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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________________________________________
FORM 10-Q
_____________________________________________________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 001-38295
_____________________________________________________________________________________

X4 PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
_____________________________________________________________________________________
Delaware
(State or other jurisdiction of
incorporation or organization)
27-3181608
(I.R.S. Employer
Identification No.)
61 North Beacon Street, 4th Floor
Boston, Massachusetts
(Address of principal executive offices)
02134
(Zip Code)
(857) 529-8300
(Registrant’s telephone number, including area code)
____________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockXFORThe Nasdaq Stock Market LLC
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 1934 during 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 for the 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 of Regulation 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller 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 or revised 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 Exchange Act).    Yes      No  ☒


As of October 29, 2021, the registrant had 24,708,073 shares of common stock outstanding.




2



CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended, or the (“Exchange Act”), that relate to future events or to our future operations or financial performance. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking statements. These statements may be identified by such forward-looking terminology as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. Our forward-looking statements are based on a series of expectations, assumptions, estimates and projections about our company, are not guarantees of future results or performance and involve substantial risks and uncertainty. We may not actually achieve the plans, intentions or expectations disclosed in these forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in these forward-looking statements. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in the section titled “Risk Factors” and elsewhere in this report, regarding, among other things:
the timing, progress and reporting of results of our current trials of mavorixafor, including our global Phase 3 clinical trial in patients with Warts, Hypogammaglobulinemia, Infections, and Myelokathexis (“WHIM”), syndrome, our Phase 1b clinical trial in combination with ibrutinib in patients with Waldenström’s macroglobulinemia (“Waldenström’s”), and our Phase 1b clinical trial as monotherapy in patients with severe congenital neutropenia (“SCN”) and chronic neutropenia disorders;
the initiation, timing, design, progress and results of our current and future preclinical studies and clinical trials of X4P-002 and X4P-003 or any of our other product candidates or our research and development programs that we pursue;
our expectations regarding the impact of the ongoing COVID-19 pandemic, included the expected duration of disruption and immediate and long-term impact and effect on our business and operations;
the diversion of healthcare resources away from the conduct of clinical trials as a result of the ongoing COVID-19 pandemic, including the diversion of hospitals serving as our clinical trial sites and of hospital staff or independent physicians supporting the conduct of our clinical trials;
the interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel, quarantines or social distancing protocols imposed or recommended by federal or state governments, employers and others in connection with the ongoing COVID-19 pandemic;
the potential benefits that may be derived from any of our product candidates;
the timing of and our ability to obtain and maintain regulatory approval of our existing product candidates or any product candidates that we may develop in the future, and any related restrictions, limitations, or warnings in the label of any approved product candidates;
our plans to research, develop, manufacture and commercialize our product candidates;
the timing of our regulatory filings for our product candidates, along with regulatory developments in the United States and other foreign countries;
the size and growth potential of the markets for our product candidates, if approved, and the rate and degree of market acceptance of our product candidates, including reimbursement that may be received from payors;
the benefits of U.S. Food and Drug Administration, or FDA, and European Commission designations, including, without limitation, Fast Track, Orphan Drug and Breakthrough Therapy;
our commercialization, marketing and manufacturing capabilities and strategy;
our ability to attract and retain qualified employees and key personnel;
our competitive position;
3


our expectations regarding our ability to obtain and maintain intellectual property protection;
the success of competing therapies that are or may become available;
our estimates and expectations regarding future operations, financial position, revenues, costs, expenses, uses of cash, capital requirements or our need for additional financing;
our ability to raise additional capital; and
our strategies, prospects, plans, expectations or objectives.

You should refer to the section titled “Risk Factors" in this Quarterly Report for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report.


4


SUMMARY OF SELECTED RISKS ASSOCIATED WITH OUR BUSINESS

Our business faces significant risks and uncertainties. If any of the following risks are realized, our business, financial condition and results of operations could be materially and adversely affected. You should carefully review and consider the full discussion of our risk factors in the section titled “Risk Factors” in Part I, Item 1A of this Quarterly Report. Some of the more significant risks include the following:

We have incurred significant losses and have not generated revenue from product sales since our inception. We expect to continue to incur losses for the foreseeable future, and we may never achieve or maintain profitability.
We will require substantial additional funding. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate any product development programs or commercialization efforts.
Raising additional capital may cause dilution to our investors, restrict our operations or require us to relinquish rights to our technologies or product candidates. Future debt obligations may expose us to risks that could adversely affect our business, operating results and financial condition and may result in further dilution to our stockholders.
We depend almost entirely on the success of our lead product candidate, mavorixafor, which we are developing initially for the treatment of WHIM syndrome, for the treatment of SCN and chronic neutropenia disorders, for the treatment of Waldenström’s, and contingent on a potential strategic partner, for the treatment of clear cell renal cell carcinoma (“ccRCC”). We cannot be certain that we will be able to obtain regulatory approval for, or successfully commercialize, mavorixafor or any other product candidate.
We expect to develop mavorixafor, and potentially future product candidates, in combination with other therapies, which exposes us to additional risks.
The regulatory review and approval processes of the FDA and comparable foreign regulatory authorities are lengthy, time-consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, including mavorixafor, our business will be substantially harmed.
We depend on license agreements with Genzyme, Beth Israel Deaconess Medical Center, Dana-Farber Cancer Institute, and Georgetown University to permit us to use patents and patent applications. Termination of these rights or the failure to comply with obligations under these agreements could materially harm our business and prevent us from developing or commercializing our product candidates.
The results of clinical trials may not support our product candidate claims.
We may fail to enroll a sufficient number of patients in our clinical trials in a timely manner, which could delay or prevent clinical trials of our product candidates.
The commercial opportunity in WHIM syndrome, SCN and chronic neutropenia disorders or Waldenström’s could be smaller than we anticipate; therefore, our potential future revenue from mavorixafor for the treatment of any of the diseases may be adversely affected and our business may suffer.
If we experience any of a number of possible unforeseen events in connection with our clinical trials, potential marketing approval or commercialization of our product candidates, or our entry into licensing, collaboration or similar arrangements, could be delayed or prevented.
Interim top-line and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.
A breakthrough therapy designation or Fast Track designation by the FDA for our product candidates may not lead to a faster development or regulatory review or approval process, and neither of these designations increases the likelihood that our product candidates will receive marketing approval.
Product candidates may cause undesirable side effects that could delay or prevent their marketing approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any, including marketing withdrawal.
If, in the future, we are unable to establish sales and marketing capabilities or to selectively enter into agreements with third parties to sell and market our product candidates, we may not be successful in commercializing our product candidates if and when they are approved.
We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.
5


