Xencor Inc: Form 10-Q for the period ended Mar 31, 2025

The following discussion and analysis should be read in conjunction with our financial statements and accompanying notes included in this Quarterly Report on Form 10-Q and the financial statements and accompanying notes thereto for the fiscal year ended December 31, 2024 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, 2024. See also “Special Note Regarding Forward-Looking Statements” included in this Quarterly Report on Form 10-Q.

Company Overview

We are a clinical-stage biopharmaceutical company focused on discovering and developing engineered antibody therapeutics to treat patients with cancer and other serious diseases, who have unmet medical needs. We use our protein engineering capabilities to design new technologies and XmAb® drug candidates with improved properties. We advance these candidates into clinical-stage development, where we are conducting Phase 1 studies for a broad portfolio of programs, to determine which programs we advance into later stages of development and potentially commercialization, which programs we partner to access complementary resources to optimize development, and which programs we discontinue.

Our approach to protein design includes engineering Fc domains, the parts of antibodies that interact with multiple segments of the immune system and control antibody structure. The Fc domain is constant and interchangeable among antibodies, and our engineered Fc domains can be readily substituted for natural Fc domains.

We and our partners develop XmAb antibodies and other types of biotherapeutic drug candidates with improved properties and functionality, which can provide innovative approaches to potentially treating disease and clinical benefits over other treatment options. Applications of our protein engineering technologies include multi-specific antibodies that bind two or more different targets simultaneously, creating entirely new biological mechanisms of anti-disease activity, or enhancement of antibody performance by increasing immune inhibitory activity, improving cytotoxicity, extending circulating half-life and stabilizing novel protein structures. Three marketed XmAb medicines have been developed with our protein engineering technologies.

Refer to Part I, Item 1, “XmAb Bispecific Fc Domain and Multi-Specific Antibody Formats” and “Other XmAb Fc Domains” in the description of our business included in our Annual Report on Form 10-K for the year ended December 31, 2024 for a discussion of our core Fc technology platforms.

XmAb Drug Candidates

Our modular XmAb bispecific technology and protein engineering capabilities enable us to rapidly advance multiple drug candidates into clinical development. We are currently enrolling Phase 1 clinical studies for three wholly owned candidates to treat patients with many different types of serious diseases: XmAb819, XmAb541 and XmAb942. Two additional drug candidates are planned to enter clinical development in 2025: plamotamab and XmAb657.

Oncology Programs

XmAb819 (ENPP3 x CD3): XmAb819 is a potential first-in-class, tumor-targeted, T-cell engaging XmAb 2+1 bispecific antibody in development for patients with clear cell renal cell carcinoma (ccRCC). XmAb819 is designed to engage the immune system and activate T cells for highly potent and targeted lysis of tumor cells expressing ENPP3, an antigen highly expressed on kidney cancers. ENPP3 is a differentially expressed target, with high level expression in RCC and low level expression on normal tissues. With two tumor-antigen binding domains and one T-cell binding domain, our XmAb 2+1 format is designed to enable antibodies to bind more avidly and selectively kill tumor cells with higher antigen density, potentially sparing normal cells.

We are conducting a Phase 1 study to evaluate XmAb819 in patients with advanced ccRCC. We previously announced that initial evidence of anti-tumor activity had been observed in dose-escalation cohorts in the ongoing Phase 1 study, including RECIST responses, and the duration of treatment for several patients in earlier dose cohorts had extended beyond one year. Cytokine release syndrome remained manageable, and the tolerability profile from recent dose cohorts, including no maximum tolerated dose being reached, supported continued dose escalation toward target dose levels.

XmAb541 (CLDN6 x CD3): XmAb541 is a potential first-in-class, tumor-targeted, T-cell engaging XmAb 2+1 bispecific antibody in development for patients with CLDN6 expressing tumor types including ovarian cancer. XmAb541 targets CLDN6, a tumor-associated antigen in ovarian cancer and other solid tumors, and CD3. The XmAb 2+1 multivalent format used in XmAb541 enables greater selectivity for CLDN6 over similar Claudin family members, such as CLDN9, CLDN3 and CLDN4. We are conducting a Phase 1 dose-escalation study, with characterization of target dose levels anticipated to begin during 2025.

