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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, 2022
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 31, 2022, the registrant had 69,235,074 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 in patients with chronic neutropenic disorders;
the initiation, timing, design, progress and results of our current and future preclinical studies and clinical trials of any of our other product candidates or our research and development programs that we pursue;
the impact of the ongoing COVID-19 pandemic on our business, operations, strategy, goals and anticipated timelines;
the diversion of healthcare resources away from the conduct of clinical trials as a result of the ongoing COVID-19 pandemic and its variants, 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, including clinical utility, 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 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 and the development of and projections relating to our competitors or our industry;
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 plans to in-license, acquire, develop and commercialize additional product candidates;
the impact of laws and regulations;
our plans to identify additional product candidates with significant commercial potential that are consistent with our commercial objectives;
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 for the treatment of chronic neutropenia disorders, including WHIM syndrome, and, contingent on future strategic partnerships, for the treatment of Waldenström’s and 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 for any indication.
We may develop mavorixafor, and potentially future product candidates, in combination with other therapies, which could expose 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.
If the commercial opportunity for mavorixafor in chronic neutropenia disorders, including WHIM syndrome, is smaller than we anticipate, 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 minimal 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 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 research.
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, 2022December 31, 2021
Assets
Current assets:
Cash and cash equivalents$79,855 $81,787 
Research and development incentive receivable909 747 
Prepaid expenses and other current assets4,954 5,344 
Total current assets85,718 87,878 
Property and equipment, net 1,194 1,514 
Goodwill17,351 17,351 
Right-of-use assets7,606 8,710 
Other assets1,537 1,723 
Total assets$113,406 $117,176 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable$3,800 $4,283 
Accrued expenses9,128 7,870 
Current portion of lease liability1,164 1,075 
Current portion of long-term debt14,621 795 
Total current liabilities28,713 14,023 
Long-term debt, net of discount and current portion18,733 33,139 
Lease liabilities3,799 4,776 
Other liabilities312 826 
Total liabilities51,557 52,764 
Commitments and contingencies (Note 9)
Stockholders’ equity:
Common stock, $0.001 par value, 500,000,000 and 125,000,000 shares authorized as of September 30, 2022 and December 31, 2021, respectively; 68,734,553 and 28,127,657 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively
69 28 
Additional paid-in capital409,533 347,374 
Accumulated other comprehensive loss(119)(119)
Accumulated deficit(347,634)(282,871)
Total stockholders’ equity61,849 64,412 
Total liabilities and stockholders’ equity
$113,406 $117,176 




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,
2022202120222021
Operating expenses:
Research and development$14,110 $13,188 42,044 38,485 
Selling, general and administrative6,044 5,931 20,457 17,567 
Gain on sale of non-financial asset  (509) 
Total operating expenses20,154 19,119 61,992 56,052 
Loss from operations(20,154)(19,119)(61,992)(56,052)
Other expense, net:
Interest income14 2 21 7 
Interest expense(1,018)(920)(2,849)(2,717)
Change in fair value of derivative liability (62)511 (36)
Other (expense) income, net(441)(74)(440)323 
Total other expense, net(1,445)(1,054)(2,757)(2,423)
Loss before provision for income taxes(21,599)(20,173)(64,749)(58,475)
Provision for income taxes(13)2 14 14 
Net loss and comprehensive loss(21,586)(20,175)(64,763)(58,489)
Deemed dividend on Class B Warrant price reset(287) (2,546)(8,239)
Net loss attributable to common stockholders$(21,873)$(20,175)$(67,309)$(66,728)
Net loss per share attributable to common stockholders—basic and diluted
$(0.26)$(0.76)$(1.32)$(2.71)
Weighted average shares of common stock outstanding—basic and diluted
83,211 26,609 50,976 24,667 









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, 202128,127,657 $28 $347,374 $(119)$(282,871)$64,412 
Issuance of common stock and prefunded warrants for the purchase of common stock, net of issuance costs of $1742,512,902 3 5,817 5,820 
Vesting of restricted stock units, less shares withheld and retired to satisfy tax obligations168,817 (12)(12)
Exercise of warrants100
Stock-based compensation expense1,459 1,459 
Net loss(21,965)(21,965)
Balance at March 31, 202230,809,476 31 354,638 (119)(304,836)49,714 
Issuance of shares of common stock under employee stock purchase plan72,727 49 49 
Vesting of restricted stock units108,995   
Stock-based compensation expense1,522 1,522 
Net loss(21,212)(21,212)
Balance at June 30, 202230,991,198 31 356,209 (119)(326,048)30,073 
Issuance of common stock and prefunded warrants for the purchase of common stock, net of issuance costs of $1,00437,649,086 38 13,459 13,497 
Vesting of restricted stock units94,269  
Reclassification of warrant liability to equity (Note 10)38,754 38,754 
Stock-based compensation expense1,111 1,111 
Net loss(21,586)(21,586)
Balance at September 30, 202268,734,553 $69 $409,533 $(119)$(347,634)$61,849 