Even if we obtain and maintain approval for our product candidates from the FDA, we may never obtain approval for our product candidates outside of the United States, which would limit our market opportunities and could harm our business.
Even if we are able to commercialize mavorixafor or any other product candidate that we develop, the product may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, which would harm our business.
We have limited experience manufacturing our product candidates on a large clinical or commercial scale and have no manufacturing facility. We are currently dependent on a single third party manufacturer for the manufacture of mavorixafor, the active pharmaceutical ingredient (“API”) and a single manufacturer of mavorixafor finished drug product capsules. If we experience problems with these third parties, the manufacturing of mavorixafor could be delayed, which could harm our results of operations.
We rely on third-party clinical research organizations (“CROs”) to conduct our preclinical studies and clinical trials. If these CROs do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.
Disruptions in our supply chain could delay the commercial launch of our product candidates.
Our employees, principal investigators, CROs and consultants may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could have a material adverse effect on our business.
We may depend on such collaborations for the development and commercialization of our product candidates. If those collaborations are not successful, we may not be able to capitalize on the market potential of our product candidates.
We may engage in future acquisitions or in-licenses of technology that could disrupt our business, cause dilution to our stockholders and harm our financial condition and operating results.
If we are unable to protect our intellectual property rights, our competitive position could be harmed.
Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.
The global COVID-19 pandemic is adversely affecting, and is expected to continue to adversely affect, our business, including our clinical trials and preclinical studies.
Our future success depends on our ability to retain executives and to attract, retain and motivate key personnel in a competitive environment for skilled biotechnology personnel.
We will need to grow the size of our organization, and we may experience difficulties in managing this growth.
Our stock price is expected to continue to be volatile.
We are an “emerging growth company,” and a “smaller reporting company” and as a result of the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies, our common stock may be less attractive to investors.
6


PART I FINANCIAL INFORMATION

Item 1.    FINANCIAL STATEMENTS.
X4 PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
September 30, 2021December 31, 2020
Assets
Current assets:
Cash and cash equivalents$76,393 $78,708 
Research and development incentive receivable646 917 
Prepaid expenses and other current assets3,661 3,682 
Total current assets80,700 83,307 
Property and equipment, net 1,632 1,237 
Goodwill27,109 27,109 
Right-of-use assets9,071 7,960 
Other assets2,005 3,258 
Total assets$120,517 $122,871 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$2,424 $3,144 
Accrued expenses9,074 8,018 
Current portion of lease liability1,041 786 
Current portion of long-term debt693  
Total current liabilities13,232 11,948 
Long-term debt, net of discount and current portion33,043 33,178 
Lease liabilities5,067 4,484 
Other liabilities496 462 
Total liabilities51,838 50,072 
Commitments and contingencies (Note 9)
Stockholders’ equity:
Common stock, $0.001 par value, 125,000,000 shares authorized as of each of September 30, 2021 and December 31, 2020; 24,708,727 and 16,305,731 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively
25 16 
Additional paid-in capital321,437 267,077 
Accumulated other comprehensive loss(119)(119)
Accumulated deficit(252,664)(194,175)
Total stockholders’ equity68,679 72,799 
Total liabilities and stockholders’ equity
$120,517 $122,871 




The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7


X4 PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
License revenue$ $ $ $3,000 
Operating expenses:
Research and development13,188 11,381 38,485 29,634 
General and administrative5,931 5,599 17,567 15,585 
Total operating expenses19,119 16,980 56,052 45,219 
Loss from operations(19,119)(16,980)(56,052)(42,219)
Other income (expense):
Interest income2  7 272 
Interest expense(920)(697)(2,717)(1,968)
Change in fair value of derivative liability(62) (36) 
Other income, net(74)228 323 494 
Loss on extinguishment of debt   (162)
Total other expense, net(1,054)(469)(2,423)(1,364)
Loss before provision for income taxes(20,173)(17,449)(58,475)(43,583)
Provision for income taxes2  14 148 
Net loss and comprehensive loss(20,175)(17,449)(58,489)(43,731)
Deemed dividend on Class B Warrant price reset  (8,239) 
Net loss attributable to common stockholders$(20,175)$(17,449)$(66,728)$(43,731)
Net loss per share attributable to common stockholders—basic and diluted
$(0.76)$(0.87)$(2.71)$(2.18)
Weighted average shares of common stock outstanding—basic and diluted
26,609 20,085 24,667 20,035 









The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8

X4 PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENT OF REDEEMABLE COMMON STOCK AND STOCKHOLDERS’ EQUITY
(In thousands, except share amounts)
(Unaudited)
Common StockAdditional
Paid-In
Capital
Accumulated Other Comprehensive
Loss
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balance at December 31, 201916,128,862 $16 $261,367 $(119)$(132,044)$129,220 
Exercise of stock options13,006 — 96 96 
Stock-based compensation expense613 613 
Net loss(11,138)(11,138)
Balance at March 31, 202016,141,868 $16 262,076 (119)(143,182)118,791 
Exercise of stock options407 — 2 2 
Issuance of shares under employee stock purchase plan10,057 — 76 76 
Vesting of restricted stock units, less shares withheld and retired to satisfy tax obligations23,822 (14)(14)
Stock-based compensation expense1,173 1,173 
Net loss(15,144)(15,144)
Balance at June 30, 202016,176,154 $16 263,313 (119)(158,326)104,884 
Exercise of stock options4,276 29 29 
Vesting of restricted stock units, less shares withheld and retired to satisfy tax obligations106,215  
Stock-based compensation2,244 2,244 
Net loss(17,449)(17,449)
Balance at September 30, 202016,286,645 $16 $265,586 $(119)$(175,775)$89,708 





