prevented.We may not be able to initiate or continue clinical trials for our product candidates if we are unable to locate andenroll a sufficient number of eligible patients to participate in these trials as required by the FDA or similar regulatoryauthorities outside the United States. In addition, some of our competitors have ongoing clinical trials for product candidatesthat treat the same indications as our product candidates, and patients who would otherwise be eligible for our clinical trialsmay instead enroll in clinical trials of our competitors’ product candidates.Patient enrollment is affected by other factors including:1.the severity of the disease under investigation;29 Table of Contents2.the patient eligibility criteria for the study in question;3.the perceived risks and benefits of the product candidate under study;4.our payments for conducting clinical trials;5.the patient referral practices of physicians;6.the ability to monitor patients adequately during and after treatment; and7.the proximity and availability of clinical trial sites for prospective patients.Our inability to enroll a sufficient number of patients for any of our clinical trials could result in significant delaysand could require us to abandon one or more clinical trials altogether. Enrollment delays in our clinical trials may result inincreased development costs for our product candidates and in delays to commercially launching our product candidates, ifapproved, which would cause the value of our company to decline and limit our ability to obtain additional financing.The manufacture of biopharmaceutical products, including XmAb‑engineered antibodies, is complex and manufacturersoften encounter difficulties in production. If we or any of our third‑party manufacturers encounter any loss of our mastercell banks or if any of our third‑party manufacturers encounter other difficulties, or otherwise fail to comply with theircontractual obligations, our ability to provide product candidates for clinical trials or our products to patients, onceapproved, the development or commercialization of our product candidates could be delayed or stopped.The manufacture of biopharmaceutical products is complex and requires significant expertise and capitalinvestment, including the development of advanced manufacturing techniques and process controls. We and our contractmanufacturers must comply with cGMP regulations and guidelines. Manufacturers of biopharmaceutical products oftenencounter difficulties in production, particularly in scaling up and validating initial production and contamination. Theseproblems include difficulties with production costs and yields, quality control, including stability of the product, qualityassurance testing, operator error, shortages of qualified personnel, as well as compliance with strictly enforced federal, stateand foreign regulations. Furthermore, if microbial, viral or other contaminations are discovered in our products or in themanufacturing facilities in which our products are made, such manufacturing facilities may need to be closed for an extendedperiod of time to investigate and remedy the contamination.All of our XmAb engineered antibodies are manufactured by starting with cells which are stored in a cell bank. Wehave one master cell bank for each antibody manufactured in accordance with cGMP and multiple working cell banks andbelieve we would have adequate backup should any cell bank be lost in a catastrophic event. However, it is possible that wecould lose multiple cell banks and have our manufacturing severely impacted by the need to replace the cell banks.30 Table of ContentsWe cannot assure you that any stability or other issues relating to the manufacture of any of our product candidatesor products will not occur in the future. Additionally, our manufacturer may experience manufacturing difficulties due toresource constraints or as a result of labor disputes or unstable political environments. If our manufacturers were to encounterany of these difficulties, or otherwise fail to comply with their contractual obligations, our ability to provide any productcandidates to patients in clinical trials and products to patients, once approved, would be jeopardized. Any delay orinterruption in the supply of clinical trial supplies could delay the completion of clinical trials, increase the costs associatedwith maintaining clinical trial programs and, depending upon the period of delay, require us to commence new clinical trialsat additional expense or terminate clinical trials completely. Any adverse developments affecting clinical or commercialmanufacturing of our product candidates or products may result in shipment delays, inventory shortages, lot failures, productwithdrawals or recalls, or other interruptions in the supply of our product candidates or products. We may also have to takeinventory write‑offs and incur other charges and expenses for product candidates or products that fail to meet specifications,undertake costly remediation efforts or seek more costly manufacturing alternatives. Accordingly, failures or difficultiesfaced at any level of our supply chain could materially adversely affect our business and delay or impede the developmentand commercialization of any of our product candidates or products and could have a material adverse effect on our business,prospects, financial condition and results of operations.Adverse side effects or other safety risks associated with our product candidates could delay or preclude approval, cause usto suspend or discontinue clinical trials, abandon product candidates, limit the commercial profile of an approved label, orresult in significant negative consequences following marketing approval, if any.Undesirable side effects caused by our product candidates could result in the delay, suspension or termination ofclinical trials by us, our collaborators, the FDA or other regulatory authorities for a number of reasons. If we elect or arerequired to delay, suspend or terminate any clinical trial of any product candidates that we develop, the commercialprospects of such product candidates will be harmed and our ability to generate product revenues from any of these productcandidates will be delayed or eliminated. Serious adverse events observed in clinical trials could hinder or prevent marketacceptance of the product candidate at issue. Any of these occurrences may harm our business, prospects, financial conditionand results of operations significantly.In February 2019, we received notice from the FDA placing the XmAb14045 study on partial clinical hold due tosafety issues of cytokine release syndrome (CRS) and pulmonary toxicities. Under the partial hold, existing subjects on thetrial may continue to receive dosing; however, no new subjects may be enrolled pending FDA review of a clinical holdresponse.The partial clinical hold was initiated following recent safety reports Xencor submitted to the FDA on two patientsdeaths that were considered at least possibly related to XmAb14045. One patient experienced cytokine release syndrome(CRS) after their first dose, the treatment of which was complicated by the patient’s decision to withdraw care. Once subjectdeveloped acute pulmonary edema following several doses of XmAb14045. Items to be addressed in the response includeanalysis of CRS cases per dosing level, efficacy information, and strategies to mitigate the observed toxicities.Previously, we observed CRS as a toxicity in 55% of total patients dosed (36) with 6% of patients experiencingGrade 3 or Grade 4 CRS. Additional adverse events consistent with CRS but not reported as such, include chills, fever,tachycardia, hypotension and hypertension within 24 hours of infusion, were reported in an additional 29% of patients (19). 31 Table of ContentsIn our Phase 1b/2a clinical trial of XmAb5871, some subjects reported mild to moderate gastrointestinal toxicities(nausea, vomiting and diarrhea). Other treatment related adverse events experienced in more than two XmAb5871-treatedpatients were pyrexia (fever) and headache. Treatment related serious adverse events occurred in two patients that receivedXmAb5871: infusion related reaction and venous thrombosis. Further, in our Phase 1a clinical trial of XmAb7195 resulted insubjects having urticaria and dose limiting thrombocytopenia. If these or other side effects cause excessive discomfort, safetyrisks or reduction in acceptable dosage, then the development and commercialization of XmAb5871 or XmAb7195 couldsuffer significant negative consequences. We cannot predict if additional types of adverse events or more serious adverseevents will be observed in future clinical trials of XmAb5871, XmAb7195 or any future product candidate. In addition, we observed detectable levels of immunogenicity, or the creation by the immune system ofanti‑XmAb5871 antibodies, in 44% of subjects receiving XmAb5871 in the Phase 1a clinical trial. While a commonoccurrence for antibody therapies, immunogenicity to XmAb5871 or any of our other product candidates could neutralizethe therapeutic effects of XmAb5871 or such other candidates and/or alter their pharmacokinetics, which could have amaterial adverse effect on the effectiveness of our product candidates and on our ability to commercialize them. We may not be successful in our efforts to use and expand our XmAb technology platform to build a pipeline of productcandidates and develop marketable products.We are using our proprietary XmAb technology platform to develop engineered antibodies, with an initial focus onfour properties: immune inhibition, cytotoxicity, extended half‑life and most recently, heterodimeric Fc domains enablingmolecules with dual target binding. This platform has led to our current pipeline of candidates as well as the other programsthat utilize our technology and that are being developed by our partners and licensees. While we believe our preclinical andclinical data to date, together with our established partnerships, has validated our platform to a degree, we are at a very earlystage of development. Although the first drug candidate incorporating our Fc technology has been approved by the FDA,other drug candidates that incorporate our Fc technologies or Fc candidates have not yet, and may never lead to, approved ormarketable therapeutic antibody products. Even if we are successful in continuing to build our pipeline, the potentialproduct candidates that we identify may not be suitable for clinical development, including as a result of their harmful sideeffects, limited efficacy or other characteristics that indicate that they are unlikely to be products that will receive marketingapproval and achieve market acceptance. If we do not successfully develop and commercialize product candidates basedupon our technological approach, we may not be able to obtain product or partnership revenues in future periods, whichwould adversely affect our business, prospects, financial condition and results of operations.We face significant competition from other biotechnology and pharmaceutical companies and our operating results willsuffer if we fail to compete effectively.The biotechnology and pharmaceutical industries are intensely competitive. We have competitors both in theUnited States and internationally, including major multinational pharmaceutical companies, biotechnology companies,universities and other research institutions. Many of our competitors have substantially greater financial, technical and otherresources, such as larger research and development staff and experienced marketing and manufacturing organizations andwell‑established sales forces. Competition may increase further as a result of advances in the commercial applicability oftechnologies and greater availability of capital for investment in these industries. Our competitors may succeed indeveloping, acquiring or licensing on an exclusive basis, drug products that are more effective or less costly than anyproduct candidate that we are currently developing or that we may develop.32 Table of ContentsWe face intense competition in autoimmune disease drug development from multiple monoclonal antibodies, otherbiologics and small molecules approved for the treatment of autoimmune diseases many of which are being developed ormarketed by large multinational pharmaceutical companies. GlaxoSmithKline’s Benlysta (belimumab) is currently the onlymonoclonal antibody that we are aware of that is approved for the treatment of lupus although we believe that BiogenIdec/Genentech’s Rituxan (rituximab) is prescribed, off label, for this indication. There is also no approved therapy for IgG4-RD but we believe Rituxan is prescribed, off label. In addition, these and other pharmaceutical companies have monoclonalantibodies or other biologics in clinical development for the treatment of autoimmune diseases.Many companies have approved therapies or are developing drugs for the treatment of asthma includingmultinational pharmaceutical companies such as GlaxoSmithKline, Roche/Genentech, Novartis and AstraZeneca plc.Genentech’s and Novartis’ Xolair is currently the only monoclonal antibody targeting IgE that we are aware of that isapproved for the treatment of severe asthma. Three other monoclonal antibodies, Nucala, Cinquair and Fasenra have recentlybeen approved for treatment of severe asthma.Competition in blood cancer drug development is intense, with more than 250 compounds in clinical trials by largemultinational pharmaceutical companies and Rituxan is just one of many monoclonal antibodies approved for the treatmentof non‑Hodgkin lymphomas or other blood cancers. Both Roche and Regeneron have bispecific CD20 drug candidates inPhase 1 of development and there are many other companies developing their own bispecific platform technologies and drugcandidates. MacroGenics has a bispecific CD123 x CD3 antibody currently in Phase 1 and Janssen has a CD123 x CD3bispecific antibody that is also currently in Phase 1.Our ability to compete successfully will depend largely on our ability to leverage our experience in drug discoveryand development to:1.discover and develop products that are superior to other products in the market;2.attract qualified scientific, product development and commercial personnel;3.obtain and maintain patent and/or other proprietary protection for our products and technologies;4.obtain required regulatory approvals; and5.successfully collaborate with pharmaceutical companies in the discovery, development and commercializationof new products.The availability and price of our competitors’ products could limit the demand, and the price we are able to charge,for any of our product candidates, if approved. We will not achieve our business plan if acceptance is inhibited by pricecompetition or the reluctance of physicians to switch from existing drug products to our products, or if physicians switch toother new drug products or choose to reserve our products for use in limited circumstances.Established biopharmaceutical companies may invest heavily to accelerate discovery and development of productsthat could make our product candidates less competitive. In addition, any new product that competes with an approvedproduct must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome pricecompetition and to be commercially successful. Accordingly, our competitors may succeed in obtaining patent protection,receiving FDA approval or discovering, developing and commercializing medicines before we do, which would have amaterial adverse impact on our business. We will not be able to successfully commercialize our product candidates withoutestablishing sales and marketing capabilities internally or through collaborators.33 Table of Contents Our current and future relationships with healthcare professionals, principal investigators, consultants, customers andthird-party payors in the United States and elsewhere may be subject, directly or indirectly, to applicable anti-kickback,fraud and abuse, false claims, physician payment transparency, health information privacy and security and otherhealthcare laws and regulations, which could expose us to penalties. Healthcare providers, physicians and third-party payors in the United States and elsewhere will play a primary rolein the recommendation and prescription of any product candidates for which we obtain marketing approval. Our current andfuture arrangements with healthcare professionals, principal investigators, consultants, customers and third-party payors mayexpose us to broadly applicable fraud and abuse and other healthcare laws, including, without limitation, the federal Anti-Kickback Statute and the federal civil False Claims Act, that may constrain the business or financial arrangements andrelationships through which we sell, market and distribute any product candidates for which we obtain marketing approval.In addition, we may be subject to physician payment transparency laws and patient privacy and security regulation by thefederal government and by the states and foreign jurisdictions in which we conduct our business. The applicable federal,state and foreign healthcare laws that may affect our ability to operate include the following: ·the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfullysoliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce orreward, or in return for, either the referral of an individual for, or the purchase, lease, order or recommendationof, any good, facility, item or service, for which payment may be made, in whole or in part, under federal andstate healthcare programs such as Medicare and Medicaid;·federal civil and criminal false claims laws, including, without limitation, the federal civil False Claims Actwhich can be enforced through civil whistleblower or qui tam actions, prohibits individuals or entities for,among other things, knowingly presenting, or causing to be presented, to the federal government, includingfederal health care programs, such as, the Medicare and Medicaid programs, claims for payment that are false orfraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federalgovernment;·the civil monetary penalties statute, which imposes penalties against any person or entity who, among otherthings, is determined to have presented or caused to be presented a claim to a federal health program that theperson knows or should know is for an item or service that was not provided as claimed or is false or fraudulent;·the Health Insurance Portability and Accountability Act of 1996 (HIPAA) which created additional federal civiland criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme todefraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations orpromises, any of the money or property owned by, or under the custody or control of, any healthcare benefitprogram, regardless of whether the payor is public or private, knowingly and willfully embezzling or stealingfrom a health care benefit program, willfully obstructing a criminal investigation of a health care offense andknowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or makingany materially false statements in connection with the delivery of, or payment for, healthcare benefits, items orservices relating to healthcare matters;·HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (HITECH),and their respective implementing regulations, which impose obligations on “covered entities,” includingcertain healthcare providers, health plans, and healthcare clearinghouses, as well as their respective “businessassociates” that create, receive, maintain or transmit individually identifiable health information for or onbehalf of a covered entity, with respect to safeguarding the privacy, security and transmission of individuallyidentifiable health information;34 Table of Contents·the Physician Payments Sunshine Act, created under Section 6002 of the Patient Protection and Affordable CareAct, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “AffordableCare Act”), imposed annual reporting requirements for certain manufacturers of drugs, devices, biologics andmedical supplies for certain payments and “transfers of value” provided to physicians and teaching hospitals, aswell as ownership and investment interests held by physicians and their immediate family members. Failure tosubmit timely, accurately and completely the required information for all payments, transfers of value andownership or investment interests may result in significant civil monetary penalties; and·analogous state and foreign laws, such as state anti-kickback and false claims laws, which may apply to sales ormarketing arrangements and claims involving healthcare items or services reimbursed by non-governmentalthird-party payors, including private insurers; state and foreign laws that require pharmaceutical companies tocomply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant complianceguidance promulgated by the federal government or to adopt compliance programs as prescribed by state lawsand regulations, or that otherwise restrict payments that may be made to healthcare providers; state and foreignlaws that require manufacturers to report information related to payments and other transfers of value tophysicians and other healthcare providers or marketing expenditures; state laws that require the reporting ofinformation related to drug pricing; state and local laws that require the registration of pharmaceutical salesrepresentatives; and state and foreign laws governing the privacy and security of health information in certaincircumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA,thus complicating compliance efforts.Further, the Affordable Care Act, among other things, amended the intent requirement of the federal Anti-KickbackStatute and the healthcare fraud statute. A person or entity no longer needs to have actual knowledge of these statutes orspecific intent to violate them in order to have committed a violation. In addition, the Affordable Care Act provided that thegovernment may assert that a claim including items or services resulting from a violation of the federal Anti-KickbackStatute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act.Efforts to ensure that our future business arrangements with third parties will comply with applicable healthcare lawsand regulations may involve substantial costs. It is possible that governmental authorities will conclude that our businesspractices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse orother healthcare laws. If our operations are found to be in violation of any of these laws or any other governmentalregulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, including,without limitation, damages, fines, imprisonment, disgorgement, exclusion from participation in government healthcareprograms, such as Medicare and Medicaid, additional reporting requirements and/or oversight if we become subject to acorporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and thecurtailment or restructuring of our operations, as well as reputational harm, which could significantly harm our business. Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of andcommercialize our product candidates and affect the prices we may obtain.Among policy makers and payors in the United States and elsewhere, there is significant interest in promotingchanges in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expandingaccess. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantlyaffected by major legislative initiatives. In March 2010, President Obama signed into law the Affordable Care Act, asweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhanceremedies against fraud and abuse, add new transparency requirements for the healthcare and health insurance industries,impose new taxes and fees on the health industry and impose additional health policy reforms.35 Table of ContentsThe Affordable Care Act established an annual, nondeductible fee on any entity that manufactures or imports certainspecified branded prescription drugs and biologic agents, addressed a new methodology by which rebates owed bymanufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled,implanted or injected, increased the minimum Medicaid rebates owed by most manufacturers under the Medicaid DrugRebate Program, extended the Medicaid Drug Rebate program to utilization of prescriptions of individuals enrolled inMedicaid managed care organizations, and provided incentives to programs that increase the federal government’scomparative effectiveness research. In addition, the Affordable Care Act implemented payment system reforms including anational pilot program on payment bundling to encourage hospitals, physicians and other providers to improve thecoordination, quality and efficiency of certain healthcare services through bundled payment models.There have been judicial and Congressional challenges to certain aspects of the Affordable Care Act, as well asrecent efforts by the Trump administration to repeal or replace certain aspects of the Affordable Care Act. Since January 2017,President Trump has signed two Executive Orders and other directives designed to delay the implementation of certainprovisions of the Affordable Care Act or otherwise circumvent some of the requirements for health insurance mandated by theAffordable Care Act. Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part ofthe Affordable Care Act. While Congress has not passed comprehensive repeal legislation, two bills affecting theimplementation of certain taxes under the Affordable Care Act have been signed into law. Legislation enacted in 2017,informally titled the Tax Cuts and Jobs Act of 2017 (TCJA), includes a provision which repealed, effective January 1, 2019,the tax-based shared responsibility payment imposed by the Affordable Care Act on certain individuals who fail to maintainqualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”. On January 22,2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed theimplementation of certain Affordable Care Act-mandated fees, including the so-called “Cadillac” tax on certain high costemployer-sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share,and the medical device excise tax on non-exempt medical devices. The Bipartisan Budget Act of 2018 (BBA) among otherthings, amended the Affordable Care Act, effective January 1, 2019, to increase from 50 percent to 70 percent the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D and to close the coverage gapin most Medicare drug plans, commonly referred to as the “donut hole”. In July 2018, the Centers for Medicare & MedicaidServices (CMS) published a final rule permitting further collections and payments to and from certain Affordable Care Actqualified health plans and health insurance issuers under the Affordable Care Act risk adjustment program in response to theoutcome of federal district court litigation regarding the method CMS uses to determine this risk adjustment. On December14, 2018, a Texas U.S. District Court Judge ruled that the Affordable Care Act is unconstitutional in its entirety because the“individual mandate” was repealed by Congress as part of the TCJA. While the Texas U.S. District Court Judge, as well as theTrump administration and CMS, have stated that the ruling will have no immediate effect pending appeal of the decision, itis unclear how this decision, subsequent appeals, and other efforts to repeal and replace the Affordable Care Act will impactthe Affordable Care Act and our business. In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted.On August 2, 2011, President Obama signed into law the Budget Control Act of 2011, which, among other things, created theJoint Select Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint SelectCommittee did not achieve a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, triggering thelegislation’s automatic reduction to several government programs. This includes reductions to Medicare payments toproviders of 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislation, including theBBA, will remain in effect through 2027 unless additional Congressional action is taken. On January 2, 2013, PresidentObama signed into law the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare paymentsto several providers, including hospitals, imaging centers and cancer treatment centers and increased the statute oflimitations period for the government to recover overpayments to providers from three to five years.36 Table of ContentsFurther, there has been heightened governmental scrutiny recently over the manner in which manufacturers setprices for their marketed products, which have resulted in several Congressional inquiries and proposed and enacted federaland state legislation designed to, among other things, bring more transparency to product pricing, review the relationshipbetween pricing and manufacturer patient programs, reduce the cost of products under Medicare, and reform governmentprogram reimbursement methodologies for products. At the federal level, the Trump administration’s budget proposal forfiscal year 2019 contains further price control measures that could be enacted during the 2019 budget process or in otherfuture legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain productsunder Medicare Part B, to allow some states to negotiate product prices under Medicaid, and to eliminate cost sharing forgenerics for low-income patients. Additionally, the Trump administration released a “Blueprint” to lower drug prices andreduce out of pocket costs of drugs that contains additional proposals to increase manufacturer competition, increase thenegotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their productsand reduce the out of pocket costs of drug products paid by consumers. HHS has already started the process of solicitingfeedback on some of these measures and, at the same, is immediately implementing others under its existing authority. Forexample, in September 2018, CMS announced that it will allow Medicare Advantage Plans the option to use step therapy forPart B drugs beginning January 1, 2019, and in October 2018, HHS through CMS proposed a new rule that would requiredirect-to-consumer television advertisements of prescription drugs and biological products, for which payment is availablethrough or under Medicare or Medicaid, to include in the advertisement the Wholesale Acquisition Cost, or list price, of thatdrug or biological product. On January 31, 2019, the HHS Office of Inspector General proposed modifications to the federalAnti-Kickback Statute discount safe harbor for the purpose of reducing the cost of drug products to consumers which, amongother things, if finalized, will affect discounts paid by manufacturers to Medicare Part D plans, Medicaid managed careorganizations and pharmacy benefit managers working with these organizations. While some of these and other proposedmeasures may require additional authorization to become effective, Congress and the Trump administration have eachindicated that it will continue to seek new legislative and/or administrative measures to control pharmaceutical costs. At thestate level, legislatures have increasingly passed legislation and implemented regulations designed to controlpharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictionson certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed toencourage importation from other countries and bulk purchasing. We expect that additional state and federal healthcarereform measures will be adopted in the future, any of which could limit the amounts that federal and state governments willpay for healthcare products and services, which could result in reduced demand for our products or additional pricingpressure.Additionally, on May 30, 2018, the Trickett Wendler, Frank Mongiello, Jordan McLinn, and Matthew Bellina Rightto Try Act of 2017 (the Right to Try Act) was signed into law. The law, among other things, provides a federal framework forcertain patients to access certain investigational new drug products that have completed a Phase 1 clinical trial and that areundergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatment withoutenrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program. There is noobligation for a pharmaceutical manufacturer to make its drug products available to eligible patients as a result of the Rightto Try Act.We expect that healthcare reform measures that may be adopted in the future may result in more rigorous coveragecriteria and lower reimbursement, and in additional downward pressure on the price that may be charged for any of ourproduct candidates, if approved.37 Table of Contents Even if we are able to commercialize any product candidates, our product candidates may be subject to unfavorablepricing regulations, third-party coverage and reimbursement policies or healthcare reform initiatives.Our ability to commercialize any product candidates successfully will depend, in part, on the extent to whichcoverage and adequate reimbursement for our product candidates will be available from government payor programs at thefederal and state levels, including Medicare and Medicaid, private health insurers, managed care plans and other third-partypayors. Government authorities and other third-party payors, such as private health insurers and health maintenanceorganizations, decide which medical products they will pay for and establish reimbursement levels. Increasingly, third-partypayors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging theprices charged for products. Coverage and reimbursement may not be available for any product that we commercialize and,even if these are available, the level of reimbursement may not be satisfactory. Inadequate reimbursement levels mayadversely affect the demand for, or the price of, any product candidate for which we obtain marketing approval. Obtainingand maintaining adequate reimbursement for our drugs may be difficult. We may be required to conduct expensivepharmacoeconomic studies to justify coverage and reimbursement or the level of reimbursement compared to other therapies.If coverage and adequate reimbursement are not available or reimbursement is available only to limited levels, we may not beable to successfully commercialize any product candidates for which marketing approval is obtained.In addition, net prices for products may be reduced by mandatory discounts or rebates required by governmenthealthcare programs or private payors and by any future relaxation of laws that presently restrict imports of products fromcountries where they may be sold at lower prices than in the United States. Third-party payors often rely upon Medicarecoverage policy and payment limitations in setting their own reimbursement policies. However, no uniform policyrequirement for coverage and reimbursement for drug products exists among third-party payors in the United States.Therefore, coverage and reimbursement can differ significantly from payor to payor. As a result, the coverage determinationprocess is often a time-consuming and costly process that will require us to provide scientific and clinical support for the useof our products to each payor separately, with no assurance that coverage and adequate reimbursement will be appliedconsistently or obtained at all. Further, there may be significant delays in obtaining coverage and reimbursement for newlyapproved products, and coverage may be more limited than the indications for which the product is approved by the FDA orsimilar regulatory authorities outside the United States. Moreover, eligibility for coverage and reimbursement does not implythat a product will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture,sale and distribution expenses. Interim reimbursement levels for new products, if applicable, may also not be sufficient tocover our costs and may not be made permanent. Our inability to promptly obtain coverage and adequate reimbursementrates from both government-funded and private payors for any approved products that we develop could significantly harmour operating results, our ability to raise capital needed to commercialize products and our overall financial condition.The regulations that govern marketing approvals, pricing, coverage and reimbursement for new drugs and biologicalproducts vary widely from country to country. Current and future legislation may significantly change the approvalrequirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries requireapproval of the sale price of a product before it can be marketed. In many countries, the pricing review period begins aftermarketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remainssubject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketingapproval for a product in a particular country, but then be subject to price regulations that delay commercial launch of theproduct, possibly for lengthy time periods, and negatively impact the revenues able to be generated from the sale of theproduct in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more productcandidates, even if our product candidates obtain marketing approval.There can be no assurance that our product candidates, if they are approved for sale in the United States or in othercountries, will be considered medically reasonable and necessary for a specific indication, that they will be considered cost-effective by third-party payors, that coverage or an adequate level of reimbursement will be available, or that third-partypayors’ reimbursement policies will not adversely affect our ability to sell our product candidates profitably if they areapproved for sale.38 Table of Contents Our business could be negatively impacted by cyber security threats.In the ordinary course of our business, we use our data centers and our networks to store and access our proprietarybusiness information. We face various cyber security threats, including cyber security attacks to our information technologyinfrastructure and attempts by others to gain access to our proprietary or sensitive information. The procedures and controlswe use to monitor these threats and mitigate our exposure may not be sufficient to prevent cyber security incidents. Theresult of these incidents could include disrupted operations, lost opportunities, misstated financial data, liability for stolenassets or information, increased costs arising from the implementation of additional security protective measures, litigationand reputational damage. Any remedial costs or other liabilities related to cyber security incidents may not be fully insuredor indemnified by other means.Risks Relating to Our Dependence on Third Parties Our existing partnerships are important to our business, and future partnerships may also be important to us. If we areunable to maintain any of these partnerships, or if these partnerships are not successful, our business could be adverselyaffected.Because developing biologics products, conducting clinical trials, obtaining regulatory approval, establishingmanufacturing capabilities and marketing approved products are expensive, we have entered into partnerships, and may seekto enter into additional partnerships, with companies that have more resources and experience than us, and we may becomedependent upon the establishment and successful implementation of partnership agreements.Our partnership and license agreements include those we have announced