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
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,
20222021
Cash flows from operating activities:
Net loss$(64,763)$(58,489)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense4,092 4,571 
Depreciation and amortization expense389 367 
Non-cash lease expense1,104 1,031 
Accretion of debt discount653 557 
Other255 283 
Changes in operating assets and liabilities:
Prepaid expenses, other current assets and research and development incentive receivable158 (14)
Accounts payable(481)(695)
Accrued expenses1,305 1,069 
Lease liabilities(721)(473)
Operating lease right-of-use asset, net of non-cash portion (59)
Net cash used in operating activities(58,009)(51,852)
Cash flows from investing activities:
Acquisition of property, equipment and intangible assets(69)(602)
Net cash used in investing activities(69)(602)
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 plan70 157 
Employee taxes paid related to net share settlement of vested restricted stock units(12) 
Issuance costs related to sale of warrants and fees paid for amendments to loan and security agreement(3,300) 
Repayments of borrowings under loan and security agreement(795) 
Proceeds from sale of shares of common stock, redeemable common stock, warrants and pre-funded warrants, net of issuance costs60,623 51,518 
Settlement and retirement of redeemable common stock (2,000)
Net cash provided by financing activities56,586 49,675 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(468)(203)
Net decrease in cash, cash equivalents and restricted cash(1,960)(2,982)
Cash, cash equivalents and restricted cash at beginning of period83,108 80,702 
Cash, cash equivalents and restricted cash at end of period$81,148 $77,720 
Supplemental disclosure of non-cash investing and financing activities:
Acquisition of right-of-use asset financed by lease liabilities$ $1,343 
Issuance costs not yet paid related to sale of shares of common stock, redeemable common stock and pre-funded warrants$22 $ 




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 diseases of the immune system, with a focus on rare diseases and those with limited treatment options. The Company’s lead product candidate, mavorixafor, a first-in-class, small molecule antagonist of chemokine receptor CXCR4 being developed as a once-daily oral therapy, is currently being evaluated in a Phase 3 clinical trial for the treatment of Warts, Hypogammaglobulinemia, Infections, and Myelokathexis (“WHIM”) syndrome, a rare, inherited, primary immunodeficiency disease typically caused by genetic mutations in the CXCR4 receptor gene. The Company continues to expect to report results from this trial in the fourth quarter of 2022. The Company is also conducting a proof-of-concept Phase 1b clinical trial of mavorixafor in patients with chronic neutropenic disorders, and a Phase 1b clinical trial of mavorixafor in combination with ibrutinib in patients with Waldenström’s macroglobulinemia (“Waldenström’s”), a rare form of lymphoma. The Company reported positive results from these Phase 1b trials in the third quarter of 2022. The Phase 1b clinical trial in chronic neutropenic disorders is currently being amended to extend and expand the trial. The Phase 1b clinical trial in Waldenström’s is expected to conclude in December 2022; further studies of mavorixafor in this and other oncology indications will be subject to completing a strategic partnership. The Company is headquartered in Boston, Massachusetts and has a research facility in Vienna, Austria.
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, 2022, the Company had $79.9 million of cash and cash equivalents. Based on its current operating plan, the Company believes that its cash on hand will be sufficient to fund its operating expense and capital expenditure requirements into the third quarter of 2023. 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. Based on its current financial projections and assuming the Company does not meet certain operational and financial milestones that would reduce the minimum cash required by this covenant, the Company believes it would be in violation of the covenant in the second quarter of 2023. If the Company is in violation of this covenant, Hercules could require the repayment of all of the Company’s outstanding debt under the Hercules loan facility.

