Executive Summary / Key Takeaways

• Xencor leverages its proprietary XmAb® protein engineering platform, particularly Fc domain modifications and bispecific formats, to develop differentiated antibody and cytokine therapeutics with enhanced properties like improved half-life, increased potency, and tumor selectivity.
• Recent financial results for Q1 2025 show significant revenue growth, driven by milestone payments from partners like Incyte (INCY) and Vir Bio (VIR) and increasing royalties from marketed products Ultomiris and Monjuvi, highlighting the value of its technology licensing strategy.
• The company is strategically focusing its internal pipeline on bispecific T-cell engagers for solid tumors (XmAb819, XmAb541, XmAb808) and promising autoimmune candidates (XmAb942, plamotamab, XmAb657), supported by a cash runway expected to extend into 2028 following a significant royalty monetization deal.
• While Xencor's technology offers potential competitive advantages in efficacy and tolerability, it faces intense competition from larger, more established players with broader pipelines and greater financial resources, necessitating rapid clinical execution and strategic partnerships.
• Key risks include ongoing operating losses, the inherent uncertainties of clinical trial success, potential challenges in managing material weaknesses in internal controls, and ongoing patent litigation.

Setting the Stage: Xencor's Engineered Antibody Platform and Strategic Focus

Xencor, Inc. is a clinical-stage biopharmaceutical company with a history rooted in protein engineering, commencing active operations in 1998 and reincorporating in Delaware in 2004. The company's core identity is built upon its proprietary XmAb® platform, a suite of modular protein engineering tools focused on modifying the Fc domain of antibodies. This seemingly small part of an antibody is crucial, interacting with the immune system and dictating structural properties. By engineering this constant and interchangeable domain, Xencor designs drug candidates with improved characteristics, aiming for enhanced efficacy, safety, and manufacturability.

The strategic vision is clear: apply this engineering prowess to create a broad portfolio of differentiated antibody and cytokine therapeutics for areas of high unmet medical need, primarily in oncology and autoimmune diseases. This involves developing wholly-owned candidates, advancing them through early clinical studies, and using emerging data to make decisive calls – which programs to accelerate into later-stage development, which to partner for access to complementary resources and infrastructure, and which to discontinue to focus capital on the most promising opportunities.

A cornerstone of Xencor's strategy is also leveraging its technology through partnerships. This has been a vital source of non-dilutive capital and external validation. The success of this approach is tangible, with three XmAb-based medicines currently marketed by partners: Ultomiris (developed with Alexion (ALXN), utilizing Xtend technology for extended half-life), Monjuvi/Minjuvi (developed with MorphoSys (MOR), now Incyte), and sotrovimab (developed with Vir Bio, also using Xtend). These partnerships generate crucial royalty and milestone revenue, offsetting the significant costs of internal R&D and fueling further innovation.

In the competitive landscape, Xencor operates against a backdrop dominated by pharmaceutical giants like Amgen (AMGN), Bristol-Myers Squibb (BMY), Regeneron (REGN), and Merck (MRK). These large players possess vast resources, established global infrastructures, and broad, often overlapping, pipelines in oncology and immunology. While Xencor's market share is currently negligible compared to these behemoths, its strategic positioning is that of a nimble innovator. The XmAb platform provides a technological moat, offering quantifiable benefits such as potentially improved antibody potency, stability, and half-life compared to conventional antibodies or even some competitor platforms. For instance, the Xtend technology can significantly extend circulating half-life, supporting less frequent dosing, while the XmAb 2+1 bispecific format is designed to enhance tumor selectivity and avidity, potentially reducing off-target toxicity – a critical differentiator, especially for T-cell engagers targeting antigens with some normal tissue expression. This technological edge is Xencor's primary tool to carve out value and attract partners in a crowded field.

Financial Performance: Fueling the Pipeline

Xencor's financial performance reflects its stage as a clinical-stage company heavily invested in R&D, balanced by revenue generated from its successful partnerships. For the three months ended March 31, 2025, total revenue saw a substantial increase to $32.7 million, up from $16.0 million in the same period of 2024. This growth was primarily fueled by a significant jump in milestone revenue, reaching $14.5 million in Q1 2025 compared to just $0.5 million in Q1 2024. Key drivers included a $12.5 million milestone from Incyte following FDA acceptance of a supplemental BLA for tafasitamab and a $2.0 million milestone from Vir Bio upon initiation of a Phase 3 study for tobevibart. Royalty revenue also contributed positively, increasing to $18.2 million in Q1 2025 from $15.5 million in Q1 2024, primarily from Ultomiris ($15.5 million) and Monjuvi ($2.8 million).