with Genentech, Novartis, Amgen,MorphoSys, Alexion and others. These partnerships and license agreements also have provided us with important funding forour development programs, and we expect to receive additional funding under these partnerships in the future. Our existingpartnerships, and any future partnerships we enter into, may pose a number of risks, including the following:1.collaborators have significant discretion in determining the efforts and resources that they will apply to thesepartnerships. In December 2018, Novartis notified us of its decision to return the rights to XmAb13676 to usunder the terms of the Novartis Agreement;2.our collaboration agreement with Novartis provides for us to co-develop worldwide with Novartis our leadbispecific candidate, XmAb14045, and share development costs. Such an arrangement may require us to incursubstantial costs in excess of our available resources;3.our potential collaboration agreement with Genentech requires that we fund 45% of worldwide developmentcosts of XmAb24306 and other IL-15 candidates. Such an arrangement may require us to incur substantial costsin excess of available resources;4.collaborators may not perform their obligations as expected;5.collaborators may not pursue development and commercialization of any product candidates that achieveregulatory approval or may elect not to continue or renew development or commercialization programs basedon clinical trial results, changes in the collaborators’ strategic focus or available funding, or external factors,such as an acquisition, that divert resources or create competing priorities;6.collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinicaltrial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of aproduct candidate for clinical testing;39 Table of Contents7.collaborators could independently develop, or develop with third parties, products that compete directly orindirectly with our products or product candidates if the collaborators believe that competitive products aremore likely to be successfully developed or can be commercialized under terms that are more economicallyattractive than ours, which may cause collaborators to cease to devote resources to the commercialization of ourproduct candidates;8.a collaborator with marketing and distribution rights to one or more of our product candidates that achieveregulatory approval may not commit sufficient resources to the marketing and distribution of such product orproducts;9.disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or thepreferred course of development, might cause delays or termination of the research, development orcommercialization of product candidates, might lead to additional responsibilities for us with respect toproduct candidates, or might result in litigation or arbitration, any of which would be time‑consuming andexpensive;10.while we have generally retained the right to maintain and defend our intellectual property under ouragreements with collaborators, certain collaborators may not properly maintain or defend certain of ourintellectual property rights or may use our proprietary information in such a way as to invite litigation thatcould jeopardize or invalidate our intellectual property or proprietary information;11.collaborators may infringe the intellectual property rights of third parties, which may expose us to litigationand potential liability;12.collaborators may learn about our technology and use this knowledge to compete with us in the future;13.results of collaborators’ preclinical or clinical studies could produce results that harm or impair other productsusing our XmAb technology platform;14.there may be conflicts between different collaborators that could negatively affect those partnerships andpotentially others; and15.the number and type of our partnerships could adversely affect our attractiveness to future collaborators oracquirers.If our partnerships and license agreements do not result in the successful development and commercialization ofproducts or if one of our collaborators terminates its agreement with us, we may not receive any future research anddevelopment funding or milestone or royalty payments under the arrangement. If we do not receive the funding we expectunder these arrangements, our continued development of our product candidates could be delayed and we may needadditional resources to develop additional product candidates. All of the risks described in these risk factors relating toproduct development, regulatory approval and commercialization described in this Annual Report also apply to theactivities of our collaborators and there can be no assurance that our partnerships and license agreements will producepositive results or successful products on a timely basis or at all.Our partnership agreements generally grant our collaborators exclusive rights under certain of our intellectualproperty, and may therefore preclude us from entering into partnerships with others relating to the same or similarcompounds, indications or diseases. In addition, partnership agreements may place restrictions or additional obligations onour ability to license additional compounds in different indications, diseases or geographical locations. If we fail to complywith or breach any provision of a partnership agreement, a collaborator may have the right to terminate, in whole or in part,such agreement or to seek damages. Many of our collaborators also have the right to terminate the partnership agreement forconvenience. If a partnership agreement is terminated, in whole or in part, we may be unable to continue the developmentand commercialization of the applicable product candidates, and even if we are able to do so, such efforts may be delayedand result in additional costs.40 Table of ContentsThere is no assurance that a collaborator who is acquired by a third party would not attempt to change certaincontract provisions that could negatively affect our partnership. The acquiring company may also not accept the terms orassignment of our contracts and may seek to terminate the agreements. Any one of our partners could breach covenants,restrictions and/or sub‑license agreement provisions leading us into disputes and potential breaches of our agreements withother partners.We may in the future determine to partner with additional pharmaceutical and biotechnology companies fordevelopment and potential commercialization of therapeutic products. We face significant competition in seekingappropriate collaborators. Our ability to reach a definitive agreement for a partnership will depend, among other things, uponour assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed partnership and theproposed collaborator’s evaluation of a number of factors. If we elect to fund and undertake development orcommercialization activities on our own, we may need to obtain additional expertise and additional capital, which may notbe available to us on acceptable terms or at all. If we fail to enter into partnerships and do not have sufficient funds orexpertise to undertake the necessary development and commercialization activities, we may not be able to further developour product candidates or bring them to market or continue to develop our product platform and our business, prospects,financial condition and results of operations may be materially and adversely affected. We rely upon third‑party contractors and service providers for the execution of most aspects of our development programs.Failure of these collaborators to provide services of a suitable quality and within acceptable timeframes may cause thedelay or failure of our development programs.We outsource certain functions, tests and services to contract research organizations (CROs), medical institutionsand collaborators as well as outsourcing manufacturing to collaborators and/or contract manufacturers, and we rely on thirdparties for quality assurance, clinical monitoring, clinical data management and regulatory expertise. We also have engaged,and may in the future engage, a CRO to run all aspects of a clinical trial on our behalf. There is no assurance that suchindividuals or organizations will be able to provide the functions, tests, biologic supply or services as agreed upon or in aquality fashion and we could suffer significant delays in the development of our products or processes.In some cases there may be only one or few providers of such services, including clinical data management ormanufacturing services. In addition, the cost of such services could be significantly increased over time. We rely on thirdparties and collaborators as mentioned above to enroll qualified patients and conduct, supervise and monitor our clinicaltrials. Our reliance on these third parties and collaborators for clinical development activities reduces our control over theseactivities. Our reliance on these parties, however, does not relieve us of our regulatory responsibilities, including ensuringthat our clinical trials are conducted in accordance with GCP regulations and the investigational plan and protocolscontained in the regulatory agency applications. In addition, these third parties may not complete activities on schedule ormay not manufacture under GMP conditions. Preclinical or clinical studies may not be performed or completed in accordancewith Good Laboratory Practices (GLP) regulatory requirements or our trial design. If these third parties or collaborators do notsuccessfully carry out their contractual duties or meet expected deadlines, obtaining regulatory approval for manufacturingand commercialization of our product candidates may be delayed or prevented. We rely substantially on third‑party datamanagers for our clinical trial data. There is no assurance that these third parties will not make errors in the design,management or retention of our data or data systems. There is no assurance these third parties will pass FDA or regulatoryaudits, which could delay or prohibit regulatory approval.41 Table of ContentsWe rely on third parties to manufacture supplies of our preclinical and clinical product candidates. The development ofsuch candidates could be stopped or delayed if any such third party fails to provide us with sufficient quantities of productor fails to do so at acceptable quality levels or prices or fails to maintain or achieve satisfactory regulatory compliance.We do not currently have nor do we plan to acquire the infrastructure or capability internally to manufacture ourclinical drug supplies for use in the conduct of our clinical trials, and we lack the resources and the capability to manufactureany clinical candidates on a clinical scale. Instead, we rely on our third‑party manufacturing partners, Fuji, to produceXmAb5871 and third parties for fill and testing services, and we rely on KBI to produce our bispecific Fc developmentcandidates. Any of our contract manufacturers may not perform as agreed, may be unable to comply with cGMP requirementsand with FDA, state and foreign regulatory requirements or may terminate their respective agreements with us.In addition, manufacturers are subject to ongoing periodic unannounced inspection by the FDA and othergovernmental authorities to ensure strict compliance with government regulations. We do not control the manufacturingprocesses of KBI or Fuji and are currently completely dependent on KBI and Fuji for the production of XmAb5871,XmAb14045, XmAb13676, XmAb18087, XmAb20717, XmAb22841, XmAb23104, and XmAb24306 in accordance withcGMP, which include, among other things, quality control, quality assurance and the maintenance of records anddocumentation. If we were to experience an unexpected loss of supply, we could experience delays in our planned clinicaltrials as KBI or Fuji would need to manufacture additional clinical drug supply and would need sufficient lead time toschedule a manufacturing slot. While there are other potential suppliers of clinical supplies of our biologics, the longtransition periods necessary to switch manufacturers for any of XmAb5871, XmAb14045, XmAb13676, XmAb18087,XmAb20717, XmAb22841, XmAb23104, and XmAb24306 would significantly delay our clinical trials and thecommercialization of such products, if approved.We intend to rely on third parties to manufacture commercial supplies of our product candidate. If we are unable to enterinto commercial supply agreements with third‑party suppliers or if any such third‑party supplier fails to provide us withsufficient quantities or fails to comply with regulatory requirements, commercialization of such products could be delayedor stopped.We do not currently have nor do we plan to acquire the infrastructure or capability internally to manufacture ourproducts on a commercial scale. Although we have entered into agreements for the manufacture of clinical supplies ofXmAb5871, XmAb7195, XmAb14045, XmAb13676, XmAb18087, XmAb20717, XmAb22841, XmAb23104, andXmAb24306 we have not entered into a commercial supply agreement with KBI or FUJI. Further, KBI has not demonstratedthat it will be capable of manufacturing XmAb14045, XmAb13676, XmAb18087, XmAb20717, XmAb22841, XmAb23104,and XmAb24306 on a large commercial scale. We might be unable to identify manufacturers for late stage clinical trials orcommercial supply on acceptable terms or at all. A change to the manufacturing process for any of our product candidateswould cause us to incur significant costs and to devote significant efforts to implement such a change. Additionally, thelate‑stage clinical development and commercialization of XmAb5871 or other product candidates by us or our collaboratorsmay be delayed as a result, which would materially and adversely affect our business.42 Table of ContentsIf our third‑party manufacturers cannot successfully manufacture material that conforms to our specifications and theapplicable regulatory authorities’ strict regulatory requirements, or pass regulatory inspection, they will not be able to secureor maintain regulatory approval for the manufacturing facilities. In addition, we have no control over the ability of anythird‑party manufacturer to maintain adequate quality control, quality assurance and qualified personnel. The facilities usedby our third‑party manufacturers to manufacture XmAb5871, XmAb7195, XmAb14045, XmAb13676, XmAb18087,XmAb20717, XmAb22841, XmAb23104, XmAb24306 and any other potential product candidates that we may develop inthe future must be approved by the applicable regulatory authorities, including the FDA, pursuant to inspections that will beconducted after we submit our BLA to the FDA. In addition, manufacturers are subject to ongoing periodic unannouncedinspection by the FDA and other governmental authorities to ensure strict compliance with government regulations. If theFDA or any other applicable regulatory authorities do not approve these facilities for the manufacture of our products or ifthey withdraw any such approval in the future, or if our suppliers or third‑party manufacturer decide they no longer want tosupply our biologics or manufacture our products, we may need to find alternative manufacturing facilities, which wouldsignificantly impact our ability to market our products and our business, prospects, financial condition and results ofoperations may be materially and adversely affected.Risks Relating to Our Intellectual Property If we are unable to obtain, maintain and enforce intellectual property protection covering our products, others may beable to make, use or sell products substantially the same as ours, which could adversely affect our ability to compete in themarket.Our commercial success depends, in part, on our ability to obtain, maintain and enforce patents, trade secrets,trademarks and other intellectual property rights and to operate without having third parties infringe, misappropriate orcircumvent the rights that we own or license. The value of many of our partnered licensing arrangements is based on theunderlying intellectual property and related patents. If we are unable to obtain, maintain and enforce intellectual propertyprotection covering our products or underlying technologies, others may be able to make, use or sell products that aresubstantially the same as ours without incurring the sizeable development and licensing costs that we have incurred, whichwould adversely affect our ability to compete in the market. As of December 31, 2018, we held over 750 issued patents andpending patent applications. We file patent applications in the United States, Canada, Japan, Europe and other major marketseither directly or via the Patent Cooperation Treaty. Our ability to stop third parties from making, using, selling, offering tosell or importing our product candidates is dependent upon the extent to which we have rights under valid and enforceablepatents or trade secrets that cover these activities. However, the patent positions of biopharmaceutical companies, includingours, can be highly uncertain and involve complex legal and factual questions for which important legal principles remainunresolved. No consistent policy regarding the breadth of claims allowed in patents in these fields has emerged to date in theUnited States. The U.S. patent laws have recently changed, there have been changes regarding how patent laws areinterpreted, and the U.S. Patent and Trademark Office (the PTO) has also implemented changes to the patent system. Some ofthese changes are currently being litigated, and we cannot accurately determine the outcome of any such proceedings orpredict future changes in the interpretation of patent laws or changes to patent laws which might be enacted into law. Thosechanges may materially affect our patents, our ability to obtain patents or the patents and applications of our collaboratorsand licensors. The patent situation in the biopharmaceutical industry outside the United States is even more uncertain.Therefore, there is no assurance that our pending patent applications will result in the issuance of patents or that we willdevelop additional proprietary products which are patentable. Moreover, patents issued or to be issued to us may not provideus with any competitive advantage. Our patent position is subject to numerous additional risks, including the following:1.we may fail to seek patent protection for inventions that are important to our success;2.our pending patent applications may not result in issued patents;3.we cannot be certain that we are the first to invent the inventions covered by pending patent applications orthat we were the first to file such applications and, if we are not, we may be subject to priority disputes;4.we may be required to disclaim part or all of the term of certain patents or all of the term of certain patentapplications;43 Table of Contents5.we may file patent applications but have claims restricted or we may not be able to supply sufficient data tosupport our claims and, as a result, may not obtain the original claims desired or we may receive restrictedclaims. Alternatively, it is possible that we may not receive any patent protection from an application;6.we could inadvertently abandon a patent or patent application, resulting in the loss of protection of certainintellectual property rights in a certain country. We, our collaborators or our patent counsel may take actionresulting in a patent or patent application becoming abandoned which may not be able to be reinstated or ifreinstated, may suffer patent term adjustments;7.the claims of our issued patents or patent applications when issued may not cover our product candidates;8.no assurance can be given that our patents would be declared by a court to be valid or enforceable or that acompetitor’s technology or product would be found by a court to infringe our patents. Our patents or patentapplications may be challenged by third parties in patent litigation or in proceedings before the PTO or itsforeign counterparts, and may ultimately be declared invalid or unenforceable, or narrowed in scope;9.there may be prior art of which we are not aware that may affect the validity or enforceability of a patent claim.There also may be prior art of which we are aware, but which we do not believe affects the validity orenforceability of a claim, which may, nonetheless, ultimately be found to affect the validity or enforceability ofa claim;10.third parties may develop products which have the same or similar effect as our products without infringing ourpatents. Such third parties may also intentionally circumvent our patents by means of alternate designs orprocesses or file applications or be granted patents that would block or hurt our efforts;11.there may be dominating patents relevant to our product candidates of which we are not aware;12.our patent counsel, lawyers or advisors may have given us, or may in the future give us incorrect advice orcounsel. Opinions from such patent counsel or lawyers may not be correct or may be based on incomplete facts;13.obtaining regulatory approval for biopharmaceutical products is a lengthy and complex process, and as a result,any patents covering our product candidates may expire before, or shortly after such product candidates areapproved and commercialized;14.the patent and patent enforcement laws of some foreign jurisdictions do not protect intellectual property rightsto the same extent as laws in the United States, and many companies have encountered significant difficultiesin protecting and defending such rights in foreign jurisdictions. If we encounter such difficulties or we areotherwise precluded from effectively protecting our intellectual property rights in foreign jurisdictions, ourbusiness prospects could be substantially harmed; and15.we may not develop additional proprietary technologies that are patentable.Any of these factors could hurt our ability to gain full patent protection for our products. Registered trademarks andtrademark applications in the United States and other countries are subject to similar risks as described above for patents andpatent applications, in addition to the risks described below.44 Table of ContentsMany of our product development partnership agreements are complex and may call for licensing or cross‑licensingof potentially blocking patents, know‑how or intellectual property. Due to the potential overlap of data, know‑how andintellectual property rights there can be no assurance that one of our collaborators will not dispute our right to use, license ordistribute data, know‑how or other intellectual property rights, and this may potentially lead to disputes, liability ortermination of a program. There are no assurances that our actions or the actions of our collaborators would not lead todisputes or cause us to default with other collaborators. For example, we may become involved in disputes with ourcollaborators relating to the ownership of intellectual property developed in the course of the partnership. We also cannot becertain that a collaborator will not challenge the validity or enforceability of the patents we license.We cannot be certain that any country’s patent and/or trademark office will not implement new rules which couldseriously affect how we draft, file, prosecute and/or maintain patents, trademarks and patent and trademark applications. Wecannot be certain that increasing costs for drafting, filing, prosecuting and maintaining patents, trademarks and patent andtrademark applications will not restrict our ability to file for patent protection. For example, we may elect not to seek patentprotection in certain jurisdictions or for certain inventions in order to save costs. We may be forced to abandon or return therights to specific patents due to a lack of financial resources.We currently rely, and may in the future rely, on certain intellectual property rights licensed from third parties toprotect our technology and certain product candidates. We have licensed and sublicensed certain intellectual propertyrelating to our Xtend technology from a third party. We have also sublicensed certain intellectual property rights related toour bispecific technology from a third party and, we have licensed certain intellectual property rights from a third partyrelated to our XmAb18087 product candidate. We also license certain rights to the underlying cell lines for all our productcandidates from third parties. Under these licenses, we have no right to control patent prosecution of the intellectual propertyor to enforce the patents, and as such the licensed rights may not be adequately maintained by the licensors. The terminationof these or other licenses could also prevent us from commercializing product candidates covered by the licensed intellectualproperty.Furthermore, the research resulting in the in‑licensed patents was developed in the course of research funded by theU.S. government. As a result, the U.S. government may have certain rights (“march‑in rights”) to intellectual propertyembodied in our Xtend products. Government rights in certain inventions developed under a government‑funded programinclude a non‑exclusive, non‑transferable, irrevocable worldwide license to use inventions for any governmental purpose.Circumstances that trigger march‑in rights include, for example, failure to take, within a reasonable time, effective steps toachieve practical application of the invention in a field of use, failure to satisfy the health and safety needs of the public andfailure to meet requirements of public use specified by federal regulations. Federal law requires any licensor of an inventionthat was partially funded by the federal government to obtain a covenant from any exclusive licensee to manufactureproducts using the invention substantially in the United States. The U.S. government also has the right to use and disclose,without limitation, scientific data relating to licensed technology that was developed in whole or in part at governmentexpense. The government funding agency can elect to exercise these march‑in rights on their own initiative or at the requestof a third party. It is also possible that we might knowingly or unknowingly in-license additional technology that is subjectto U.S. government march-in rights.We intend to file applications for trademark registrations in connection with our product candidates in variousjurisdictions, including the United States. No assurance can be given that any of our trademark applications will be registeredin the United States or elsewhere, or that the use of any registered or unregistered trademarks will confer a competitiveadvantage in the marketplace. Furthermore, even if we are successful in our trademark registrations, the FDA and regulatoryauthorities in other countries have their own process for drug nomenclature and their own views concerning appropriateproprietary names. No assurance can be given that the FDA or any other regulatory authority will approve of any of ourtrademarks or will not request reconsideration of one of our trademarks at some time in the future. The loss, abandonment, orcancellation of any of our trademarks or trademark applications could negatively affect the success of the product candidatesto which they relate.45 Table of ContentsIf we are not able to prevent disclosure of our trade secrets and other proprietary information, the value of our technologyand products could be significantly diminished.We rely on trade secret protection to protect our interests in proprietary know‑how and in processes for whichpatents are difficult to obtain or enforce. We may not be able to protect our trade secrets adequately. We have a policy ofrequiring our consultants, advisors and collaborators to enter into confidentiality agreements and our employees to enter intoinvention, non‑disclosure and non‑compete agreements. However, no assurance can be given that we have entered intoappropriate agreements with all parties that have had access to our trade secrets, know‑how or other proprietary information.There is also no assurance that such agreements will provide for a meaningful protection of our trade secrets, know‑how orother proprietary information in the event of any unauthorized use or disclosure of information. Furthermore, we cannotprovide assurance that any of our employees, consultants, contract personnel, or collaborators, either accidentally or throughwillful misconduct, will not cause serious damage to our programs and/or our strategy, for example by disclosing importanttrade secrets, know‑how or proprietary information to our competitors. It is also possible that our trade secrets, know‑how orother proprietary information could be obtained by third parties as a result of breaches of our physical or electronic securitysystems. Any disclosure of confidential data into the public domain or to third parties could allow our competitors to learnour trade secrets and use the information in competition against us. In addition, others may independently discover our tradesecrets and proprietary information. Any action to enforce our rights is likely to be time consuming and expensive, and mayultimately be unsuccessful, or may result in a remedy that is not commercially valuable. These risks are accentuated inforeign countries where laws or law enforcement practices may not protect proprietary rights as fully as in the United States orEurope. Any unauthorized disclosure of our trade secrets or proprietary information could harm our competitive position.We may be required to reduce the scope of our intellectual property due to third‑party intellectual property claims.Our competitors may have filed, and may in the future file, patent applications covering technology similar to ours.Any such patent application may have priority over our patent applications, which could further require us to obtain rights toissued patents covering such technologies. If another party has filed a U.S. patent application on inventions similar to oursthat claims priority to an application filed prior to March 16, 2013, we may have to participate in an interference proceedingdeclared by the PTO to determine priority of invention in the United States. The costs of these proceedings could besubstantial, and it is possible that such efforts would be unsuccessful if, unbeknownst to us, the other party hadindependently arrived at the same or similar invention prior to our own invention, resulting in a loss of our U.S. patentposition with respect to such inventions. In addition, changes enacted on March 15, 2013 to the U.S. patent laws under theAmerica Invents Act resulted in the United States changing from a “first to invent” country to a “first to file” country. As aresult, we may lose the ability to obtain a patent if a third-party files with the PTO first and could become involved inproceedings before the PTO to resolve disputes related to inventorship. We may also become involved in similar proceedingsin other jurisdictions.Furthermore, recent changes in U.S. patent law under the America Invents Act allows for post‑issuance challenges toU.S. patents, including ex parte reexaminations, inter parte reviews and post‑grant oppositions. There is significantuncertainty as to how the new laws will be applied and if our U.S. patents are challenged using such procedures, we may notprevail, possibly resulting in altered or diminished claim scope or loss of patent rights altogether. Similarly, some countries,notably members of the European Union, also have post grant opposition proceedings that can result in changes in scopeand/or cancellation of patent claims.46 Table of ContentsOur products could infringe patents and other property rights of others, which may result in costly litigation and, if we arenot successful, could cause us to pay substantial damages or limit our ability to commercialize our products, which couldhave a material adverse effect on our business.Our commercial success depends upon our ability, and the ability of our collaborators, to develop, manufacture,market and sell our product candidates and use our proprietary technologies without infringing the patents and otherproprietary rights of third parties. There is considerable intellectual property litigation in the biotechnology andpharmaceutical industries. For example, we are aware of issued U.S. patents and patent applications owned by Genentech thatmay relate to and claim components of certain of our product candidates, including XmAb5871, XmAb7195 andXmAb5574/MOR208 or their manufacture. We believe that these patents and patent applications will expire in the UnitedStates in 2020 and 2021, respectively. Furthermore, we are aware of a recently issued patent owned by Merus B.V. (Merus)that may relate to and claim components of our bispecific product candidates, including XmAb14045, XmAb13676,XmAb18087, XmAb20717, XmAb23104, XmAb22814, and XmAb24306, and will putatively expire in 2033. It is possiblethat these terms could be extended, for example, as a result of patent term restoration to compensate for regulatory delays.While we believe that our current development of these five candidates currently falls into the “safe harbor” ofnon‑infringement under 35 U.S.C. §271(e)(1), this protection terminates upon commercialization. In addition, there can be noassurance that our interpretation of this statutory exemption would be upheld. Furthermore, while we believe that claims inthe Genentech patents are either invalid or not infringed, we cannot assure you that if we were sued for infringement of thesepatents that we would prevail. We are currently evaluating the Merus patent; based on our analysis to date we believe thereexists reasonable argument of invalidity and/or infringement; however, we cannot assure that this position will not changeupon further investigation. In order to successfully challenge the validity of any issued U.S. patent, we would need toovercome a presumption of validity. This burden is a high one requiring us to present clear and convincing evidence as tothe invalidity of such claims. There is no assurance that a court would find these claims to be invalid or not infringed.In addition, as the biopharmaceutical industry expands and more patents are issued, the risk increases that there maybe patents issued to third parties that relate to our products and technology of which we are not aware or that we mustchallenge to continue our operations as currently contemplated. Our products may infringe or may be alleged to infringethese patents. Because some patent applications in the United States may be maintained in secrecy until the patents areissued, because patent applications in the United States and many foreign jurisdictions are typically not published untileighteen months after filing and because publications in the scientific literature often lag behind actual discoveries, wecannot be certain that others have not filed patents that may cover our technologies, our product candidates or their use.Additionally, pending patent applications which have been published can, subject to certain limitations, be later amended ina manner that could cover our technologies, our products or the use of our products. We may become party to, or threatenedwith, future adversarial proceedings or litigation regarding intellectual property rights with respect to our products andtechnology. Third parties may assert infringement claims against us based on existing patents or patents that may be grantedin the future.If we are sued for patent infringement, we would need to demonstrate that our products or methods either do notinfringe the patent claims of the relevant patent or that the patent claims are invalid, and we may not be able to do this.Proving invalidity is difficult. For example, in the United States, proving invalidity requires a showing of clear andconvincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if we are successful in theseproceedings, we may incur substantial costs and divert management’s time and attention in pursuing these proceedings,which could have a material adverse effect on us.Any such claims are likely to be expensive to defend, and some of our competitors may be able to sustain the costsof complex patent litigation more effectively than we can because they have substantially greater resources.47 Table of ContentsIf we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license fromsuch third party to continue developing and marketing our products and technology. We may also elect to enter into such alicense in order to settle litigation or in order to resolve disputes prior to litigation. However, we may not be able to obtainany required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could benon‑exclusive, thereby giving our competitors access to the same technologies licensed to us, and could require us to makesubstantial royalty payments. We could also be forced, including by court order, to cease commercializing the infringingtechnology or product. In addition, we could be found liable for monetary damages, including treble damages and attorneys’fees if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializingour product candidates or force us to cease some of our business operations, which could materially harm our business.Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similarnegative impact on our business.Our intellectual property may be infringed upon by a third party.Third parties may infringe one or more of our issued patents or trademarks. We cannot predict if, when or where athird party may infringe one or more of our issued patents or trademarks. To counter infringement, we may be required to fileinfringement claims, which can be expensive and time consuming. There is no assurance that we would be successful in acourt of law in proving that a third party is infringing one or more of our issued patents or trademarks. Any claims we assertagainst perceived infringers could also provoke these parties to assert counterclaims against us, alleging that we infringetheir intellectual property. In addition, in a patent infringement proceeding, a court may decide that a patent of ours isinvalid or unenforceable, in whole or in part, construe the patent’s claims narrowly and/or refuse to stop the other party fromusing the technology at issue on the grounds that our patents do not cover the technology in question, any of which mayadversely affect our business. Even if we are successful in proving in a court of law that a third party is infringing one or moreof our issued patents or trademarks there can be no assurance that we would be successful in halting their infringingactivities, for example, through a permanent injunction, or that we would be fully or even partially financially compensatedfor any harm to our business. We may be forced to enter into a license or other agreement with the infringing third party atterms less profitable or otherwise commercially acceptable to us than if the license or agreement were negotiated underconditions between those of a willing licensee and a willing licensor. We may not become aware of a third‑party infringerwithin legal timeframes for compensation or at all, thereby possibly losing the ability to be compensated for any harm to ourbusiness. Such a third party may be operating in a foreign country where the infringer is difficult to locate and/or theintellectual property laws may be more difficult to enforce. Some third‑party infringers may be able to sustain the costs ofcomplex infringement litigation more effectively than we can because they have substantially greater resources. Anyinability to stop third‑party infringement could result in loss in market share of some of our products or even lead to a delay,reduction and/or inhibition of the development, manufacture or sale of certain products by us. There is no assurance that aproduct produced and sold by a third‑party infringer would meet our or other regulatory standards or would be safe for use.Such third‑party infringer products could irreparably harm the reputation of our products thereby resulting in substantial lossin market share and profits.We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosedconfidential information of third parties.We employ individuals who were previously employed at other biotechnology or pharmaceutical companies. Wemay be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwiseused or disclosed confidential information of our employees’ former employers or other third parties. We may also be subjectto claims that former employers or other third parties have an ownership interest in our patents. Litigation may be necessaryto defend against these claims. There is no guarantee of success in defending these claims, and if we do not prevail, we couldbe required to pay substantial damages and could lose rights to important intellectual property. Even if we are successful,litigation could result in substantial cost and be a distraction to our management and other employees.48 Table of ContentsRisks Related to Employee Matters and Managing Growth and Other Risks Related to Our Business We are subject to competition for our skilled personnel and may experience challenges in identifying and retaining keypersonnel that could impair our ability to conduct and grow our operations effectively.Our planned growth and future success depends on our ability to retain our executive officers and to attract, retainand motivate qualified personnel. If we are not successful in attracting and retaining highly qualified personnel, we may notbe able to successfully implement our business strategy. Although we have not experienced problems attracting andretaining highly qualified personnel in the recent past, our industry has experienced a high rate of turnover of managementpersonnel in recent years. Our ability to compete in the highly competitive biotechnology and pharmaceuticals industriesdepends upon our ability to attract and retain highly qualified management, scientific and medical personnel. We are highlydependent on our current management team, whose services are critical to the successful implementation of our productcandidate development and regulatory strategies. In order to induce valuable employees to continue their employment withus, we have provided stock options that vest over time. The value to employees of stock options that vest over time issignificantly affected by movements in our stock price that are beyond our control, and may at any time be insufficient tocounteract more lucrative offers from other companies.Despite our efforts to retain valuable employees, members of our management team may terminate their employmentwith us at any time, with or without notice. Further, we do not maintain “key person” insurance for any of our executives orother employees. The loss of the services of any of our executive officers and our inability to find suitable replacementscould harm our business, financial condition, prospects and ability to achieve the successful development orcommercialization of our product candidates. Our success also depends on our ability to continue to attract, retain andmotivate highly skilled scientific and medical personnel at all levels.In 2016 we began to increase the number of our employees and expand the scope of our operations with a goal ofadvancing multiple clinical candidates into development. The increase in employees, especially in clinical development,places a significant strain on our management, operations and financial resources, and we may have difficulty managing thisfuture potential growth. As we continue to grow our operations and advance our clinical programs into later stages ofdevelopment, it will require us to recruit and retain employees with additional knowledge and skill sets and no assurancecan be provided that we will be able to attract employees with the necessary skill set to assist in our growth. Many of theother biotech and pharmaceutical companies and academic institutions that we compete against for qualified personnel havegreater financial and other resources, different risk profiles and a longer history in the industry than we do. We also mayemploy consultants or part‑time and contract employees. There can be no assurance that these individuals are retainable.While we have been able to attract and retain skilled and experienced personnel and consultants in the past, no assurance canbe given that we will be able to do so in the future.We may become subject to the risk of product liability claims.We face an inherent risk of product liability as a result of the clinical testing of our product candidates and will facean even greater risk if we or our partners commercialize any products. Human therapeutic products involve the risk of productliability claims and associated adverse publicity. Currently, the principal risks we face relate to patients in our clinical trials,who may suffer unintended consequences. Claims might be made by patients, healthcare providers or pharmaceuticalcompanies or others. For example, we may be sued if any product we develop allegedly causes injury or is found to beotherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may includeallegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence,strict liability and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannotsuccessfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limitcommercialization of our product candidates, if approved. Even successful defense would require significant financial andmanagement resources. Regardless of the merits or eventual outcome, liability claims may result in:1.decreased demand for our products due to negative public perception;2.injury to our reputation;49 Table of Contents3.withdrawal of clinical trial participants or difficulties in recruiting new trial participants;4.initiation of investigations by regulators;5.costs to defend or settle the related litigation;6.a diversion of management’s time and resources;7.substantial monetary awards to trial participants or patients;8.product recalls, withdrawals or labeling, marketing or promotional restrictions;9.loss of revenues from product sales; and10.the inability to commercialize any of our product candidates, if approved.We may not have or be able to obtain or maintain sufficient and affordable insurance coverage to cover productliability claims, and without sufficient coverage any claim brought against us could have a materially adverse effect on ourbusiness, financial condition or results of operations. We run clinical trials through investigators that could be negligentthrough no fault of our own and which could affect patients, cause potential liability claims against us and result in delayedor stopped clinical trials. We are required by contractual obligations to indemnify collaborators, partners, third‑partycontractors, clinical investigators and institutions. These indemnifications could result in a material impact due to productliability claims against us and/or these groups. We currently carry at least $10.0 million in product liability insurance, whichwe believe is appropriate for our current clinical trials. Although we maintain such insurance, any claim that may be broughtagainst us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by ourinsurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions, andwe may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded bya court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and wemay not have, or be able to obtain, sufficient capital to pay such amounts. We may also need to expand our insurancecoverage as our business grows or if any of our product candidates is commercialized. We may not be able to maintain orincrease insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standardsand requirements and insider trading.We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could includeintentional failures to comply with FDA regulations, to provide accurate information to the FDA, to comply withmanufacturing standards we have established, to comply with federal and state healthcare fraud and abuse laws andregulations, or to report financial information or data accurately or disclose unauthorized activities to us. In particular, sales,marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended toprevent fraud, misconduct, kickbacks, self‑dealing and other abusive practices. These laws and regulations may restrict orprohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs andother business arrangements. Employee misconduct could also involve the improper use of information obtained in thecourse of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We have adopted aCode of Business Conduct and Ethics, but it is not always possible to identify and deter employee misconduct, and theprecautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks orlosses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be incompliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defendingourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition ofsignificant civil, criminal, and administrative sanctions, and our reputation.50 Table of ContentsIn addition, during the course of our operations our directors, executives, and employees may have access tomaterial, nonpublic information regarding our business, our results of operations, or potential transactions we areconsidering. We may not be able to prevent a director, executive, or employee from trading in our common stock on the basisof, or while having access to, material, nonpublic information. If a director, executive, or employee was to be investigated oran action was to be brought against a director, executive, or employee for insider trading, it could have a negative impact onour reputation and our stock price. Such a claim, with or without merit, could also result in substantial expenditures of timeand money, and divert attention of our management team from other tasks important to the success of our business.We may be vulnerable to disruption, damage and financial obligation as a result of system failures.Despite the implementation of security measures, any of the internal computer systems belonging to us, ourcollaborators or our third‑party service providers are vulnerable to damage from computer viruses, unauthorized access,natural disasters, terrorism, war and telecommunication and electrical failure. Any system failure, accident or security breachthat causes interruptions in our own, in collaborators’ or in third‑party service vendors’ operations could result in a materialdisruption of our drug discovery and development programs. For example, the loss of clinical trial data from completed orfuture clinical trials could result in delays in our or our partners’ regulatory approval efforts and significantly increase ourcosts in order to recover or reproduce the lost data. To the extent that any disruption or security breach results in a loss ordamage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we may incurliability as a result, our drug discovery programs and competitive position may be adversely affected and the furtherdevelopment of our product candidates may be delayed. Furthermore, we may incur additional costs to remedy the damagescaused by these disruptions or security breaches.Our business involves the controlled use of hazardous materials and as such we are subject to environmental andoccupational safety laws. Continued compliance with these laws may incur substantial costs and failure to maintaincompliance could result in liability for damages that may exceed our resources.Our research, manufacturing and development processes, and those of our third‑party contractors and partners,involve the controlled use of hazardous materials. We and our manufacturers are subject to federal, state and local laws andregulations governing the use, manufacture, storage, handling and disposal of such materials and certain waste products. Ouroperations involve the use of hazardous and flammable materials, including chemicals and biological materials. Ouroperations also produce hazardous waste products. The risk of accidental contamination or injury from these materials cannotbe completely eliminated. In the event of such an accident, we could be held liable for any damages that result, and any suchliability could exceed our resources. We are not insured against this type of liability. We may be required to incur significantcosts to comply with environmental laws and regulations in the future, and our operations, business or assets may bematerially adversely affected by current or future environmental laws or regulations or any liability thereunder.Risks Related to Ownership of Our Common Stock The market price of our common stock is likely to be highly volatile, and you could lose all or part of your investment.Prior to our initial public offering (IPO), there was no public market for our common stock. The trading price of ourcommon stock is likely to be volatile. Since our IPO, the trading price of our common stock has ranged from a low ofapproximately $5.75 to a high of approximately $48.38. Our stock price could be subject to wide fluctuations in response toa variety of factors, including the following:1.adverse results or delays in clinical trials by us or our partners;2.inability to obtain additional funding;3.any delay in filing a BLA for any of our product candidates or by our partner’s candidates and any adversedevelopment or perceived adverse development with respect to the FDA’s review of that BLA;51 Table of Contents4.delays or cancellations of clinical programs by any of our partners, particularly those in later stages ofdevelopment;5.failure to successfully develop and commercialize our product candidates;6.changes in laws or regulations applicable to our products;7.inability to obtain adequate product supply for our product candidates, or the inability to do so at acceptableprices;8.adverse regulatory decisions;9.changes in the structure of healthcare payment systems;10.introduction of new products or technologies by our competitors;11.failure to meet or exceed product development or financial projections we provide to the public;12.the perception of the pharmaceutical and biotechnology industry by the public, legislatures, regulators and theinvestment community;13.announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by usor our competitors;14.disputes or other developments relating to proprietary rights, including patents, litigation matters and ourability to obtain patent protection for our technologies;15.additions or departures of key scientific or management personnel;16.significant lawsuits, including patent or stockholder litigation;17.changes in the market valuations of similar companies;18.sales of our common stock by us or our stockholders in the future; and19.trading volume of our common stock.In addition, the stock market in general, and the NASDAQ Global Market and biotechnology companies inparticular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to theoperating performance of these companies. Broad market and industry factors may negatively affect the market price of ourcommon stock, regardless of our actual operating performance.In the past, securities class action litigation has often been brought against a company following a decline in themarket price of its securities. This risk is especially relevant for us because biopharmaceutical companies have experiencedsignificant stock price volatility in recent years. If we face such litigation, it could result in substantial costs and a diversionof management’s attention and resources, which could harm our business.52 Table of ContentsOur principal stockholders, directors and management own a significant percentage of our stock and will be able to exertsignificant control over matters subject to stockholder approval.Based on information available to us as of December 31, 2018 our executive officers, directors, 5% stockholders andtheir affiliates beneficially owned, as a group, approximately 76.97% of our voting stock. Further John S. Stafford III, aformer director of the Company, beneficially owns approximately 12.5% of our voting stock and his family membersbeneficially own approximately an additional 3.8% of our voting stock.Therefore, our officers, directors and 5% stockholders and their affiliates, including Mr. Stafford, will have theability to influence us through this ownership position and so long as they continue to beneficially own a significant amountof our outstanding voting stock. These stockholders may be able to determine all matters requiring stockholder approval andthis concentration of ownership may deprive other stockholders from realizing the true value of our common stock. Forexample, these stockholders, acting together, may be able to control elections of directors, amendments of our organizationaldocuments, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourageunsolicited acquisition proposals, offers for our common stock or other transactions or arrangements that you may believe arein your best interest as one of our stockholders.Raising additional funds through debt or equity financing may be dilutive or restrict our operations and raising fundsthrough licensing may require us to relinquish rights to our technology or product candidates.To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuanceof those securities could result in substantial dilution for our current stockholders and the terms may include liquidation orother preferences that adversely affect the rights of our current stockholders. Existing stockholders may not agree with ourfinancing plans or the terms of such financings. Moreover, the incurrence of debt financing could result in a substantialportion of our operating cash flow being dedicated to the payment of principal and interest on such indebtedness and couldimpose restrictions on our operations. Debt financing and preferred equity financing, if available, may involve agreementsthat include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, makingcapital expenditures or declaring dividends. In addition, if we raise additional funds through product developmentpartnerships and licensing arrangements, it may be necessary to relinquish potentially valuable rights to our products orproprietary technologies, or grant licenses on terms that are not favorable to us. If we are unable to obtain additional fundingon required timelines, we may be required to (1) seek collaborators for one or more of our product candidates at an earlierstage than otherwise would be desirable or on terms that are less favorable than might otherwise be available; (2) relinquishor license on unfavorable terms our rights to technologies or product candidates that we otherwise would seek to develop orcommercialize ourselves; or (3) significantly curtail one or more of our research or development programs or cease operationsaltogether. Additional funding may not be available to us on acceptable terms, or at all.The clinical development stage of our operations may make it difficult for you to evaluate the success of our business todate and to assess our future viability.Our operations to date have been limited to organizing and staffing our company, business planning, raising capital,developing our proprietary XmAb technology platform, identifying potential product candidates, and conducting preclinicalstudies and clinical trials. We have or are currently conducting early phase clinical trials for XmAb5871, XmAb7195,XmAb14045, XmAb13676, XmAb18087, and XmAb20717, but have not completed any late stage clinical trials for these orany other product candidate. We have not yet demonstrated our ability to successfully complete any pivotal clinical trials,obtain regulatory approvals, manufacture a commercial scale product, or arrange for a third party to do so on our behalf, orconduct sales and marketing activities necessary for successful product commercialization. Consequently, any predictionsyou make about our future success or viability may not be as accurate as they could be if we were further advanced indevelopment of our product candidates.In addition, we may encounter unforeseen expenses, difficulties, complications, delays and other known andunknown factors. We will need to transition at some point from a company with a research and development focus to acompany capable of supporting commercial activities. We may not be successful in such a transition.53 Table of ContentsWe expect our financial condition and operating results to continue to fluctuate significantly from quarter to quarterand year to year due to a variety of factors, many of which are beyond our control. Accordingly, you should not rely upon theresults of any quarterly or annual periods as indications of future operating performance.If our internal control over financial reporting is not effective, we may not be able to accurately report our financial resultsor file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financialinformation and may lead to a decline in our stock price.Effective internal control over financial reporting is necessary for us to provide reliable financial reports in a timelymanner. If we fail to adequately staff our accounting and finance function to address the additional demands that will beplaced upon us as a public company, including the requirements of the Sarbanes‑Oxley Act of 2002, or fail to maintainadequate internal control over financial reporting, it could prevent our management from concluding our internal controlover financial reporting is effective and impair our ability to prevent material misstatements in our financial statements,which could cause our business to suffer.As a large accelerated filer, we are subject to additional internal control requirements of the Sarbanes-Oxley Act of2002.Sales of a substantial number of shares of our common stock by our existing stockholders in the public market could causeour stock price to fall.If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in thepublic market, the trading price of our common stock could decline. In addition a substantial number of shares of commonstock are subject to outstanding options that are or will become eligible for sale in the public market to the extent permittedby the provisions of various vesting schedules. If these additional shares of common stock are sold, or if it is perceived thatthey will be sold, in the public market, the trading price of our common stock could decline. Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equityincentive plans, could result in additional dilution of the percentage ownership of our stockholders and could cause ourstock price to fall.We expect that significant additional capital will be needed in the future to continue our planned operations. To theextent we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. We maysell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner, wedetermine from time to time. If we sell common stock, convertible securities or other equity securities in more than onetransaction, investors may be materially diluted by subsequent sales. These sales may also result in material dilution to ourexisting stockholders, and new investors could gain rights superior to our existing stockholders.Pursuant to our 2013 equity incentive plan (2013 plan), subject to board approval, our management is authorized togrant stock options and other equity‑based awards to our employees, directors and consultants. The number of sharesavailable for future grant under the 2013 plan will automatically increase each year by 4% of all shares of our capital stockoutstanding as of December 31 of the prior calendar year, subject to the ability of our Board of Directors to take action toreduce the size of the increase in any given year. As of December 31, 2018, we had options to purchase 5,966,928 sharesoutstanding under our equity compensation plans. In addition, we are also authorized to grant equity awards, including stockoptions, to our employees, directors and consultants, covering up to 9,581,833 shares of our common stock, pursuant to ourequity compensation plans. We plan to register the number of shares available for issuance or subject to outstanding awardsunder our equity compensation plans. If our Board of Directors elects to increase the number of shares available for futuregrant by the maximum amount each year, our stockholders may experience additional dilution, which could cause our stockprice to fall.54 Table of ContentsU.S. federal income tax reform could adversely affect us.In December 2017, U.S. federal tax legislation, commonly referred to as the Tax Cuts and Jobs Act (TCJA), was signedinto law, significantly reforming the Internal Revenue Code of 1986, as amended (IRC). The TCJA, among other things,includes changes to U.S. federal tax rates, imposes significant additional limitations on the deductibility of interest, limitsthe deduction for net operating losses to 80% of current year taxable income, eliminates net operating loss carrybacks, allowsfor the expensing of capital expenditures, puts into effect the migration from a “worldwide” system of taxation to a territorialsystem and modifies or repeals many business deductions and credits. The overall impact of this tax reform is uncertain, andour business and financial condition could be adversely affected.New legislation or regulation which could affect our tax burden could be enacted by any governmental authority. Wecannot predict the timing or extent of such tax-related developments which could have a negative impact on our financialresults. Additionally, we use our best judgment in attempting to quantify and reserve for these tax obligations. However, achallenge by a taxing authority, our ability to utilize tax benefits such as carryforwards or tax credits, or a deviation fromother tax-related assumptions may cause actual financial results to deviate from previous estimates. Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.Our net operating loss (NOL) carryforwards generated in tax years ending on or prior to December 31, 2017, are onlypermitted to be carried forward for 20 years under applicable U.S. tax law. Under the TCJA, our federal NOLs generated in taxyears ending after December 31, 2017, may be carried forward indefinitely, but the deductibility of such federal NOLsgenerated in tax years beginning after December 31, 2017, is limited. It is uncertain if and to what extent various states willconform to the TCJA. In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, andcorresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as agreater than 50% change, by value, in its equity ownership over a three-year period, the corporation’s ability to use its pre-change NOL carryforwards and other pre-change U.S. tax attributes (such as research tax credits) to offset its post-changeincome or taxes may be limited. Upon analysis, we believe that we triggered an “ownership change” as a result of the sale ofstock in connection with our IPO in December 2013 and our net operating loss and tax credit carryforwards have been limitedas a result. It is also possible that we have in the past undergone, and in the future may undergo, additional ownershipchanges besides our IPO that could result in additional limitations on our net operating loss and tax credit carryforwards.As a result, our pre-2018 NOL carryforwards may expire prior to being used, and our NOL carryforwards generated in2018 and thereafter will be subject to a percentage limitation. Similar provisions of state tax law may also apply to limit ouruse of accumulated state tax attributes. In addition, at the state level, there may be periods during which the use of NOLs issuspended or otherwise limited, which could accelerate or permanently increase state taxes owed. As a result, if we earn nettaxable income, we may be unable to use all or a material portion of our NOLs and other tax attributes, which couldpotentially result in increased future tax liability to us and adversely affect our future cash flows. We do not intend to pay dividends on our common stock so any returns will be limited to the value of our stock.We have never declared or paid any cash dividend on our common stock. We currently anticipate that we will retainfuture earnings for the development, operation and expansion of our business and do not anticipate declaring or paying anycash dividends for the foreseeable future. Any return to stockholders will therefore be limited to the appreciation of theirstock. Provisions in our amended and restated certificate of incorporation and bylaws, as well as provisions of Delaware law,could make it more difficult for a third party to acquire us or increase the cost of acquiring us, even if doing so wouldbenefit our stockholders or remove our current management.Some provisions of our charter documents and Delaware law may have anti‑takeover effects that could discouragean acquisition of us by others, even if an acquisition would be beneficial to our stockholders and may prevent attempts byour stockholders to replace or remove our current management. These provisions include:55 Table of Contents·authorizing the issuance of “blank check” preferred stock, the terms of which may be established and shares ofwhich may be issued without stockholder approval;·prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at ameeting of our stockholders;·eliminating the ability of stockholders to call a special meeting of stockholders; and·establishing advance notice requirements for nominations for election to the board of directors or for proposingmatters that can be acted upon at stockholder meetings.These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our currentmanagement by making it more difficult for stockholders to replace members of our Board of Directors, which is responsiblefor appointing the members of our management. In addition, we are subject to Section 203 of the Delaware GeneralCorporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of businesscombinations with an interested stockholder for a period of three years following the date on which the stockholder becamean interested stockholder, unless such transactions are approved by our Board of Directors. This provision could have theeffect of delaying or preventing a change of control, whether or not it is desired by or beneficial to our stockholders. Further,other provisions of Delaware law may also discourage, delay or prevent someone from acquiring us or merging with us. Anyprovision of our certificate of incorporation or bylaws or Delaware law that has the effect of delaying or deterring change incontrol could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and couldalso affect the price that some investors are willing to pay for our common stock. Requirements associated with being a public reporting company will continue to increase our costs significantly, as wellas divert significant company resources and management attention.We have been subject to the reporting requirements of the Exchange Act and the other rules and regulations of theSecurities and Exchange Commission (SEC) since December 2013. Effective for the year-ended December 31, 2016, webecame a large accelerated filer and are subject to additional internal control and SEC reporting obligations. Compliancewith the various reporting and other requirements applicable to public reporting companies requires considerable time,attention of management, and financial resources.Further, the listing requirements of The NASDAQ Global Market require that we satisfy certain corporategovernance requirements relating to director independence, distributing annual and interim reports, stockholder meetings,approvals and voting, soliciting proxies, conflicts of interest and a code of conduct. Our management and other personnelneed to devote a substantial amount of time to ensure that we comply with all of these requirements. Moreover, the reportingrequirements, rules and regulations increase our legal and financial compliance costs and also make some activities moretime‑consuming and costly. These reporting requirements, rules and regulations, coupled with the increase in potentiallitigation exposure associated with being a public company, could also make it more difficult for us to attract and retainqualified persons to serve on our board of directors or board committees or to serve as executive officers, or to obtain certaintypes of insurance, including directors’ and officers’ insurance, on acceptable terms.In addition, being a public company could make it more difficult or more costly for us to obtain certain types ofinsurance, including directors’ and officers’ liability insurance, and we may be forced to accept reduced policy limits andcoverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could alsomake it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees oras executive officers.Any changes we make to comply with these obligations may not be sufficient to allow us to satisfy our obligationsas a public company on a timely basis, or at all.56 Table of Contents Item 1B. Unresolved Staff Comments.None. Item 2. Properties.Our principal laboratory and administrative facilities are located in Monrovia, California, which is located in thegreater Los Angeles region. We currently lease 48,000 square feet of laboratory and office space in Monrovia, California. Theoriginal lease was for 24,000 square feet under a lease that expires June 2020. In July 2017, we entered into an amended leasefor an additional 24,000 square feet of space in the same building. The amended lease is for a 64-month term with an optionto renew for an additional five years at then market rates. The lease terms for the original space were not amended. We alsolease approximately 5,700 square feet of office space in San Diego, California. In June 2017, we entered into a new lease for23,500 of additional space in San Diego. The new lease has a 61-month term beginning from August 2017 and includes anoption to renew for an additional five years. We believe that our existing facilities are adequate to meet our current needs,and that suitable additional alternative spaces will be available to meet future needs on commercially reasonable terms. Item 3. Legal Proceedings.None. Item 4. Mine Safety Disclosures.Not applicable. PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecuritiesMarket InformationOur common stock began trading on The NASDAQ Global Market on December 3, 2013 under the symbol “XNCR.”Prior to such time, there was no public market for our common stock. On February 15, 2019, the closing price for our commonstock as reported on the NASDAQ Global Market was $36.46. Holders of RecordAs of February 15, 2019, we had 56,292,169 shares of common stock outstanding held by approximately 200stockholders of record. The actual number of stockholders is greater than this number of record holders, and includesstockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees. This numberof holders of record also does not include stockholders whose shares may be held in trust by other entities.Dividend PolicyWe have never declared or paid any cash dividends on our common stock. We currently intend to retain allavailable funds and any future earnings to support our operations and finance the growth and development of our business.We do not intend to pay cash dividends on our common stock for the foreseeable future. Any future determination related toour dividend policy will be made at the discretion of our board of directors and will depend upon, among other factors, ourresults of operations, financial condition, capital requirements, contractual restrictions, business prospects and other factorsour board of directors may deem relevant.57 Table of ContentsSecurities Authorized for Issuance Under Equity Compensation PlansInformation about our equity compensation plans is incorporated herein by reference to Item 12 of Part III of thisAnnual Report.Performance GraphThe following graph shows a comparison from December 31, 2013 through December 31, 2018 of the cumulativetotal return for our common stock, the NASDAQ Biotechnology Index (NBI) and the NASDAQ Composite Index (CCMP).The graph assumes an initial investment of $100 on December 31, 2013 and assumes reinvestment of the full amount of alldividends, if any. The comparisons in the graph are not intended to forecast or be indicative of possible future performance ofour common stock.The performance graph shall not be deemed to be incorporated by reference by means of any general statement incorporating byreference this Form 10‑K into any filing under the Securities Act of 1933, as amended or the Exchange Act, except to the extent thatwe specifically incorporate such information by reference, and shall not otherwise be deemed filed under such acts.Recent Sales of Unregistered SecuritiesThere were no sales of unregistered securities during the year ended December 31, 2018.Purchases of Equity Securities by the Issuer and Affiliated PurchasersNone.58 Table of Contents Item 6. Selected Financial Data.The selected financial data set forth below as of December 31, 2018 and 2017, and for the years ended December 31, 2018, 2017,and 2016, are derived from our audited financial statements included elsewhere in this report. This information should be read in conjunctionwith those financial statements and notes thereto and with “Management’s Discussion and Analysis of Financial Condition and Results ofOperations.” The selected financial data set forth below as of December 31, 2016 and 2015 are derived from our audited financial statementsthat are contained in reports previously filed with the SEC, not included herein. Periods prior to 2018 have been revised to reflect the adoptionof Accounting Standards Codification Topic 606 (ASC 606) related to changes in standards for revenue recognition. Revised financial dataunder ASC 606 as of and for the year ended December 31, 2014 have not been subjected to audit. Amounts are in thousands, except shareand per share amounts. Year Ended December 31, 2018 2017 2016 2015 2014 (As Revised) (As Revised) (As Revised) (As Revised)Statement of Operations Data: Revenues $40,603 $46,150 $109,020 $26,602 $7,700Operating expenses: Research and development 97,501 71,772 51,872 34,140 18,516General and administrative 22,472 17,501 13,108 11,960 7,461Total operating expenses 119,973 89,273 64,980 46,100 25,977Income (loss) from operations (79,370) (43,123) 44,040 (19,498) (18,277)Other income (expenses) Interest income 9,102 4,194 2,091 1,840 33Interest expense (16) (13) (21) (13) (9)Other income (expense) (125) (7) 6 (1,081) 11Total other income, net 8,961 4,174 2,076 746 35Net income (loss) before income tax (70,409) (38,949) 46,116 (18,752) (18,242)Income tax expense (benefit) — (463) 991 — —Net income (loss) attributable to commonstockholders $(70,409) $(38,486) $45,125 $(18,752) $(18,242)Other comprehensive income (loss) Net unrealized gain (loss) on marketablesecurities available-for-sale, net of tax 837 (367) (925) (516) —Comprehensive income (loss) $(69,572) $(38,853) $44,200 $(19,268) $(18,242) Net income (loss) per share attributable tocommon stockholders (1): Basic $(1.31) $(0.82) $1.09 $(0.48) $(0.58)Diluted $(1.31) $(0.82) $1.07 $(0.48) $(0.58)Weighted average shares of common stockused in computing net income (loss) per shareattributable to common stockholders: Basic 53,942,116 46,817,756 41,267,329 39,015,131 31,390,631Diluted 53,942,116 46,817,756 42,388,867 39,015,131 31,390,631(1)See Note 1 to our Annual Financial Statements appearing elsewhere in this document for a description of the method used tocalculate basic and diluted income (loss) per common share.59 Table of Contents As of December 31, (in thousands) 2018 2017 2016 2015 2014 (As Revised) (As Revised) (As Revised) (As Revised)Balance Sheet Data: Cash, cash equivalents and marketablesecurities $530,469 $363,328 $403,476 $193,321 $54,649Working capital 261,874 158,229 50,720 54,883 52,205Patents, licenses, and other intangible assets, net 11,969 11,148 10,362 9,971 9,116Total assets 576,732 390,202 429,263 208,210 69,723Deferred revenue 40,079 60,118 80,168 32,650 2,852Total stockholders’ equity $521,681 $316,464 $337,933 $164,911 $62,929 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.You should read the following discussion and analysis together with “Item 6. Selected Financial Data” and our financial statementsand related notes included elsewhere in this Annual Report. The following discussion contains forward‑looking statements that involve risksand uncertainties. Our actual results could differ materially from those expressed or implied in any forward‑looking statements as a result ofvarious factors, including those set forth under the caption “Item 1A. Risk Factors.”OverviewWe are a clinical‑stage biopharmaceutical company focused on discovering and developing engineered monoclonalantibody and other protein therapeutics to treat severe and life‑threatening diseases with unmet medical needs. We aredeveloping a suite of clinical-stage drug candidates from our proprietary XmAb® technology platforms that are designed totreat cancer, autoimmune and allergic diseases, and other conditions. In contrast to conventional approaches to antibodydesign, which focus on the portion of antibodies that interact with target antigens, our protein engineering efforts and theXmAb technologies are focused on the portion of the antibody that interacts with multiple segments of the immune systemand controls antibody structure. This portion, referred to as the Fc domain, is constant and interchangeable amongantibodies. Our engineered Fc domains, the XmAb technology, can be readily substituted for natural Fc domains.We believe our Fc domains enhance antibody performance by, for example, increasing immune inhibitory activity,improving cytotoxicity, extending circulating half‑life, or stabilizing novel antibody and other protein structures, whilemaintaining 99.5% identity in structure and sequence to natural antibodies. The most recent expansion of our platform is theXmAb bispecific Fc domains, which enable the rapid design and simplified development of antibodies, and other proteinstructures, that bind two or more different targets simultaneously. By designing antibodies and other protein molecules withimproved function, we believe that our XmAb‑engineered proteins offer innovative approaches to treating disease andpotential clinical advantages over other treatments.Our business strategy is based on the plug‑and‑play nature of the XmAb technology, allowing us to create newantibody drug candidates for our internal development or licensing, or to selectively license access to one or more of ourXmAb technologies to pharmaceutical or biotechnology companies to use in developing their own proprietary antibodieswith improved properties. Our protein engineering capabilities and the modular nature of our technology allows us toquickly identify and create multiple drug candidates for potential development. We have applied our XmAb technology to:1.develop a pipeline of drug candidates from our bispecific Fc domains that we are developing on our own andwith our partners,2.develop XmAb antibody candidates from our other Fc technologies through early stage of development andthen license them to partners for continued development, and60 Table of Contents3.apply our Fc technologies to partner created antibodies. These transactions generally require very little efforton our part.Our many partnerships and licensing transactions provide us with multiple revenue streams that help funddevelopment of our product candidates and usually require limited resources or efforts from us. In 2018, we received $20.5million in milestones from our partners and in February 2019, we announced a collaboration with Genentech for which wewill receive an upfront payment of $120 million. There are currently 12 antibody product candidates in clinical trials thathave been engineered with XmAb technology, two additional candidates have IND applications allowed by the FDA and willbegin Phase 1 trials in 2019, and two more programs are in the preclinical stage of development.In December 2018, the FDA approved the first antibody that incorporates our Fc technology. ALXN1210, nowUltomiris™, was approved by the United States Food and Drug Administration (FDA) for commercial marketing. Ultomiris isa complement inhibitor indicated for the treatment of adult patients with paroxysmal nocturnal hemoglobinuria (PNH), thatis being developed by our partner Alexion, and incorporates our Xtend® Fc technology which allows for longer duration ofaction and less frequent dosing regimens compared to the previously approved therapy, Soliris®. There are five additionalclinical candidates being advanced by licensees and development partners.We have created a suite of compounds developed from our XmAb bispecific Fc domains that we wholly-own or aredeveloping with our partners. These bispecific Fc domains are used to generate a broad array of novel drug candidates.The initial bispecific candidates that we designed were created with our engineered heterodimer Fc domain, orbispecific Fc domain, and are dual-antigen targeting molecules, containing an anti-tumor associated antigen binding domainand a second binding domain targeted to CD3, an activating receptor on T-cells. We are advancing three CD3 bispecificcandidates through clinical development: XmAb14045, XmAb13676, and XmAb18087.·XmAb14045 is a bispecific antibody that targets CD123, an antigen on acute myeloid leukemia (AML) cellsand leukemic stem cells, and CD3, a cytotoxic T-cell binding domain.It is being developed in collaboration with our partner Novartis and is being evaluated in a Phase 1 study inpatients with relapsed or refractory acute myeloid leukemia (AML). We presented initial data from the study inDecember 2018 at ASH. The data presented indicated multiple complete responses had been achieved withweekly dosing of XmAb14045 in this heavily-pretreated patient population. 28% of evaluable AML patientsachieved either a complete remission (CR) or CR with incomplete homological recovery (CRi) at the twohighest dose levels studies to date.In February 2019, we received notice from the FDA placing the XmAb14045 study on partial clinical hold dueto safety issues of cytokine release syndrome and pulmonary toxicities. Under the partial hold, existing subjectson the trial may continue to receive dosing; however, no new subjects may be enrolled pending FDA review ofa clinical hold response.The partial hold was initiated following recent safety reports Xencor submitted to the FDA on two patientdeaths that were considered at least possibly related to XmAb14045. One patient experienced cytokine releasesyndrome (CRS) after their first dose, the treatment of which was complicated by the patient’s decision towithdraw care. One subject developed acute pulmonary edema following several doses of XmAb14045. Items tobe addressed in the response include analysis of CRS cases per dosing level, efficacy information, and strategiesto mitigate the observed toxicities. We are coordinating a response to the partial hold by the FDA with our partner, Novartis, and plan to continuedevelopment of XmAb14045 pending resolution of the partial hold.61 Table of Contents·XmAb13676 is a bispecific antibody that targets CD20, an antigen on B-cell tumors, and CD3 for the treatmentof B-cell malignancies. In February 2017, we dosed the first patient in an open-label, Phase 1, multiple-dose,dose escalation study to assess the safety, tolerability, and preliminary anti-tumor activity of XmAb13676 inpatients with B-cell malignancies. This program was also partnered with Novartis as part of our Novartiscollaboration. In December 2018, as part of a strategic realignment of their pipeline, Novartis notified us of itsdecision to return its rights to XmAb13676, which is effective June 21, 2019. Under the Novartis Agreement,Novartis will be responsible for funding its share of the development costs for the program through June 2020.We plan to continue develop XmAb13676 as planned and expect to present initial data from the Phase 1 studyin the second half of 2019.·XmAb18087 is a bispecific that targets somatostatin receptor 2, or SSTR2, and the cytotoxic T-cell bindingdomain CD3 for the treatment of neuroendocrine tumors (NET) and gastrointestinal stromal tumors (GIST). InFebruary 2018, we dosed our first patient in a Phase 1 study. XmAb18087 is our first CD3 bispecific to beevaluated in solid tumors. We expect to provide initial data from this study in the second half of 2019.We are also advancing into clinical development a suite of tumor microenvironment activators that have beendesigned to promote tumor-selective T-cell activation by targeting multiple checkpoint or co-stimulatory receptors. We areadvancing three TME activator candidates through clinical development: XmAb20717, XmAb22841, and XmAb23104:·XmAb20717 simultaneously targets PD-1 and CTLA-4 and is being developed in broad oncology indicationsincluding solid tumors. In July 2018, we dosed the first patient in an open label Phase 1 dose-escalation studyto assess the safety, tolerability, and preliminary anti-tumor activity of XmAb20717 in patients with selectedsolid tumors. We expect to provide initial data from this study in the second half of 2019.·XmAb23104 targets PD-1 and ICOS, an immune co-stimulatory receptor, and is being developed for multipleoncology indications. In October 2018, the FDA approved our IND application for the study of XmAb23104.We have planned an open-label, Phase 1, dose-escalation study to assess the safety, tolerability and preliminaryanti-tumor activity of XmAb23104 in patients with selected solid tumors, and we plan to dose the first patientin the first half of 2019.·XmAb22841 targets CTLA-4 and LAG-3, also an immune checkpoint receptor, and is being developed formultiple indications. We intend to advance XmAb22841 in combination with an anti-PD-1 drug to create atriple checkpoint blockade. In November 2018, the FDA approved our IND application for the study ofXmAb22841. We have planned an open-label, Phase 1, dose-escalation study to assess the safety, tolerability,and preliminary anti-tumor activity of XmAb22841 in patients with selected solid tumors, and we plan to dosethe first patient in the first half of 2019.In 2018, we expanded our bispecific Fc platform with the design of our novel cytokine candidates. These cytokinesare built on our bispecific Fc domain and have potency tuned to improve therapeutic index. These candidates alsoincorporate our Xtend technology for longer duration of action. Our first cytokine candidate is XmAb24306, an IL15/IL15-receptior alpha complex fused to a bispecific domain (IL15/IL15Ra-Fc). We believe that IL-15 cytokines, like XmAb24306,will be an optimal candidate for oncology combination therapies.·XmAb24306 is currently in IND-enabling studies, and we will support Genentech’s efforts to submit an IND forthis candidate in the second half of 2019. We believe a broad combination development strategy will be criticalto realize the potential of IL-15 cytokines. In February 2019, we entered into a research and license agreementwith Genentech to develop and commercialize novel IL-15 cytokine therapeutics, whereby the companies willco-develop XmAb24306 and other potential IL-15 programs. We have also created a suite of wholly-owned compounds using our Immune Inhibitor Fc Domain.62 Table of Contents·XmAb5871 uses our XmAb Immune Inhibitor Fc Domain and targets CD19 with its variable domain, which isdesigned to inhibit the function of B cells, an important component of the immune system. We have completedPhase 2 clinical trials for XmAb5871 in three autoimmune diseases: SLE, IgG4-RD, and RA. In October 2018, we presented topline data from the Phase 2 study of XmAb5871 in patients with SLE at theAmerican College of Rheumatology (ACR) annual meeting. The primary endpoint of the study was theproportion of patients with no loss of improvement (LOI) (i.e. maintenance of improvement) in the efficacy-evaluable population. Improvement was maintained at Day 225 by 42% of patients in the XmAb5871-treatedarm, compared to 28.6% of patients in the placebo-treated arm, which did not meet the primary endpoint forstatistical significance.The SLE study did meet secondary endpoints included evaluations of time to LOI. Patients in the efficacy-evaluable population treated with XmAb5871 experienced a statistically significant longer time to LOI,compared to placebo-treated patients, which represented a 76% improvement in median time to LOI and a 47%reduction in risk of LOI. XmAb5871 was well tolerated, and its safety profile was consistent with previous trials.In November 2017 we presented final data from the IgG4-RD Phase 2 trial at the ACR annual meeting.We have also completed an additional Phase 1 trial for a subcutaneous formulation of XmAb5871.We believe that the data from the studies of XmAb5871 in patients with SLE and IgG4-RD support furtherdevelopment in these indications and show the potential of XmAb5871 in other B-cell mediated autoimmuneindications. We are seeking to partner XmAb5871 with a partner that has the infrastructure and resources tocontinue late-stage development of XmAb5871 and maximize the potential of this candidate for a broad set ofpatient populations.·XmAb7195 uses our Immune Inhibitor Fc Domain and is being developed for the treatment of severe asthmaand allergic diseases. In May 2016, we reported complete data from the Phase 1a trial with XmAb7195 treatingsubjects with high baseline IgE levels. In 2017 we announced data from a Phase 1b trial for XmAb7195 with asubcutaneous formulation. The data from the trial showed that subcutaneous administration of XmAb7195 waswell tolerated and effective at reducing free and total IgE levels in subjects in the study. The results supportsubcutaneous delivery for future development. We are seeking a development partner for XmAb7195.We have also created antibodies which we have licensed to other pharmaceutical and biotechnology companies forfurther development. These include MOR208, an antibody in Phase 3 development, which we licensed to MorphoSys, and aCD38 x CD3 bispecific antibody candidate which included XmAb13551 and antibody components used to assembleAMG424, which we licensed to Amgen. In 2017 MorphoSys advanced MOR208 into a Phase 3 clinical trial and MorphoSyshas indicated plans to file a BLA in the U.S. in 2019. Amgen has started a Phase 1 study for AMG424 and also has apreclinical candidate, AMG509, that was created with our bispecific Fc domain, advancing into development. There arecurrently five other programs where we have licensed our technology to partners for use in development programs with theirown molecules, and four of these programs are in clinical development. The most advanced is Ultomiris, formerlyALXN1210. In 2018, Alexion submitted marketing authorization applications for Ultomiris to the regulatory authorities inthe U.S., Europe, and Japan for the treatment of adult patients with paroxysmal nocturnal hemoglobinuria (PNH), and inDecember 2018, Alexion received FDA approval.We have over 750 issued and pending patents worldwide to protect our XmAb technology platform and XmAb drugcandidates.63 Table of ContentsKey Company MilestonesGenentech Collaboration: In February 2019, we entered into a research and license agreement with Genentech(Genentech Agreement) to develop and commercialize novel IL-15 cytokine therapeutics that use our bispecific Fctechnology, including XmAb24306, in the areas of cancer immunotherapy. We will jointly collaborate on the worldwidedevelopment of XmAb24306 and other IL-15 cytokine therapeutics, each a “Collaboration Product” with Genentechmaintaining worldwide commercialization rights, subject to us having a co-promotion option in the U.S. We retained theright to perform clinical studies of Collaboration Products in combination with other therapeutic agents, subject to certainrequirements. Genentech received a worldwide exclusive license to the XmAb24306 and other Collaboration Products.Under the Genentech Agreement, we will receive an upfront payment of $120 million and are eligible to receive upto $160 million in clinical milestone payments for each Collaboration Product that advances to Phase 3 clinical trials. We areeligible to receive a 45% share of net profits from sales of XmAb24306 and other Collaboratio Products, while also sharing inthe net losses at the same percentage rate and we will jointly share in 45% of development and commercialization costs. Wewill conduct a two-year joint research program with Genentech to discover additional programs around the IL-15 cytokinetechnology and will receive a $20 million milestone payment upon the initiation of each Phase 1 clinical trial for each newCollaboration Product developed under a research plan.The Genentech Agreement is subject to customary closing conditions, including clearance under the Hart-Scott-Rodino Antitrust Improvements Act, and closing is expected to occur in the first quarter of 2019.Novartis Collaboration. In June 2016, we entered into a Collaboration and License Agreement with Novartis(Novartis Agreement) to develop and commercialize bispecific and other Fc engineered antibody drug candidates using theCompany’s proprietary XmAb technologies and drug candidates. Under the Novartis Agreement, we licensed certain rights toour two lead bispecific candidates, XmAb14045 and XmAb13676, to Novartis including the right for Novartis tocommercialize drug products from both programs in all worldwide territories outside the U.S. We are co-developingXmAb14045 worldwide and sharing development costs equally. We will also apply our bispecific technology to up to fourNovartis identified antibodies and will also license other Fc technologies to Novartis. We received a non-refundable upfrontpayment of $150 million and are eligible to receive up to $2.1 billion in milestone payments under the Novartis Agreement.In December 2018, Novartis notified us of its decision to return its rights with respect to the XmAb13676 program.Novartis will continue to fund its share of development costs for the XmAb13676 program through June 2020 and we plan tocontinue development of the program.Licensing Partnerships. In addition to Novartis and Genentech collaborations, we have four other licensingpartnerships for the licensing of our XmAb technology. These arrangements provide research funding, upfront payments andannual licensing fees in addition to potential milestones and contractual payments as our partners advance compounds thatincorporate our technology through clinical development.During 2018, Alexion submitted regulatory filings for Ultomiris in the U.S., European Union and Japan. InDecember 2018, Alexion received approval from the FDA for the treatment of adult patients with PNH. We received a total of$20 million in regulatory milestone payments from Alexion for Ultomiris in 2018. In November 2018, Amgen beganpreclinical studies for AMG509, for intended clinical development for patients with prostate cancer, and we received a $0.5million milestone payment.Bispecific Fc programs. We continue to advance our pipeline with bispecific Fc antibodies and cytokines thatincorporate our XmAb bispecific Fc domain, which allow us to create molecules that bind to multiple different targets. Byusing an Fc as an integral part of the molecule, we impart the advantages of natural antibody features, including enabling itto retain or enhance favorable half-life, simplifying manufacturing processes and modulating potency to reduce toxicity.64 Table of ContentsWe have initiated the Phase 1 trials for four bispecific oncology candidates: XmAb14045, XmAb13676, XmAb18087, and XmAb20717. We have received FDA approval of our IND applications for our next two candidates,XmAb22841 and XmAb23104, and we will be initiating Phase 1 trials in the first half of 2019. We are in preclinicaldevelopment for our first bispecific Fc domain cytokine candidate, XmAb24306, and we plan to submit an IND for thiscandidate in the second half of 2019.In March 2018, we completed the sale of 8,395,000 shares of common stock in an underwritten follow-on financingand raised net proceeds of $245.5 million after deducting underwriters’ commissions and expense of the sale. Financial Operations OverviewRevenuesOur revenues to date have been generated primarily from our collaboration agreements and our technologylicensing agreements. Revenue recognized from our collaboration agreements includes non-refundable upfront payments andmilestone payments while revenue from our technology licensing agreements includes upfront payments, annualmaintenance fees, option payments to obtain commercial licenses and milestone payments. Since our inception throughDecember 31, 2018, we have generated $266.2 million in revenues under the various product development partnership andtechnology license arrangements. Several of our product development partnership and technology license agreementsprovide us the opportunity to earn future milestone payments, royalties on product sales and option exercise payments.Summary of Collaboration and Licensing Revenue by PartnerThe following is a comparison of collaboration and licensing revenue for the years ended December 31, 2018, 2017and 2016 (in millions): Year Ended December 31, 2018 2017 2016 (As Revised) (As Revised) Amgen $0.6 $10.0 $31.2 Alexion 20.0 — 5.0 CSL — 3.5 — MorphoSys — 12.5 — Novo Nordisk — — 2.7 Novartis 20.0 20.1 69.9 Other — 0.1 0.2 Total $40.6 $46.2 $109.0 65 Table of ContentsResearch and Development ExpensesResearch and development expenses consist primarily of salaries, benefits, stock‑based compensation and relatedpersonnel costs, supplies, facility costs and preclinical testing costs, clinical trial costs and fees paid to external serviceproviders. External service providers include contract research organizations (CRO) and contract manufacturingorganizations (CMO) to conduct clinical trials, manufacturing and process development, IND‑enabling toxicology testingand formulation of clinical drug supplies. We expense research and development expenses as incurred. We account fornonrefundable advance payments for goods and services that will be used in future research and development activities asexpense when the service has been performed or when the goods have been received. We estimate contract manufacturing,preclinical study and clinical trial expenses based on the services performed pursuant to the contracts with manufacturing,research institutions and clinical research organizations that manufacture and conduct and manage preclinical studies andclinical trials on our behalf based on the actual time and expenses incurred by them. We accrue expenses related to clinicaltrials based on the level of patient enrollment and activity according to the related agreement. We monitor patient enrollmentlevels and related activity to the extent reasonably possible and adjust estimates accordingly. Our estimates of clinical trialexpense have fluctuated on a period‑to‑period basis due to changes in the stage of the clinical trials and patient enrollmentlevels. We expect to experience a continuing pattern of fluctuations in clinical trial expenses as current clinical trials arecompleted and as we initiate additional and later stage clinical trials. To date, we have not experienced significantdifferences between our periodic estimates of clinical trial expense and the actual costs incurred. We expect changes in futureclinical trial expenses to be driven by changes in service provider costs and changes in clinical stage and patient enrollment.We have incurred a total of $466.1 million in research and development expenses from inception through December 31,2018.We expect that our research and development expenses may increase over spending levels in recent years if we aresuccessful in advancing XmAb14045, XmAb13676, XmAb18087, XmAb20717, XmAb22841, XmAb23104, XmAb24306, orany of our other preclinical programs into advanced stages of clinical development. The process of conducting preclinicalstudies and clinical trials necessary to obtain regulatory approval is costly and time‑consuming. We or our partners maynever succeed in achieving marketing approval for any of our product candidates. Numerous factors may affect theprobability of success for each product candidate, including preclinical data, clinical data, competition, manufacturingcapability, approval by regulatory authorities and commercial viability.Our research and development operations are conducted such that design, management and evaluation of results ofall of our research and development is performed internally, while the execution of certain phases of our research anddevelopment programs, such as toxicology studies in accordance with Good Laboratory Practices (GLP), and manufacturingin accordance with current Good Manufacturing Practices (cGMP), is accomplished using CROs and CMOs. We account forresearch and development costs on a program‑by‑program basis except in the early stages of research and discovery, whencosts are often devoted to identifying preclinical candidates and improving our discovery platform and technologies, whichare not necessarily allocable to a specific development program. We assign costs for such activities to distinct projects forpreclinical pipeline development and new technologies. We allocate research management, overhead, commonly usedlaboratory supplies and equipment, and facility costs based on the number of full‑time research personnel allocated to eachprogram.66 Table of ContentsThe following is a comparison of research and development expenses for the years ended December 31, 2018, 2017and 2016 (in millions): Year Ended December 31, 2018 2017 2016 Product programs: XmAb5871 programs $23.0 $20.3 $17.3 XmAb7195 program 0.8 3.4 7.5 Bispecific programs CD-3 23.1 21.3 17.9 TME checkpoints 33.1 20.7 5.8 Cytokines 7.7 — — Subtotal Bispecific programs 63.9 42.0 23.7 Other, research and early stage programs 9.8 6.1 3.4 Total research and development expenses $97.5 $71.8 $51.9 General and Administrative ExpensesGeneral and administrative expenses consist primarily of salaries and related benefits, including stock‑basedcompensation related to our executive, finance, business development and support functions. Other general andadministrative expenses include rent and utilities, travel expenses and professional fees for auditing, tax and legal services.Other Income, NetFor the years ended December 31, 2018, 2017 and 2016, other income, net consists primarily of interest income fromour investments during the years. Critical Accounting Policies, Significant Judgments and EstimatesOur management’s discussion and analysis of our financial condition and results of operations is based on ourfinancial statements, which have been prepared in accordance with accounting principles generally accepted in the UnitedStates (GAAP). The preparation of our financial statements in conformity with GAAP requires our management to makeestimates and assumptions that affect the amounts and disclosures reported in the financial statements and accompanyingnotes. Actual results could differ materially from those estimates. Our management believes judgment is involved indetermining revenue recognition, the fair value‑based measurement of stock‑based compensation, the fair value estimate ofmarketable securities, the capitalization and recoverability of intellectual property costs, valuation of deferred tax assets andaccruals. Our management evaluates estimates and assumptions as facts and circumstances dictate. As future events and theireffects cannot be determined with precision, actual results could differ from these estimates and assumptions, and thosedifferences could be material to the financial statements. If our assumptions change, we may need to revise our estimates, ortake other corrective actions, either of which may also have a material adverse effect on our statements of operations,liquidity and financial condition.While our significant accounting policies are described in more detail in Note 1 to our financial statements includedelsewhere in this Annual Report on Form 10‑K, we believe the following accounting policies to be critical to the judgmentsand estimates used in the preparation of our financial statements.Revenue RecognitionWe have, to date, earned revenue from research and development collaborations, which may include research anddevelopment services, licenses of our internally-developed technologies, licenses of our internally-developed drugcandidates, or combinations of these.67 Table of ContentsThe terms of our license and research and development and collaboration agreements generally include non-refundable upfront payments, research funding, co-development reimbursements, license fees and, milestone and othercontingent payments to us for the achievement of defined collaboration objectives and certain clinical, regulatory andsales‑based events, as well as royalties on sales of any commercialized products.The terms of our licensing agreements include non‑refundable upfront fees, annual licensing fees, and contractualpayment obligations for the achievement of pre‑defined preclinical, clinical, regulatory and sales‑based events by ourpartners. The licensing agreements also include royalties on sales of any commercialized products by our partners.As described in “Recent Accounting Pronouncements” in the notes to the financial statements included in thisAnnual Report on Form 10-K, effective January 1, 2018, the Company adopted ASC 606. Subsequent to the adoption, theCompany recognizes revenue through the five-step process in accordance with ASC 606 Revenue Recognition when controlof the promised goods or services is transferred to our customers in an amount that reflects the consideration we expect to beentitled to in exchange for those goods or services.The Company used the full retrospective method and as a result the Company has revised its comparative financialstatements for the prior period as if ASC 606 had been in effect for that period.The most significant changes to revenue recognition under ASC 606 relate to the timing of revenue recognized forarrangements that include licensing of our technologies. Under ASC 606 revenue related to licensing of access to ourtechnologies is recognized at inception of the agreement, generally the effective date of the agreement. For existing licensingarrangements, the effect of ASC 606 is to shift revenue to earlier periods. Approximately $11.3 million of licensing revenuethat was being recognized over the five-year period 2016-2021 is being recognized in the second quarter of 2016.The other significant change under ASC 606 relates to the timing of collaboration revenue when the Companycompletes its performance obligations for delivery of a drug candidate to its collaboration partners after applying itstechnologies. For existing collaborations, the effect of ASC 606 is to accelerate revenue recognition to earlierperiods. Approximately $6.25 million of collaboration revenue recognized in 2017 and 2018 under historical accountingguidance is being recognized in 2016 under ASC 606. An additional $20.5 million of collaboration revenue that would berecognized in 2018 is being recognized in 2017. Capitalized Intellectual Property CostsWe capitalize and amortize third‑party intellectual property costs such as amounts paid to outside patent counsel forfiling, prosecuting and obtaining patents for our internally developed technologies and product candidates, to the extentsuch patents are deemed to have probable future economic benefit. We also capitalize amounts paid to third parties forlicenses that we acquire for intellectual property or for research and development purposes. The net capitalized patents,licenses and other intangible assets as of December 31, 2018 and 2017 was $12.0 million and $11.1 million, respectively. Webelieve that these costs should be capitalized as the intellectual property portfolio is the underlying property right to ourtechnologies and product candidates and supports the upfront payments, licensing fees, and milestone payments made by ourcollaboration partners for licensing our technologies and product candidates.We begin amortization of capitalized patent costs during the period that we obtain a patent relating to thecapitalized cost over the shorter of the patent life or the estimated economic useful life. Capitalized licensing costs areamortized beginning in the period that access to the license or technology is available and is amortized over the shorter ofthe license term or the estimated economic useful life of the licensed asset. Such amortization is reflected in the General andAdministrative section of our Statement of Comprehensive Income (Loss).68 Table of ContentsOn a regular basis we review the capitalized intellectual property portfolio and determine if there have been changesin the scientific or patent landscape that leads us to decide to abandon an in‑process patent application or abandon apreviously issued patent. While we confer with outside patent counsel, the decision to continue prosecuting certain patentclaims or abandon other claims are made by us based on our judgment and existing knowledge of our technology, currentU.S. and foreign patent authority rulings and expected rulings, and scientific advances and patent filings by competitorsoperating in our technology or drug development field. We record an expense for the write-off of capitalized intangibleassets in the period that the decision to abandon a claim or license is made. We also review the carrying value of capitalizedlicensing costs on a regular basis to determine if there have been any changes to the useful life or estimated amortizationperiod over which the costs should be amortized. We recorded a charge for abandoned intangible assets of $0.2 million, $0.4million and $0.4 million for the years ended December 31, 2018, 2017 and 2016, respectively. Such charges are reflected inthe General and Administrative section of our Statement of Comprehensive Income (Loss).We determine if there has been an impairment of our intangible assets which include the capitalized patent andlicensing costs whenever events such as recurring operating losses or changes in circumstances indicate that the carryingamount of the assets may not be recoverable.Accrued Research and Development ExpensesAs part of the process of preparing our financial statements, we are required to estimate our accrued research anddevelopment expenses. This process involves reviewing contracts and purchase orders, reviewing the terms of our licenseagreements, communicating with our applicable personnel to identify services that have been performed on our behalf, andestimating the level of service performed and the associated cost incurred for the service when we have not yet been invoicedor otherwise notified of actual cost. The majority of our service providers invoice us monthly in arrears for servicesperformed. We make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances knownto us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments ifnecessary. Examples of estimated accrued research and development expenses include fees to:·contract research organizations and other service providers in connection with clinical studies;·contract manufacturers in connection with the production of and testing of clinical trial materials; and·vendors in connection with preclinical development activities.We base our expenses related to clinical studies on our estimates of the services received and efforts expendedpursuant to contracts with multiple research institutions and contract research organizations that conduct and manageclinical studies on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract tocontract, and may result in uneven payment flows and expense recognition. Payments under some of these contracts dependon factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing thesecosts, we estimate the time period over which services will be performed for which we have not been invoiced and the levelof effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from ourestimate, we adjust the accrual accordingly. Our understanding of the status and timing of services performed relative to theactual status and timing of services performed may vary and may result in our reporting changes in estimates in any particularperiod.69 Table of ContentsIncome TaxesDeferred tax assets and liabilities are determined based on differences between the financial reporting and tax basisof assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when thedifferences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized asincome in the period that such tax rate changes are enacted. The measurement of a deferred tax asset is reduced, if necessary,by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized.Financial statement recognition of a tax position taken or expected to be taken in a tax return is determined based on a more-likely-than not threshold of that position being sustained. If the tax position meets this threshold, the benefit to berecognized is measured as the largest amount that is more than 50% likely to be realized upon ultimate settlement. Ourpolicy is to record interest and penalties related to uncertain tax positions as a component of income tax expense. TheCompany has concluded that there are no material uncertain tax positions and has not recorded an income tax expense orliability for uncertain tax positions as of December 31, 2018.On December 22, 2017, the “Tax Cuts and Jobs Act” (TCJA) was enacted into law, which beginning in 2018, madeseveral changes to U.S. corporate income tax provisions. We have identified changes in the TCJA which will have a materialeffect on our tax provision and future tax obligations. The TCJA reduced the U.S. corporate rate from a maximum rate of 35%to 21% effective January 1, 2018. The effect of this change was to reduce the potential future tax benefits from our deferredtax assets by $19.6 million that we had as of December 31, 2017. We have deferred income taxes as of December 31, 2017from deferred revenue and net operating loss carryforwards and the reduction in the U.S. rate reduced the future value of theseassets. The TCJA also changed the potential benefit of net operating losses incurred after January 1, 2018. The new laweliminated the ability to carryback net operating losses to prior years and also limited the amount of net operating lossesincurred post January 1, 2018 that could be used to offset taxable income to 80% of the taxable income generated in any oneyear.The other material change in our tax provision from the TCJA is elimination of the U.S. corporate alternativeminimum tax (AMT) system and allowance for a tax refund for AMT credit carryovers as of December 31, 2017. We recordedan income tax receivable related to AMT credit carryovers of $1.6 million as of December 31, 2018.We recorded net deferred tax assets of $82.5 million as of December 31, 2018, which was fully offset by a valuationallowance due to uncertainties surrounding our ability to realize these tax benefits. The deferred tax assets are primarilycomprised of deferred revenue, federal and state tax net operating loss (NOL) carryforwards and research and development taxcredit carryforwards. As of December 31, 2018, we had cumulative net operating loss carryforwards for federal income taxpurposes of approximately $191.2 million; $102.6 million of such losses were incurred prior to December 31, 2017 and$88.6 million were incurred in the year December 31, 2018. We also had available tax credit carryforwards of $14.9 millionfor federal tax purposes. We had cumulative state tax loss carryforwards at December 31, 2018 of $138.9 million, andavailable state tax credit carryforwards of approximately $8.2 million, which can be carried forward to offset future taxableincome, if any.Our federal net operating loss carryforwards incurred prior to January 1, 2018, expire starting in 2026, state netoperating losses expire starting in 2031, and federal tax credit carryforwards expire starting in 2019. Upon analysis, webelieve that our net operating losses and tax credits were subject to an annual limitation due to the ownership changeprovisions by the Internal Revenue Code of 1986 under Section 382 and similar state provisions. As a result of thelimitations under Section 382, our federal and state tax operating loss and tax credit carryforwards have been limited.No income tax expense or benefit was recorded for the year ended December 31, 2018. We recorded a net benefit of$0.5 million, related to federal and state AMTs, for the year ended December 31, 2017, and we recorded a tax expense of $1.0million, related to federal and state AMTs for the year ended December 31, 2016. 