The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
9

X4 PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENT OF REDEEMABLE COMMON STOCK AND STOCKHOLDERS’ EQUITY
(In thousands, except share amounts)
(Unaudited)


Redeemable Common StockCommon StockAdditional
Paid-In
Capital
Accumulated Other Comprehensive
Loss
Accumulated
Deficit
Total
Stockholders’ Equity
SharesAmountSharesAmount
Balance at December 31, 2020  16,305,731 $16 $267,077 $(119)$(194,175)$72,799 
Issuance of common stock, redeemable common stock and pre-funded warrants for the purchase of common stock, net of issuance costs of $3.5 million
229,885 1,875 6,041,951 7 49,633 49,640 
Exercise of stock options5,860 40 40 
Exercise of pre-funded warrants1,072,887 1 1 
Stock-based compensation1,258 1,258 
Net loss(18,676)(18,676)
Balance at March 31, 2021229,885 1,875 23,426,429 24 318,008 (119)(212,851)105,062 
Issuance of common stock under employee stock purchase plan20,232 — 116 116 
Exercise of pre-funded warrants1,056,881 1 1 
Vesting of restricted stock units81,316  
Stock-based compensation1,797 1,797 
Net loss(19,638)(19,638)
Balance at June 30, 2021229,885 1,875 24,584,858 25 319,921 (119)(232,489)87,338 
Vesting of restricted stock units123,869  
Stock-based compensation1,516 1,516 
Repurchase and retirement of redeemable common stock(229,885)(1,875) 
Net loss(20,175)(20,175)
Balance at September 30, 2021 $ 24,708,727 $25 $321,437 $(119)$(252,664)$68,679 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
10


X4 PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended September 30,
20212020
Cash flows from operating activities:
Net loss$(58,489)$(43,731)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense4,571 4,030 
Depreciation and amortization expense367 248 
Non-cash lease expense1,031 588 
Accretion of debt discount557 389 
Loss on extinguishment of debt 162 
Other283 (219)
Changes in operating assets and liabilities:
Prepaid expenses, other current assets and research and development incentive receivable(14)(2,420)
Accounts payable(695)121 
Accrued expenses1,069 1,722 
Lease liabilities(473)(904)
Operating lease right-of-use asset, net of non-cash portion(59)(1,300)
Net cash used in operating activities(51,852)(41,314)
Cash flows from investing activities:
Acquisition of property, equipment and intangible assets(602)(1,060)
Net cash used in investing activities(602)(1,060)
Cash flows from financing activities:
Proceeds from exercise of stock options and pre-funded warrants and issuance of shares of common stock under employee stock purchase plan157 468 
Employee taxes paid related to net share settlement of vested restricted stock units (278)
Proceeds from borrowings under loan and security agreements, net of issuance costs 4,888 
Proceeds from sale of shares of common stock, redeemable common stock and pre-funded warrants, net of issuance costs51,518 (313)
Settlement and retirement of redeemable common stock(2,000) 
Net cash provided by financing activities49,675 4,765 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(203)240 
Net decrease in cash, cash equivalents and restricted cash(2,982)(37,369)
Cash, cash equivalents and restricted cash at beginning of period80,702 128,086 
Cash, cash equivalents and restricted cash at end of period$77,720 $90,717 
Supplemental disclosure of non-cash investing and financing activities:
Acquisition of property, equipment and right-of-use assets included in accounts payable and accrued expenses$ $2,052 
Acquisition of right-of-use asset financed by lease liabilities$1,343 $4,646 
Issuance costs not yet paid related to sale of shares of common stock, redeemable common stock and pre-funded warrants$ $178 




The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
11

X4 PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.    NATURE OF THE BUSINESS AND BASIS OF PRESENTATION
X4 Pharmaceuticals, Inc. (together with its subsidiaries, the “Company”) is a late-stage clinical biopharmaceutical company focused on the research, development and commercialization of novel therapeutics for the treatment of rare diseases. The Company’s lead product candidate, mavorixafor, is a potential first-in-class, once-daily, oral inhibitor of CXCR4 and is currently in a Phase 3 clinical trial for the treatment of Warts, Hypogammaglobulinemia, Infections, and Myelokathexis (“WHIM”) syndrome, a rare, inherited, primary immunodeficiency disease caused by genetic mutations in the CXCR4 receptor gene. The Company is also conducting a 14-day, proof-of-concept Phase 1b clinical trial of mavorixafor in patients with severe congenital neutropenia (“SCN”) and chronic neutropenia disorders, and a Phase 1b clinical trial of mavorixafor in combination with ibrutinib in Waldenström’s macroglobulinemia (“Waldenström’s”).
Going Concern Assessment—The Company has evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these condensed consolidated financial statements are issued. As of September 30, 2021, the Company had $76.4 million of cash and cash equivalents. Based on its current operating plan, the Company believes that its existing cash and cash equivalents will be sufficient to fund its operating expense and capital expenditure requirements into the fourth quarter of 2022. However, as further discussed in Note 7, the Company has a covenant under its loan agreement with Hercules Capital Inc. (“Hercules”) that requires that the Company maintain a minimum level of cash, as defined, beginning on April 1, 2022, which date is extended if the Company meets certain financial milestones related to third party funding. Based on its current financial projections, the Company believes it would be in violation of this covenant in the second quarter of 2022. If the Company is in violation of this covenant, Hercules could require the repayment of all outstanding debt.