Despite the strong revenue growth, operating expenses remain substantial, reflecting the ongoing investment in the pipeline. Total operating expenses were $75.9 million in Q1 2025, up from $70.7 million in Q1 2024. Research and development expenses, the largest component, increased by $1.7 million to $58.6 million, driven by higher spending on prioritized programs like XmAb819, XmAb657, and XmAb541, partially offset by reduced spending on discontinued or paused programs. General and administrative expenses also rose by $3.6 million to $17.3 million, mainly due to increased professional fees.

The operating loss for Q1 2025 was $43.2 million, an improvement from the $54.7 million loss in Q1 2024. Other expense decreased significantly from $19.5 million in Q1 2024 to $5.1 million in Q1 2025, primarily due to a large asset impairment charge in the prior year period ($20.7 million in Q1 2024 vs. $4.9 million in Q1 2025). The net loss attributable to Xencor, Inc. for Q1 2025 was $48.4 million, or $0.66 per share, compared to a net loss of $73.4 million, or $1.20 per share, in Q1 2024.

Liquidity remains a key strength. As of March 31, 2025, Xencor held $693.5 million in cash, cash equivalents, and marketable debt securities.

This strong cash position was significantly bolstered by the $215 million royalty monetization deal with OMERS in November 2023, which involved selling a portion of future Ultomiris and Monjuvi royalties. While this transaction is accounted for as debt on the balance sheet, incurring non-cash interest expense (effective rates of 23.0% for Ultomiris and 17.5% for Monjuvi as of March 31, 2025), it provided immediate capital to fund operations. Cash used in operating activities improved in Q1 2025 ($16.2 million used) compared to Q1 2024 ($56.9 million used), partly due to the timing of milestone payments. Based on its current operating plan and expected milestone payments, Xencor anticipates its existing financial resources will fund operations into 2028.

Pipeline Advancement: Translating Technology to Clinic

Xencor's pipeline is a direct manifestation of its protein engineering capabilities, with a strategic pivot towards bispecific T-cell engagers and promising autoimmune candidates. The company is actively advancing several wholly-owned programs in Phase 1 clinical studies, leveraging its XmAb 2+1 bispecific format and other proprietary designs.

Key oncology programs include:

• XmAb819 (ENPP3 x CD3): A potential first-in-class, tumor-targeted T-cell engager for clear cell renal cell carcinoma (ccRCC). The XmAb 2+1 format is designed for enhanced selectivity for ENPP3, an antigen highly expressed in ccRCC. Initial Phase 1 data has shown evidence of anti-tumor activity, including RECIST responses, with manageable cytokine release syndrome and tolerability supporting continued dose escalation.
• XmAb541 (CLDN6 x CD3): Another potential first-in-class, tumor-targeted T-cell engager for CLDN6 expressing tumors like ovarian cancer. The XmAb 2+1 format is crucial here for achieving selectivity over similar Claudin family members (CLDN9, CLDN3, CLDN4). A Phase 1 dose-escalation study is underway, with target dose characterization expected in 2025.
• XmAb808 (B7-H3 x CD28): A tumor-selective, co-stimulatory CD28 bispecific antibody utilizing a lower potency CD28 binding domain designed for conditional co-stimulation in the presence of the tumor antigen B7-H3. Enrollment is complete in the final cohort of a Phase 1 study in combination with pembrolizumab. Data are expected to inform future development, including potential combinations with CD3 T-cell engagers.

In autoimmune diseases, the focus is on novel mechanisms:

• XmAb942 (Xtend TL1A): A high-potency, extended half-life anti-TL1A antibody for inflammatory bowel disease (IBD). Interim Phase 1 data in healthy volunteers showed good tolerability and a half-life supporting a 12-week dosing interval. A Phase 2b study in ulcerative colitis (XENITH-UC) is planned for the second half of 2025.
• Plamotamab (CD20 x CD3): A B-cell depleting bispecific T-cell engager. While licensed to J&J (JNJ), Xencor plans to initiate a Phase 1b/2a proof-of-concept study in rheumatoid arthritis (RA) in the first half of 2025, leveraging data showing deep B-cell depletion and favorable tolerability in hematologic cancers.
• XmAb657 (CD19 x CD3): A potent, potentially long-acting bispecific antibody combining the XmAb 2+1 format and Xtend Fc technology. Preclinical studies showed deep and sustained B-cell depletion and good tolerability. A first-in-human study is planned for the second half of 2025.