70 Table of ContentsValuation of Stock‑Based CompensationWe record the fair value of stock options and shares issued under our Employee Stock Purchase Plan (ESPP) toemployees as of the grant date as compensation expense over the service period, which is generally the vesting period. Fornon‑employees, we also record the fair value of stock options as of the grant date as compensation expense over the serviceperiod. We then periodically re‑measure the awards to reflect the current fair value at each reporting period until thenon‑employee completes the performance obligation or the date on which a performance commitment is reached. Expense isrecognized over the related service period.We calculate the fair value of stock‑based compensation awards using the Black‑Scholes option‑pricing model. TheBlack‑Scholes option‑pricing model requires the use of subjective assumptions, including volatility of our common stock,the expected term of our stock options, the risk free interest rate for a period that approximates the expected term of our stockoptions and the fair value of the underlying common stock on the date of grant.Common Stock Options Fair ValueWe recognize stock‑based compensation expense in accordance with the provisions of ASC Topic 718,Compensation—Stock Compensation. The use of a Black‑Scholes model requires us to apply judgment and makeassumptions and estimates that include the following:·Expected Volatility—Volatility is a measure of the amount by which a financial variable such as a share pricehas fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. As we donot yet have sufficient history of our own volatility, we have identified several public entities of similar size,complexity and stage of development and calculate the historical volatility using the volatility of thesecompanies.·Expected Dividend Yield—We have never declared or paid dividends and have no plans to do so in theforeseeable future.·Risk‑Free Interest Rate—This is the U.S. Treasury rate for the week of each option grant during the year, havinga term that most closely resembles the expected life of the option.·Expected Term—This is the period of time that the options granted are expected to remain unexercised. Optionsgranted have a maximum term of ten years and we have estimated the expected life of the option term to bebetween five and six years. We use a simplified method to calculate the average expected term for employeeawards.Results of OperationsComparison of the Year Ended December 31, 2018 and 2017The following table summarizes our results of operations for the years ended December 31, 2018 and 2017 (inmillions):71 Table of Contents Year ended December 31, 2018 2017 Change (As Revised) Revenues: Research collaboration $20.1 $20.1 $0.0 Milestone 20.5 26.0 (5.5) Licensing — 0.1 (0.1) Total revenues 40.6 46.2 (5.6) Operating expenses: Research and development 97.5 71.8 25.7 General and administrative 22.5 17.5 5.0 Total operating expenses 120.0 89.3 30.7 Other income, net 9.0 4.2 4.8 Income tax benefit — (0.5) 0.5 Net loss $(70.4) $(38.5) $(32.0) RevenuesResearch collaboration revenues in 2018 and 2017 represent revenue recognized under our Novartis Agreement.Milestone and contingent payments decreased by $5.5 million in 2018 over 2017 amounts primarily due toreceiving contractual milestones in 2017 from Amgen, CSL and MorphoSys compared to contractual milestones receivedfrom Alexion in 2018. Research and Development ExpensesThe following table summarizes our research and development expenses for the years ended December 31, 2018 and 2017 (in millions): Year Ended December 31, 2018 2017 Change Product programs: XmAb5871 programs $23.0 $20.3 $2.7 XmAb7195 program 0.8 3.4 (2.6) Bispecific programs: CD-3 23.1 21.3 1.8 TME checkpoints 33.1 20.7 12.4 Cytokines 7.7 — 7.7 Subtotal Bispecific programs 63.9 42.0 21.9 Other, research and early stage programs 9.8 6.1 3.7 Total research and development expense $97.5 $71.8 $25.7 Research and development expenses increased by $25.7 million in 2018 over 2017 amounts as we continue toexpand our pipeline of bispecific Fc domain candidates. Increased spending on our bispecific TME checkpoint candidatesand our IL-15 cytokine program was the primary driver for increased spending. Increased spending on our XmAb5871program and early discovery research programs was partially offset by reduced spending on our XmAb7195 program.General and Administrative ExpensesGeneral and administrative expenses increased by $5.0 million in 2018 over 2017 amounts primarily due to anincrease in facility costs, staffing and stock-based compensation costs.72 Table of ContentsOther Income (Expense), NetOther income, net increased by $4.8 million in 2018 over 2017 amounts reflecting additional interest income earnedon our investments in marketable securities, which is due to higher investment balances as a result of our March 2018financing.Comparison of the Year Ended December 31, 2017 and 2016The following table summarizes our results of operations for the year ended December 31, 2017 and 2016 (inmillions): Year Ended December 31, 2017 2016 Change (As Revised) (As Revised) Revenues: Research collaboration $20.1 $34.2 $(14.1) Milestone 26.0 5.0 21.0 Licensing 0.1 69.8 (69.7) Total revenues 46.2 109.0 (62.8) Operating expenses: Research and development 71.8 51.9 19.9 General and administrative 17.5 13.1 4.4 Total operating expenses 89.3 65.0 24.3 Other income, net 4.2 2.1 2.1 Income tax expense (benefit) (0.5) 1.0 (1.5) Net income (loss) $(38.4) $45.1 $(83.5) RevenuesResearch collaboration revenues decreased by $14.2 million in 2017 over 2016 amounts primarily due to revenuerecognized under our Novartis collaboration in 2017 compared to revenue recognized under our Novartis and Amgencollaborations in 2016. Milestone and contingent payments increased by $21.0 million in 2017 over 2016 amounts primarily due toreceiving contractual milestones in 2017 from Amgen, CSL, and MorphoSys, compared to contractual milestones receivedfrom Alexion in 2016.Licensing revenue decreased by $69.7 million in 2017 over 2016 amounts due to revenue reported under ourNovartis collaboration in 2016.73 Table of ContentsResearch and Development ExpensesThe following table summarizes our research and development expenses for the years ended December 31, 2017 and2016 (in millions): Year Ended December 31, 2017 2016 ChangeProduct programs: XmAb5871 programs $20.3 $17.3 $3.0XmAb7195 program 3.4 7.5 (4.1)Bispecific programs: CD-3 21.3 17.9 3.4TME checkpoints 20.7 5.8 14.9Cytokines — — —Subtotal Bispecific programs 42.0 23.7 18.3Other, research and early stage programs 6.1 3.4 2.7Total research and development expense $71.8 $51.9 $19.9Research and development expenses increased by $19.9 million in 2017 over 2016 amounts as we continue toexpand our pipeline of bispecific candidates. The primary increases in research and development spending were on ourbispecific TME checkpoint and CD-3 programs. Increased spending on our XmAb5871 program and early discovery researchprograms was partially offset by reduced spending on our XmAb7195 program.General and Administrative ExpensesGeneral and administrative expenses increased by $4.4 million in 2017 over 2016 amounts primarily due to anincrease in facility costs, staffing and stock-based compensation costs.Other Income (Expense), NetOther income, net increased by $2.1 million in 2017 over 2016 amounts, reflecting additional interest incomeearned on our investments in marketable securities.Liquidity and Capital ResourcesSince our inception, our operations have been primarily financed through proceeds from our public offering, privatesales of our equity, convertible notes and payments received under our collaboration and development partnerships andlicensing arrangements. We have devoted our resources to funding research and development programs, including discoveryresearch, preclinical and clinical development activities.We have incurred substantial operating losses since our inception, and we expect to continue to incur operatinglosses into the foreseeable future as we advance the ongoing development of our bispecific Fc domain pipeline of productcandidates, XmAb14045, XmAb13676, XmAb18087, XmAb20717, XmAb22841, XmAb23104, and XmAb24306, evaluateopportunities for the potential clinical development of our other preclinical programs, and continue our research efforts.In March 2018, we finalized the sale of 8,395,000 shares of common stock at an offering price of $31.00 per share inan underwritten offering, resulting in net proceeds of approximately $245.5 million, after deducting underwriters’commissions and offering expenses. 74 Table of ContentsIn July 2016 we received a $150.0 million upfront payment in connection with our collaboration with Novartis. OnDecember 6, 2016, we finalized the sale of 5,272,750 shares of common stock at an offering price of $24.00 per share in anunderwritten offering, resulting in net proceeds of approximately $119.3 million, after deducting underwriting discounts,commissions and offering expenses.On September 19, 2016, we entered into an Equity Distribution Agreement (the Distribution Agreement) with PiperJaffray & Co (Piper Jaffray) pursuant to which we may sell from time to time, at our option, up to an aggregate of $40 millionof common stock through Piper Jaffray as sales agent. The issuance and sale of these shares by Xencor under the DistributionAgreement will be pursuant to our shelf registration statement on Form S-3 (File No.333-213700) declared effective by theSEC on October 5, 2016.To date, we have not sold any shares under the Distribution Agreement.At December 31, 2018, we had $530.5 million of cash, cash equivalents and marketable debt securities compared to$363.3 million at December 31, 2017. We expect to continue to receive additional payments from our collaborators forresearch and development services rendered, additional milestone, contingent payments, opt-in and annual licensemaintenance payments. We expect to close the Genentech transaction in the first quarter of 2019, for which we will receive a$120 million non-refundable upfront payment 30 days after the effective date. Our ability to receive milestone payments andcontingent payments from our partners is dependent upon either our ability or our partners’ abilities to achieve certain levelsof research and development activities and is therefore uncertain at this time.Funding RequirementsWe have not generated any revenue from product sales and do not expect to do so until we obtain regulatoryapproval and commercialize one or more of our product candidates. As we are currently in the early clinical stages ofdevelopment, it will be some time before we expect to achieve this and it is uncertain that we ever will. We expect that ouroperating expenses will continue to increase in connection with ongoing as well as additional planned clinical andpreclinical development of product candidates in our pipeline. We expect to continue our collaboration arrangements andwill look for additional collaboration and licensing opportunities.Although it is difficult to predict our funding requirements, based upon our current operating plan, we expect thatour existing cash, cash equivalents and marketable securities and certain potential milestone payments will fund ouroperating expenses and capital expenditure requirements beyond 2024. We have based these estimates on assumptions thatmay prove to be wrong, and we could use our capital resources sooner than we currently expect.Cash FlowsThe following table sets forth the primary sources and uses of cash and cash equivalents for each of the periodspresented below (in thousands): Year Ended December 31, 2018 2017 2016 (AsRevised) (AsRevised) Net cash provided by (used in): Operating activities $(79,756) $(33,597) $95,238 Investing activities (164,767) 31,864 (214,274) Financing activities 254,241 3,733 120,974 Net increase in cash and cash equivalents $9,718 $2,000 $1,938 Operating ActivitiesNet cash used in operating activities for the year ended December 31, 2018 and December 31, 2017, reflectsoperating expenses primarily for advancing our bispecific candidates and clinical trials for XmAb5871 during the year.75 Table of ContentsNet cash provided by operating activities for the year ended December 31, 2016 reflects the upfront payment of$150.0 million received under our Novartis collaboration and a milestone payment from Alexion in excess of operatingexpenses during the year.Investing ActivitiesInvesting activities consist primarily of proceeds from maturities of marketable securities offset by purchases ofmarketable securities available-for-sale, acquisition of intangible assets and purchases of property and equipment. In 2018,we purchased $155.7 million in marketable securities, net of $222.1 million of proceeds from sale and maturities. In 2017 wereceived $39.2 million in marketable securities, net of $76.5 million of purchases. In 2016, we invested $210.6 million inmarketable securities net of $105.5 million of sales and maturities. We acquired $1.9 million, $2.0 million and $1.5 millionof intangible assets in the years ended December 31, 2018, 2017 and 2016, respectively. We purchased $7.2 million, $5.3million and $1.5 million of capital equipment for the years ended December 31, 2018, 2017 and 2016 respectively. Theincrease in capital expenditure in 2018 compared to 2017 and 2016 is primarily due to additional purchase of research anddevelopment equipment.Financing ActivitiesNet cash provided by financing activities during the year ended December 31, 2018 consists primarily of netproceeds from the follow-on equity offering and cash from stock option exercises and the sale of shares under the ESPP.Net cash provided by financing activities during the year ended December 31, 2017 consists primarily of cash fromstock option exercises and the sale of shares under the ESPP.Net cash provided by financing activities during the year ended December 31, 2016 consists primarily of netproceeds from the follow-on equity offering and cash from stock option exercises and the sale of shares under the ESPP.Contractual Obligations and CommitmentsThe following table summarizes our contractual obligations at December 31, 2018 (in thousands): Payments due by period Less More than 1 - 3 3 - 5 than Total 1 year Years Years 5 years Operating lease obligation relating to facilities (1) $8,542 $2,752 $5,790 $ — $ — (1)Consists of operating leases on our corporate headquarters in Monrovia and on our San Diego offices encompassing 48,000 square feetand 24,000 square feet that expire in September 2022 and August 2022 respectively.We are obligated to make future payments to third parties under in‑license agreements, including sublicense fees,royalties, and payments that become due and payable on the achievement of certain development and commercializationmilestones. We have also entered into agreements with third party vendors which will require us to make future paymentsupon the delivery of goods and services in future periods.In February 2015, we entered into a license agreement with BIO-TECHNE Corporation for a non-exclusive licenseto certain antibody technology including monoclonal antibodies which recognize human somatostatin reception 2. Thevariable domain of this antibody is incorporated in our XmAb18087 drug candidate. Under this license agreement, we maybe required to make $3.8 million in additional contingent payments which include $800,000 of clinical milestones and $3.0million of regulatory milestones, in addition to royalties upon commercial sales of products of less than 1%. We made anupfront payment of $200,000 in connection with this license and made a Phase 1 milestone payment of $100,000 in 2018.We did not make any milestone payments in 2017 or 2016.76 Table of ContentsIn January 2019, we entered into a second agreement with BIO-TECHNE which agreement is effective February2018 for a non-exclusive license to certain recombinant monoclonal antibody reactive with human programmed deathprotein, PD-1 antibody. We expect to use this protein in certain of our oncology drug candidates. Under this licenseagreement, we may be required to make $22.0 million in additional contingent payments which include $1.5 million ofclinical milestones, $4.5 million of regulatory milestones and milestones on the achievement of certain sales of $16.0million, in addition to royalties upon commercial sales of products of 1%. We made an upfront payment in connection withthis license in 2019 and did not make any payments in 2018, 2017 or 2016In November 2015, we entered into a worldwide exclusive commercial license agreement with Selexis SA todevelop and commercialize products produced from the Selexis cell line that was manufactured in connection with ourXmAb14045 drug candidate. We made an upfront payment of 50,000 Swiss Francs (CHF) in connection with the license andmay be required to make CHF 1.7 million in additional contingent obligations which include CHF 500,000 in developmentmilestones, CHF 400,000 in regulatory milestones and CHF 800,000 in sales milestones, in addition to royalties uponcommercial sales of products of less than 1%. During 2016, we made a CHF 100,000 milestone payment in connection withan IND filing. There were no milestone payments made in 2018 or 2017.In February 2016, we entered into a worldwide exclusive commercial license agreement with Selexis SA to developand commercialize products produced from the Selexis cell line that was manufactured in connection with our XmAb13676drug candidate. In connection with the license we may be required to make CHF 1.7 million in additional contingentobligations which include CHF 500,000 in development milestones, CHF 400,000 in regulatory milestones and CHF800,000 in sales milestones, in addition to royalties upon commercial sales of products of less than 1%. During 2016, wemade a CHF 100,000 milestone payment in connection with an IND filing. There were no milestone payments made in 2018or 2017.In December 2017, we entered into worldwide exclusive commercial license agreements with Selexis to develop andcommercialize products produced from the Selexis cell line that was manufactured for each of our bispecific drugcandidates: XmAb18087, XmAb20717, XmAb22841 and XmAb23104. The terms for each agreement is identical and foreach licensed cell line we may be required to make up to CHF 1.4 million in total development, regulatory and salesmilestones which include CHF 425,000 in development milestones, CHF 340,000 in regulatory milestones and CHF 680,000in sales milestones. In addition, we may be obligated to pay royalties upon commercial sales of approved products of lessthan 1%. In 2017, we made a CHF 85,000 milestone payment in connection with an IND filing. In 2018, we made threemilestone payments of CHF 85,000 each in connection with three separate IND filings.In December 2015, we entered into a Cell Line Sale Agreement with Catalent Pharma Solutions LLC for a worldwidelicense to develop and commercialize products produced from the Catalent cell line that was manufactured in connectionwith our XmAb5871 drug candidate. Under the terms of the agreement, we may be obligated to make contingent paymentsupon transfer of the XmAb5871 manufacturing process to a third party. These contingent payments total $2.75 million andinclude $500,000 in development milestones and $2.25 million in regulatory milestones in addition to royalties on net salesof XmAb5871 approved products with such royalties less than 1%. In 2017 we transferred the manufacturing process forXmAb5871 to a third-party manufacturer. We did not make any milestone payments under this Agreement in 2018 and 2017.In December 2011, we entered into a Cell Line Sale Agreement with Catalent Pharma Solutions LLC for a worldwidelicense to develop and commercialize products produced from the Catalent cell line that was manufactured in connectionwith our XmAb7195 drug candidate. This agreement was subsequently amended in April 2015. Under the terms of theagreement, we may be obligated to make contingent payments upon transfer of the XmAb7195 manufacturing process to athird party. These contingent payments total $2.75 million and include $500,000 in development milestones and $2.25million in regulatory milestones in addition to royalties on net sales of XmAb7195 approved products with such royaltiesless than 1%. We did not make any milestone payments under this Agreement in 2018 and 2017.77 Table of ContentsIn December 2012, we entered into a Cross-License Agreement with MedImmune, LLC (MedImmune) for a non-exclusive license to certain MedImmune patents related to half-life technology. Under the terms of the agreement, we may beobligated to make contingent payments in connection with the use of our Xtend™ technology, including use by us in ourdevelopment candidates and also for use by our licensees. These contingent payments total $250,000 per program andinclude $150,000 in clinical milestones and $100,000 in regulatory milestones. In addition, we may be obligated to makecontingent payments for tiered sales milestones on the sale of approved products from $20,000 per year to $1.0 million peryear. Our obligations to make payments under this agreement expire in December 2021. We made milestone payments underthis agreement of $75,000 and $125,000 for 2016 and 2018, respectively. As the amount and timing of sublicense fees and the achievement and timing of these milestones are not probableand estimable, such commitments have not been included on our balance sheet or in the contractual obligations tablesabove.Off‑Balance Sheet ArrangementsWe did not have during the periods presented, and we do not currently have, any off‑balance sheet arrangements.New Accounting PronouncementsSee Note 1 - Recent Accounting Pronouncements in the accompanying financial statements for informationregarding recent accounting pronouncements. Item 7A. Quantitative and Qualitative Disclosures About Market RiskOur primary exposure to market risk is interest income sensitivity, which is affected by changes in the general levelof U.S. interest rates. Due to the short‑term duration of our investment portfolio and the low risk profile of our investments, animmediate 10.0% change in interest rates would not have a material effect on the fair market value of our portfolio.Accordingly, we would not expect our operating results or cash flows to be affected to any significant degree by the effect ofa sudden change in market interest rates on our investment portfolio.We do not believe that our cash and cash equivalents have significant risk of default or illiquidity. While we believeour cash and cash equivalents do not contain excessive risk, we cannot provide absolute assurance that in the future ourinvestments will not be subject to adverse changes in market value. In addition, we maintain significant amounts of cash andcash equivalents at one or more financial institutions that are in excess of federally insured limits.Inflation generally affects us by increasing our cost of labor and clinical trial costs. We do not believe that inflationhas had a material effect on our results of operations during the periods presented. Item 8. Financial Statements and Supplementary DataXencor, Inc.Financial StatementsAudited Financial Statements for the Years Ended December 31, 2018, 2017 and 2016: Report of Independent Registered Public Accounting Firm 79Balance Sheets 82Statements of Comprehensive Income (Loss) 83Statements of Stockholders’ Equity 84Statements of Cash Flows 85Notes to Financial Statements 86 78 Table of ContentsReport of Independent Registered Public Accounting Firm To the Board of Directors and StockholdersXencor, Inc. Opinion on the Financial StatementsWe have audited the accompanying balance sheets of Xencor, Inc. (the Company) as of December 31, 2018 and 2017, therelated statements of comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in theperiod ended December 31, 2018, and the related notes to the financial statements. In our opinion, the financial statementspresent fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and theresults of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformitywith accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)(PCAOB), the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commissionin 2013, and our report, dated February 25, 2019, expressed an unqualified opinion on the effectiveness of the Company’sinternal control over financial reporting. Change in Accounting PrincipleAs discussed in Note 1 to the financial statements, the Company has changed its method of accounting for revenuerecognition in fiscal years 2018 and 2017 due to the adtoption of Accounting Standards Condification, Topic 606, Revenuefrom Contracts with Customers. Basis for OpinionThese financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinionon the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB andare required to be independent with respect to the Company in accordance with U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and performthe audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whetherdue to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financialstatements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures includedexamining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits alsoincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating theoverall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. We have served as the Company’s auditor since 2015. /s/ RSM US LLPLos Angeles, CaliforniaFebruary 25, 201979 Table of ContentsReport of Independent Registered Public Accounting FirmRegarding Internal Control Over Financial Reporting To the Board of Directors and StockholdersXencor, Inc. Opinion on Internal Control Over Financial ReportingWe have audited Xencor, Inc.’s (the Company) internal control over financial reporting as of December 31, 2018, based oncriteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of theTreadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal controlover financial reporting as of December 31, 2018, based on criteria established in Internal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)(PCAOB), the balance sheets of the Company as of December 31, 2018 and 2017, the related statements of comprehensiveincome (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2018, of theCompany and our report, dated February 25, 2019, expressed an unqualified opinion. Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for itsassessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Report onInternal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal controlover financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required tobe independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules andregulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and performthe audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained inall material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing therisk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal controlbased on the assessed risk. Our audit also included performing such other procedures as we considered necessary in thecircumstances. We believe that our audit provides a reasonable basis for our opinion. 80 Table of ContentsDefinition and Limitations of Internal Control Over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. A company’s internal control over financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded asnecessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and thatreceipts and expenditures of the company are being made only in accordance with authorizations of management anddirectors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ RSM US LLPLos Angeles, CaliforniaFebruary 25, 2019 81 Table of ContentsXencor, Inc.Balance Sheets(in thousands, except share and per share data) December 31, 2018 2017 (As Revised) Assets Current assets Cash and cash equivalents $26,246 $16,528 Marketable securities 268,115 207,603 Accounts receivable 10,187 1,142 Income tax receivable 804 — Prepaid expenses and other current assets 10,375 5,606 Total current assets 315,727 230,879 Property and equipment, net 11,813 7,088 Patents, licenses, and other intangible assets, net 11,969 11,148 Marketable securities - long term 236,108 139,198 Income tax receivable 804 1,524 Loan receivable — 86 Interest receivable — 14 Other assets 311 265 Total assets $576,732 $390,202 Liabilities and stockholders’ equity Current liabilities Accounts payable $3,797 $6,869 Accrued expenses 9,662 5,480 Current portion of deferred rent 315 26 Current portion of deferred revenue 40,079 60,118 Income tax payable — 157 Total current liabilities 53,853 72,650 Deferred rent, less current portion 1,198 1,088 Total liabilities 55,051 73,738 Commitments and contingencies (see note 8) Stockholders’ equity Preferred stock, $0.01 par value: 10,000,000 authorized shares; -0- issued andoutstanding shares at December 31, 2018 and 2017 — — Common stock, $0.01 par value: 200,000,000 authorized shares; 56,279,542 issued andoutstanding shares at December 31, 2018 and 47,002,488 issued and outstanding atDecember 31, 2017 563 470 Additional paid-in capital 845,366 570,670 Accumulated other comprehensive loss (971) (1,808) Accumulated deficit (323,277) (252,868) Total stockholders’ equity 521,681 316,464 Total liabilities and stockholders’ equity $576,732 $390,202 See accompanying notes to the financial statements.82 Table of ContentsXencor, Inc.Statements of Comprehensive Income (Loss)(in thousands, except share and per share data) Year Ended December 31, 2018 2017 2016 (As Revised) (As Revised) Revenue Collaborations, licenses and milestones $40,603 $46,150 $109,020 Operating expenses Research and development 97,501 71,772 51,872 General and administrative 22,472 17,501 13,108 Total operating expenses 119,973 89,273 64,980 Income (loss) from operations (79,370) (43,123) 44,040 Other income (expense) Interest income 9,102 4,194 2,091 Interest expense (16) (13) (21) Other income (expense) (125) (7) 6 Total other income, net 8,961 4,174 2,076 Income (loss) before income tax (70,409) (38,949) 46,116 Income tax expense (benefit) — (463) 991 Net income (loss) (70,409) (38,486) 45,125 Other comprehensive income (loss) Net unrealized gain (loss) on marketable securities available-for-sale 837 (367) (925) Comprehensive income (loss) $(69,572) $(38,853) $44,200 Net income (loss) per share attributable to common stockholders: Basic $(1.31) $(0.82) $1.09 Diluted $(1.31) $(0.82) $1.07 Weighted average shares used to compute net income (loss) per shareattributable to common stockholders: Basic 53,942,116 46,817,756 41,267,329 Diluted 53,942,116 46,817,756 42,388,867 See accompanying notes to the financial statements. 83 Table of Contents Xencor, Inc.Statements of Stockholders’ Equity (in thousands, except share data) Accumulated Additional Other Total Common Stock Paid Comprehensive Accumulated Stockholders’Stockholders’ Equity Shares Amount in-Capital Loss Deficit EquityBalance, December 31, 2015 as originallyreported 40,551,039 $405 $424,128 $(516) $(261,585) $162,432Adoption of ASC Topic 606 — — — — 2,479 2,479Balance, December 31, 2015 as revised 40,551,039 405 424,128 (516) (259,106) 164,911Sale of common stock, net of issuance cost 5,272,750 53 119,216 — — 119,269Issuance of common stock upon exercise andvesting of stock awards 699,066 7 1,153 — — 1,160Issuance of common stock under the EmployeeStock Purchase Plan 45,123 1 544 — — 545Comprehensive income (loss) — — — (925) 45,125 44,200Stock-based compensation — — 7,848 — — 7,848Balance, December 31, 2016 46,567,978 466 552,889 (1,441) (213,981) 337,933Adoption of ASU 2016-09 — — 401 — (401) —Balance, December 31, 2016 as revised 46,567,978 466 553,290 (1,441) (214,382) 337,933Issuance of common stock upon exercise of stockawards 363,603 4 2,793 — — 2,797Issuance of common stock under the EmployeeStock Purchase Plan 70,907 — 936 — — 936Comprehensive loss — — — (367) (38,486) (38,853)Stock-based compensation — — 13,651 — — 13,651Balance, December 31, 2017 47,002,488 470 570,670 (1,808) (252,868) 316,464Sale of common stock, net of issuance cost 8,395,000 84 245,420 — — 245,504Issuance of common stock upon exercise of stockawards 824,731 8 7,609 — — 7,617Issuance of common stock under the EmployeeStock Purchase Plan 57,323 1 1,119 — — 1,120Comprehensive income (loss) — — — 837 (70,409) (69,572)Stock-based compensation — — 20,548 — — 20,548Balance, December 31, 2018 56,279,542 $563 $845,366 $(971) $(323,277) $521,681 See accompanying notes to the financial statements. 84 Table of ContentsXencor, Inc.Statements of Cash Flows(in thousands) Year ended December 31, 2018 2017 2016 (As Revised) (As Revised) Cash flows from operating activities Net income (loss) $(70,409) $(38,486) $45,125 Adjustments to reconcile net income (loss) to net cash provided by (used in)operating activities: Depreciation and amortization 3,251 2,030 1,466 Amortization of premium on marketable securities (394) 2,845 2,037 Stock-based compensation 20,548 13,651 7,848 Abandonment of capitalized intangible assets 239 396 356 Loss on disposal of assets 102 83 — Loss (gain) on sale of marketable securities available-for-sale 74 — (5) Changes in operating assets and liabilities: Accounts receivable (9,045) 7,474 (8,572) Interest receivable (535) (307) (609) Prepaid expenses and other current assets (4,769) (2,705) (1,700) Income tax receivable (84) (1,524) — Other assets (46) (161) (40) Accounts payable (3,072) 2,989 (2,520) Accrued expenses 4,182 (1,212) 3,058 Deferred rent 398 589 (89) Income tax payable (157) 91 65 Deferred revenue (20,039) (19,350) 48,818 Net cash provided by (used in) operating activities (79,756) (33,597) 95,238 Cash flows from investing activities Proceeds from sale and maturities of marketable securities available-for-sale 222,125 115,757 105,505 Proceeds from sale of property and equipment 9 — — Purchase of marketable securities (377,840) (76,529) (316,149) Purchase of intangible assets (1,935) (1,967) (1,502) Purchase of property and equipment (7,212) (5,311) (1,507) Proceeds from repayment of (investment in) loan receivable 86 (86) (621) Net cash provided by (used in) investing activities (164,767) 31,864 (214,274) Cash flows from financing activities Proceeds from issuance of common stock upon exercise of stock awards 7,617 2,797 1,160 Proceeds from issuance of common stock from Employee Stock Purchase Plan 1,120 936 545 Proceeds from issuance of common stock 260,245 — 126,546 Common stock issuance costs (14,741) — (7,277) Net cash provided by financing activities 254,241 3,733 120,974 Net increase in cash and cash equivalents 9,718 2,000 1,938 Cash and cash equivalents, beginning of year 16,528 14,528 12,590 Cash and cash equivalents, end of year $26,246 $16,528 $14,528 Supplemental disclosures of cash flow information Cash paid for: Interest $16 $13 $21 Taxes $233 $969 $936 Supplemental Schedule of Noncash Investing Activities Net unrealized gain (loss) on marketable securities available-for-sale $837 $(367) $(925) See accompanying notes to the financial statements. 