As a result, the Company believes that, in the aggregate, these conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these condensed consolidated financial statements are issued. Nevertheless, the accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. In order to fund its operations beyond 2021, the Company is seeking to raise funds potentially through a combination of equity offerings, debt financings, other third-party funding, marketing and distribution arrangements and other collaborations and strategic alliances. If the Company is unable to obtain future funding when needed, the Company may be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or pre-commercialization efforts, which could adversely affect its business prospects, or the Company may be unable to continue operations. There is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all.
Impact of the COVID-19 Pandemic— The impact of the ongoing COVID-19 pandemic continues to be extensive in many aspects of society, which has resulted in and will likely continue to result in significant disruptions to the global economy, as well as businesses and capital markets around the world. Impacts to the Company’s business have included temporary closures or postponements of activation of its clinical trial sites or facilities, disruptions or restrictions on its employees’ ability to travel, disruptions to or delays in ongoing clinical trials, including patient enrollment at a slower pace than initially projected and the diversion of healthcare resources away from the conduct of the Company’s clinical trials as a result of the ongoing COVID-19 pandemic, including the diversion of hospitals serving as the Company’s clinical trial sites and hospital staff supporting the conduct of the Company’s clinical trials.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant Accounting Policies—The Company’s significant accounting policies are disclosed in the audited consolidated financial statements and the notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission (“SEC”) on March 19, 2021 (the “2020 Annual Report”). Since the date of those consolidated financial statements, there have been no material changes to the Company’s significant accounting policies.
Risks and Uncertainties—The impact of the ongoing COVID-19 pandemic has been and, notwithstanding the recent commencement of vaccination efforts, is expected to continue to be extensive in many aspects of society, which has resulted in and will likely continue to result in significant disruptions to the global economy, as well as businesses and capital markets
12

X4 PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
around the world. Impacts to the Company’s business have included temporary closures or postponements of activation of its clinical trial sites or facilities, disruptions or restrictions on its employees’ ability to travel, disruptions to or delays in ongoing clinical trials, including patient enrollment at a slower pace than initially projected and the diversion of healthcare resources away from the conduct of the Company’s clinical trials as a result of the ongoing COVID-19 pandemic, including the diversion of hospitals serving as the Company’s clinical trial sites and hospital staff supporting the conduct of the Company’s clinical trials.

In addition, the Company is subject to other challenges and risks specific to its business and its ability to execute on its business plan and strategy, as well as risks and uncertainties common to companies in the biotechnology industry with research and development operations, including, without limitation, risks and uncertainties associated with: obtaining regulatory approval of its product candidates; delays or problems in obtaining clinical supply, loss of single source suppliers or failure to comply with manufacturing regulations; identifying, acquiring or in-licensing additional products or product candidates; product development and the inherent uncertainty of clinical success; and the challenges of protecting and enhancing its intellectual property rights; and the challenges of complying with applicable regulatory requirements. In addition, to the extent the ongoing COVID-19 pandemic adversely affects the Company’s business and results of operations, it is expected also to have the effect of heightening many of the other risks and uncertainties discussed above.
Principles of Consolidation— The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, including X4 Pharmaceuticals (Austria) GmbH, which is incorporated in Vienna, Austria (“X4 Austria”), and X4 Therapeutics, Inc. All significant intercompany accounts and transactions have been eliminated.
Unaudited Interim Condensed Consolidated Financial Statements— The condensed consolidated balance sheet at December 31, 2020 that is presented in these interim condensed consolidated financial statements was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). The accompanying condensed consolidated financial statements are unaudited. The accompanying unaudited interim condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the SEC for interim financial statements. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto for the year ended December 31, 2020 included in the 2020 Annual Report. In the opinion of management, all adjustments, consisting only of normal recurring adjustments as necessary, for the fair statement of the Company’s condensed financial position, condensed results of its operations and cash flows have been made. The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2021.

Use of Estimates— The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of expenses during the reporting period. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, the accrual of research and development expenses, the impairment or lack of impairment of long-lived assets including operating lease right-of-use assets and goodwill, and the constraint of variable consideration from contracts with customers. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. The COVID-19 pandemic has impacted and is expected to continue to impact the clinical development timelines for certain of the Company's clinical programs. As of the date of issuance of these condensed consolidated financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update its estimates, assumptions and judgments or revise the carrying value of its assets or liabilities. Actual results could differ from those estimates, and any such differences may be material to the Company’s condensed consolidated financial statements.
Cash and Cash Equivalents— The Company considers all highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents. Cash equivalents consisted of money market funds as of September 30, 2021 and December 31, 2020.
13

X4 PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Restricted Cash
(in thousands)As of September 30, 2021As of December 31, 2020
Letter of credit security: Cambridge lease$ $264 
Letter of credit security: Waltham lease250 250 
Letter of credit security: Vienna Austria lease222 336 
Letter of credit security: Boston lease855 1,144 
Total restricted cash$1,327 $1,994 
Restricted cash included in prepaid expenses and other current assets$ $264 
Restricted cash included in other assets$1,327 $1,730 
In connection with the Company’s lease agreements for its facilities in Massachusetts and Austria, the Company maintains letters of credit, which are secured by restricted cash, for the benefit of the respective landlord.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets to the sum of the total of amounts shown in the Company’s condensed consolidated statements of cash flows as of September 30, 2021, December 31, 2020, September 30, 2020 and December 31, 2019: 
(in thousands)September 30, 2021December 31, 2020September 30, 2020December 31, 2019
Cash and cash equivalents$76,393 $78,708 $88,812 $126,184 
Restricted cash, current portion 264   
Restricted cash, non-current1,327 1,730 1,905 1,902 
Total cash, cash equivalents and restricted cash$77,720 $80,702 $90,717 $128,086 
Goodwill— Goodwill is tested for impairment at the reporting unit level annually in the fourth quarter, or more frequently when events or changes in circumstances indicate that the asset might be impaired. Examples of such events or circumstances include, but are not limited to, a significant adverse change in legal or business climate, an adverse regulatory action or unanticipated competition. The Company has determined that it operates in a single operating segment and has a single reporting unit.
The Company assesses qualitative factors to determine whether the existence of events or circumstances would indicate that it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If after assessing the totality of events or circumstances, the Company were to determine that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, then the Company would perform an interim quantitative impairment test, whereby the Company compares the fair value of the reporting unit to its carrying value. If the fair value of the reporting unit exceeds the carrying value of its net assets, goodwill is not impaired, and no further testing is required. If the fair value of the reporting unit is less than its carrying value, the Company measures the amount of impairment loss, if any, as the excess of the carrying value over the fair value of the reporting unit. There were no triggering events during the nine months ended September 30, 2021 that necessitated an interim impairment test of goodwill.