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 the second quarter of 2023, the Company will need to raise additional funding, whether 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 and if 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— Beginning in late 2019 and continuing into 2022, the outbreak of COVID-19 has resulted in the declaration of a global pandemic and adversely affected economic activity across virtually all sectors and industries on a local, national and global scale. 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. While global vaccination efforts are underway and certain jurisdictions, including Massachusetts, where the Company is headquartered, have reopened businesses and governmental agencies, there remain limitations on the physical operations of businesses and prohibitions on certain non-essential gatherings, and the Company is unable to accurately predict the full impact that the COVID-19 pandemic will have due to numerous uncertainties, including the duration of the outbreak, the result of vaccination efforts, resurgence of the virus, actions that may be taken by governmental authorities, the impact on the Company’s business including its clinical programs and timelines, and the impact to the business of its service providers and partners.

12

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



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, 2021 filed with the Securities and Exchange Commission (“SEC”) on March 17, 2022 (the “2021 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 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 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, 2021 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, 2021 included in the 2021 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, 2022 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2022.

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
13

X4 PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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, 2022 and December 31, 2021.
Restricted Cash
(in thousands)As of September 30, 2022As of December 31, 2021
Letter of credit security: Waltham lease250 250 
Letter of credit security: Vienna Austria lease187 216 
Letter of credit security: Boston lease856 855 
Restricted cash included in other assets$1,293 $1,321 
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, 2022 and December 31, 2021:
 
(in thousands)September 30, 2022December 31, 2021
Cash and cash equivalents$79,855 $81,787 
Restricted cash, non-current1,293 1,321 
Total cash, cash equivalents and restricted cash$81,148 $83,108 
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, 2022 that necessitated an interim impairment test of goodwill.

Recently Adopted Accounting Standards
In May 2021, the Financial Accounting Standards Board (“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
14

X4 PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(such as warrants for the purchase of common shares) that remain classified as equity following the modification or exchange. ASU 2021-04 was effective January 1, 2022 for the Company. The adoption of this standard did not have an impact on the Company’s consolidated financial statements.

Recently Issued Accounting Standards Not Yet Adopted
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, 2022, the amount due under the program is $0.9 million, which amount is included in research and development incentive receivable in the condensed consolidated balance sheet. During the nine months ended September 30, 2022 and 2021, the Company recorded $0.4 million and $0.7 million, respectively, of income related to the program within the condensed consolidated statements of operations as other income.

License and Collaboration Agreements
During the nine months ended September 30, 2022, a third party, who had previously acquired rights to certain intellectual property from the Company, terminated the arrangement and transferred these rights back to the Company. Also during the nine months ended September 30, 2022, the Company transferred these rights to another third party in return for $0.5 million. The Company has no continuing involvement in any ongoing research and development activities associated with the intellectual property. The Company concluded that these third parties are "non-customers" as the underlying intellectual property transferred to and from these third parties supports potential drug candidates that are not aligned with the Company's strategic focus and, therefore, are not an output of the Company's ordinary activities. Accordingly, the Company accounted for the sale of the intellectual property as the sale of a non-financial asset under ASC Topic 610-20, Gains and Losses from the Derecognition of Nonfinancial Assets ("ASC 610-20"), and included the gain in gain on sale of non-financial asset for the nine months ended September 30, 2022.

There were no material modifications of the Company’s license or collaboration agreements during the nine months ended September 30, 2022.







15

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

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, 2022 Using:
(in thousands)Level 1Level 2Level 3Total
Assets:
Cash equivalents—money market funds$ $2,516 $ $2,516 
$ $2,516 $ $2,516 
Liabilities: 
Embedded derivative liability$ $ $310 $310 
$ $ $310 $310 
Fair Value Measurements as of December 31, 2021 Using:
(in thousands)Level 1Level 2Level 3Total
Assets:
Cash equivalents—money market funds$20,000 $27,793 $ $47,793 
$20,000 $27,793 $ $47,793 
Liabilities:
Embedded derivative liability$ $ $821 $821 
$ $ $821 $821 

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 LiabilityWarrant LiabilityTotal
Balance as of December 31, 2021$821 $ $821 
Issuance of warrants (see Note 10)— 41,249 41,249 
Change in fair value(511)(2,495)(3,006)
Reclassification of warrant liability to permanent equity— (38,754)(38,754)
Balance as of September 30, 2022$310 $ $310 

Embedded Derivative Liability The fair value of the embedded derivative liability recognized in connection with the Company’s loan agreement with Hercules (see 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%.