85 Table of Contents1. Summary of Significant Accounting PoliciesDescription of BusinessXencor, Inc. (we, us, our, or the Company) was incorporated in California in 1997 and reincorporated in Delaware inSeptember 2004. We are a clinical‑stage biopharmaceutical company focused on discovering and developing engineeredmonoclonal antibody and proteins to treat severe and life‑threatening diseases with unmet medical needs. We use ourproprietary XmAb technology platform to create next‑generation antibody product candidates designed to treat cancer,autoimmune and allergic diseases, and other conditions. We focus on the portion of the antibody that interacts with multiplesegments of the immune system, referred to as the Fc domain, which is constant and interchangeable among antibodies. Ourengineered Fc domains, the XmAb technology, are applied to our pipeline of antibody and protein‑based drug candidates toincrease immune inhibition, improve cytotoxicity, extend half‑life and most recently create bispecific Fc domain antibodyand protein molecules.Our operations are based in Monrovia and San Diego, California.Basis of PresentationThe Company’s financial statements as of December 31, 2018, 2017, and 2016 and for the years then ended havebeen prepared in accordance with accounting principles generally accepted in the United States (U.S.).Use of EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the UnitedStates of America requires management to make estimates and assumptions that affect the amounts reported in the financialstatements and accompanying notes. Significant estimates include useful lives of long-lived assets, the periods over whichcertain revenues and expenses will be recognized including collaboration revenue recognized from non-refundable upfrontlicensing payments, the amount of non-cash compensation costs related to share-based payments to employees and non-employees and the period over which these costs are expensed.Recent Accounting PronouncementsPronouncements adopted in 2018Effective January 1, 2018, the Company adopted Accounting Standards Codification Topic 606 (ASC 606),Revenue from Contracts with Customers, using the full retrospective transition method. Under this method, the Company ispresenting its financial statements for the years ended December 31, 2017 and 2016 as if ASC 606 had been effective forthose periods.Under ASC 606 an entity recognizes revenue when its customer obtains control of promised goods or services in anamount that reflects the consideration which the entity expects to receive in exchange for those goods or services. A five-stepmodel is used to achieve the core principle: (1) identify the customer contract, (2) identify the contract’s performanceobligations, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations and (5)recognize revenue when or as a performance obligation is satisfied. The Company applies the five-step model to contractswhen it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services ittransfers to the customer. The new guidance provides that revenue recognition for performance obligations related todelivery of certain goods or services occurs when control over the good or service is transferred to the customer. In addition,the timing of revenue recognition from licensing of our intellectual property that are functional and are distinct performanceobligations changed from being recognized over the term of access to our license or technology to being recognized at apoint in time. See Note 12 “Prior Period Financial Statements” for a complete discussion of the impact of adopting the newstandard.86 Table of ContentsEffective January 1, 2018, the Company adopted ASU 2016-01, Financial Instruments – Overall: Recognition andMeasurement of Financial Assets and Liabilities, which eliminates the available-for-sale classification for equity securitiesand requires equity securities to be measured at fair value with changes in the fair value recognized through net income. ThisASU eliminates the available-for-sale classification for equity investments that recognized changes in the fair value as acomponent of other comprehensive income. The adoption had no effect on the Company’s financial statements.Effective January 1 2018, the Company adopted ASU No. 2016-15, Statement of Cash Flows (Topic 230):Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with theobjective of reducing the existing diversity in practice. The standard clarifies when cash receipts and cash payments haveaspects of more than one class of cash flows and cannot be separated. Classification will depend on the predominant sourceor use. The adoption did not have an effect on the Company’s statements of cash flow.Effective January 1, 2018, the Company adopted ASU No. 2017-09, Compensation – Stock Compensation (Topic718). The standard applies when a company changes the terms of a stock compensation award previously granted to anemployee where modification accounting applies. According to the standard, modification accounting is not required if (1)the fair value of the modified award (or the award’s calculated value or intrinsic value as appropriate) is the same as the valueimmediately prior to its modification, (2) the vesting conditions of the modified award are the same as the vesting conditionsof the award immediately prior to its modification; and (3) the award’s classification as an equity or liability is the same afterthe modification as it was immediately prior to its modification. The Company did not have any modifications uponadopting the new standard; therefore, adoption had no effect on the Company’s financial statements.Pronouncements not yet effectiveIn February 2016, the FASB issued ASU No. 2016-02 Leases (Topic 842). The new guidance requires lessees torecognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use assetrepresenting its right to use the underlying asset for the lease term for all leases not considered short term. The new standardwill be effective for reporting periods beginning after December 15, 2018. In July 2018, the FASB issued ASU No. 2018-10Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Lease (Topic 842): Targeted Improvements, whichprovides narrow aspects of the guidance issued in ASU No. 2016-02 as well as an alternative transition method of adoption,permitting the recognition of cumulative-effect adjustment to retained earnings on the date of adoption. The new standardalso provides a number of optional practical expedients in transition, including the “package of practical expedients,” whichpermits us not to reassess under the new standard our prior conclusions about lease identification, lease classification andinitial direct cost.We will adopt the new standard on January 1, 2019 using the cumulative effect adjustment method, with theelection of the package of practical expedients and hindsight practical expedient. We have completed a preliminaryassessment of the new standard’s impact, which includes a total of five operating leases for facilities in Monrovia and SanDiego. Under Topic 842, deferred rent liability under operating lease is no longer tracked separately; instead, it will integrateas part of the right-of-use (ROU) asset. As a result, we expect to adjust the cumulative effect to the beginning balance fordeferred rent liability, and adopt the use of right-of-use asset and lease liability. We do not expect that this standard will havea material impact on our financial statements. Upon adoption, we estimate that we will have additional liabilities rangingfrom $10 million to $12 million with a corresponding ROU assets of a similar amount for lease agreements in effect as ofDecember 31, 2018. This will result in an estimated increase to the beginning balance on both assets and liabilities after theadjustment of between $10 million and $12 million, with no impact on our retained earnings.87 Table of ContentsIn June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurementof Credit Losses on Financial Instruments, which amends the guidance on reporting credit losses for assets held at amortizedcost basis and available-for-sale debt securities. Credit losses relating to available-for-sale debt securities will be recordedthrough an allowance for credit losses rather than as a direct write-down to the security. Credit losses on available-for-salesecurities will be required when the amortized cost is below the fair market value. The amendment is effective for fiscal yearsbeginning after December 15, 2019 including interim periods within those fiscal years. In November 2018, the FASB issuedASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, which clarifies thatreceivables arising from operating leases are not within the scope of Topic 326. We will apply the standard’s provision as acumulative effect adjustment to retained earnings as of the beginning of the first effective reporting period. We do not expectthe adoption to have a material impact on our results of operations or financial position.In March 2017, the FASB issued ASU No. 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic310-20): Premium Amortization on Purchased Callable Debt Securities, which amends the guidance on the amortizationperiod of premiums on certain purchased callable debt securities by shortening the amortization period of premiums to theearliest call date. The amendment affects all entities that hold investments in callable debt securities that have an amortizedcost basis in excess of the amount that is repayable by the issuer at the earliest call date. The amendment is effective for fiscalyears after December 31, 2018 with early adoption permitted. The Company will review the requirements of the standard butdoes not anticipate it will have a significant impact on our financial statements.In February 2018, the FASB issued ASU No. 2018-02. Income Statement – Reporting Comprehensive Income (Topic220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, an amendment which permitscompanies to reclassify the income tax effects of the 2017 Tax Cuts and Jobs Act (TCJA) on items within accumulated othercomprehensive income to retained earnings. The standard also requires new disclosures about these stranded tax effects andis effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption ispermitted and can be applied either in the period of adoption or retrospectively to each period (or periods) in which the effectof the change in the U.S. federal corporate income tax rate in the TCJA is recognized. The Company is currently evaluatingthe impact the guidance will have on its financial statements.In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718): Improvementsto Nonemployee Share-Based Payment Accounting, which expands the scope of Topic 718 to include share-based paymentsissued to nonemployees for goods and services. The standard is effective for fiscal years beginning after December 15, 2018and interim periods within such fiscal year. The Company does not anticipate that the standard will have a significant impacton its financial statements.In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework –Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosures for transfers betweenLevel 1 and Level 2 of the fair value hierarchy, modifies the level 3 disclosure requirements for non-public entities andrequires additional disclosure for Level 3 fair value hierarchy. The amendment is effective for fiscal years beginning afterDecember 15, 2019. The Company does not anticipate that the standard will have a significant impact on its financialstatements.In August 2018, the FASB issued ASU No. 2018-15, Intangibles – Goodwill and Other – Internal Use Software(Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is aService Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement thatis a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-usesoftware (and hosting arrangements that include an internal-use software license). The accounting for the service element of ahosting arrangement that is a service contract is not affected by the amendment. The amendment is effective for annualperiods, including interim periods within those annual periods, beginning after December 15, 2019. The Company does notanticipate that the standard will have a significant impact on its financial statements.88 Table of ContentsIn October 2018, the FASB issued ASU No. 2018-17, Consolidation (Topic 810): Targeted Improvements to RelatedParty Guidance for Variable Interest Entities, which amends the guidance for determining whether a decision-making fee is avariable interest. The amendments require organizations to consider indirect interests held through related parties undercommon control on a proportional basis rather than as the equivalent of a direct interest in its entirety (as currently required).The Company does not anticipate that the standard will have a significant impact on tis financial statements.In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying theInteraction Between Topic 808 and Topic 606, which provides guidance on how to assess whether certain transactionsbetween collaborative arrangement participants should be accounted for within the revenue recognition standard. Thestandard is effective for fiscal years beginning after December 15, 2019 and interim period within those years. The Companydoes not anticipate that the standard will have a significant impact on its financial statements.Revenue RecognitionWe have, to date, earned revenue from research and development collaborations, which may include research anddevelopment services, licenses of our internally-developed technologies, licenses of our internally-developed drugcandidates, or combinations of these.The terms of our license and research and development and collaboration agreements generally include non-refundable upfront payments, research funding, co-development reimbursements, license fees and, milestone and othercontingent payments to us for the achievement of defined collaboration objectives and certain clinical, regulatory andsales‑based events, as well as royalties on sales of any commercialized products.The terms of our licensing agreements include non‑refundable upfront fees, annual licensing fees, and contractualpayment obligations for the achievement of pre‑defined preclinical, clinical, regulatory and sales‑based events by ourpartners. The licensing agreements also include royalties on sales of any commercialized products by our partners.We recognize revenue through the five-step process in accordance with ASC 606 Revenue Recognition whencontrol of the promised goods or services is transferred to our customers in an amount that reflects the consideration weexpect to be entitled to in exchange for those goods or services.Deferred RevenueDeferred revenue arises from payments received in advance of the culmination of the earnings process. We haveclassified deferred revenue for which we stand ready to perform within the next 12 months as a current liability. We recognizedeferred revenue as revenue in future periods when the applicable revenue recognition criteria have been met. The totalamounts reported as deferred revenue were $40.1 million and $60.1 million at December 31, 2018 and 2017, respectively.Research and Development ExpensesResearch and development expenses include costs we incur for our own and for our collaborators’ research anddevelopment activities. Research and development costs are expensed as incurred. These costs consist primarily of salariesand benefits, including associated stock‑based compensation, laboratory supplies, facility costs, and applicable overheadexpenses of personnel directly involved in the research and development of new technology and products, as well as feespaid to other entities that conduct certain research development activities on our behalf. We estimate preclinical study andclinical trial expenses based on the services performed pursuant to the contracts with research institutions and clinicalresearch organizations that conduct and manage preclinical studies and clinical trials on our behalf based on the actual timeand expenses incurred by them. Further, we accrue expenses related to clinical trials based on the level of patient enrollmentand activity according to the related agreement. We monitor patient enrollment levels and related activity to the extentreasonably possible and adjust estimates accordingly.89 Table of ContentsWe capitalize acquired research and development technology licenses and third‑party contract rights and amortizethe costs over the shorter of the license term or the expected useful life. We review the license arrangements and theamortization period on a regular basis and adjust the carrying value or the amortization period of the licensed rights if thereis evidence of a change in the carrying value or useful life of the asset. Cash and Cash EquivalentsWe consider cash equivalents to be only those investments which are highly liquid, readily convertible to cash andwhich mature within three months from the date of purchase.Marketable SecuritiesThe Company has an investment policy that includes guidelines on acceptable investment securities, minimumcredit quality, maturity parameters and concentration and diversification. The Company invests its excess cash primarily inmarketable debt securities issued by investment grade institutions.The Company considers its marketable debt securities to be “available-for-sale”, as defined by authoritativeguidance issued by the FASB. These assets are carried at fair value and the unrealized gains and losses are included inaccumulated other comprehensive income (loss). Accrued interest on marketable debt securities is included in marketablesecurities. Accrued interest was $2.3 million and $1.7 million at December 31, 2018 and 2017, respectively. If a decline inthe value of a marketable security in the Company’s investment portfolio is deemed to be other-than-temporary, theCompany writes down the security to its current fair value and recognizes a loss as a charge against income. The Companyreviews its portfolio of marketable debt securities, using both quantitative and qualitative factors, to determine if declines infair value below cost are other-than-temporary.Concentrations of RiskCash, cash equivalents and marketable debt securities are financial instruments that potentially subject theCompany to concentrations of risk. We invest our cash in corporate debt securities and U.S. sponsored agencies with strongcredit ratings. We have established guidelines relative to diversification and maturities that are designed to help ensuresafety and liquidity. These guidelines are periodically reviewed to take advantage of trends in yields and interest rates.Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federallyinsured limits. We have never experienced any losses related to these balances. Amounts on deposit in excess of federallyinsured limits at December 31, 2018 and 2017 approximated $26.0 million and $16.3 million, respectively.We have payables with four service providers that represent 49% of our total payables and two service providers thatrepresented 40% of our total payables at December 31, 2018 and 2017, respectively. We rely on three critical suppliers forthe manufacture of our drug product for use in our clinical trials. While we believe that there are alternative vendorsavailable, a change in manufacturing vendors could cause a delay in the availability of drug product and result in a delay ofconducting and completing our clinical trials. No other vendor accounted for more than 10% of total payables atDecember 31, 2018 or 2017.Fair Value of Financial InstrumentsOur financial instruments primarily consist of cash and cash equivalents, marketable debt securities, accountsreceivable, accounts payable and accrued expenses. Marketable debt securities and cash equivalents are carried at fair value.The fair value of the other financial instruments closely approximate their fair value due to their short maturities.90 Table of ContentsThe Company accounts for recurring and non-recurring fair value measurements in accordance with FASBAccounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures (ASC 820). ASC 820 defines fairvalue, establishes a fair value hierarchy for assets and liabilities measured at fair value, and requires expanded disclosureabout fair value measurements. The ASC 820 hierarchy ranks the quality of reliable inputs, or assumptions, used in thedetermination of fair value and requires assets and liabilities carried at fair value to be classified and disclosed in one of thefollowing three categories:Level 1—Fair Value is determined by using unadjusted quoted prices that are available in active marketsfor identical assets or liabilities.Level 2—Fair Value is determined by using inputs other than Level 1 quoted prices that are directly orindirectly observable. Inputs can include quoted prices for similar assets or liabilities in activemarkets or quoted prices for identical assets or liabilities in markets that are not active. Relatedinputs can also include those used in valuation or other pricing models, such as interest rates andyield curves that can be corroborated by observable market data.Level 3—Fair value is determined by inputs that are unobservable and not corroborated by market data. Useof these inputs involves significant and subjective judgments to be made by the reporting entity –e.g. determining an appropriate discount factor for illiquidity associated with a given security.The Company measures the fair value of financial assets using the highest level of inputs that are reasonablyavailable as of the measurement date. The assets recorded at fair value are classified within the hierarchy as follows for theperiods reported (in thousands): December 31, 2018 Total Fair Value Level 1 Level 2 Money Market Funds in Cash and Cash Equivalents $18,270 $18,270 $ —Corporate Securities 104,967 — 104,967Government Securities 399,256 — 399,256 $522,493 $18,270 $504,223 December 31, 2017 Total Fair Value Level 1 Level 2 Money Market Funds in Cash and Cash Equivalents $5,175 $5,175 $ —Corporate Securities 123,270 — 123,270Government Securities 223,530 — 223,530 $351,975 $5,175 $346,800Property and EquipmentProperty and equipment are recorded at cost and depreciated using the straight‑line method over the estimateduseful lives of the assets. Expenditures for repairs and maintenance are charged to expense as incurred while renewals andimprovements are capitalized. Useful lives by asset category are as follows: Computers, software and equipment 3 - 5 years Furniture and fixtures 5 - 7 years Leasehold improvements 5 - 7 years or remaining lease term, whichever is less 91 Table of ContentsPatents, Licenses, and Other Intangible AssetsThe cost of acquiring licenses is capitalized and amortized on the straight‑line basis over the shorter of the term ofthe license or its estimated economic life, ranging from five to 25 years. Third‑party costs incurred for acquiring patents arecapitalized. Capitalized costs are accumulated until the earlier of the period that a patent is issued or we abandon the patentclaims. Cumulative capitalized patent costs are amortized on a straight‑line basis from the date of issuance over the shorter ofthe patent term or the estimated useful economic life of the patent, ranging from 13 to 20 years. Our senior management, withadvice from outside patent counsel, assesses three primary criteria to determine if a patent will be capitalized initially:i) technical feasibility, ii) magnitude and scope of new technical function covered by the patent compared to the company’sexisting technology and patent portfolio, particularly assessing the value added to our product candidates or licensingbusiness, and iii) legal issues, primarily assessment of patentability and prosecution cost. We review our intellectual propertyon a regular basis to determine if there are changes in the estimated useful life of issued patents and if any capitalized costsfor unissued patents should be abandoned. Capitalized patent costs related to abandoned patent filings are charged off in theperiod of the decision to abandon. During 2018, 2017 and 2016, we abandoned previously capitalized patent and licensingrelated charges of $0.2 million, $0.4 million and $0.4 million, respectively.The carrying amount and accumulated amortization of patents, licenses, and other intangibles is as follows (inthousands): December 31, 2018 2017 Patents, definite life $9,320 $8,915 Patents, pending issuance 5,644 4,360 Licenses and other amortizable intangible assets 2,011 2,011 Nonamortizable intangible assets (trademarks) 399 399 Total gross carrying amount 17,374 15,685 Accumulated amortization—patents (4,142) (3,413) Accumulated amortization—licenses and other (1,263) (1,124) Total intangible assets, net $11,969 $11,148 Amortization expense for patents, licenses, and other intangible assets was $0.9 million, $0.8 million, and $0.8million for the years ended December 31, 2018, 2017 and 2016, respectively.Future amortization expense for patent, licenses, and other intangible assets recorded as of December 31, 2018, andfor which amortization has commenced, is as follows: Year ended December 31, (in thousands) 2019 $862 2020 860 2021 757 2022 730 2023 659 Thereafter 1,923 Total $5,791 The above amortization expense forecast is an estimate. Actual amounts of amortization expense may differ fromestimated amounts due to additional intangible asset acquisitions, impairment of intangible assets, accelerated amortizationof intangible assets, and other events. As of December 31, 2018, the Company has $5.6 million of intangible assets which arein‑process and have not been placed in service and, accordingly amortization on these assets has not commenced.92 Table of ContentsLong‑Lived AssetsManagement reviews long‑lived assets which include fixed assets and amortizable intangibles for impairmentwhenever events or changes in circumstances indicate that the carrying amount of an asset (or asset group) may not berecoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset toundiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, theimpairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value ofthe assets.We did not recognize a loss from impairment for the years ended December 31, 2018, 2017 or 2016.Income TaxesWe account for income taxes in accordance with accounting guidance which requires an asset and liability approachto financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually fordifferences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductibleamounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected toaffect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amountexpected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change duringthe period in deferred tax assets and liabilities.We assess our income tax positions and record tax benefits for all years subject to examination based upon ourevaluation of the facts, circumstances and information available at the reporting date. For those tax positions where there isgreater than 50% likelihood that a tax benefit will be sustained, we have recorded the largest amount of tax benefit that maypotentially be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information.For those income tax positions where there is a 50% or less likelihood that a tax benefit will be sustained, no tax benefit hasbeen recognized in the financial statements. We did not have any material uncertain tax positions at December 31, 2018 or2017.Our policy is to recognize interest and penalties on taxes, if any, as a component of income tax expense.The Tax Cuts and Jobs Act (tax reform) was enacted on December 22, 2017 and has several key provisionsimpacting accounting for and reporting of income taxes. The most significant provisions reduced the U.S. corporate statutorytax rate from 35% to 21%, eliminated the Alternative Minimum Tax (AMT) system, and made changes to the utilization andcarryforward of net operating losses beginning on January 1, 2018. The tax reform provided for a refund of unused AMTcarryforwards for years beginning after December 31, 2017. We recorded an income tax receivable as of December 31, 2018of $1.6 million related to federal AMT carryforwards.Stock‑Based CompensationWe recognize compensation expense using a fair‑value‑based method for costs related to all share‑based payments,including stock options and shares issued under our Employee Stock Purchase Plan (ESPP). Stock‑based compensation costrelated to employees and directors is measured at the grant date, based on the fair‑value-based measurement of the awardusing the Black‑Scholes method, and is recognized as expense over the requisite service period on a straight‑line basis. Weaccount for forfeitures when they occur. We recorded stock‑based compensation and expense for stock‑based awards toemployees, directors and consultants of approximately $20.5 million, $13.7 million, and $7.8 million for the years endedDecember 31, 2018, 2017 and 2016 respectively. Included in the 2018, 2017, and 2016 balances for total compensationexpense is $0.7 million, $0.5 million, and $0.4 million, respectively, relating to our ESPP.Options granted to individual service providers that are not employees or directors are accounted for at estimatedfair value using the Black‑Scholes option‑pricing method and are subject to periodic re‑measurement over the period duringwhich the services are rendered.93 Table of ContentsNet Income (Loss) Per ShareBasic net income (loss) per common share is computed by dividing the net income or loss by the weighted‑averagenumber of common shares outstanding during the period. Potentially dilutive securities consisting of stock options for 2018and 2017, and stock purchases under the Employee Stock Purchase Plan were not included in the diluted net loss percommon shares calculation because the inclusion of such shares would have had an antidilutive effect as follows: Year Ended December 31, 2018 2017 2016 (in thousands) Options to purchase common stock 1,881 1,291 — Employee stock purchase plan shares 3 — — Total 1,884 1,291 — Year Ended December 31, 2018 2017 2016 (in thousands, except share and per share data) (As Revised) (As Revised) Basic Numerator: Net income (loss) attributable to common stockholders for basic netincome (loss) per share $(70,409) $(38,486) $45,125 Denominator: Weighted-average common shares outstanding 53,942,116 46,817,756 41,267,329 Basic net income (loss) per common share $(1.31) $(0.82) $1.09 Diluted Numerator: Net income (loss) attributable to common stockholders for diluted netincome (loss) per share $(70,409) $(38,486) $45,125 Denominator: Weighted average number of common shares outstanding used incomputing basic net income (loss) per common share 53,942,116 46,817,756 41,267,329 Dilutive effect of employee stock options and ESPP — — 1,121,538 Weighted-average number of common shares outstanding used incomputing diluted net income (loss) per common share 53,942,116 46,817,756 42,388,867 Diluted net income (loss) per common share $(1.31) $(0.82) $1.07 Segment ReportingThe Company determines its segment reporting based upon the way the business is organized for making operatingdecisions and assessing performance. The Company has only one operating segment related to the development ofpharmaceutical products.2. Comprehensive Income (Loss)Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss). For theyears ended December 31, 2018 and 2017, the only component of other comprehensive loss is net unrealized losses onmarketable debt securities. There were no material reclassifications out of accumulated other comprehensive loss during theyear ended December 31, 2018.94 Table of Contents3. Marketable SecuritiesThe Company’s marketable debt securities held as of December 31, 2018 and 2017 are summarized below: December 31, 2018 Gross Gross Amortized Unrealized Unrealized Cost Gains Losses Fair Value(in thousands) Money Market Funds $18,270 $ — $ — $18,270Corporate Securities 105,311 1 (345) 104,967Government Securities 399,873 187 (804) 399,256 $523,454 $188 $(1,149) $522,493 Reported as Cash and cash equivalents $18,270 Marketable securities 504,223Total investments $522,493 December 31, 2017 Gross Gross Amortized Unrealized Unrealized Cost Gains Losses Fair Value(in thousands) Money Market Funds $5,175 $ — $ — $5,175Corporate Securities 123,860 — (590) 123,270Government Securities 224,739 — (1,209) 223,530 $353,774 $ — $(1,799) $351,975 Reported as Cash and cash equivalents $5,175 Marketable securities 346,800Total investments $351,975The maturities of the Company’s marketable debt securities as of December 31, 2018 are as follows: Amortized Estimated Cost Fair Value(in thousands) Mature in one year or less $269,092 $268,115Mature after one year through five years 236,092 236,108 $505,184 $504,22395 Table of ContentsThe unrealized losses on available-for-sale investments and their related fair values as of December 31, 2018 and2017 are as follows: December 31, 2018 Less than 12 months 12 months or greater Fair value Unrealizedlosses Fair value Unrealized gain(losses)(in thousands) Corporate Securities $84,770 $(310) $20,198 $(34)Government Securities 183,345 (667) 215,910 50 $268,115 $(977) $236,108 $16 December 31, 2017 Less than 12 months 12 months or greater Fair value Unrealizedlosses Fair value Unrealizedlosses(in thousands) Corporate Securities $79,290 $(137) $43,980 $(453)Government Securities 128,313 (461) 95,217 (748) $207,603 $(598) $139,197 $(1,201)The unrealized losses from the listed securities are due to a change in the interest rate environment and not a changein the credit quality of the securities.4. Sale of Additional Common StockIn March 2015, we completed the sale of 8,625,000 shares of common stock which included shares we issuedpursuant to our underwriters’ exercise of their over-allotment option pursuant to a follow-on offering. We received netproceeds of $115.2 million, after underwriting discounts, commissions and estimated offering expenses.In December 2016, we completed the sale of 5,272,750 shares of common stock which included shares we issuedpursuant to our underwriters’ exercise of their over-allotment option pursuant to a follow-on financing. We received netproceeds of $119.3 million after underwriting discounts, commissions and offering expenses.In March 2018, we completed the sale of 8,395,000 shares of commons stock which included shares we issuedpursuant to our underwriters’ exercise of their over-allotment option pursuant to a follow-on financing. We received netproceeds of $245.5 million, after underwriters discounts and offering expenses.On September 19, 2016, we entered into an Equity Distribution Agreement (the Distribution Agreement) with PiperJaffray & Co (Piper Jaffray) pursuant to which we may sell from time to time, at our option, up to an aggregate of $40 millionof common stock through Piper Jaffray as sales agent. The issuance and sale of these shares by Xencor under the DistributionAgreement will be pursuant to our shelf registration statement on Form S-3 (File No.333-213700) declared effective by theSEC on October 5, 2016. We are not obligated sell any shares of common stock under the Distribution Agreement, and todate we have not sold any shares under the Distribution Agreement.96 Table of Contents5. Property and EquipmentProperty and equipment consist of the following: December 31, 2018 2017 (In thousands) Computers, software and equipment $16,292 $10,874 Furniture and fixtures 173 152 Leasehold and tenant improvements 4,774 4,010 21,239 15,036 Less accumulated depreciation and amortization (9,426) (7,948) $11,813 $7,088 Depreciation and amortization expense related to property and equipment in 2018, 2017 and 2016 was $2.4 million,$1.2 million and $0.7 million, respectively.6. Income TaxesOur effective tax rate differs from the statutory federal income tax rate, primarily as a result of the changes invaluation allowance. There was no provision for income taxes for the year ended December 31, 2018. For the year endedDecember 31, 2017, the provision for income tax is a benefit of $0.5 million. Current tax expense of $1.0 million for the yearended December 31, 2016 represents federal and state alternative minimum tax.A reconciliation of the federal statutory income tax to our effective income tax is as follows (in thousands): Year Ended December 31, 2018 2017 2016 (Revised) (Revised) Federal statutory income tax $(14,795) $(13,243) $15,680 State and local income taxes (4,767) (1,806) 2,818 Research and development credit (6,170) (5,554) (2,544) Stock based compensation 444 2,709 733 Effect of the 2017 Tax Cut and Jobs Act — 19,596 — Other 414 720 1,008 Net change in valuation allowance 24,874 (2,885) (16,695) Income tax provision (benefit) $ — $(463) $1,000 97 Table of ContentsThe tax effect of temporary differences that give rise to a significant portion of the deferred tax assets and liabilitiesat December 31, 2018 and 2017 is presented below (in thousands): December 31, 2018 2017 (Revised) Deferred income tax assets Net operating loss carryforwards $49,889 $25,565 Research credits 23,151 16,642 Depreciation 207 437 Unrealized loss on securities 269 504 Accrued compensation 1,097 748 Deferred revenue 11,222 16,820 State taxes — (2) Gross deferred income tax assets 85,835 60,714 Valuation allowance (82,537) (57,663) Net deferred income tax assets 3,298 3,051 Deferred income tax liabilities Patent costs (3,142) (2,873) Licensing costs (125) (142) Capitalized legal costs (31) (36) Gross deferred income tax liabilities (3,298) (3,051) Net deferred income tax asset $ — $ — The Tax Cuts and Jobs Act (TCJA) was enacted in December 2017 and made substantial changes in the U.S. taxsystem. One of the changes was elimination of the AMT tax system for corporations and allowance of an income tax refundfor AMT tax credit carryforwards as of December 31, 2017. We have reported an income tax receivable of $1.6 million as ofDecember 31, 2018 and 2017 to reflect the U.S. AMT credit carryforwards we have available. Due to the uncertaintysurrounding the realization of the benefits of our deferred tax assets in future tax periods, we have placed a valuationallowance against our deferred tax assets at December 31, 2018 and 2017. The Company recognizes valuation allowances toreduce deferred tax assets to the amount that is more likely than not to be realized. The Company’s net deferred income taxasset is not more likely than not to be realized due to the lack of sufficient sources of future taxable income and cumulativelosses that have resulted over the years. During the year ended December 31, 2018, the valuation allowance increased by$24.9 million. Upon analysis, there were changes in ownership under Section 382 of the Internal Revenue Code and relatedstate provisions as a result of our sale of preferred stock and sale of common stock during 2013. Section 382 limits theamount of net operating losses and tax credit forwards that may be available after a change in ownership. The Company hasadjusted its net operating loss and tax credit carryforwards to reflect the impact of the section 382 limitations. TheCompany’s tax returns remain open to potential inspection for the years 2013 and onwards for federal purposes and 2012 andonwards for state purposes.As of December 31, 2018, we had cumulative net operating loss carryforwards for federal and state income taxpurposes of $191.1 million and $138.9 million respectively, and available tax credit carryforwards of approximately $14.9million for federal income tax purposes and $8.2 million for state income tax purposes, which can be carried forward to offsetfuture taxable income, if any. The federal net operating loss carryforwards consists of $102.6 million of losses incurred priorto January 1, 2018 and which can be used to offset 100% of future taxable income and, $88.6 million of losses incurred afterJanuary 1, 2018 which can be used to offset up to 80% of taxable income in subsequent years.Our federal net operating loss carryforwards expire starting in 2026, state net operating losses expire starting in2032, and federal tax credit carryforwards expire starting in 2019. Utilization of the net operating losses and tax credits aresubject to a substantial annual limitation due to ownership changes which occurred. As a result of these changes, provisionsin the Internal Revenue Code of 1986 under Section 382 and similar state provisions may result in the expiration of certainof our net operating losses and tax credits before we can use them.98 Table of Contents7. Stock‑Based CompensationOur Board of Directors and the requisite stockholders previously approved the 2010 Equity Incentive Plan (the2010 Plan). In October 2013, our Board of Directors approved the 2013 Equity Incentive Plan (the 2013 Plan) and inNovember 2013 our stockholders approved the 2013 Plan. The 2013 Plan provides for the grant of incentive stock options,nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stockawards, performance cash awards, and other stock awards. The 2013 Plan became effective as of December 3, 2013, the dateof the Company’s initial public offering. As of December 2, 2013, we suspended the 2010 Plan and no additional awardsmay be granted under the 2010 Plan. Any shares of common stock covered by awards granted under the 2010 Plan thatterminate after December 2, 2013 by expiration, forfeiture, cancellation or other means without the issuance of such shareswill be added to the 2013 Plan reserve.As of December 31, 2018, the total number of shares of common stock available for issuance under the 2013 Planwas 9,581,833. Unless otherwise determined by the Board, beginning January 1, 2014, and continuing until the expiration ofthe 2013 Plan, the total number of shares of common stock available for issuance under the 2013 Plan will automaticallyincrease annually on January 1 by 4% of the total number of issued and outstanding shares of common stock as ofDecember 31 of the immediate preceding year. On January 1, 2018, the total number of shares of common stock available forissuance under the 2013 Plan was automatically increased by 1,880,100 shares, which number is included in the number ofshares available for issuance above. As of December 31, 2018 a total of 6,751,287 options have been issued under the 2013Plan.During the year ended December 31, 2018, the Company awarded 33,933 Restricted Stock Units (RSUs) to certainemployees pursuant to the 2013 Plan. Vesting of these awards will be in three equal annual installments and is contingent oncontinued employment terms. The fair value of these awards is determined based on the intrinsic value of the stock on thedate of grant and will be recognized as stock-based compensation expense over the requisite service period.In November 2013, our Board of Directors and stockholders approved the 2013 Employee Stock Purchase Plan(ESPP), which became effective as of December 5, 2013. Under the ESPP our employees may elect to have between 1-15% oftheir compensation withheld to purchase shares of the Company’s common stock at a discount. The ESPP had an initial two-year term that includes four six-month purchase periods and employee withholding amounts may be used to purchaseCompany stock during each six-month purchase period. The initial two-year term ended in December 2015 and pursuant tothe provisions of the ESPP, the second two-year term began automatically upon the end of the initial term. The total numberof shares that can be purchased with the withholding amounts are based on the lower of 85% of the Company’s commonstock price at the initial offering date or 85% of the Company’s stock price at each purchase date.We have reserved a total of 581,286 shares of common stock for issuance under the ESPP. Unless otherwisedetermined by our Board, beginning on January 1, 2014, and continuing until the expiration of the ESPP, the total numbershares of common stock available for issuance under the ESPP will automatically increase annually on January 1 by thelesser of (i) 1% of the total number of issued and outstanding shares of common stock as of December 31 of the immediatelypreceding year, or (ii) 621,814 shares of common stock. On January 1, 2014, the total number of shares of common stockavailable for issuance under the ESPP was automatically increased by 313,545 shares, which number is included in thenumber of shares reserved for issuance above. Pursuant to approval by our board, there were no increases in the number ofauthorized shares in the ESPP in years from 2015 to 2018. As of December 31, 2018, we have issued a total of 349,716 sharesof common stock under the ESPP. 99 Table of ContentsTotal employee, director and non‑employee stock‑based compensation expense recognized was as follows: Year Ended December 31, (In thousands) 2018 2017 2016 General and administrative $7,699 $5,617 $3,592 Research and development 12,849 8,034 4,256 $20,548 $13,651 $7,848 Year Ended December 31, (In thousands) 2018 2017 2016 Stock options $19,537 $13,153 $7,470 ESPP 744 498 378 Restricted stock units 267 — — $20,548 $13,651 $7,848 Information with respect to stock options outstanding is as follows: December 31, 2018 2017 2016 Exercisable options 3,058,659 2,558,941 1,743,765 Weighted average exercise price per share of exercisable options $15.12 $11.06 $8.87 Weighted average grant date fair value per share of options granted during theyear $18.06 $16.92 $10.30 Options available for future grants 3,576,574 3,394,691 2,943,216 Weighted average remaining contractual life 7.51 7.62 7.82 The following table summarizes stock option activity for the years ended December 31, 2018 and 2017: Weighted- Weighted- Average Average Remaining Exercise Contractual Aggregate Number of Price Term Intrinsic Value Shares (Per Share) (in years) (in thousands) Balances at December 31, 2016 4,045,801 11.95 7.82 $58,131 Options granted 1,511,100 22.61 Options forfeited (96,856) 17.08 Options expired (3,000) 21.99 Options exercised(3) (363,603) 7.69 Balances at December 31, 2017 5,093,442 15.32 7.62 $35,495 Options granted 1,805,937 27.43 Options forfeited (107,720) 21.66 Options exercised(3) (824,731) 9.24 Balances at December 31, 2018 5,966,928 $19.71 7.51 $99,273 As of December 31, 2018 Options vested and expected to vest 5,966,928 $19.71 7.51 $99,273 Exercisable 3,058,659 $15.12 6.42 $64,417 (1)The weighted average exercise price per share is determined using exercise price per share for stock options.