Recently Adopted Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). ASU 2020-06 was issued to reduce the complexity of accounting for financial instruments having characteristics of both debt and equity. For example, the new standard modifies the scope exception to derivative accounting under ASC 815-40, Derivatives and Hedging---Contracts in an Entity’s Own Equity, by eliminating certain required settlement criteria, such as the requirement that shares of common stock issued upon exercise of a warrant not require an active registration statement. The Company adopted ASU 2020-06 on January 1, 2021 and the adoption of this guidance did not have an impact on its condensed consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU
2019-12 simplifies the accounting for income taxes, including the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The Company adopted ASU 2019-12 on
14

X4 PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
January 1, 2021 and the adoption of this guidance did not have a material impact on its condensed consolidated financial statements and related disclosures.

Recently Issued Accounting Standards Not Yet Adopted
In May 2021, the FASB issued ASU 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. ASU 2021-04 was issued to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants for the purchase of common shares) that remain classified as equity following the modification or exchange. ASU 2021-04 is effective January 1, 2022 for the Company. The Company does not expect the adoption of this standard to have a significant impact on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments (“ASU 2016-13"), as amended. ASU 2016-13 requires that financial assets measured at amortized cost, such as trade receivables, be presented net of expected credit losses, which may be estimated based on relevant information such as historical experience, current conditions, and future expectation for each pool of similar financial asset. The new guidance requires enhanced disclosures related to trade receivables and associated credit losses. In accordance with ASU 2019-10, Financial Instruments-Credit Losses (Topic 326), Derivative and Hedging (Topic 815), and Leases (Topic 842)- Effective Dates, as the Company meets the definition of a “smaller reporting company”, the Company has elected to defer the adoption of ASU 2016-13 until January 1, 2023. The Company expects that the adoption of ASU 2016-13 may accelerate the timing and could increase the level of credit loss expense in the consolidated statement of operations and will likely require an increased level of disclosure in the notes to the consolidated financial statements.


3.    LICENSE, COLLABORATION AND FUNDING AGREEMENTS
Research and Development Incentive Program
The Company participates in a research and development incentive program provided by the Austrian government whereby the Company is entitled to reimbursement by the Austrian government for a percentage of qualifying research and development expenses and capital expenditures incurred by the Company’s subsidiary in Austria. As of September 30, 2021, the amount due under the program is $0.6 million, which amount was included in research and development incentive receivable in the condensed consolidated balance sheet. During the nine months ended September 30, 2021 and 2020, the Company recorded $673 thousand and $267 thousand, respectively, of income related to the program within the condensed consolidated statements of operations as other income.
License and Collaboration Agreements
There were no material modifications of the Company’s license or collaboration agreements during the nine months ended September 30, 2021.



4.    FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy used to determine such fair values:
Fair Value Measurements as of September 30, 2021 Using:
(in thousands)Level 1Level 2Level 3Total
Assets:
Cash equivalents—money market funds$34,816 $27,788 $ $62,604 
$34,816 $27,788 $ $62,604 
Liabilities: 
Embedded derivative liability$ $ $491 $491 
$ $ $491 $491 
15

X4 PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Fair Value Measurements as of December 31, 2020 Using:
(in thousands)Level 1Level 2Level 3Total
Assets:
Cash equivalents—money market funds$16,816 $28,018 $ $44,834 
$16,816 $28,018 $ $44,834 
Liabilities:
Embedded derivative liability$ $ $455 $455 
$ $ $455 $455 

The Company’s cash equivalents consisted of money market funds invested in U.S. Treasury securities. The money market funds were valued based on reported market pricing for the identical assets, which represents a Level 1 measurement, or by using inputs observable in active markets for similar securities, which represents a Level 2 measurement.

The following table provides a roll-forward of the aggregate fair values financial instruments for which fair values are determined using Level 3 inputs:
(in thousands)Embedded Derivative Liability
Balance as of December 31, 2020$455 
Change in fair value36 
Balance as of September 30, 2021$491 

Embedded Derivative Liability The fair value of the embedded derivative liability recognized in connection with the Company’s loan agreement with Hercules (Note 7), which is associated with additional fees due to Hercules upon events of default, was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The fair value of this embedded derivative liability, which is reported within other non-current liabilities on the condensed consolidated balance sheets, is estimated by the Company at each reporting date based, in part, on the results of third party valuations, which are prepared based on a discounted cash flow model that considers the timing and probability of occurrence of a redemption upon an event of default, the potential amount of prepayment fees or contingent interest upon an event of default and the Company’s risk-adjusted discount rate of 14%.


5.    PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following:
(in thousands)September 30, 2021December 31, 2020
Leasehold improvements$228 $228 
Furniture and fixtures1,287 910 
Computer equipment152 47 
Software33 33 
Lab equipment573 293 
2,273 1,511 
Less: Accumulated depreciation and amortization(641)(274)
$1,632 $1,237 
Depreciation and amortization expense related to property and equipment was $367 thousand and $248 thousand for the nine months ended September 30, 2021 and 2020, respectively.


16

X4 PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6.    ACCRUED EXPENSES
Accrued expenses consisted of the following:
(in thousands)September 30,
2021
December 31,
2020
Accrued employee compensation and benefits$4,759 3,756 
Accrued external research and development expenses2,977 3,150 
Accrued professional fees899 627 
Other439 485 
$9,074 $8,018 

7.    LONG-TERM DEBT
Long-term debt consisted of the following:
(in thousands)September 30,
2021
December 31,
2020
Principal amount of long-term debt$32,500 $32,500 
Debt discount, net of accretion266 223 
Cumulative accretion of end of term payments970 455 
Long-term debt$33,736 $33,178 
Less: current portion of long-term debt$(693)$ 
Long-term debt, net of current portion$33,043 $33,178 
Hercules Loan Agreement, As Amended
In October 2018, the Company entered into a Loan and Security Agreement (the “Hercules Loan Agreement”), as amended in December 2019, June 2019, March 2020 and December 2020, with Hercules, under which the Company has borrowed an aggregate of $32.5 million of term loans to date. The Hercules Loan Agreement provides for maximum borrowings of up to $50.0 million, which include (i) subject to the achievement of certain performance milestones and conditions, a right of the Company to request that Hercules make additional term loan advances in an aggregate amount of up to $7.5 million through June 30, 2022 and (ii) subject to Hercules investment committee’s sole discretion, a right of the Company to request that Hercules make additional term loan advances in an aggregate amount of up to $10.0 million through December 31, 2022. Borrowings under the Hercules Loan Agreement accrues interest at a variable rate equal to the greater of (i) 8.75% or (ii) 8.75% plus The Wall Street Journal prime rate minus 6.0%. In an event of default and until such event is no longer continuing, the interest rate applicable to borrowings would be increased by 4.0%.