XmAb808 (B7-H3 x CD28): XmAb808 is a tumor-selective, co-stimulatory CD28 bispecific antibody that binds to the broadly expressed tumor antigen B7-H3 and is constructed with the XmAb 2+1 multivalent format. Co-stimulation is required for T cells to achieve full activation, and targeted CD28 bispecific antibodies may provide conditional co-stimulation of T cells when the antibodies are bound to tumor cells. Enrollment in the final cohort of a Phase 1 dose-escalation study of XmAb808 in combination with pembrolizumab, an anti-PD1 antibody, is complete. Data from the study are expected to inform future development decisions for the program. Potential combination with CD3 T-cell engaging bispecific antibodies is being evaluated.

Autoimmune Disease Programs

XmAb942 (Xtend TL1A): XmAb942 is a high-potency, extended half-life, investigational anti-TL1A antibody in clinical development for patients with inflammatory bowel disease (IBD), such as ulcerative colitis (UC) and Crohn’s disease (CD). The first generation of anti-TL1A antibodies, designed to block the interaction between the DR3 receptor and its ligand TL1A, have reduced disease activity in patients with UC and CD in multiple clinical studies. We announced interim results from a Phase 1 dose-escalation study in healthy volunteers in April 2025. The results indicate that XmAb942 was well tolerated at single and multiple doses. Pharmacokinetic analysis of the single dose cohorts estimated a human half-life of greater than 71 days, which supports a 12-week dosing interval during maintenance treatment. We expect to start a Phase 2b study of XmAb942 in UC, the XENITH-UC Study, in the second half of 2025. XENITH-UC will be a randomized, double-blind, placebo-controlled trial in patients with moderate-to-severe UC, whose disease has progressed after at least one conventional or advanced therapy.

Plamotamab (CD20 x CD3): Plamotamab is a B-cell depleting bispecific T-cell engager that targets CD20, a target receptor on B cells, and CD3. We plan to initiate a Phase 1b/2a proof-of-concept study for plamotamab in rheumatoid arthritis (RA) in the first half of 2025. The Phase 1b portion of the study will select a priming and step-up dose regimen based on the regimen established in oncology, and will assess the initial safety, efficacy and biomarkers of plamotamab in patients with RA. The selected dose regimen will then be evaluated in the randomized Phase 2a portion, with efficacy determined at week 12. Results from the previously conducted Phase 1 study in hematologic cancers showed favorable tolerability and comparable preliminary efficacy data, when cross compared to results from studies of a competitor molecule within the class, with similar patient baseline characteristics. Data demonstrating deep peripheral B-cell depletion observed in patients with lymphoma were presented at a medical meeting in December 2024. Based on these clinical outcomes, significant B-cell depletion, and the emergent biology supportive of B-cell targeted T-cell engagers for the treatment of patients with autoimmune diseases, we plan to evaluate plamotamab in RA, in which patients progressed through prior standard of care treatment.

XmAb657 (CD19 x CD3): We have leveraged our XmAb protein engineering platforms to create XmAb657, a potent, potentially long-acting CD19 x CD3 bispecific antibody, utilizing the XmAb 2+1 bispecific antibody format and Xtend Fc technology. In non-human primate studies, a single dose of XmAb657 deeply reduced B cells by over 99.98% in the peripheral compartment, bone marrow and lymph nodes, which was sustained for at least 28 days. Half-life was estimated to be 15 days, which indicates a potential for durable B-cell depletion in clinical studies. XmAb657 was well tolerated preclinically, with no clinical signs of cytokine release syndrome. We plan to initiate a first-in-human study during the second half of 2025.

XmAb TL1A x IL-23: We are conducting lead selection studies and have begun good manufacturing practice (GMP) production campaigns for a TL1A x IL-23p19 bispecific antibody, which targets two important inflammatory pathways for autoimmune and inflammatory disease, while avoiding the complexities of dosing and formulary access for two separate TL1A and IL23 targeted drugs. In vitro studies show that several lead candidates match the target inhibition potency of monospecific antibodies to these targets, but in a bispecific format. We anticipate initiating first-in-human studies during 2026.

Collaborations, Partnerships and Licensing Arrangements

A key part of our business strategy is to leverage our protein engineering capabilities, XmAb Fc domains and drug candidates with partnerships, collaborations and licenses. Through these arrangements we generate revenues in the form of upfront payments, milestone payments and royalties. For partnerships for our drug candidates, we aim to retain a major economic interest in the form of keeping major geographic commercial rights; profit-sharing; co-development options; and the right to conduct studies with drug candidates developed in the collaboration. The types of arrangements that we have entered into with partners include product licenses, novel bispecific antibody collaborations, technology licensing agreements and strategic collaborations.