(2)The aggregate intrinsic value is calculated as the difference between the exercise price of the option and the fair value of our commonstock for in‑ the‑money options at December 31, 2018 and 2017.100 (1)(2)Table of Contents(3)The total intrinsic value of stock options exercised was $23.6 million, $5.7 million and $11.2 million for the years ended December 31,2018, 2017 and 2016 respectively.The stock options outstanding and exercisable by exercise price at December 31, 2018 are as follows:Stock Options Outstanding Stock Options Exercisable Weighted- Average Remaining Weighted- Weighted- Range of Contractual Average Average Exercise Number of Term Exercise Price Number of Exercise Price Prices Shares (in years) Per Share Shares Per Share $0.59 – $4.25 291,433 4.49 $3.63 291,433 $3.63 $9.78 – $14.75 1,560,249 6.39 $12.10 1,281,242 $11.97 $14.77 – $22.18 852,138 6.62 $17.00 706,562 $16.35 $22.20 – $33.78 2,929,571 8.42 $23.92 760,672 $23.08 $34.56 – $43.16 333,537 9.68 $39.26 18,750 $38.93 5,966,928 7.51 $19.71 3,058,659 $15.12 We estimated the fair value of employee and non‑employee awards using the Black‑Scholes valuation model. Thefair value of employee stock options is being amortized on a straight‑line basis over the requisite service period of theawards. Management estimates the probability of non‑employee awards being vested based upon an evaluation of thenon‑employee achieving their specific performance goals.Options granted after our initial public offering are issued at the fair market value of our stock on the date of grant.The fair value of employee stock options was estimated using the following weighted average assumptions for theyears ended December 31, 2018, 2017 and 2016: Options 2018 2017 2016 Common stock fair value per share $21.80 - 43.16 $19.61 - 25.67 $11.50 - 26.76 Expected volatility 70.97% - 73.10% 77.42% - 96.73% 75.77% - 90.83% Risk-free interest rate 2.29% - 3.10% 0.96% - 2.37% 1.03% - 2.18% Expected dividend yield — — — Expected term (in years) 5.23 - 6.08 5.23 - 6.08 5.23 - 6.08 ESPP 2018 2017 2016 Expected term (years) 0.5 - 2.0 0.5 - 2.0 0.5 - 2.0 Expected volatility 57.0% - 71.4% 67.8% - 79.8% 67.8% - 79.8% Risk-free interest rate 1.47% - 2.70% 0.47% - 1.80% 0.47% - 0.93% Expected dividend yield — — — The expected term of stock options represents the average period the stock options are expected to remainoutstanding. The expected stock price volatility for our stock options for the years ended December 31, 2018, 2017 and 2016was determined by examining the historical volatilities for industry peers and adjusting for differences in our life cycle andfinancing leverage. Industry peers consist of several public companies in the biopharmaceutical industry.We determined the average expected life of stock options based on the simplified method because our commonstock has not been publicly traded for an extended period and we do not have a track record of our stock being traded on thepublic markets for sufficient time to establish the volatility of our stock.101 Table of ContentsThe risk‑free interest rate assumption is based on the U.S. Treasury instruments whose term was consistent with theexpected term of our stock options.The expected dividend assumption is based on our history and expectation of dividend payouts.The following table summarizes restricted stock units activity for the years ended December 31, 2018: Weighted- Average Grant Date Number of Fair Value Shares (Per Unit)Unvested at December 31, 2017 — —Granted 33,933 $27.64Vested — —Forfeited — —Unvested at December 31, 2018 33,933 $27.64As of December 31, 2018 and 2017, the unamortized compensation expense related to unvested stock options was$42.8 million and $30.7 million, respectively. The remaining unamortized compensation expense will be recognized overthe next 2.71 years. At December 31, 2018 and 2017, the unamortized compensation expense was $0.8 million and $1.1million respectively under our ESPP. The remaining unamortized expense will be recognized over the next 11.2 months. AtDecember 31, 2018, the unamortized compensation expense related to unvested restricted stock units was $0.7 million,which will be recognized over the next 2.15 years.8. Commitments and ContingenciesOperating leasesThe Company leases office and laboratory space in Monrovia, CA through June 2020. In July 2017, the Companyentered into an amended lease agreement for additional space in the same building. The amended lease has a 64-month termwith an option to renew for an additional five years. The lease terms for the original space were not amended.The Company also leases office space in San Diego, CA through June 2020. In June 2017, the Company enteredinto a new lease agreement for an additional office space. The new lease has a 61-month term beginning from the date ofoccupancy and includes an option to renew for an additional five years. At December 31, 2018 the future minimum leasepayments under the operating leases were as follows: OperatingYears ending December 31, Leases2019 $2,7522020 2,4042021 1,9802022 1,4062023 —Thereafter —Rent expenses for the years ended December 31, 2018, 2017 and 2016 were $2.5 million, $1.7 million, and $0.6million, respectively.ContingenciesFrom time to time, the Company may be subject to various litigation and related matters arising in the ordinarycourse of business. The Company does not believe it is currently subject to any material matters where there is at least areasonable possibility that a material loss may be incurred.102 Table of ContentsOn March 3, 2015, a verified class action complaint, captioned DePinto v. John S. Stafford, et al., C.A. No. 10742,was filed in the Court of Chancery of the State of Delaware against certain of the Company's current and former directorsalleging cause of action for Breach of Fiduciary Duty and Invalidity of Director and Stockholder Consents and that thedefendants breached their fiduciary duties in the course of approving a series of transactions. The complaint related to afinancial recapitalization of the Company and certain related transactions that the Company completed in 2013.On September 27, 2016, the parties engaged in voluntary mediation and agreed to settle the complaint’soutstanding claims for a total payment of $2.375 million to the class certified by the Delaware Court of Chancery. Thesettlement was reached without any party admitting wrongdoing. Under the terms of the settlement, no payment shall bemade to the plaintiffs by the Company or any of the defendants in the lawsuit other than payments covered by theCompany’s insurance.On April 4, 2017, the Delaware Court of Chancery approved the settlement between the parties. On May 1, 2017, theCompany’s insurance carriers fully funded the settlement account.We recognized legal costs related to the litigation as incurred and offset any insurance proceeds when approved andissued. For the year ended December 31, 2017 no amount of loss related to the settlement has been accrued. At December 31,2016, we reported the outstanding settlement amount of $2.355 million as a payable and reflected a receivable of the sameamount for the insurance coverage. This amount was paid by the insurance carrier on our behalf in May 2017.We are obligated to make future payments to third parties under in‑license agreements, including sublicense fees,royalties, and payments that become due and payable on the achievement of certain development and commercializationmilestones. As the amount and timing of sublicense fees and the achievement and timing of these milestones are not probableand estimable, such commitments have not been included on our balance sheet. We have also entered into agreements withthird party vendors which will require us to make future payments upon the delivery of goods and services in future periods.GuaranteesIn the normal course of business, we indemnify certain employees and other parties, such as collaboration partnersand other parties that perform certain work on behalf of, or for the Company or take licenses to our technologies. We haveagreed to hold these parties harmless against losses arising from our breach of representations or covenants, intellectualproperty infringement or other claims made against these parties in performance of their work with us.These agreements typically limit the time within which the party may seek indemnification by us and the amount ofthe claim. It is not possible to prospectively determine the maximum potential amount of liability under theseindemnification agreements since we have not had any prior indemnification claims on which to base the calculation.Further, each potential claim would be based on the unique facts and circumstances of the claim and the particular provisionsof each agreement. We are not aware of any potential claims and we did not record a liability as of December 31, 2018 and2017.9. Collaboration and Licensing AgreementsFollowing is a summary description of the material revenue arrangements, including arrangements that generatedrevenue in the period ended December 31, 2018, 2017, and 2016. The revenue reported for each agreement has been adjustedto reflect the adoption of ASC 606 for each period presented.103 Table of ContentsNovartisIn June 2016, the Company entered into a Collaboration and License Agreement (Novartis Agreement) withNovartis Institutes for BioMedical Research, Inc. (Novartis), to develop and commercialize bispecific and other Fcengineered antibody drug candidates using the Company’s proprietary XmAb® technologies and drug candidates. Pursuantto the Novartis Agreement:·The Company granted Novartis certain exclusive rights to research, develop and commercialize XmAb14045and XmAb13676, two development stage products that incorporate the Company’s bispecific Fc technology;·The Company will apply its bispecific technology in up to four target pair antibodies identified by Novartis(each a Global Discovery Program); and·The Company will provide Novartis with a non-exclusive license to certain of its Fc technologies to applyagainst up to ten targets identified by Novartis.The Company received a non-refundable upfront payment under the Novartis Agreement of $150 million in July2016 and is eligible to receive up to $2.1 billion in future development, regulatory and sales milestones in total for allprograms that could be developed under the Novartis Agreement. In December 2018, Novartis notified the Company it wasterminating its rights with respect to the XmAb13676 program, which will be effective June 2019. Under the Agreement,Novartis is responsible to fund its share of XmAb13676 development costs through June 2020.Under the Novartis Agreement, the Company granted Novartis a worldwide co-exclusive license with the Companyto research, develop and manufacture XmAb14045. The Company also granted Novartis an exclusive license tocommercialize XmAb14045 in all worldwide territories outside the U.S.The Company and Novartis will co-develop XmAb14045 worldwide and share development costs. The Companymay elect to opt-out of the development of XmAb14045 by providing notice to Novartis. If the Company elects to opt-out,Novartis will receive the Company’s U.S. rights to XmAb14045 and the Company will receive low double-digit royalties onU.S. net sales in addition to the royalties on net sales outside the U.S.Pursuant to the Novartis Agreement, the Company will apply its bispecific technology to up to four target pairantibodies selected, if available for exclusive license to Novartis and not subject to a Company internal program. TheCompany will apply its bispecific technology to generate bispecific antibody candidates from starting target pair antibodiesprovided by Novartis for each of the four Global Discovery Programs and return the bispecific product candidate to Novartisfor further testing, development and commercialization. Novartis has the right to substitute up to four of the original selectedtarget pair antibodies during the research term provided that Novartis has not filed and received acceptance for anInvestigational New Drug Application (IND) with the Company provided bispecific candidate. The research term is five yearsfrom the date of the Novartis Agreement.We completed delivery of a Global Discovery Program in 2017 and delivery of a second Global Discovery Programin 2018.Novartis will assume full responsibility for development and commercialization of each product candidate undereach of the Global Discovery Programs.Under the Novartis Agreement, the Company has the right to participate in the development and commercializationof one of the Global Discovery Programs prior to filing an IND for the Global Discovery Program. If the Company elects toparticipate in development, it will assume responsibility for 25% of the worldwide development costs for the program and50% of commercialization costs and will receive 50% of the U.S. profits on net sales of the product.104 Table of ContentsUnder the Novartis Agreement, the Company also granted Novartis a non-exclusive research license to use certain ofthe Company’s Fc technologies, specifically Cytotoxic, Xtend and Immune Inhibitor, to research, develop, commercializeand manufacture antibodies against up to ten targets selected by Novartis, if available for non-exclusive license and notsubject to a Company internal program. Novartis will assume all research, development and commercialization costs forproducts that are developed from application of the Fc technologies.The Company evaluated the Novartis Agreement under the new revenue recognition standard ASC 606 andconcluded that Novartis is a customer. The Company identified the following performance obligations that it deemed to bedistinct at the inception of the contract:·License to certain rights to Xencor’s XmAb14045 and XmAb13676;·Develop four bispecific drug candidates against four targets identified by Novartis; and·License to Xencor’s Fc technologies for up to 10 targets identified and selected by Novartis.The Company considered the licenses as functional intellectual property as Novartis has the right to access itstechnology and such technology is functional to Novartis at the time that the Company provides access. Under the NovartisAgreement, Novartis has substitution rights under each discovery program provided it has not advanced to filing an IND. TheCompany’s obligation to provide services related to the discovery programs, and Novartis’ right to substitute programs islimited to the five-year period from the date of the Novartis agreement.The Company determined the transaction price at inception is the $150 million upfront payment to be allocated tothe performance obligations. The Novartis Agreement includes variable consideration for potential future milestones androyalties that were contingent on future success factors for development programs. The Company used the “most likely”method to determine the variable consideration. None of the development, regulatory or sales milestones or royalties wereincluded in the transaction price. The Company will re-evaluate the transaction price in each reporting period as uncertainevents are resolved or other changes in circumstances occur.The Company determined the transaction price at inception of the Novartis Agreement and allocated it to thevarious performance obligations using the standalone selling price which is comparable to the relative selling pricemethodology used in the original accounting treatment for the transaction.The transaction price of $150 million was allocated to the performance obligations as follows:*$27.1 million to certain rights to the XmAb14045 Program;*$31.4 million to certain rights to the XmAb13676 Program;*$20.05 million to each of the four Global Discovery Programs; and*$11.3 million to the Fc licenses.Under ASC 606, revenue is recognized at the time that the Company’s performance obligation for each GlobalDiscovery is completed upon delivery of each discovery program to Novartis. The Company delivered a discovery programto Novartis in 2017 and recognized $20.05 million of revenue in the period of delivery. In the third quarter of 2018, theCompany delivered a second discovery program to Novartis and is recognizing an additional $20.04 million of revenue.Under ASC 606 the entire amount of revenue allocated to the Fc licenses is being recognized at inception of theNovartis Agreement, the second quarter of 2016.During the year ended December 31, 2018, 2017 and 2016, the Company recognized $20.0 million, $20.1 millionand $69.9 million of revenue respectively. As of December 31, 2018 there is a receivable of $2.1 million and $40.1 million indeferred revenue related to the arrangement.105 Table of ContentsAmgen Inc.In September 2015, the Company entered into a research and license agreement (the Amgen Agreement) withAmgen Inc. (Amgen) to develop and commercialize bispecific antibody product candidates using the Company’s proprietaryXmAb® bispecific Fc technology. Under the Amgen Agreement, the Company granted an exclusive license to Amgen todevelop and commercialize bispecific drug candidates from the Company’s preclinical program that bind the CD38 antigenand the cytotoxic T-cell binding domain CD3, (the CD38 Program). The Company also agreed to apply its bispecifictechnology to five previously identified Amgen provided targets (each a Discovery Program). The Company received a $45million upfront payment from Amgen and is eligible to receive up to $600 million in future development, regulatory andsales milestones in total for programs in development and is eligible to receive royalties on any global net sales of products.Pursuant to the Amgen Agreement, the Company applied its bispecific technology to five Discovery Programsantibody molecules provided by Amgen that bind Discovery Program targets and returned the bispecific product candidatesto Amgen for further testing, development and commercialization. The initial research term was three years from the date ofthe Amgen Agreement, but Amgen, at its option, may request an extension of one year. In May 2018, Amgen notified theCompany that it was electing to extend the term of the research term for one year. Pursuant to the Amgen Agreement, Amgenand the Company will agree upon a detailed plan for services to be provided by the Company during the extended researchterm. The Company will receive research funding for the additional services provided during the extended research term.Amgen will assume full responsibility for development and commercialization of product candidates under each ofthe Discovery Programs.The Company evaluated the Amgen Agreement under ASC 606 and determined that it is a customer and thatdelivery of the CD38 Program and each of the five Discovery Programs represent the performance obligations under thecontract.The Company determined the transaction price at inception is the $45 million upfront payment to be allocated tothe performance obligations. The Amgen Agreement includes variable consideration for potential future milestones androyalties that were contingent on future success factors for development programs. The Company used the “most likely”method to determine the variable consideration. In the fourth quarter of 2017, the Company received a $10 milliondevelopment milestone related to the CD38 program, now AMG424, and this payment was included in the transaction priceas uncertainty associated with it has been resolved. In the fourth quarter of 2018, the Company received a $0.5 millionpreclinical milestone related to one of the discovery programs. No other development, regulatory or sales milestones orroyalties were included in the transaction price. The Company will re-evaluate the transaction price in each reporting periodand as uncertain events are resolved or other changes in circumstances occur.In allocating the transaction price determined at inception, the Company determined that ASC 606 provides the useof a standalone selling price for the transaction.The transaction price of $55.5 million was allocated to the performance obligations as follows:*$23.75 million to the CD38 Program and*$6.25 million to each of the five Discovery ProgramsUnder ASC 606, the amount of revenue recognized for the CD38 program is recognized at the inception of thecontract when delivery of the CD38 Program and materials was transferred to Amgen. The $10 million milestone revenue wasrecognized in the period that the uncertainty regarding the event is resolved, i.e., when the milestone event occurred.106 Table of ContentsThe Company completed performance obligations for the five discovery programs in 2016 when all five of theDiscovery Programs were delivered to Amgen. Pursuant to ASC 606 the Company recognized $31.25 million of revenue fordelivery of the five discovery programs in 2016. In the fourth quarter of 2018, a $0.5 million milestone payment was receivedin connection with a preclinical development of a discovery program.In the third quarter of 2018, the Company and Amgen agreed upon additional scope of work to be performed by theCompany; the work has been completed in 2018.During the years ended December 31, 2018, 2017 and 2016, the Company recognized $0.6 million, $10.0 millionand $31.2 million in revenue, respectively, under this arrangement. As of December 31, 2018 there was no deferred revenuerelated to the arrangement.Novo Nordisk A/SIn December 2014, the Company entered into a Collaboration and License Agreement with Novo Nordisk A/S(Novo). Under the terms of the agreement, the Company granted Novo a research license to use certain Companytechnologies during a two-year research term. The Company received an upfront payment of $2.5 million and researchfunding of $1.6 million per year over the research term. This agreement was terminated by Novo in 2016.There was no revenue recognized for the year ended December 31, 2018 and 2017. For the year ended in December31, 2016, the total revenue recognized under this agreement was $2.7 million. As of December 31, 2018 the Company has nodeferred revenue related to the agreement.MorphoSys AgIn June 2010, the Company entered into a Collaboration and License Agreement with MorphoSys AG (MorphoSys),which was subsequently amended in March 2012. The agreement provided us an upfront payment of $13 million inexchange for an exclusive worldwide license to the Company’s patents and know‑how to research, develop andcommercialize our XmAb5574 product candidate (subsequently renamed MOR208) with the right to sublicense undercertain conditions. Under the agreement, the Company agreed to collaborate with MorphoSys to develop and commercializeXmAb5574/MOR208. If certain developmental, regulatory and sales milestones are achieved, the Company is eligible toreceive future milestone payments and royalties.In June 2017, MorphoSys initiated a Phase III clinical trial under the arrangement for which the Company received amilestone payment of $12.5 million. The Company recognized the payment as revenue in the period that the milestone eventoccurred.The Company recognized $12.5 million of revenue for the year end December 31, 2017. There were no revenuesrecognized under this arrangement for the years ended December 31, 2018 and 2016. As of December 31, 2018, the Companyhas no deferred revenue related to this agreement.Alexion Pharmaceuticals, Inc.In January 2013, the Company entered into an option and license agreement with Alexion Pharmaceuticals, Inc.(Alexion). Under the terms of the agreement, the Company granted to Alexion an exclusive research license, with limitedsublicensing rights, to make and use our Xtend technology to evaluate and advance compounds against six different targetprograms during a five‑year research term under the agreement, up to completion of the first multi‑dose human clinical trialfor each target compound.107 Table of ContentsUnder the agreement, the Company received an upfront payment of $3.0 million and also an annual maintenance feeof $0.5 million during the research term of the agreement. In addition, the Company is eligible to receive contractualmilestones for certain development, regulatory and commercial achievements. If licensed products are successfullycommercialized, the Company is also entitled to receive royalties based on a percentage of net sales of such products sold byAlexion, its affiliates or its sub licensees, which percentage is in the low single digits. Alexion’s royalty obligations continueon a product‑by‑product and country‑by‑ country basis until the expiration of the last‑to‑expire valid claim in a licensedpatent covering the applicable product in such country.In December 2016, Alexion achieved a Phase 3 clinical development milestone for ALXN1210.In the third quarter of 2018, Alexion completed certain regulatory submission filings for ALXN1210 and theCompany received $9 million in milestone payments. In the fourth quarter of 2018, Alexion completed certain regulatorysubmission filings for ALXN 1210 and also received FDA marketing approval for ALXN 1210, now Ultomiris, and theCompany received $11 million in milestone payments.The Company determined Alexion to be a customer and the license of the Company’s Xtend intellectual property isfunctional intellectual property, distinct and is the only performance obligation under the agreement. The upfront fee, the netpresent value of the annual maintenance fees, the option exercise fee and milestone payments of $36.5 million alreadyreceived represent the total transaction price at inception. The option exercise fee does not provide a discount on futureservices and does not grant a material right. Under ASC 606 the upfront payment and the present value of the annuallicensing fees are recognized at inception of the agreement when Alexion was provided access to the technology.The total revenue recognized under this arrangement was $20.0 million and $5.0 million for the years endedDecember 31, 2018 and 2016, respectively. There was no revenue recognized for the year ended December 31, 2017. As ofDecember 31, 2018 there is no deferred revenue related to this agreement.Boehringer Ingelheim International GmbHIn 2007 the Company entered into a Research Licensee and Collaboration Agreement with Boehringer IngelheimInternational GmbH (BI). Under the agreement, the Company provided BI with a three‑year research license to one of theCompany’s technologies and commercial options. BI elected to exercise two commercial licenses from compounds identifiedduring the research term and one compound is currently in clinical development. No revenue related to this arrangement wasrecognized in 2018, 2017 or 2016. There is no deferred revenue related to this agreement at December 31, 2018.CSL LimitedIn February 2009, the Company entered into a research license and commercialization agreement with CSL Limited(CSL). Under the agreement, the Company provided CSL with a research license to our Fc Cytotoxic technology and optionsto non-exclusive commercial licenses. CSL elected to exercise one commercial license for a compound, CSL362. In 2013 CSL sublicensed CSL362 (now called talacotuzumab) to Janssen Biotech Inc. (Janssen Biotech). In March2017, CSL, through its sub-licensee, Janssen Biotech, initiated a Phase 3 clinical trial for CSL362 and the Company receiveda milestone payment of $3.5 million.There was no revenue recognized for the years ended December 31, 2018 and 2016. Total revenue recognized forthe year ended December 31, 2017 was $3.5 million. As of December 31, 2018, there is no deferred revenue related to thisagreement.108 Table of ContentsMerck Sharp & Dohme Corp.In July 2013, the Company entered into a License Agreement with Merck Sharp & Dohme Corp (Merck). Under theterms of the agreement, the Company provided Merck with a non‑exclusive commercial license to certain patent rights to ourFc domains to apply to one of their compounds. The agreement provided for an upfront payment of $1.0 million and annualmaintenance fees totaling $0.5 million.In February 2018, Merck provided notice that it is terminating the agreement. The Company did not recognize anyrevenue for each of the years ended December 31, 2018, 2017 and 2016. As of December 31, 2018, there is no deferredrevenue related to this agreement.INmune Bio, Inc.In October 2017, the Company entered into a License Agreement with INmune Bio, Inc. (INmune). Under the termsof the agreement, the Company provided INmune with an exclusive license to certain rights to a proprietary protein,XPRO1595. Under the agreement the Company received an upfront payment of $100,000, a 19% fully-diluted equity interestin INmune and an option to acquire additional shares of INmune. The Company is eligible to receive a percentage ofsublicensing revenue received for XPRO1595 and also royalties in the mid-single digit percent on the sale of approvedproducts.The equity interest in INmune constituted 1,585,000 shares of common stock and the option is to purchase anadditional 10% of the fully diluted interest in INmune for $10 million.In 2018, INmune filed a registration statement on a Form S-1 with the Securities and Exchange Commission (SEC)which was declared effective by the SEC as of December 19, 2018.Under ASC 606, the Company determined that the performance obligation under the agreement was the license toXPRO1595 and performance occurred at the effective date of the agreement. The total consideration under the agreement wasdetermined to be $100,000 as the equity interest and the option had an insignificant fair value. The Company recognized$100,000 as revenue related to the agreement for the year ended December 31, 2017, and did not recognize any revenuerelated to the agreement for the year ended December 31, 2018. There is no deferred revenue as of December 31, 2018 relatedto this agreement.Revenue earnedThe $40.6 million, $46.2 million and $109.0 million of revenue recorded for the years ended December 31, 2018,2017 and 2016, respectively, was earned principally from the following licensees (in millions): Year Ended December 31, 2018 2017 2016 (As Revised) (As Revised) Amgen $0.6 $10.0 $31.2 Alexion 20.0 — 5.0 CSL — 3.5 — MorphoSys — 12.5 — Novo Nordisk — — 2.7 Novartis 20.0 20.1 69.9 Other — 0.1 0.2 Total $40.6 $46.2 $109.0 109 Table of ContentsThe below table summarizes the disaggregation of revenue recorded for the years ended December 31, 2018, 2017and 2016 (in millions): Year Ended December 31, 2018 2017 2016 (As Revised) (As Revised)Research collaboration $20.1 $20.1 $34.2Milestone 20.5 26.0 5.0Licensing — 0.1 69.8Total $40.6 $46.2 $109.0A portion of our revenue is earned from collaboration partners outside the United States. Non‑U.S. revenue isdenominated in U.S. dollars. A breakdown of our revenue from U.S. and Non‑U.S. sources for the years ended December 31,2018, 2017 and 2016 is as follows (in millions): Year Ended December 31, 2018 2017 2016 (As Revised) (As Revised) U.S. Revenue $40.6 $30.2 $106.3 Non-U.S. Revenue — 16.0 2.7 Total $40.6 $46.2 $109.0 Remaining Performance Obligations and Deferred RevenueOur only remaining performance obligations are the Global Discovery Programs under the Novartis Agreement. Asof December 31, 2018 and 2017, we have deferred revenue of $40.1 million and $60.1 million, respectively. We classifiedthe deferred revenue as current liabilities as our obligations to perform services are due on demand when requested byNovartis under the Agreement.10. 