Borrowings under the Hercules Loan Agreement are repayable in monthly interest-only payments through January 1, 2023, and in equal monthly payments of principal and accrued interest from February 1, 2023 until the maturity date of the loan, which is July 1, 2024. The Company may prepay all, but not less than all, of the outstanding borrowings, subject to a prepayment premium of up to 2.0%, 1.0% or 0.5% of the principal amount outstanding as of the date of repayment, in each case depending on when such repayment is made. In addition, the Hercules Loan Agreement provides for payments of $0.8 million, $1.3 million, and $0.8 million payable on January 1, 2022, July 1, 2023 and July 1, 2024, respectively, which payments are accelerated upon the prepayment of the borrowings upon the Company’s election on upon default of the loan.

Borrowings under the Hercules Loan Agreement are collateralized by substantially all of the Company’s personal property and other assets except for their intellectual property (but including rights to payment and proceeds from the sale, licensing or disposition of the intellectual property).

Pursuant to the Hercules Loan Agreement, effective as of the earlier of (a) certain specified events impacting the Company’s Phase III trial of mavorixafor for the treatment of WHIM syndrome and (b) April 1, 2022 (which date is extended if the Company meets certain financial milestones related to third party funding), the Company at all times thereafter must maintain cash in an account or accounts in which Hercules has a first priority security interest, in an aggregate amount greater than or equal to the greater of (i) $30.0 million or (ii) 6 multiplied by a metric based on prior months’ cash expenditures; provided,
17

X4 PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
however, that from and after the Company’s achievement of certain performance milestones, the required level shall be reduced to the greater of (x) $20.0 million, or (y) 3 multiplied by the current cash expenditures metric; and provided further, that subject to the achievement of certain milestones, this covenant will be extinguished. The Hercules Loan Agreement also restricts the Company’s ability to incur additional indebtedness, pay dividends, encumber its intellectual property, or engage in certain fundamental business transactions, such as mergers or acquisitions of other businesses, with certain exceptions.
The Company recognized interest expense under the Hercules Loan Agreement as follows:
(dollars in thousands)For the Three Months ended September 30,For the Nine Months ended September 30,
2021202020212020
Total interest expense$920 $697 $2,716 $1,967 
Non-cash interest expense$193 $138 $557 $390 
The annual effective interest rate of the Hercules Loan Agreement as of September 30, 2021 is 10.7%. There were no principal payments due or paid under the Hercules Loan Agreement during the nine months ended September 30, 2021.
As of September 30, 2021, future principal payments due under the Hercules Loan Agreement were as follows (in thousands):
Year Ending December 31,Total
2021$ 
2022 
202321,185 
202411,315 
Long-term debt$32,500 

8.    LEASES
The Company has lease agreements for its facilities in Boston, Massachusetts, which is the Company’s principal executive office; Vienna, Austria, which is the Company’s research and development center; and Waltham, Massachusetts, which the Company has sublet to a third party. There are no restrictions or financial covenants associated with any of the lease agreements.
Vienna Austria Leases— The Company had an operating lease, as amended, for approximately 400 square meters of laboratory and office space in Vienna, Austria, which commenced on March 1, 2019, as amended, for a term of approximately 2 years terminating in April 2021. The annual base rent for the previous lease was approximately $154 thousand. In September 2020, the Company entered into a new operating lease for approximately 1,200 square meters of laboratory and office space in Vienna, Austria (“Vienna Lease”), which commenced in February 2021 following construction of laboratory and office space for a term of 7 years. The Company contributed $709 thousand to building improvements, which are classified as part of the right-of-use asset. The Company recorded a right-of-use asset and associated lease liabilities upon the commencement of the Vienna Lease in the first quarter of 2021. The annual base rent for the Vienna Lease, following a 6-month rent free period, is approximately $300 thousand.
Boston Lease— The Company leases approximately 28,000 square feet of office space in Boston, Massachusetts (“Boston Lease”), which serves as the Company’s headquarters. Base rental payments are approximately $1.0 million annually, plus certain operating expenses. The term of the Boston Lease will continue until November 2026, unless earlier terminated. The Company has the right to sublease the premises, subject to landlord consent and also has the right to renew the Boston Lease for an additional five years at the then prevailing effective market rental rate. The Company is required to maintain a security deposit in the form of a letter of credit for $855 thousand for the benefit of the landlord.
18

X4 PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Waltham Lease— The Company leases approximately 6,000 square feet of office space in Waltham, Massachusetts (“Waltham Lease”). The Waltham Lease, as amended, commenced on January 1, 2019, and expires approximately five years from the commencement date. The base rent is approximately $263 thousand annually. In addition to the base rent, the Company is also responsible for its share of operating expenses, electricity and real estate taxes, which costs are not included in the determination of the leases’ right-of-use assets or lease liabilities. The Company is subleasing the space to a third party for the duration of the lease. The right-of-use asset is being amortized to rent expense over the five-year term of the lease.