Product Licenses

Product licenses are arrangements in which we have internally developed drug candidates and, based on a strategic review, licensed partial or full rights to third parties to continue development and potential commercialization. We seek partners that can provide infrastructure and resources to successfully develop our drug candidates, have a track record of successfully developing and commercializing medicines, or have a portfolio of development-stage candidates and commercialized medicines that could potentially be developed in rational combinations with our drug candidates.

The FDA approved Monjuvi® (tafasitamab-cxix) under accelerated approval in July 2020. Monjuvi is a CD19-directed cytolytic antibody indicated in combination with lenalidomide for the treatment of adult patients with relapsed or refractory diffuse large B-cell lymphoma (DLBCL) not otherwise specified, including DLBCL arising from low grade lymphoma, and who are not eligible for autologous stem cell transplant (ASCT). This indication is approved under accelerated approval based on overall response rate. Continued approval for this indication may be contingent upon verification and description of clinical benefit in a confirmatory trial(s). In August 2021, the European Commission granted conditional marketing authorization for Minjuvi® (tafasitamab) in combination with lenalidomide, followed by tafasitamab monotherapy, for the treatment of adult patients with DLBCL who are not eligible for ASCT. In December 2024, Incyte announced positive full results from the pivotal study of tafasitamab in combination with lenalidomide and rituximab in relapsed or refractory follicular lymphoma and submitted a supplemental Biologics License Application, which was accepted in February 2025. Tafasitamab was created and initially developed by us. Tafasitamab is marketed by Incyte under the brand name Monjuvi in the U.S. and under the brand name Minjuvi in Europe and Canada. Incyte has exclusive commercialization rights to tafasitamab outside the U.S. In February 2024, Incyte acquired exclusive global development and commercialization rights to tafasitamab from MorphoSys AG. We earned a $12.5 million regulatory milestone payment and $2.8 million in estimated non-cash royalties from Incyte for the three months ended March 31, 2025.

Technology License Agreements

We enter into technology licensing agreements in which we license access to one or more of our XmAb Fc domains on a restricted basis, typically to an XmAb Cytotoxic Fc Domain and/or the Xtend Fc Domain. Our partners are responsible for all research, development and commercialization activities of the drug candidates. The plug-and-play nature of XmAb technologies allows us to license access to our platforms with limited or no internal research and development activities.

Alexion’s Ultomiris® uses Xtend Fc technology for longer half-life. Ultomiris has received marketing authorizations in global markets for the treatment of patients with paroxysmal nocturnal hemoglobinuria (PNH), for certain patients with atypical hemolytic uremic syndrome (aHUS), for certain patients with generalized myasthenia gravis (gMG) and for certain patients with neuromyelitis optica spectrum disorder (NMOSD). Alexion is also evaluating Ultomiris in a broad development program across additional hematology, nephrology and neurology indications. We earned a total of $15.5 million in estimated non-cash royalties from Alexion for the three months ended March 31, 2025.

In August 2019, we entered into an agreement with Vir Biotechnology, Inc., in which we provided Vir Bio a non-exclusive license to our Xtend technology for two targets in infectious disease. Tobevibart is currently in clinical development for the treatment of patients with chronic hepatitis delta (CHD) and patients with chronic hepatitis B. Vir Bio initiated a Phase 3 study of tobevibart in combination with a small interfering ribonucleic acid (siRNA) in people living with CHD in March 2025. We earned a $2.0 million development milestone payment from Vir Bio for the three months ended March 31, 2025.

Refer to Part I, Item 1, Note 2, Collaboration and Licensing Agreements, of the Notes to consolidated financial statements included in this Quarterly Report on Form 10-Q for a description of the key terms of our arrangements.

Discontinued Programs

Vudalimab (PD-1 x CTLA-4): Vudalimab is a bispecific antibody that targets PD-1 and CTLA-4, two immune checkpoint receptors, to selectively activate the tumor microenvironment. In the fourth quarter of 2024, we completed enrollment in two studies of vudalimab in patients with metastatic castration-resistant prostate cancer and in Part 1 of a study in patients with locally advanced or metastatic non-small cell lung cancer. We have previously disclosed that further development of vudalimab has been paused.

Our patent estate, on a worldwide basis, includes issued patents and pending patent applications, with claims directed to XmAb Fc domains, all of our clinical and preclinical stage product candidates and our computational protein design methods and platforms.