Warrant Liability As discussed in Note 10, on July 6, 2022, the Company issued common stock, pre-funded warrants and warrants for the purchase of its common stock in a private placement transaction. The warrants have an exercise price of $1.095 per share and expire five years from the original issuance date. As of July 6, 2022, due to the shortfall in authorized and
16

X4 PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
available common shares, the warrants did not meet the criteria required for permanent equity accounting. As a result, the Company allocated a portion of the offering proceeds to a warrant liability at its fair value. The fair value was calculated using the Black-Scholes option valuation model using significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. These assumptions are shown in the table below. On September 1, 2022, the Company’s shareholders approved an increase in the Company’s authorized shares. Upon shareholder approval of the increase to the Company’s authorized shares, the warrants met all criteria required for permanent equity accounting and, accordingly, the Company remeasured the fair value of the warrants through earnings, including within other expense, net, and reclassified the fair value of the liability to additional paid-in capital.

July 6, 2022September 1, 2022
Risk-free interest rate2.96 %3.29 %
Expected term (in years)5.0 years4.9 years
Expected volatility97.3 %97.5 %
Expected dividend yield % %
Fair value of warrant liability$41,249 $38,754 




5.    PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following:
(in thousands)September 30, 2022December 31, 2021
Leasehold improvements$228 $228 
Furniture and fixtures1,268 1,251 
Computer equipment173 150 
Software24 33 
Lab equipment605 576 
2,298 2,238 
Less: Accumulated depreciation and amortization(1,104)(724)
$1,194 $1,514 
Depreciation and amortization expense related to property and equipment was $389 thousand and $367 thousand for the nine months ended September 30, 2022 and 2021, respectively.


6.    ACCRUED EXPENSES

Accrued expenses consisted of the following:
(in thousands)September 30,
2022
December 31,
2021
Accrued employee compensation and benefits$4,388 5,417 
Accrued external research and development expenses3,611 1,507 
Accrued professional fees779 632 
Accrued issuance costs for private placement equity offering (Note 10)22  
Other328 314 
$9,128 $7,870 
17

X4 PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7.    LONG-TERM DEBT
Long-term debt consisted of the following:
(in thousands)September 30,
2022
December 31,
2021
Principal amount of long-term debt$32,500 $32,500 
Debt (discount) premium, net of accretion(221)277 
Cumulative accretion of end of term payments1,075 1,157 
Long-term debt$33,354 $33,934 
Less: current portion$(14,621)$(795)
Long-term debt, net of current portion$18,733 $33,139 
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 2018, June 2019, March 2020, December 2020, February 2022 and June 2022, 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, 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 $17.5 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)  The Wall Street Journal prime rate plus 3.75%. 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 1.0% of the principal amount outstanding as of the date of repayment. In addition, the Hercules Loan Agreement provides for payments of $1.3 million and $0.8 million payable on July 1, 2023 and July 1, 2024, respectively, which payments are accelerated upon the prepayment of the borrowings upon the Company’s election or 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 its intellectual property (but including rights to payment and proceeds from the sale, licensing or disposition of the intellectual property).

On February 9, 2022, the Company entered into Amendment No. 3 of the Hercules Loan Agreement (“Amendment 3”). Amendment 3 primarily added a financial milestone that if met by June 30, 2022, modifies the minimum cash covenant contained in the Hercules Loan Agreement effective beginning September 1, 2022, as further described below. The Company achieved this financial milestone. The Company concluded that Amendment 3 represented a modification to the debt as opposed to an extinguishment. Accordingly, fees paid to third parties directly related to the amended debt were expensed as incurred and fees paid to Hercules in conjunction with the amendment were deferred and are being amortized to interest expense over the life of the debt arrangement using the effective interest method.

On June 30, 2022, the Company entered into Amendment No. 4 of the Hercules Loan Agreement (“Amendment 4”). Amendment 4 primarily added two additional milestones that if met will extend the interest-only period of the debt under the Hercules facility. To achieve the first interest-only extension milestone, which would extend the interest-only period from February 1, 2023 to August 1, 2023, the Company must raise $50.0 million in external financing and achieve Performance Milestone III, as defined in the Hercules Loan Agreement. Performance Milestone III includes, assuming no other events of default, (a) the Company’s Phase 3 trial for the treatment of WHIM having achieved its protocol-specified primary efficacy endpoint with statistical significance, an acceptable safety profile, and supporting efficacy data, such that the totality of safety and efficacy data are sufficient to file a New Drug Application (“NDA”) as the immediate next step in clinical development and (b) the Company has proceeded towards filing such NDA. The Company has achieved the external financing portion of this milestone effective June 30, 2022 and has not yet achieved Performance Milestone III. To achieve the second interest-only extension milestone, which would further extend the interest-only period of the debt to February 1, 2024, the Company must raise an additional $25.0 million in external financing and file an NDA for mavorixafor for the treatment of WHIM syndrome. The Company has concluded that Amendment 4 represents a modification to the debt as opposed to a debt extinguishment. Accordingly, fees paid to third parties directly related to the amended debt were expensed as incurred and fees paid to Hercules
18

X4 PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
in conjunction with the amendment were deferred and are being amortized to interest expense over the life of the debt arrangement using the effective interest method.