As the Company’s leases do not provide an implicit rate, the Company estimated the incremental borrowing rate in calculating the present value of the lease payments. The Company utilizes its incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment.
The components of lease expense for the three and nine months ended September 30, 2021 and 2020 were as follows:
(dollars in thousands)For the Three Months Ended September 30,For the Nine Months Ended September 30,
Lease Cost2021202020212020
Fixed operating lease cost$537$413 $1,554 $847 
Short-term lease costs40 42 116 
Total lease expense$537$453 $1,596 $963 
Other information
Right-of-use asset obtained in exchange for operating lease liabilities$ $4,646 $1,343 $4,646 
Operating cash flows from operating leases$314 $479 $917 $963 
Sublease income$49 $49 $147 $146 
Weighted-average remaining lease term—operating leases5.2 years
Weighted-average discount rate—operating leases11.3 %


Maturities of lease liabilities due under lease agreements that have commenced as of September 30, 2021 are as follows (in thousands)
Maturity of lease liabilitiesOperating
Leases
2021 (remainder of the year)$396 
20221,604 
20231,632 
20241,397 
20251,425 
Thereafter1,708 
Total lease payments8,162 
Less: interest(2,054)
Total operating lease liabilities as of September 30, 2021$6,108 

9.    COMMITMENTS AND CONTINGENCIES
The Company has agreements with Contract Research Organizations (“CROs”) pursuant to which the Company and the CROs are conducting clinical trials of mavorixafor for the treatment of WHIM syndrome, Waldenström’s and SCN and chronic neutropenia disorders. The Company may terminate these agreements by providing notice pursuant to the contractual provisions of such agreements and would incur early termination fees. The Company also has agreements with contract manufacturing organizations (“CMOs”) for the production of mavorixafor for use in clinical trials.
19

X4 PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Indemnification Agreements— In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of its board of directors and its executive officers that will require the Company to, among other things, indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnification obligations. The Company is not currently aware of any indemnification claims and has not accrued any liabilities related to such obligations in its condensed consolidated financial statements as of September 30, 2021 or December 31, 2020.
Legal Proceedings— The Company is not a party to any litigation and does not have contingency reserves established for any litigation liabilities. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company expenses as incurred the costs related to any legal proceedings.
Redeemable Common Stock— See Note 11 related to the Company’s redeemable common stock.

10.    COMMON STOCK WARRANTS
In connection with its issuance of common stock in public offerings that closed on April 16, 2019 and November 29, 2019, the Company issued 3,900,000 Class A warrants, which are exercisable for the Company’s common stock, and 5,416,667 Class B warrants, which are exercisable for shares of the Company’s common stock or pre-funded warrants to purchase shares of the Company's common stock. The Class A warrants have an exercise price of $13.20 per share, expire on April 15, 2024 and were immediately exercisable. The Class B warrants were immediately exercisable upon issuance, had an initial exercise price of $15.00 per share and expire on a date that is the earlier of (a) the date that is 30 calendar days from the date on which the Company issues a press release announcing top-line data from its Phase 3 clinical trial of mavorixafor for the treatment of patients with WHIM syndrome (or, if such date is not a business day, the next business day) and (b) November 28, 2024. The Class B warrants have a contingent price adjustment feature pursuant to which the exercise price of the Class B warrants is adjusted to the lowest weighted average offering price at which the Company sells its common stock or certain securities convertible into or exercisable for the Company's common stock in one or more subsequent offerings, if the weighted average offering price for such offering is below $15.00. On March 23, 2021, the Company completed a private placement sale of its common stock priced at $8.70. Accordingly, the exercise price of the Class B warrants was adjusted to $8.70.
In addition, in connection with the April 16, 2019, November 29, 2019 and March 23, 2021 equity offerings, the Company issued 2,130,000, 1,750,000 and 50,000 pre-funded warrants, respectively, for proceeds of $10.999, $11.999 and $8.69 per share, respectively. All pre-funded warrants issued in April 2019 have been exercised. Each of the outstanding pre-funded warrants is exercisable into one share of the Company's common stock and was immediately exercisable upon issuance. The November 2019 pre-funded warrants have a remaining exercise price of $0.001 per share and the March 2021 pre-funded warrants have a remaining exercise price of $0.01 per share.

The following table provides a roll forward of outstanding warrants for the nine month period ended September 30, 2021:
Number of warrantsWeighted Average Exercise PriceWeighted Average Contractual Term (Years)
Outstanding and exercisable warrants to purchase common shares as of December 31, 202013,354,403 $13.523.70
Issued50,000 
Exercised(2,130,000)
Cancelled(25,275)
Outstanding and exercisable warrants to purchase common shares as of September 30, 202111,249,128 $10.922.97
20

X4 PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

As of September 30, 2021, the Company’s outstanding warrants to purchase shares of common stock consisted of the following:
Issuance DateNumber of
Shares of
Common
Stock Issuable
Exercise
Price
Expiration Date
October 25, 20165,155 $19.78 October 24, 2026
December 28, 2017115,916 $19.78 December 28, 2027
September 12, 201820,220 $19.78 September 12, 2028
October 19, 201820,016 $19.78 October 19, 2028
March 13, 20195,000 $19.78 March 12, 2029
April 16, 20193,866,154 $13.20 April 15, 2024
November 29, 20195,416,667 $8.70 November 28, 2024
November 29, 20191,750,000 $12.00 (a)n/a
March 23, 202150,000 $8.70 (b)n/a
11,249,128 
(a) In November 2019, the Company received $11.999 per pre-funded warrant, or $21.0 million in aggregate proceeds. Each pre-funded
warrant may be exercised for an additional $0.001 per pre-funded warrant.

(b) In March 2021, the Company received $8.69 per pre-funded warrant, or $435 thousand in aggregate proceeds. Each pre-funded warrant may be exercised for an additional $0.01 per pre-funded warrant.



11.    COMMON STOCK AND REDEEMABLE COMMON STOCK
As of September 30, 2021 and December 31, 2020, the Company’s Restated Certificate of Incorporation authorized the Company to issue 125,000,000 shares of common stock, par value $0.001 per share. The voting, dividend and liquidation rights of the holders of the Company’s common stock are subject to and qualified by the rights, powers and preferences of the holders of any preferred stock that may be issued. Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Common stockholders are entitled to receive dividends, as may be declared by the board of directors, if any. No cash dividends have been declared or paid to date.
Private Placement— On March 18, 2021, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with several institutional and accredited investors (the “Investors”) pursuant to which the Company issued and sold to the Investors in a private placement (the “Private Placement”) an aggregate of 6,271,836 shares of common stock and, to certain Investors, in lieu of common stock, pre-funded warrants (the “Pre-Funded Warrants”) to purchase an aggregate of 50,000 shares of common stock at a price of $8.70 per share of common stock (or $8.69 per Pre-Funded Warrant). The price per Pre-Funded Warrant represents the price of $8.70 per share sold in the Private Placement, minus the $0.01 per share exercise price of each such Pre-Funded Warrant. The Pre-Funded Warrants are exercisable, subject to certain beneficial ownership restrictions, at any time after their original issuance and will not expire. The Private Placement closed on March 23, 2021 and the Company received gross proceeds of $55.0 million, before deducting offering expenses of $3.5 million paid by the Company.