Since we commenced active operations in 1998, we have devoted substantially all our resources to staffing our Company, business planning, raising capital, developing our technology platforms, identifying potential product candidates, undertaking preclinical and Investigational New Drug (IND)-enabling studies, and conducting clinical trials. We have no internally developed products approved for commercial sale and have not generated any revenues from our own product sales, and we continue to incur significant research and development expenses and other expenses related to our ongoing operations. To date, we have funded our operations primarily through the sale of stock and from payments generated from our product development partnerships and licensing arrangements.

As of March 31, 2025, we had an accumulated deficit of $752.5 million. Substantially all of the operating losses that we have incurred resulted from expenses incurred in connection with our product candidate development programs, our research activities and general and administrative costs associated with our operations.

Results of Operations

Comparison of the Three Months Ended March 31, 2025 and 2024

The following table summarizes our results of operations for the following periods indicated:

(in thousands)

Revenues

Total revenue for the three months ended March 31, 2025 and 2024 was $32.7 million and $16.0 million, respectively, and was primarily driven by the revenue recognition associated with Alexion and Incyte license agreements as discussed below. See Note 2 — Collaboration and Licensing Agreements of the Notes to Consolidated Financial Statements of Part I, “Item 1. Financial Statements” for more information on revenue recognized under the collaboration and license agreements.

Alexion: In January 2013, we entered into an Option and License Agreement (the “Alexion Agreement”) with Alexion. Under the terms of the Alexion Agreement, we granted to Alexion an exclusive research license, with limited sublicensing rights, to make and use our Xtend technology to evaluate and advance compounds. Alexion exercised its rights to one target program, ALXN1210, which is now marketed as Ultomiris®.

Under the Alexion Agreement, we recognized $15.5 million and $12.6 million of non-cash royalty revenue during the three months ended March 31, 2025 and 2024, respectively.

Incyte: In June 2010, we entered into a Collaboration and License Agreement with MorphoSys AG, which was subsequently amended in March 2012, 2020 and 2024 (as amended, the Morphosys Agreement). The MorphoSys Agreement provides MorphoSys AG with an exclusive worldwide license to our patents and know-how to research, develop, and commercialize our XmAb5574 product candidate (subsequently renamed MOR208 and tafasitamab) with the right to sublicense under certain conditions. If certain developmental, regulatory and sales milestones are achieved, we are eligible to receive future milestone payments and royalties. In February 2024, Incyte assumed all of MorphoSys AG’s right, title and interest under the MorphoSys Agreement. Under this agreement, originally executed in June 2010, we entered into a Collaboration and License Agreement in June 2010 with MorphoSys AG and acquired exclusive global development and commercialization rights to tafasitamab.

In February 2025, the FDA accepted Incyte’s submission of a supplemental biologics license application, triggering a $12.5 million milestone payment to us, which was paid in the second quarter of 2025.

Under the MorphoSys Agreement, we recognized $2.8 million and $2.9 million of non-cash royalty revenue during the three months ended March 31, 2025 and 2024, respectively.

Research and Development (R&D) Expenses

R&D expenses are related to our research and development efforts and related candidate costs, which are comprised primarily of outsourced costs related to the manufacturing of clinical supplies, toxicity/efficacy studies and clinical trial expenses. Internal costs primarily relate to drug discovery and development operations at our research facilities in California, including facility costs and laboratory-related expenses.

The following tables summarize our research and development expenses for the three months ended March 31, 2025 and 2024:

(in thousands)

*Includes net reimbursements to and from our partners pursuant to agreements that include cost-sharing arrangements in 2024.

(in thousands)

R&D expenses increased by $1.7 million for the three months ended March 31, 2025 over the same period in 2024. The increase was primarily driven by higher spending on our programs, including XmAb819, XmAb657, and XmAb541, partially offset by reduced spending on other programs and wind-down costs associated with terminated programs.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for the three months ended March 31, 2025 and 2024:

(in thousands)

General and administrative expenses increased by $3.6 million for the three months ended March 31, 2025 over the same period in 2024 primarily due to higher spending on professional fees.

Other Expense

Other expense primarily consists of interest income and expense, as well as asset impairment charges. Other expense was $5.1 million and $19.5 million for the three months ended March 31, 2025 and 2024, respectively. The change was primarily due to $20.7 million in impairment charges recognized in the first quarter of 2024 related to an equity interest in a private biotechnology company.