401(k) PlanWe have a 401(k) plan covering all full‑time employees. Employees may make pre‑tax contributions up to themaximum allowable by the Internal Revenue Code. Effective January 1, 2018, the Company contributes 100% of the first 1%of participating employees’ contribution and 50% of the next 5% of participating employees’ contribution, for a maximumof 3.5% employer contribution. Participants are immediately vested in their employee contributions; employer contributionsare vested over a three-year period with one-third for each year of a participating employee’s service. Employer contributionsmade for the year ended December 31, 2018 was $0.5 million. No employer contributions were made for the years endedDecember 31, 2017 and 2016.11. Condensed Quarterly Financial Data (unaudited)The following table contains selected unaudited financial data for each quarter of 2018 and 2017. The unauditedinformation should be read in conjunction with the Company’s financial statements and related notes included elsewhere inthis report. The Company believes that the following information reflects all normal recurring adjustments necessary for a fairpresentation of the information for the periods presented. The operating results for any quarter are not necessarily indicativeof results for any future period.110 Table of ContentsQuarterly Financial Data (in thousands, except per share data): 2018 Quarter Ended March 31, June 30, September 30, December 31, Total revenue $ — $ — $29,039 $11,564 Income (loss) from operations (30,649) (28,290) 651 (21,082) Net income (loss) (29,493) (25,869) 3,150 (18,197) Basic net income (loss) per common share (0.62) (0.46) 0.06 (0.32) Diluted net income (loss) per common share (0.62) (0.46) 0.05 (0.32) 2017 Quarter Ended March 31, June 30, September 30, December 31, (As Revised) (As Revised) (As Revised) (As Revised) Total revenue $3,500 $12,500 $ — $30,150 Income (loss) from operations (16,359) (8,510) (23,580) 5,326 Net income (loss) (15,475) (7,725) (22,652) 7,366 Basic net income (loss) per common share (0.33) (0.17) (0.48) 0.16 Diluted net income (loss) per common share (0.33) (0.17) (0.48) 0.15 12. Prior-Period Financial StatementsThe Company adopted ASC 606 on January 1, 2018 using the full retrospective method and as a result theCompany has revised its comparative financial statements for the prior period as if ASC 606 had been in effect for thatperiod.The most significant changes to revenue recognition under ASC 606 relate to the timing of revenue recognized forarrangements that include licensing of our technologies. Under ASC 606 revenue related to licensing of access to ourtechnologies is recognized at inception of the agreement, generally the effective date of the agreement. For existing licensingarrangements, the effect of ASC 606 is to shift revenue to earlier periods. Approximately $11.3 million of licensing revenuethat was being recognized over the five-year period 2016-2021 is being recognized in the second quarter of 2016.The other significant change under ASC 606 relates to the timing of collaboration revenue when the Companycompletes its performance obligations for delivery of a drug candidate to its collaboration partners after applying itstechnologies. For existing collaborations, the effect of ASC 606 is to accelerate revenue recognition to earlierperiods. Approximately $6.25 million of collaboration revenue recognized in 2017 and 2018 under historical accountingguidance is being recognized in 2016 under ASC 606. An additional $20.5 million of collaboration revenue that would berecognized in 2018 is being recognized in 2017. The following tables summarize the effects of adopting ASC topic 606 onour financial statements.111 Table of ContentsBalance Sheet As ReportedDecember 31, Effect ofAdoption of As RevisedDecember 31, 2017 ASC 606 2017 Assets Current assets Cash and cash equivalents$16,528 $ — $16,528Marketable securities 207,603 — 207,603Accounts receivable 1,142 — 1,142Prepaid expenses and other current assets 5,606 — 5,606Total current assets 230,879 — 230,879Property and equipment, net 7,088 — 7,088Patents, licenses, and other intangible assets, net 11,148 — 11,148Marketable securities - long term 139,198 — 139,198Income tax receivable 1,524 — 1,524Loan receivable — 86 86Interest receivable — 14 14Other assets 265 — 265Total assets$390,102 $100 $390,202Liabilities and stockholders’ equity Current liabilities Accounts payable$6,869 $ — $6,869Accrued expenses 5,480 — 5,480Current portion of deferred rent 26 — 26Current portion of deferred revenue 88,813 (28,695) 60,118Income taxes 157 — 157Total current liabilities 101,345 (28,695) 72,650Deferred rent, less current portion 1,088 — 1,088Deferred revenue, less current portion 5,623 (5,623) —Total liabilities 108,056 (34,318) 73,738Commitments and contingencies Stockholders’ equity Preferred stock, $0.01 par value: 10,000,000 authorized shares; -0- issuedand outstanding shares at December 31, 2017 — — —Common stock, $0.01 par value: 200,000,000 authorized shares atDecember 31, 2017; 47,002,488 issued and outstanding at December 31,2017 470 — 470Additional paid-in capital 570,670 — 570,670Accumulated other comprehensive income loss (1,808) — (1,808)Accumulated deficit (287,286) 34,418 (252,868)Stockholders’ equity 282,046 34,418 316,464Total liabilities and stockholders’ equity$390,102 $100 $390,202 112 Table of ContentsStatement of Operation As Reported As Revised Year Ended Effect of Year Ended December 31, Adoption of December 31, 2017 ASC 606 2017 Revenue Collaborations, licenses and milestones $35,711 $10,439 $46,150Operating expenses Research and development 71,772 — 71,772General and administrative 17,501 — 17,501Total operating expenses 89,273 — 89,273Loss from operations (53,562) 10,439 (43,123)Other income (expenses) Interest income 4,194 — 4,194Interest expense (13) — (13)Other income (7) — (7)Total other income, net 4,174 — 4,174 Loss before income tax benefit (49,388) 10,439 (38,949)Income tax benefit (463) — (463)Net loss (48,925) 10,439 (38,486) Other comprehensive loss Net unrealized loss on marketable securities (367) — (367)Comprehensive loss $(49,292) $10,439 $(38,853) Basic and diluted net loss per common share $(1.05) $0.23 $(0.82) 113 Table of Contents As Reported As Revised Year Ended Effect of Year Ended December 31, Adoption of December 31, 2016 ASC 606 2016 Revenue Collaborations, licenses and milestones $87,520 $21,500 $109,020Operating expenses Research and development 51,872 — 51,872General and administrative 13,108 — 13,108Total operating expenses 64,980 — 64,980Income from operations 22,540 21,500 44,040Other income (expenses) Interest income 2,091 — 2,091Interest expense (21) — (21)Other income 6 — 6Total other income, net 2,076 — 2,076 Income before income tax expense 24,616 21,500 46,116Income tax expense 991 — 991Net income 23,625 21,500 45,125 Other comprehensive loss Net unrealized loss on marketable securities (925) — (925)Comprehensive income $22,700 $21,500 $44,200 Basic net income per common share $0.57 $0.52 $1.09Diluted net income per common share $0.56 $0.51 $1.07 114 Table of ContentsStatement of Stockholders’ Equity Accumulated Additional Other Total Common Stock Paid Comprehensive Accumulated Stockholders’Stockholders’ Equity Shares Amount in-Capital Loss Deficit EquityBalance, December 31, 2016 asoriginally reported 46,567,978 $466 $552,889 $(1,441) $(237,960) $313,954Adoption of ASU 2016-09 — — 401 — (401) —Adoption of ASC 606 — — — — 23,979 23,979Balance, December 31, 2016 as revised 46,567,978 466 553,290 (1,441) (214,382) 337,933Issuance of common stock upon exerciseof stock awards 363,603 4 2,793 — — 2,797Issuance of common stock under theEmployee Stock Purchase Plan 70,907 — 936 — — 936Comprehensive loss — — — (367) (48,925) (49,292)Stock-based compensation — — 13,651 — — 13,651Balance, December 31, 2017 47,002,488 $470 $570,670 $(1,808) $(263,307) $306,025Adoption of ASC topic 606 — — — — 10,439 10,439Balance, December 31, 2017 as revised 47,002,488 $470 $570,670 $(1,808) $(252,868) $316,464 Accumulated Additional Other Total Common Stock Paid Comprehensive Accumulated Stockholders’Stockholders’ Equity Shares Amount in-Capital Loss Deficit EquityBalance, December 31, 2015 asoriginally reported 40,551,039 $405 $424,128 $(516) $(261,585) $162,432Adoption of ASC Topic 606 — — — — 2,479 2,479Balance, December 31, 2015 as revised 40,551,039 405 424,128 (516) (259,106) 164,911Sale of common stock, net of issuancecost 5,272,750 53 119,216 — — 119,269Issuance of common stock upon exerciseof stock awards 699,066 7 1,153 — — 1,160Issuance of common stock under theEmployee Stock Purchase Plan 45,123 1 544 — — 545Comprehensive income (loss) — — — (925) 23,625 22,700Stock-based compensation — — 7,848 — — 7,848Balance, December 31, 2016 46,567,978 466 552,889 (1,441) (235,481) 316,433Adoption of ASC Topic 606 — — — — 21,500 21,500Balance, December 31, 2016 as revised 46,567,978 $466 $552,889 $(1,441) $(213,981) $337,933 115 Table of ContentsStatement of Cash Flows As Reported As Revised Year Ended Effect of Year Ended December 31, Adoption of December 31, 2017 ASC 606 2017Cash flows from operating activities Net loss $(48,925) $10,439 $(38,486)Adjustments to reconcile net loss to net cash used in operatingactivities: Depreciation and amortization 2,030 — 2,030Amortization of premium on marketable securities 2,845 — 2,845Stock-based compensation 13,651 — 13,651Abandonment of capitalized intangible assets 396 — 396Loss on disposal of assets 83 — 83Changes in operating assets and liabilities: Accounts receivable 7,474 — 7,474Interest receivable (293) (14) (307)Prepaid expenses and other assets (2,705) — (2,705)Income tax receivable (1,524) — (1,524)Other assets (161) — (161)Accounts payable 2,989 — 2,989Accrued expenses (1,212) — (1,212)Deferred rent 589 — 589Income tax payable 91 — 91Deferred revenue (9,011) (10,339) (19,350)Net cash used in operating activities (33,683) 86 (33,597)Cash flows from investing activities Proceeds from sale and maturities of marketable securities available-for-sale 115,757 — 115,757Purchase of marketable securities (76,529) — (76,529)Purchase of intangible assets (1,967) — (1,967)Purchase of property and equipment (5,311) — (5,311)Issuance of loan — (86) (86)Net cash provided by (used in) investing activities 31,950 (86) 31,864Cash flows from financing activities Proceeds from issuance of common stock upon exercise of stockawards 2,797 — 2,797Proceeds from issuance of common stock from Employee StockPurchase Plan 936 — 936Net cash provided by financing activities 3,733 — 3,733Net increase in cash and cash equivalents 2,000 — 2,000Cash and cash equivalents, beginning of period 14,528 — 14,528Cash and cash equivalents, end of period $16,528 $ — $16,528 116 Table of Contents As Reported As Revised Year Ended Effect of Year Ended December 31, Adoption of December 31, 2016 ASC 606 2016Cash flows from operating activities Net income $23,625 $21,500 $45,125Adjustments to reconcile net income to net cash provided byoperating activities: Depreciation and amortization 1,466 — 1,466Amortization of premium on marketable securities 2,037 — 2,037Stock-based compensation 7,848 — 7,848Abandonment of capitalized intangible assets 356 — 356Gain on sale of marketable securities available for sale (5) — (5)Changes in operating assets and liabilities: Accounts receivable (8,572) — (8,572)Interest receivable (530) (79) (609)Prepaid expenses and other assets (1,700) — (1,700)Other assets (40) — (40)Accounts payable (2,520) — (2,520)Accrued expenses 3,058 — 3,058Deferred rent (89) — (89)Deferred tax liability 65 — 65Deferred revenue 69,618 (20,800) 48,818Net cash provided by operating activities 94,617 621 95,238Cash flows from investing activities Proceeds from sale and maturities of marketable securities available-for-sale 105,505 — 105,505Purchase of marketable securities (316,149) — (316,149)Purchase of intangible assets (1,502) — (1,502)Purchase of property and equipment (1,507) — (1,507)Proceeds from repayment of (investment in) loan receivable — (621) (621)Net cash used in investing activities (213,653) (621) (214,274)Cash flows from financing activities Proceeds from issuance of common stock upon exercise of stockawards 1,160 — 1,160Proceeds from issuance of common stock from Employee StockPurchase Plan 545 — 545Proceeds from issuance of common stock 126,546 — 126,546Common stock issuance costs (7,277) — (7,277)Net cash provided by financing activities 120,974 — 120,974Net increase in cash and cash equivalents 1,938 — 1,938Cash and cash equivalents, beginning of period 12,590 — 12,590Cash and cash equivalents, end of period $14,528 $ — $14,528 117 Table of Contents13. Subsequent EventGenentech AgreementIn February 2019, the Company entered into a collaboration and license agreement (the Genentech Agreement) withGenentech, Inc. and F. Hoffmann La-Roche Ltd. (collectively, Genentech) for the development and commercialization ofnovel IL-15 Collaboration Products, including XmAb24306, an IL-15/IL15Rα cytokine complex engineered with theCompany’s bispecific Fc and Xtend technologies. The Company’s IL-15 bispecific cytokine platform provides a moredruggable version of IL-15 with potentially superior tolerability, slower receptor-mediated clearance and a prolonged half-life, and is intended for development with a wide-range of combination agents due to its proposed mechanism of activatingtumor-killing immune cells.Under the terms of the Genentech Agreement, Genentech received an exclusive worldwide license to XmAb24306and other Collaboration Products, including any new IL-15 programs identified during the joint research collaboration. TheCompany will receive a non-refundable upfront payment of $120 million after the Genentech Agreement becomes effectiveand is eligible to receive up to an aggregate of $160 million in clinical milestone payments for each Collaboration Productthat advances to Phase 3 clinical trials. The Company is eligible to receive a 45% share of net profits for sales of XmAb24306and other Collaboration Products, while also sharing in the net losses at the same percentage rate. The parties will also jointlyshare development and commercialization costs at the same percentage rate, while Genentech will bear launch costs entirely.The profit/cost share is subject to ratchet at the Company’s discretion and convertible to a royalty under certaincircumstances. The Company and Genentech will also conduct joint research activities for a two-year period to discoveradditional IL-15 candidates developed from the Company’s cytokine and bispecific Fc technologies. The Company willreceive a $20 million development milestone for each new Collaboration Product that is identified from the research effortsand advances into a Phase 1 clinical trial.The Genentech Agreement is subject to customary closing conditions, including clearance under the Hart-Scott-Rodino Antitrust Improvements Act, and closing is expected to occur in the first quarter of 2019. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNot applicable. Item 9A. Controls and ProceduresEvaluation of Disclosure Controls and ProceduresOur management, Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosurecontrols and procedures as of December 31, 2018. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensurethat information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded,processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such informationis accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, asappropriate, to allow timely decisions regarding required disclosure. Based on this evaluation our Chief Executive Officerand Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2018 atthe reasonable assurance level.118 Table of ContentsManagement’s Report on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting(as defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended). Our management, ChiefExecutive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as ofDecember 31, 2018. In making this assessment, our management used the criteria set forth by the Committee of SponsoringOrganizations of the Treadway Commission (2013 Framework) (COSO) in Internal Control—Integrated Framework. Based onthat assessment and using the COSO criteria, our management, Chief Executive Officer and Chief Financial Officer haveconcluded that, as of December 31, 2018, our internal control over financial reporting was effective.Changes in Internal Control over Financial ReportingThere has been no change in our internal control over financial reporting during the year ended December 31, 2018,that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.Inherent Limitations of ControlsManagement does not expect that our disclosure controls and procedures or our internal control over financialreporting will prevent or detect all error and all fraud. Controls and procedures, no matter how well designed and operated,can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment inevaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all controlsystems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, withinthe Company have been detected. These inherent limitations include the realities that judgments in decision-making can befaulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented bythe individual acts of some persons, by collusion of two or more people, or by management override of the controls. Thedesign of any system of controls also is based in part upon certain assumptions about the likelihood of future events, andthere can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliancewith the policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due toerror or fraud may occur and not be detected.Attestation in Internal Control over Financial ReportingRSM US LLP, our independent registered public accounting firm, has audited our financial statements for the yearended December 31, 2018 and has issued an audit report on the effectiveness of the Company’s internal control overfinancial reporting as of December 31, 2018, which is included in Item 8 of this Annual Report on From 10-K. Item 9B. Other InformationNot applicable.119 Table of Contents PART III Item 10. Directors, Executive Officers and Corporate GovernanceWe have adopted a code of ethics for directors, officers (including our principal executive officer, principal financialofficer and principal accounting officer) and employees, known as the Code of Business Conduct and Ethics. The Code ofBusiness Conduct and Ethics is available on our website at http://www.xencor.com under the Corporate Governance sectionof our Investor Relations page. We will promptly disclose on our website (i) the nature of any amendment to the policy thatapplies to our principal executive officer, principal financial officer, principal accounting officer or controller, or personsperforming similar functions and (ii) the nature of any waiver, including an implicit waiver, from a provision of the policythat is granted to one of these specified individuals that is required to be disclosed pursuant to SEC rules and regulations, thename of such person who is granted the waiver and the date of the waiver.The other information required by this item and not set forth below will be set forth in our 2019 Annual Meeting ofStockholders (Proxy Statement) to be filed with the SEC within 120 days after the end of the fiscal year ended December 31,2018, and is incorporated herein by reference.Audit CommitteeThe information required by this item will be set forth in the Proxy Statement and incorporated herein by reference. Item 11. Executive CompensationThe information required by this item will be set forth in the Proxy Statement and is incorporated herein byreference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersThe information required by this item will be set forth in the Proxy Statement and is incorporated herein byreference. Item 13. Certain Relationships and Related Transactions, and Director IndependenceThe information required by this item will be set forth in the Proxy Statement and is incorporated herein byreference. Item 14. Principal Accounting Fees and ServicesThe information required by this item will be set forth in the Proxy Statement and is incorporated herein byreference.120 Table of ContentsItem 15. Exhibits, Financial Statement Schedules1.Financial Statements. We have filed the following documents as part of this Annual Report: PageReport of Independent Registered Public Accounting Firm (RSM US LLP) 79Balance Sheets 82Statements of Comprehensive Income (Loss) 83Statements of Stockholders’ Equity 84Statements of Cash Flows 85Notes to Financial Statements 86 2.Financial Statement Schedules. All schedules have been omitted because they are not applicable orrequired, or the information required to be set forth therein is included in the Financial Statements or notes theretoincluded in Item 8 of this Annual Report on Form 10‑K.3.Exhibits. ExhibitNumber Description3.1 Amended and Restated Certificate of Incorporation of the Company (incorporated by reference toExhibit 3.1 to the Company’s Current Report on Form 8‑K, filed with the SEC on December 11, 2013). 3.2 Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to theCompany’s Current Report on Form 8‑K, filed with the SEC on December 11, 2013). 4.1 Form of Common Stock Certificate of the Company (incorporated by reference to Exhibit 4.1 to theCompany’s Registration Statement on Form S‑1, as amended (File No. 333‑191689), originally filed withthe SEC on October 25, 2013). 4.2* Third Amended and Restated Investor Rights Agreement, dated June 26, 2013, among the Company andcertain of its stockholders incorporated by reference to Exhibit 4.2 to the Company’s RegistrationStatement on Form S‑1, as amended (File No. 333‑191689), originally filed with the SEC on October 11,2013). 10.1* Form of Indemnity Agreement between the Company and its directors and officers (incorporated byreference to Exhibit 10.1 to the Company’s Registration Statement on Form S‑1, as amended (FileNo. 333‑191689), originally filed with the SEC on October 11, 2013). 10.2* Xencor, Inc. 2010 Equity Incentive Plan, as amended, and Form of Stock Option Grant Notice, OptionAgreement and Form of Notice of Exercise (incorporated by reference to Exhibit 10.2 to the Company’sRegistration Statement on Form S‑1, as amended (File No. 333‑191689), originally filed with the SEC onOctober 11, 2013). 10.3* Xencor, Inc. 2013 Equity Incentive Plan and Form of Stock Option Agreement and Form of Stock OptionGrant Notice thereunder (incorporated by reference to Exhibit 10.3 to the Company’s RegistrationStatement on Form S-1, as amended (File No. 333-191689), originally filed with the SEC on October 11,2013). 10.4* Xencor, Inc. 2013 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.4 to theCompany’s Registration Statement on Form S-1, as amended (File No. 333-191689), originally filed withthe SEC on October 11, 2013). 121 Table of Contents10.5* Xencor, Inc. Amended and Restated Non‑Employee Director Compensation Policy (incorporated byreference to Exhibit 10.2 to the Company’s Form 10-Q filed with the SEC on November 5, 2018). 10.6* Second Amended and Restated Executive Employment Agreement, dated January 1, 2007, by andbetween the Company and Dr. Bassil I. Dahiyat (incorporated by reference to Exhibit 10.6 to theCompany’s Registration Statement on Form S‑1, as amended (File No. 333‑191689), originally filed withthe SEC on October 11, 2013). 10.7* Offer Letter, dated January 12, 2010, by and between the Company and Dr. Edgardo Baracchini, Jr.(incorporated by reference to Exhibit 10.7 to the Company’s Registration Statement on Form S‑1, asamended (File No. 333‑191689), originally filed with the SEC on October 11, 2013). 10.8* Offer Letter, dated September 28, 2009, by and between the Company and Dr. Bruce Carter (incorporatedby reference to Exhibit 10.8 to the Company’s Registration Statement on Form S‑1, as amended (FileNo. 333‑ 191689), originally filed with the SEC on October 11, 2013). 10.9* Amendment to Offer Letter, dated November 18, 2010, by and between the Company and Dr. BruceCarter (incorporated by reference to Exhibit 10.9 to the Company’s Registration Statement on Form S‑1,as amended (File No. 333‑191689), originally filed with the SEC on October 11, 2013). 10.10* Amended Consulting Agreement, dated January 1, 2011, by and between the Company and Developmentand Strategic Consulting Associates, LLC (incorporated by reference to Exhibit 10.10 to the Company’sRegistration Statement on Form S‑1, as amended (File No. 333‑191689), originally filed with the SEC onOctober 11, 2013). 10.11* Offer Letter, dated August 1, 2012, by and between the Company and Dr. Paul Foster (incorporated byreference to Exhibit 10.11 to the Company’s Registration Statement on Form S‑1, as amended (FileNo. 333‑191689), originally filed with the SEC on October 11, 2013). 10.12* Amended and Restated Executive Employment Agreement, dated September 4, 2013, by and between theCompany and Dr. Bassil I. Dahiyat (incorporated by reference to Exhibit 10.12 to the Company’sRegistration Statement on Form S‑1, as amended (File No. 333‑191689), originally filed with the SEC onOctober 11, 2013). 10.13* Offer Letter, dated September 5, 2013, by and between the Company and Dr. Edgardo Baracchini, Jr.(incorporated by reference to Exhibit 10.13 to the Company’s Registration Statement on Form S‑1, asamended (File No. 333‑191689), originally filed with the SEC on October 11, 2013). 10.14* Amended and Restated Severance Agreement, dated September 5, 2013, by and between the Companyand Dr. John R. Desjarlais (incorporated by reference to Exhibit 10.14 to the Company’s RegistrationStatement on Form S‑1, as amended (File No. 333‑191689), originally filed with the SEC on October 11,2013). 10.15* Amended and Restated Change in Control Agreement, dated September 5, 2013, by and between theCompany and John J. Kuch (incorporated by reference to Exhibit 10.15 to the Company’s RegistrationStatement on Form S‑1, as amended (File No. 333‑191689), originally filed with the SEC on October 11,2013). 10.16* Offer Letter, dated August 12, 2013, by and between the Company and Dr. Paul Foster (incorporated byreference to Exhibit 10.16 to the Company’s Registration Statement on Form S‑1, as amended (FileNo. 333‑191689), originally filed with the SEC on October 11, 2013). 122 Table of Contents10.17† Collaboration and License Agreement, dated June 27, 2010, by and between the Company andMorphoSys AG (incorporated by reference to Exhibit 10.19 to the Company’s Registration Statement onForm S‑1, as amended (File No. 333‑191689), originally filed with the SEC on October 11, 2013). 10.18† First Amendment to the Collaboration and License Agreement, dated March 23, 2012, by and betweenthe Company and MorphoSys AG (incorporated by reference to Exhibit 10.20 to the Company’sRegistration Statement on Form S‑1, as amended (File No. 333‑191689), originally filed with the SEC onOctober 11, 2013). 10.19† Option and License Agreement, dated January 28, 2013, by and between the Company and AlexionPharmaceuticals, Inc. (incorporated by reference to Exhibit 10.23 to the Company’s RegistrationStatement on Form S‑1, as amended (File No. 333‑191689), originally filed with the SEC on October 11,2013). 10.20† Collaboration Agreement, dated February 10, 2012, by and between the Company and BoehringerIngelheim International GmbH (incorporated by reference to Exhibit 10.24 to the Company’sRegistration Statement on Form S‑1, as amended (File No. 333‑191689), originally filed with the SEC onOctober 11, 2013). 10.21† Cross‑License Agreement, dated December 19, 2012, by and between the Company andMedImmune, LLC (incorporated by reference to Exhibit 10.26 to the Company’s Registration Statementon Form S‑1, as amended (File No. 333‑191689), originally filed with the SEC on October 11, 2013). 10.22 Lease dated January 1, 2015 by and between the Company and BF Monrovia, LLC (incorporated byreference to Exhibit 99.1 to the Company’s Form 8-K filed with the SEC on January 5, 2015). 10.23 Master Service Agreement dated July 14, 2014 by and between the Company and KBI Biopharma, Inc.(incorporated by reference to Exhibit 10.26 to the Company’s Form 10-K filed with the SEC on February20, 2015) 10.24 Amendment to Lease dated January 27, 2015 by and between the Company and BF Monrovia, LLC.(incorporated by reference to Exhibit 10.27 to the Company’s Form 10-K filed with the SEC on February20, 2015). 10.25† Research and License Agreement effective September 15, 2015 between the Company and Amgen Inc.,(incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed with the SEC on November4, 2015). 10.26* Employment Agreement dated December 16, 2015 by and between the Company and Dr. Paul Foster(incorporated by reference to Exhibit 10.29 to the Company's Form 10-K filed with the SEC on March 8,2016). 10.27* Severance Agreement, dated May 26, 2016 by and between the Company and Bassil Dahiyat(incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q filed with the SEC on August 3,2016). 10.28* Severance Agreement, dated May 26, 2016 by and between the Company and John Kuch (incorporatedby reference to Exhibit 10.2 to the Company's Form 10-Q filed with the SEC on August 3, 2016). 10.29* Severance Agreement, dated May 26, 2016 by and between the Company and John Desjarlais(incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q filed with the SEC on August 3,2016).123 Table of Contents 10.30* Severance Agreement, dated May 26, 2016 by and between the Company and Lloyd Rowland(incorporated by reference to Exhibit 10.4 to the Company's Form 10-Q filed with the SEC on August 3,2016). 10.31† Collaboration and License Agreement, dated June 26, 2016, by and between the Company and NovartisInstitutes for BioMedical Research, Inc. (incorporated by reference to Exhibit 10.6 to the Company'sForm 10-Q filed with the SEC on August 3, 2016). 10.32 Equity Distribution Agreement, dated September 19, 2016, by and between the Company and PiperJaffray & Co. (incorporated by reference to Exhibit 99.1 to the Company's Form 8-K filed with the SECon September 19, 2016). 10.33† Amendment No. 1, dated September 21, 2016, to the Collaboration and License Agreement by andbetween the Company and Novartis Institutes for BioMedical Research, Inc. (incorporated by reference toExhibit 10.2 to the Company's Form 10-Q filed with the SEC on November 2, 2016). 10.34 Office Lease, dated June 21, 2017, by and among the Company and PRII High Bluffs LLC and CollinsCorporate Center Partners, LLC (incorporated by reference to Exhibit 99.1 to the Company’s Form 8-Kfiled with the SEC on June 26, 2017). 10.35 Second Amendment to Lease, dated July 5, 2017, by and between the Company and 111 LemonInvestors LLC (incorporated by reference to Exhibit 99.1 to the Company’s Form 8-K filed with the SECon July 10, 2017). 10.36 Transition and Separation Agreement, executed July 31, 2018, by and between the Company andEdgardo Baracchini, Jr. (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filedwith the SEC on August 7, 2018). 23.1 Consent of Independent Registered Public Accounting Firm (RSM US LLP). 31.1 Certification of the Principal Executive Officer pursuant to Rule 13a‑14(a) or 15d‑14(a) of the SecuritiesExchange Act of 1934. 31.2 Certification of the Principal Financial Officer pursuant to Rule 13a‑14(a) or 15d‑14(a) of the SecuritiesExchange Act of 1934. 32.1** Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuantto Section 906 of the Sarbanes‑Oxley Act of 2002. 32.2** Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuantto Section 906 of the Sarbanes‑Oxley Act of 2002. 101.INS XBRL Instance Document.101.SCH XBRL Taxonomy Extension Schema Document.101.CAL XBRL Taxonomy Extension Schema Document.101.DEF XBRL Taxonomy Extension Definition Linkbase Document.101.LAB XBRL Taxonomy Extension Label Linkbase Document.101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. † We have received confidential treatment for certain portions of this agreement, which have been omitted and filedseparately with the SEC pursuant to Rule 406 under the Securities Act of 1933, as amended.124 Table of Contents* Indicates management contract or compensatory plan.** These certifications are being furnished solely to accompany this annual report pursuant to 18 U.S.C. Section 1350,and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to beincorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless ofany general incorporation language in such filing.Item 16. Form 10-K SummaryNone. 125 Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has dulycaused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Xencor, Inc. Date: February 25, 2019By:/s/ Bassil I. Dahiyat, Ph.D.Bassil I. Dahiyat, Ph.D.President & Chief Executive Officer POWER OF ATTORNEYKNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appointsBassil I. Dahiyat, Ph.D. and John J. Kuch, and each of them, his true and lawful attorneys‑in‑fact, each with full power ofsubstitution, for him in any and all capacities, to sign any amendments to this Annual Report on Form 10‑K and to file thesame, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission,hereby ratifying and confirming all that each of said attorneys‑in‑fact or their substitute or substitutes may do or cause to bedone by virtue hereof.Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by thefollowing persons on behalf of the Company and in the capacities and on the dates indicated.Signature Title Date /s/ BASSIL I. DAHIYAT, PH.D.Director, President & Chief ExecutiveOfficer (Principal Executive Officer)February 25, 2019Bassil I. Dahiyat, Ph.D. /s/ JOHN J. KUCHVice President, Finance (Principal Financialand Accounting Officer)February 25, 2019John J. Kuch /s/ A. BRUCE MONTGOMERY, M.D.DirectorFebruary 25, 2019A. Bruce Montgomery, M.D. /s/ KURT GUSTAFSONDirectorFebruary 25, 2019Kurt Gustafson /s/ YUJIRO S. HATADirectorFebruary 25, 2019Yujiro S. Hata /s/ KEVIN C. GORMAN, PH.D. Director February 25, 2019Kevin C. Gorman, Ph.D. /s/ RICHARD RANIERI Director February 25, 2019Richard Ranieri /s/ ELLEN G. FEIGALDirectorFebruary 25, 2019Ellen G. Feigal126Exhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in Registration Statement No. 333-192635 on Form S-8 and RegistrationStatement No. 333-213700 on Form S-3 of Xencor, Inc. of our report dated February 25, 2019 related to our audits of thefinancial statements, and internal controls over financial reporting which appear in this Annual Report on Form 10-K ofXencor, Inc. for the year ended December 31, 2018. /s/ RSM US LLPLos Angeles, CaliforniaFebruary 25, 2019Exhibit 31.1CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THESARBANES‑OXLEY ACT OF 2002I, Bassil I. Dahiyat, Ph.D., certify that:1.I have reviewed this Annual Report on Form 10‑K for the fiscal year ended December 31, 2018 of Xencor, Inc. (the“Company”);2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairlypresent in all material respects the financial condition, results of operations and cash flows of the Company as of,and for, the periods presented in this report;4.The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controlsand procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financialreporting (as defined in Exchange Act Rules 13a-15(f) and 15(d) – 15(f) for the Company and have:a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the Company, including itsconsolidated subsidiaries, is made known to us by others within those entities particularly during theperiod in which this report is being prepared;b)Designed such internal control over financial reporting, or caused such internal control over financialreporting to be designed under our supervision, to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles; c)Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in thisreport our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of theperiod covered by this report based on such evaluation; andd)Disclosed in this report any change in the Company’s internal control over financial reporting thatoccurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the caseof an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’sinternal control over financial reporting; and5.The Company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internalcontrol over financial reporting, to the Company’s auditors and the audit committee of the Company’s board ofdirectors (or persons performing the equivalent functions):a)All significant deficiencies and material weaknesses in the design or operation of internal control overfinancial reporting which are reasonably likely to adversely affect the Company’s ability to record, process,summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have a significantrole in the Company’s internal control over financial reporting./s/ Bassil I. DahiyatBassil I. Dahiyat, Ph.D.President & Chief Executive Officer Date: February 25, 2019Exhibit 31.2CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THESARBANES‑OXLEY ACT OF 2002I, John J. Kuch, certify that:1.I have reviewed this Annual Report on Form 10‑K for the fiscal year ended December 31, 2018 of Xencor, Inc. (the“Company”);2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairlypresent in all material respects the financial condition, results of operations and cash flows of the Company as of,and for, the periods presented in this report;4.The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controlsand procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financialreporting (as defined in Exchange Act Rules 13a-15(f) and 15(d) – 15(f)) for the Company and have:a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the Company, including itsconsolidated subsidiaries, is made known to us by others within those entities particularly during theperiod in which this report is being prepared;b)Designed such internal control over financial reporting, or caused such internal control over financialreporting to be designed under our supervision, to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles; c)Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in thisreport our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of theperiod covered by this report based on such evaluation; andd)Disclosed in this report any change in the Company’s internal control over financial reporting thatoccurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the caseof an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’sinternal control over financial reporting; and5.The Company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internalcontrol over financial reporting, to the Company’s auditors and the audit committee of the Company’s board ofdirectors (or persons performing the equivalent functions):a)All significant deficiencies and material weaknesses in the design or operation of internal control overfinancial reporting which are reasonably likely to adversely affect the Company’s ability to record, process,summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have a significantrole in the Company’s internal control over financial reporting./s/ John J. KuchJohn J. KuchChief Financial Officer (Principal Financial Officer)Date: February 25, 2019Exhibit 32.1CERTIFICATIONPursuant to Section 906 of the Sarbanes‑Oxley Act of 2002(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)In connection with the Annual Report on Form 10‑K of Xencor, Inc. (the “Company”) for the period endedDecember 31, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Bassil I.Dahiyat, Ph.D., as President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002, that to my knowledge:1.the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of1934, as amended; and2.the information contained in the Report fairly presents, in all material respects, the financial condition andresults of operations of the Company.Date: February 25, 2019/s/ Bassil I. DahiyatBassil I. Dahiyat, Ph.D.President & Chief Executive OfficerThe foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and isnot being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporatedby reference into any filing of the Company, whether made before or after the date hereof, regardless of any generalincorporation language in such filing. A signed original of this written statement required by Section 906 has been providedto the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staffupon request. Exhibit 32.2CERTIFICATIONPursuant to Section 906 of the Sarbanes‑Oxley Act of 2002(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)In connection with the Annual Report on Form 10‑K of Xencor, Inc. (the “Company”) for the period endedDecember 31, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John J. Kuch,as Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant toSection 906 of the Sarbanes‑Oxley Act of 2002, that to my knowledge:1.the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of1934, as amended; and2.the information contained in the Report fairly presents, in all material respects, the financial condition andresults of operations of the Company.Date: February 25, 2019/s/ John J. KuchJohn J. KuchChief Financial OfficerThe foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and isnot being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporatedby reference into any filing of the Company, whether made before or after the date hereof, regardless of any generalincorporation language in such filing. A signed original of this written statement required by Section 906 has been providedto the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staffupon request. 

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