Executive Summary / Key Takeaways

• Xilio Therapeutics is a clinical-stage biotechnology company focused on developing tumor-activated immuno-oncology therapies designed to improve the therapeutic index by localizing anti-tumor activity within the tumor microenvironment, aiming to reduce systemic toxicity.
• The company's pipeline includes clinical-stage assets vilastobart (anti-CTLA-4) and XTX301 (IL-12), which have shown preliminary data supporting the tumor-activated approach, including a 26-27% preliminary objective response rate for vilastobart combination in a subset of MSS CRC patients and an improved tolerability profile for XTX301 compared to historical IL-12 data.
• Recent strategic partnerships with Gilead Sciences (GILD) and AbbVie (ABBV) have provided significant non-dilutive and equity funding ($72M upfront cash + $35M equity total) and potential future milestones, validating the platform and providing resources to advance the pipeline, including masked T cell engager programs with development candidates anticipated in H2 2025.
• Despite recent funding, Xilio has incurred substantial losses, resulting in a $397.0 million accumulated deficit as of March 31, 2025, and faces a going concern risk, necessitating further capital raises or cost reductions to fund operations beyond Q1 2026.
• The company operates in a highly competitive immuno-oncology market dominated by large pharmaceutical companies, relying on its differentiated technology and partnership strategy to carve out a niche, while facing risks related to clinical trial success, manufacturing reliance (including exposure to China-based CDMOs like WuXi Biologics), and maintaining Nasdaq listing compliance.

Unmasking a New Paradigm in Cancer Immunotherapy

Xilio Therapeutics, Inc. (NASDAQ: XLO) is a clinical-stage biotechnology company striving to redefine cancer treatment through its innovative approach to immuno-oncology (IO). Founded in June 2020 and headquartered in Waltham, Massachusetts, Xilio's core mission is to discover and develop tumor-activated, or "masked," IO therapies. The fundamental challenge Xilio seeks to address is the systemic toxicity often associated with conventional IO treatments, which can limit dosing, cause severe side effects, and restrict the patient population eligible for therapy. By designing molecules that are activated specifically within the tumor microenvironment (TME), Xilio aims to enhance anti-tumor activity locally while minimizing off-target effects systemically, thereby improving the therapeutic index.

The IO landscape is intensely competitive, populated by pharmaceutical giants like Merck & Co. (MRK), Bristol-Myers Squibb (BMY), Gilead Sciences, and F. Hoffmann-La Roche (RHHBY), all vying for market share with established checkpoint inhibitors and developing next-generation therapies. These large players possess vast financial resources, extensive commercial infrastructures, and deep pipelines. Xilio, as an earlier-stage company, positions itself as an innovator leveraging a differentiated technological approach to target patient populations or tumor types that may be less responsive to or experience significant toxicity from existing treatments. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, Xilio's current standing is pre-commercial, with its value proposition centered on the potential of its platform and pipeline to yield therapies with a superior safety and efficacy profile, particularly in difficult-to-treat or "cold" tumors.

The Technological Foundation: Tumor-Activated Design

At the heart of Xilio's strategy is its proprietary tumor-activation platform. This technology is designed to create biologic therapies that remain inactive in the systemic circulation but are selectively cleaved and activated by enzymes, such as matrix metalloproteases (MMPs), which are often overexpressed in the TME. This masking strategy is intended to concentrate the therapeutic effect within the tumor, sparing healthy tissues and potentially mitigating the severe immune-related adverse events (irAEs) commonly seen with systemically active IO agents.

The tangible benefits of this approach, as suggested by preclinical data and early clinical observations, include the potential for improved tolerability and a wider therapeutic window compared to unmasked counterparts. For example, the company's vilastobart (anti-CTLA-4) program has demonstrated a differentiated safety profile in early clinical trials, with a low incidence of colitis and other irAEs that are common dose-limiting toxicities for other anti-CTLA-4 agents. Similarly, preliminary Phase 1 data for XTX301 (IL-12) indicated an improved tolerability profile compared to historical data for recombinant human IL-12, with no dose-limiting toxicities reported to date. These observations, while preliminary, support the platform's goal of reducing systemic toxicity.

Xilio is also actively engaged in R&D to expand its platform capabilities and pipeline. This includes advancing masked T cell engager molecules using novel formats like ATACR (tumor-activated cell engager, with a masked CD3 targeting domain) and SEECR (selective effector-enhanced cell engager, building on ATACR with co-stimulatory signaling). The stated goal for these programs is to enable potent, localized T cell activation and tumor cell destruction with an improved therapeutic index. The company anticipates identifying the first development candidates for these masked T cell engager programs in the second half of 2025, marking a key R&D milestone.