Cash Flows

The following table sets forth the primary sources and uses of cash for each of the periods presented below:

(in thousands)

During the three months ended March 31, 2025, cash flow used in operating activities was $16.2 million, which was primarily due to the ongoing expenses related to our research and development programs and general and administrative expenses. The change was primarily attributable to the $30.0 million milestone payment received from Amgen, Inc. during the three months ended March 31, 2025, which was recognized as revenue in December 2024. Cash provided by investing activities amounted to $13.7 million, primarily reflecting proceeds of $119.0 million from maturities of marketable securities, offset by purchases of marketable securities totaling $103.9 million. Cash provided by financing activities of $1.2 million was primarily related to cash received from stock option exercises, offset by payment to acquire non-controlling interest.

During the three months ended March 31, 2024, cash flow used in operating activities was $56.9 million, which was primarily due to the ongoing expenses related to our research and development programs and general and administrative expenses. Cash provided by investing activities amounted to $32.3 million, primarily reflecting proceeds of $169.9 million from sales and maturities of marketable securities, offset by purchases of marketable securities totaling $136.5 million. Cash provided by financing activities of $1.8 million was primarily related to cash received from stock option exercises.

Liquidity and Capital Resources

We have historically financed our operations through private placements of equity securities, the issuance of convertible notes, public offerings of common stock, and payments received from product development partnerships and licensing arrangements.

As of March 31, 2025, we had $693.5 million of cash, cash equivalents, and marketable debt securities compared to $706.7 million as of December 31, 2024.

On February 27, 2023, we entered into an open market sale agreement (the “Sales Agreement”), pursuant to which we may, from time to time, offer and sell up to $200.0 million in shares of our common stock through SVB Securities LLC, acting as the sales agent. As of March 31, 2025, no shares have been issued under the Sales Agreement.

We expect to continue receiving payments from our collaborators for research and development services rendered, as well as potential additional milestone, opt-in, contingent payments and royalties. The receipt of future milestone and contingent payments is dependent on the achievement of certain research and development milestones by us or our partners and, as such, remains uncertain at this time.

We believe our current financial resources are sufficient to fund our operations through at least the next twelve months from the date of the issuance of these unaudited consolidated financial statements.

Funding Requirements

We have not generated any revenue from the sale of products developed by us to date and do not expect to do so until we obtain regulatory approval of and commercialize one or more of our internal product development candidates. As we are currently in the clinical stage of development, it will be some time before we expect to achieve this, and it is uncertain that we ever will commercialize one or more of our internal product development candidates. We expect that we will continue to increase our operating expenses in connection with ongoing, and additional clinical and preclinical development of product candidates in our pipeline and also development candidates that we are co-developing with our partners.

Although it is difficult to predict our funding requirements, based upon our current operating plan, we expect that our existing cash, cash equivalents, marketable securities and certain potential milestone payments will fund our operating expenses and capital expenditure requirements into 2028. We have based these estimates on assumptions that may prove to be wrong which would cause us to use our capital resources sooner than we currently expect.

Contractual Obligations and Commitments

There were no material changes outside of the ordinary course of business to our specific contractual obligations during the three months ended March 31, 2025.

Critical Accounting Policies

For a discussion of our material changes in critical accounting policies, see “Recent Accounting Pronouncements” in Note 1, Summary of Significant Accounting Policies, of the Notes to Financial Statements included in this Quarterly Report on Form 10-Q.

There have been no material changes in the Company’s exposure to market risk from that described in “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” of its Annual Report on Form 10-K for the year ended December 31, 2024.

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer (its principal executive officer and principal financial officer, respectively), evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13(a)- 15(e) and 15(d)- 15(e) under the Securities Exchange Act of 1934, as amended), as of March 31, 2025, the end of the period covered by this Quarterly Report on Form 10-Q.

Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that as of such date, the Company’s disclosure controls and procedures were not effective at the reasonable assurance level due to the material weakness related to the design of controls related to its review of the accounting treatment of the proceeds from the sale of future royalties pursuant to the Ultomiris Royalty Sale Agreement as part of non-routine transactions and the design of controls related to the evaluation of certain tax legislation. These material weaknesses resulted in the restatement of the Company’s consolidated financial statements as of and for the year ended December 31, 2023 and the unaudited consolidated financial statements for each of the first three quarters of 2024. Additionally, these material weaknesses could result in a misstatement of the account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or timely detected.