Pursuant to the Hercules Loan Agreement, effective as of September 1, 2022, the Company must maintain cash in an account or accounts in which Hercules has a first priority security interest, in an aggregate amount greater than $30.0 million. Following the achievement of Performance Milestone III, as defined in the Hercules Loan Agreement, the required level shall be reduced to $20.0 million; and provided further, that subject to the Company’s filing of a NDA for mavorixafor for the treatment of WHIM syndrome, 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:
(in thousands)Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Total interest expense$1,018 $920 $2,845 $2,716 
Non-cash interest expense$256 $193 $653 $557 
The annual effective interest rate of the Hercules Loan Agreement as of September 30, 2022 is 12.9%. There were no principal payments due or paid under the Hercules Loan Agreement during the nine months ended September 30, 2022. An end-of-term payment of $0.8 million was paid during the nine months ended September 30, 2022 in accordance with the Hercules Loan Agreement.
As of September 30, 2022, future principal and accrued end-of-term payments due under the Hercules Loan Agreement were as follows (in thousands):
Year Ending December 31,Total
2022$ 
202320,050 
202413,525 
Long-term debt$33,575 

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 has an operating lease for approximately 1,200 square meters of laboratory and office space in Vienna, Austria (“Vienna Lease”), which commenced in February 2021 for a term of 7 years. The annual base rent for the Vienna Lease 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
19

X4 PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Company is required to maintain a security deposit in the form of a letter of credit for $0.9 million for the benefit of the landlord.
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 $0.3 million 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, 2022 and 2021 were as follows:
(dollars in thousands)Three Months Ended September 30,Nine Months Ended September 30,
Lease Cost2022202120222021
Fixed operating lease cost$507$537 $1,561 $1,554 
Short-term lease costs  42 
Total lease expense$507$537 $1,561 $1,596 
Other information
Right-of-use asset obtained in exchange for operating lease liabilities$ $ $ $1,343 
Operating cash flows from operating leases$334 $314 $1,014 $917 
Sublease income$49 $49 $147 $147 
Weighted-average remaining lease term—operating leases4.2 years
Weighted-average discount rate—operating leases11.3 %


Maturities of lease liabilities due under lease agreements that have commenced as of September 30, 2022 are as follows (in thousands)
Maturity of lease liabilitiesOperating
Leases
2022 (remainder of the year)$391 
20231,585 
20241,350 
20251,378 
20261,308 
Thereafter299 
Total lease payments6,311 
Less: interest(1,348)
Total operating lease liabilities as of September 30, 2022$4,963 




20

X4 PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 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.
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, 2022 or December 31, 2021.
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.

10.    COMMON STOCK AND COMMON STOCK WARRANTS
As of December 31, 2021, the Company’s Restated Certificate of Incorporation authorized the Company to issue 125 million shares of common stock, par value $0.001 per share. On September 1, 2022, the Company’s shareholders approved an increase in the Company’s authorized shares to 500 million. 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.

Q2 2022 Private Placement
On June 30, 2022, the Company entered into a securities purchase agreement with several institutional and accredited investors (the “Investors”) pursuant to which the Company agreed to issue to the Investors in a private placement (the “Q2 2022 PIPE”) an aggregate of 37,649,086 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 13,276,279 shares of common stock at a price of $1.095 per share of common stock (or $1.094 per Pre-Funded Warrant) and 50,925,365 warrants (the “Warrants”) for the purchase of shares of common stock. The price per Pre-Funded Warrant represents the price of $1.095 per share sold in the Q2 2022 PIPE, minus the $0.001 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 Q2 2022 PIPE closed on July 6, 2022. The Company received gross proceeds of $55.7 million, before deducting offering expenses paid by the Company.