The "so what" for investors is that this technological differentiation represents Xilio's core competitive moat. If successful, the platform could yield best-in-class or first-in-class therapies with improved safety profiles, potentially expanding the addressable patient population and enabling combination strategies that are currently limited by toxicity. This could translate into higher market adoption, potentially better pricing power, and ultimately, improved financial performance compared to competitors offering less differentiated therapies.

Pipeline Progress and Strategic Collaborations

Xilio's pipeline currently features two clinical-stage assets: vilastobart (XTX101), a tumor-activated anti-CTLA-4 antibody, and XTX301, a tumor-activated engineered IL-12.

Vilastobart is being evaluated in combination with Roche's atezolizumab (Tecentriq) in a co-funded Phase 1/2 clinical trial. Initial Phase 2 data in heavily pre-treated metastatic microsatellite stable colorectal cancer (MSS CRC) patients without liver metastases showed a preliminary objective response rate (ORR) of 26-27%. While this is preliminary data, it is being presented at the 2025 ASCO Annual Meeting, with additional data expected in the first half of 2026, including results from a higher dose cohort (150 mg Q6W). The company is actively seeking partnering opportunities for the vilastobart program to accelerate and expand its development, acknowledging the significant resources required for late-stage clinical trials and potential commercialization.

XTX301, a tumor-activated IL-12, is advancing through a Phase 1 monotherapy trial in advanced solid tumors. Preliminary data have highlighted a promising clinical profile with an improved tolerability profile over historical rhIL-12 data, consistent interferon gamma signaling, and no dose-limiting toxicities reported to date. This program is being developed under an exclusive global license agreement with Gilead Sciences, signed in March 2024. This partnership provided Xilio with a $30.0 million upfront cash payment and a commitment from Gilead to purchase $25.0 million of Xilio's equity, which was completed by December 2024. Gilead holds the option to transition development and commercialization responsibilities for XTX301 and the IL-12 program upon delivery of specified clinical data, which would trigger a $75.0 million transition fee and potential future milestones up to $517.5 million.

Further validating Xilio's platform and providing crucial funding, the company entered into a collaboration, license, and option agreement with AbbVie in February 2025. This multi-program deal covers up to four programs, including an exclusive license for a masked antibody-based immunotherapy program and exclusive options for up to three masked T cell engager programs. The agreement included $52.0 million in upfront payments to Xilio ($42.0 million cash and a $10.0 million equity investment) and potential contingent payments totaling up to approximately $2.1 billion across all programs. Under this collaboration, Xilio is responsible for preclinical development through specified stages, while AbbVie is responsible for later-stage development and commercialization for licensed or optioned programs.

These partnerships with Gilead and AbbVie are strategically significant. They provide non-dilutive funding and equity investments, extending Xilio's cash runway. More importantly, they represent external validation of Xilio's tumor-activation platform and provide access to the substantial development, regulatory, and commercialization expertise and resources of large pharmaceutical companies, mitigating some of the risks associated with Xilio advancing these programs alone.

Financial Health and the Need for Capital

Despite the influx of funds from recent collaborations and equity raises, Xilio continues to operate at a significant loss, reflecting the high costs inherent in preclinical and clinical drug development. For the three months ended March 31, 2025, Xilio reported total revenue of $2.9 million, derived entirely from its collaboration and license agreements with AbbVie and Gilead. This contrasts with no revenue in the same period of 2024, highlighting the impact of these recent deals.

Operating expenses for Q1 2025 totaled $16.8 million, a slight decrease from $17.5 million in Q1 2024. Research and development expenses decreased by $2.1 million to $8.3 million, primarily due to the discontinuation of the XTX202 monotherapy program, which resulted in a $3.1 million reduction in costs for that candidate. This reduction was partially offset by increased spending on vilastobart clinical activities ($0.3 million increase), XTX501 manufacturing ($0.5 million increase), and other early programs ($0.7 million increase). General and administrative expenses increased by $2.4 million to $8.5 million, driven by higher personnel costs and professional fees. The net loss for Q1 2025 was $13.3 million, compared to $17.2 million for Q1 2024.

As of March 31, 2025, Xilio held cash and cash equivalents of $89.1 million. The company's operating activities provided $29.0 million in cash during Q1 2025, primarily influenced by the $49.1 million increase in deferred revenue related to the AbbVie agreements, partially offset by the net loss. This contrasts sharply with the $10.5 million in cash used in operating activities during Q1 2024. Financing activities provided $4.8 million in Q1 2025, mainly from the AbbVie equity investment and ATM offerings.