Management’s Plan to Remediate the Material Weaknesses

The Company’s management is committed to maintaining a strong internal control environment. In response to the material weaknesses identified above, management intends to implement comprehensive remediation actions in a timely manner, under the appropriate oversight of the Audit Committee. These actions to remediate the material weakness in internal control over financial reporting include:

(1) Material weakness related to the proceeds from the sale of future royalties

• implementing a more rigorous and structured analysis of non-routine transactions;
• engaging qualified third-party advisors to assist with highly technical and complex accounting transactions; and
• enhancing management’s review of the qualifications and work performed by third-party advisors, specifically in connection with the application of accounting guidance for complex, non-routine transactions.

(2) Material weakness related to the evaluation of certain tax legislation

• enhancing management’s review of the qualifications and work performed by third-party advisors in connection with the review and application of tax advice;
• conducting quarterly reviews of income tax legislative changes and their potential impact on the financial statements in collaboration with tax experts.

The Company believes that the actions outlined above, when fully implemented, will remediate the identified material weaknesses. However, the material weaknesses will not be considered remediated until the applicable controls have operated for a sufficient period of time and management has concluded, through testing, that the controls are operating effectively. Management may also determine that additional measures are necessary to remediate the material weaknesses in the Company’s internal control over financial reporting, which could require additional time for implementation and evaluation. Management will continue to assess the effectiveness of the Company’s internal control over financial reporting and remains committed to remediating the material weaknesses as expeditiously as possible. Management also provides periodic updates on the progress and status of the remediation efforts to the Audit Committee.

Changes in Internal Control over Financial Reporting

Other than the changes associated with the material weakness remediation procedures described above, there have been no changes in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company regularly evaluates its controls and procedures and makes improvements in the design and effectiveness of established controls and procedures and the remediation of any deficiencies which may be identified during this process.

Investing in the Company’s securities involves a high degree of risk. You should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, which could materially affect the Company’s business, financial position, or future results of operations. See also “Special Note Regarding Forward-Looking Statements” included in this Quarterly Report on Form 10-Q. Below are material changes to our risk factors since our Annual Report on Form 10-K for the year ended December 31, 2024.

Risks Related to Our Unique and Specific Business Operations as a Small Biotechnology Company

Unfavorable global economic or political conditions could adversely affect our business, financial condition or results of operations.

Our business is susceptible to general conditions in the global economy and in the global financial markets. A global financial crisis or a global or regional political disruption could cause extreme volatility in the capital and credit markets. A severe or prolonged economic downturn, including a recession or depression resulting from the political disruption, could result in a variety of risks to our business, including weakened demand for our current or future product candidates, if approved, and our ability to raise additional capital when needed on acceptable terms, if at all. A weak or declining economy or political disruption could also strain our manufacturers or suppliers, possibly resulting in supply disruption, or cause our customers to delay making payments for our potential drugs, if approved.

The U.S. has substantially departed from prior U.S. government international trade policy and has commenced activities to renegotiate, or potentially terminate, certain existing bilateral or multi-lateral trade agreements and treaties with foreign countries. In addition, the U.S. has initiated or is considering imposing tariffs on certain foreign goods. Related to this action, certain foreign governments, including China, have instituted or are considering imposing reciprocal tariffs on certain U.S. goods. It remains unclear what the U.S. or foreign governments will or will not do with respect to tariffs or other international trade agreements and policies. A trade war or other governmental action related to tariffs or international trade agreements or policies has the potential to disrupt our research activities, increase the cost of materials purchased to develop our products, and/or to affect the United States or global economy or certain sectors thereof.

The foregoing could materially and adversely affect our business, financial condition, results of operations and prospects, and we cannot anticipate all of the ways in which the political or economic climate and financial market conditions could adversely impact our business.

Disruptions at the FDA and other government agencies caused by changing priorities or funding shortages could hinder their ability to hire, retain or deploy key leadership and other personnel, prevent new or modified products from being developed, reviewed, approved or commercialized in a timely manner or at all, which could negatively impact our business.

The ability of the FDA and foreign regulatory authorities to review and approve new products can be affected by a variety of factors, including reductions in force or hiring freezes, government budget and funding levels, statutory, regulatory, and policy changes, the FDA’s or foreign regulatory authorities’ ability to hire and retain key personnel and accept the payment of user fees, and other events that may otherwise affect the FDA’s or foreign regulatory authorities’ ability to perform routine functions, including uncertainty associated with the new presidential administration in the United States. Average review times at the FDA and foreign regulatory authorities have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable. Disruptions at the FDA may also slow the time necessary for new drugs, medical devices and biologics or modifications to approved drugs and biologics to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities. If a prolonged government shutdown occurs it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business.