Beyond these clinical programs, Xencor is advancing earlier-stage candidates, including a TL1A x IL-23p19 bispecific antibody targeting two inflammatory pathways, with first-in-human studies anticipated in 2026.

Strategic pipeline management has also involved difficult decisions. In Q3 2023, Xencor terminated the PD-1 x ICOS program (XmAb104) and closed vudalimab's gynecologic tumor cohorts due to insufficient activity or a rapidly changing competitive landscape. In Q4 2023, investment was reduced in cytokine candidates (XmAb564, XmAb662) to prioritize T-cell engagers, leading to asset impairment charges in Q1 2025 for associated patents. The co-development of Efbalropendekin alfa (XmAb306) with Genentech (RHHBY) was transitioned to a milestone/royalty structure in Q3 2023 to manage costs and focus resources. These decisions, while impacting specific programs, are consistent with the strategy of focusing capital on candidates with the highest perceived potential.

Competitive Dynamics: Positioning for Success

Xencor operates in a fiercely competitive biopharmaceutical market. Its key rivals are large, diversified companies with extensive resources and established market positions. While Xencor's financial scale is significantly smaller (TTM revenue $110.5M, negative margins) compared to giants like Amgen (TTM revenue $28.2B, 12% net margin), Bristol-Myers Squibb (TTM revenue $45.0B, -19% net margin due to specific charges, but historically profitable), Regeneron (TTM revenue $13.1B, 31% net margin), and Merck (TTM revenue $60.1B, 27% net margin), Xencor's competitive edge lies in its specialized protein engineering platform.

The XmAb technology allows Xencor to design molecules with potentially superior properties. For example, the Xtend Fc technology provides extended half-life, a benefit seen in marketed products like Ultomiris and Tobevibart, which can translate to less frequent dosing compared to competitors' products. The XmAb 2+1 format aims for enhanced tumor selectivity, a critical factor for T-cell engagers to minimize off-target toxicity and potentially widen the therapeutic window compared to standard bispecific designs used by some competitors. Xencor's CD28 bispecific approach with reduced potency binding is specifically engineered to control T-cell activation and improve tolerability, differentiating it from potentially more potent but less manageable CD28 agonists.

In specific program areas, Xencor faces direct and indirect competition:

• T-cell Engagers: Xencor's CD3 and CD28 bispecifics compete with similar modalities from numerous companies, including large pharma and smaller biotechs. The success of Amgen's Xaluritamig (STEAP1 x CD3), which utilizes Xencor's 2+1 format, provides validation for the technology but also highlights the competitive intensity in solid tumor T-cell engagement. Xencor's vudalimab (PD-1 x CTLA-4) competes with other dual checkpoint inhibitors, including AstraZeneca's (AZN) MEDI5752, which has shown encouraging efficacy but in a checkpoint-naive population, unlike Xencor's focus on heavily pretreated patients.
• Autoimmune: XmAb942 (TL1A) enters a competitive space with other anti-TL1A antibodies. Plamotamab (CD20 x CD3) for RA will compete with existing RA therapies and other B-cell targeting agents. XmAb657 (CD19 x CD3) will compete with other CD19/CD3 bispecifics and B-cell depleters. Xencor aims to differentiate through potential best-in-class properties like extended half-life (XmAb942, XmAb657) or novel mechanisms (CD28 co-stimulation with plamotamab).
• Cytokines: While reducing investment, Xencor's prior work on potency-reduced cytokines like XmAb564 (IL-2) and XmAb662 (IL-12) faced competition from other cytokine engineering efforts, where Xencor believed its approach offered better selectivity or therapeutic index.