However, the company's accumulated deficit reached $397.0 million as of March 31, 2025. Based on its current operating plans, Xilio anticipates that its existing cash and cash equivalents will be sufficient to fund operations only into the first quarter of 2026. This projection, which does not cover a full twelve months from the filing date, raises substantial doubt about the company's ability to continue as a going concern. Management's plans to address this involve raising additional capital through equity or debt financings, further collaborations, or other sources. A step towards this was the recently announced public offering in June 2025, which is expected to provide initial gross proceeds of $50.0 million, with potential for up to $150.0 million if associated warrants are exercised.

The need for significant additional capital is a critical factor for investors. Failure to secure sufficient funding in a timely manner would require Xilio to implement further cost reduction strategies, potentially delaying, limiting, or eliminating development programs, which would severely impact the investment thesis.

Competitive Positioning and Market Dynamics

Xilio operates in a dynamic and highly competitive environment. Its tumor-activated anti-CTLA-4 candidate, vilastobart, competes with established therapies like Merck's Keytruda (PD-1) and BMY's Opdivo (PD-1) and Yervoy (CTLA-4), as well as other anti-CTLA-4 programs in development from companies like Agenus (AGEN) and AstraZeneca (AZN). While Keytruda and Opdivo are dominant players with billions in annual sales and broad approvals, Xilio's vilastobart aims to differentiate through its tumor-activated design, potentially offering a better safety profile that could enable its use in combinations or patient populations where systemic CTLA-4 toxicity is prohibitive. The preliminary Phase 2 data in MSS CRC, a tumor type historically resistant to PD-1 monotherapy, suggests a potential niche for vilastobart combinations, although further data are needed.

In the cytokine space, XTX301 (IL-12) enters a field with no approved IL-12 therapies for cancer but several companies developing modified IL-12 or other cytokine delivery programs (e.g., Cullinan (CGEM), Dragonfly (DPRO), Werewolf Therapeutics (HOWL)). Xilio's tumor-activated approach for XTX301 aims to overcome the systemic toxicity that has plagued previous attempts to develop IL-12 therapies. The preliminary Phase 1 tolerability data are encouraging in this regard and support the potential for a differentiated safety profile compared to historical systemic IL-12. The partnership with Gilead provides significant backing and expertise for this program.

The masked T cell engager programs target antigens like PSMA, CLDN18.2, and STEAP1. While there are no approved masked T cell engagers for these specific targets, other companies are developing both masked (e.g., Janux (JANX), Vir Biotech (VIR) for PSMA) and non-masked (e.g., Amgen (AMGN), Innovent for CLDN18.2 and STEAP1) T cell engagers. Xilio's ATACR and SEECR formats aim to leverage its masking technology to improve the therapeutic index of T cell engagers, which have shown potent anti-tumor activity but are often limited by on-target, off-tumor toxicity.

Xilio's competitive strategy hinges on its ability to translate the theoretical advantages of its tumor-activated platform into clinically meaningful benefits – specifically, improved safety and efficacy that differentiate its candidates from existing and emerging therapies. The partnerships with Gilead and AbbVie provide not only financial support but also strategic validation and access to resources that are essential for competing with larger, more established players. However, the company faces significant challenges in executing its clinical trials efficiently, manufacturing its complex biologic candidates (including reliance on third parties like WuXi Biologics in China, which carries geopolitical and supply chain risks), and securing the substantial funding required to bring multiple programs through development.

Adding to the challenges, Xilio received a deficiency letter from Nasdaq in April 2025 regarding its common stock bid price falling below the minimum requirement, raising the risk of delisting if compliance is not regained. This underscores the volatility and investor sentiment challenges faced by early-stage biotech companies, particularly those with significant capital needs.

Conclusion

Xilio Therapeutics presents an investment case built on the promise of its differentiated tumor-activated immuno-oncology platform. The core thesis is that by localizing therapeutic activity within the tumor microenvironment, Xilio can develop therapies with a superior therapeutic index compared to conventional systemic approaches, potentially addressing unmet needs in various cancers. Preliminary clinical data for vilastobart and XTX301 offer early signals supporting this approach, and recent partnerships with Gilead and AbbVie provide significant funding, external validation, and strategic support to advance the pipeline, including novel masked T cell engager programs.

However, the path forward is challenging. Xilio faces substantial clinical, regulatory, and manufacturing risks inherent in drug development. The company's significant operating losses and limited cash runway necessitate further capital raises, introducing potential dilution and dependence on financing market conditions. Competing in a market dominated by well-resourced pharmaceutical companies requires Xilio to successfully execute on its development milestones and demonstrate clear differentiation. The ability to translate the technological promise into approved, commercially successful products, while securing the necessary funding and navigating competitive and operational hurdles, will be critical determinants of Xilio's long-term success. Investors should closely monitor clinical trial readouts, progress in securing additional capital, and advancements in the competitive landscape.