Redeemable Common Stock— On March 18, 2021, the Company entered into an Option Agreement, as amended (the “Option Agreement”) with Abingworth Bioventures 8 LP (“Abingworth Bioventures 8”), which was one of the Investors party to the Securities Purchase Agreement. Pursuant to the Option Agreement, if the Company and a syndicate, of which Abingworth
Bioventures 8 was a part, did not execute a definitive co-development agreement, as defined in the Option Agreement, by August 2, 2021, Abingworth Bioventures 8 could have required the Company to repurchase the 229,885 common shares it purchased in the private placement at the original purchase price of $8.70 per share. The Company classified these shares as redeemable common stock on the condensed consolidated balance sheet, net of offering costs, as of March 31, 2021 and June
21

X4 PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
30, 2021. In August 2021, as a result of the termination of the letter of intent between the Company and Abingworth related to the contemplated co-development arrangement, Abingworth Bioventures 8 exercised it option to sell the 229,885 share of common stock it purchased in the Private Placement back to the Company at the original purchase price of $8.70 per share for an aggregate of $2.0 million. The Company adjusted the carrying amount of the redeemable common stock to its redemption value and subsequently retired these shares of common stock.


12.    STOCK-BASED COMPENSATION
Summary of Plans— The Company has the following equity incentive plans:
The X4 Pharmaceuticals Inc. 2015 Employee, Director and Consultant Equity Incentive Plan, as amended (the “2015 Plan”);
The X4 Pharmaceuticals Inc. 2017 Equity Incentive Plan (the “2017 Plan”); and
The X4 Pharmaceuticals Inc. 2019 Inducement Equity Incentive Plan (the “2019 Plan”)
The Company also has the following employee stock purchase plan:
The X4 Pharmaceutical Inc. 2017 Employee Stock Purchase Plan (the “2017 ESPP”)

These plans are administered by the Board of Directors or by a committee of the Board of Directors. The exercise prices, vesting and other restrictions are determined at the discretion of the Board of Directors, or its committee if so delegated, except that the exercise price per share of stock options may not be less than 100% of the fair market value of the share of common stock on the date of grant and the term of the stock option may not be greater than ten years. Incentive stock options granted to employees and restricted stock awards granted to employees, officers, members of the board of directors, advisors, and consultants of the Company typically vest over four years. Non-statutory options granted to employees, officers, members of the board of directors, advisors, and consultants of the Company typically vest over three or four years. Shares that are expired, terminated, surrendered or canceled under the Plans without having been fully exercised will be available for future awards. In addition, shares of common stock that are tendered to the Company by a participant to exercise an award are added to the number of shares of common stock available for the grant of awards.

As of September 30, 2021, there are an aggregate of approximately 725,000 shares of common stock available for future issuance under the Company’s equity incentive plans. Approximately 200,000 shares of common stock remain available for issuance under the 2017 ESPP.

Stock Option Valuation— The following table presents, on a weighted average basis, the assumptions used in the Black-Scholes option-pricing model to determine the grant-date fair value of stock options granted to employees, directors and non-employees.
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Risk-free interest rate1.1 %0.4 %1.0 %0.6 %
Expected term (in years)6.16.16.06.0
Expected volatility95.7 %95.1 %97.6 %94.9 %
Expected dividend yield0 %0 %0 %0 %
22

X4 PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Stock Options
The following table summarizes the Company’s stock option activity for the nine months ended September 30, 2021:
Number of
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Contractual
Term (Years)
Aggregate
Intrinsic
Value (in thousands)
Outstanding as of December 31, 20201,874,514 $12.94 8.3$7 
Granted336,750 6.98 
Exercised(5,860)7.08 
Forfeited and Expired(252,513)15.21 
Outstanding as of September 30, 20211,952,891 $11.64 7.9$9 
Exercisable as of September 30, 2021919,423 $15.45 6.7$ 
Vested and expected to vest as of September 30, 20211,702,001 $11.92 7.8$5 
 
The aggregate intrinsic value of stock options exercised during the nine months ended September 30, 2021 and 2020 was $13 thousand and $43 thousand, respectively. The weighted average grant-date fair value per share of stock options granted during the nine months ended September 30, 2021 and 2020 was $5.39 and $6.93, respectively.

Restricted Stock Units— The following table summarizes the Company's restricted stock unit activity for the nine months ended September 30, 2021:
Number of
Shares
Unvested as of December 31, 2020572,460 
Granted649,478 
Vested(205,185)
Forfeited(109,880)
Unvested as of September 30, 2021906,873 
During the nine months ended September 30, 2021, the Company granted time-based restricted stock units to employees. These restricted stock units vest annually over three years. In 2020, the Company granted performance-based restricted stock units, which vest in part based on the Company’s achievement of operational milestones and over time thereafter for the subsequent two years as the grantee continues to provide services to the Company. As of September 30, 2021, all performance criteria had been met. Stock-based compensation expense is being recognized for these performance-based awards using the accelerated attribution model based on the fair value of the awards as of the date of grant and the vesting dates, less estimated forfeitures.
Stock-Based Compensation— As of September 30, 2021, total unrecognized compensation expense related to unvested stock options and restricted stock units was $8.6 million, which is expected to be recognized over a weighted average period of 2.3 years.
Stock-based compensation expense was classified in the condensed consolidated statements of operations as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Research and development expense$633 $1,006 $2,008 $1,711 
General and administrative expense883 1,238 2,563 2,319 
Total stock-based compensation$1,516 $2,244 4,571 4,030 


23

X4 PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
13.    INCOME TAXES
The Company did not record a federal or state income tax benefit for its losses for the nine months ended September 30, 2021 and 2020, due to the conclusion that a full valuation allowance is required against the Company’s U.S. federal and state deferred tax assets. For the nine months ended September 30, 2021 and 2020, the Company recorded an income tax provision of $14 thousand and $