Xencor's strategy to counter larger competitors involves rapid innovation, focusing on novel targets and mechanisms, and demonstrating clear differentiation in early clinical data. Partnerships are crucial not just for funding but also for accessing the scale and expertise needed for late-stage development and commercialization that Xencor lacks internally. However, the success of this strategy hinges on consistently generating compelling clinical data that validates the theoretical advantages of its engineered molecules.

Outlook and Guidance: Charting the Future

Xencor's outlook is centered on advancing its prioritized clinical pipeline, particularly the T-cell engagers and autoimmune candidates, supported by a solid financial foundation. The company has provided guidance that its existing cash, cash equivalents, marketable securities, and certain potential milestone payments are expected to fund operating expenses and capital expenditure requirements into 2028. This extended runway, significantly influenced by the 2023 royalty monetization and anticipated future milestone/royalty payments, provides critical flexibility to execute on its development plans without immediate pressure for further financing.

Key anticipated clinical milestones include:

• Initiation of the Phase 2b XENITH-UC study for XmAb942 in ulcerative colitis in the second half of 2025.
• Initiation of the Phase 1b/2a proof-of-concept study for plamotamab in rheumatoid arthritis in the first half of 2025.
• Initiation of a first-in-human study for XmAb657 in the second half of 2025.
• Initiation of first-in-human studies for the TL1A x IL-23p19 bispecific antibody in 2026.

The company expects operating expenses to continue increasing as these programs advance through clinical development. The receipt of future milestone and contingent payments from partners remains a potential source of non-dilutive capital, but these are inherently uncertain, dependent on the successful achievement of specific development, regulatory, and commercial events by Xencor or its partners.

Management's focus is on translating the promise of its engineered molecules into clinical proof-of-concept data that can either support internal progression to later stages or attract further lucrative partnerships. The strategic decisions to prune less promising programs underscore a commitment to disciplined resource allocation, directing investment towards the candidates believed to have the highest probability of success and market potential.

Key Risks and Challenges

Despite its technological strengths and strategic focus, Xencor faces significant risks inherent to the biopharmaceutical industry.

• Clinical Development Risk: The success of Xencor's investment thesis hinges on positive clinical trial outcomes. Phase 1 data, while encouraging, does not guarantee success in later-stage studies. Many drug candidates fail in clinical trials due to lack of efficacy or unacceptable safety profiles.
• Operating Losses and Funding Risk: Xencor has a history of operating losses and is not expected to generate revenue from product sales in the near term. While the current cash runway extends into 2028, future funding needs will depend on the pace and success of clinical development. The ability to raise additional capital on favorable terms is not guaranteed.
• Competitive Risk: The competitive landscape is intense and rapidly evolving. Larger competitors with greater resources may advance similar or superior therapies more quickly, potentially limiting the market opportunity for Xencor's candidates.
• Intellectual Property Risk: Xencor's business relies heavily on patent protection for its technology and drug candidates. Ongoing litigation, such as the patent infringement action initiated by Merus N.V. (MRUS), poses a risk to its ability to develop and commercialize certain antibodies. While Xencor believes it has strong defenses, the outcome of litigation is uncertain.
• Internal Control Weaknesses: The identification of material weaknesses in internal control over financial reporting, which led to prior financial statement restatements, highlights operational risks. While management is implementing remediation plans, these weaknesses could potentially impact the reliability of financial reporting until fully remediated.
• Reliance on Partnerships: A significant portion of Xencor's revenue and the advancement of certain programs depend on the performance and strategic decisions of its collaboration partners.

Conclusion

Xencor presents an investment case built on a foundation of sophisticated protein engineering, a strategically focused pipeline targeting areas of high unmet need, and a strengthened balance sheet providing runway for execution. The recent financial results underscore the value-generating potential of its technology licensing model through growing royalties and significant milestones. The company's strategic pivot towards bispecific T-cell engagers and promising autoimmune candidates, supported by the capital from the royalty monetization, positions it to pursue potentially differentiated therapies.

However, the path forward is challenging, marked by intense competition from well-resourced rivals and the inherent uncertainties of clinical development. Success will depend on Xencor's ability to translate the theoretical advantages of its XmAb platform into compelling clinical data, effectively manage its operational risks, and navigate the complex intellectual property landscape. For investors, Xencor represents a high-risk, high-reward opportunity, where the potential upside is tied to the successful clinical validation and potential commercialization or partnering of its innovative engineered antibodies in a highly competitive biopharmaceutical market.