Each Warrant has an exercise price equal to $1.095 per share. The Warrants will expire on the date that is 60 months from their original issue date. The exercise of any Warrant was conditioned upon the Company increasing its authorized shares. The Company convened a special meeting of its stockholders on September 1, 2022, during which the stockholders approved an increase in the number of authorized shares of common stock from 125 million to 500 million pursuant to an amendment to the Company’s Certificate of Incorporation. As of July 6, 2022, due to the shortfall in authorized and available common shares, the Warrants did not meet the criteria required for permanent equity accounting. As a result, the Company allocated $41.2 million of the gross proceeds from the offering to the fair value of the Warrants, which was recorded as a warrant liability, and the remaining $13.5 million was allocated to the common shares and Pre-Funded Warrants and recorded as permanent equity. The
21

X4 PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
fair value of the warrant liability was calculated using the Black-Scholes option valuation model. The Company also allocated a portion of the transaction fees, including commissions and legal fees, to the warrant liability and expensed within other expense, net, approximately $2.9 million of these fees upon the closing of the Q2 2022 PIPE. Upon shareholder approval of the increase to the Company’s authorized shares, the Warrants met all criteria required for permanent equity accounting and, accordingly, the Company remeasured the fair value of the warrant liability through earnings, which resulted in approximately $2.5 million of income included within other expense, net, and reclassified the fair value of the warrant liability to additional paid-in capital.

Also on June 30, 2022, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with the Investors, pursuant to which the Company agreed to register for resale the common shares issued in the Q2 2022 PIPE and the issuance of the shares of common stock underlying the Pre-Funded Warrants and the Warrants held by the Investors. Such registration statement was filed on July 29, 2022 and was declared effective by the SEC on August 5, 2022.

Q1 2022 Private Placement
On March 3, 2022, the Company entered into a securities purchase agreement pursuant to which it agreed to issue and sell to an investor (the “Investor”), in a private placement (the “Q1 2022 PIPE”), 900,000 shares of common stock at a price of $1.80 per share, which represents the volume weighted average price per share of the Company’s common stock as quoted on the Nasdaq Stock Market for the thirty (30) consecutive-day trading day period ending on March 2, 2022, and pre-funded warrants to purchase 766,666 shares of common stock at a purchase price of $1.79 per pre-funded warrant (representing the price of $1.80 per share minus the $0.01 per share exercise price of each such prefunded warrant). The pre-funded warrants are exercisable at any time after their original issuance date and will have no expiration date. The Q1 2022 PIPE closed on March 7, 2022 and the Company received gross proceeds of $3.0 million, before deducting offering expenses payable by the Company.

Also, on March 3, 2022, the Company entered into a registration rights agreement with the Investor, pursuant to which the Company filed a registration statement covering the resale of these securities in April 2022.
Class B Warrants
In connection with its issuance of common stock in a public offering that closed on November 29, 2019, the Company issued 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 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. The exercise price of the Class B warrants was adjusted to $1.80 on March 3, 2022 as a result of the Q1 2022 PIPE and was further adjusted to $1.50 on July 6, 2022 as a result of the Q2 2022 PIPE.
Prefunded Warrants
In connection with previous equity offerings, the Company has issued pre-funded warrants, which are exercisable into one share of the Company's common stock, are immediately exercisable upon issuance, and for which the remaining exercise price is equal to or less than $0.01 per share.

The following table provides a roll forward of outstanding warrants for the nine month period ended September 30, 2022:
Number of warrantsWeighted Average Exercise PriceWeighted Average Contractual Term (Years)
Outstanding and exercisable warrants to purchase common shares as of December 31, 202113,257,160 $7.962.72
Issued64,968,310 $1.10
Exercised(100)
Outstanding and exercisable warrants to purchase common shares as of September 30, 202278,225,370 $2.124.32
22

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

As of September 30, 2022, 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, 20195,416,567 $1.50 November 28, 2024
November 29, 20191,750,000 $12.00 (a)n/a
March 23, 202150,000 $8.70 (b)n/a
November 9, 20212,008,032 $4.98 (c)n/a
March 3, 2022766,666 $1.80 (d)n/a
July 6, 202213,276,279 $1.094 (e)n/a
July 6, 202250,925,365 $1.095 July 6, 2027
78,225,370 
(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.

(c) In November 2021, the Company received $4.97 per pre-funded warrant, or $10.0 million in aggregate proceeds. Each pre-funded warrant may be exercised for an additional $0.01 per pre-funded warrant.

(d) In March 2022, the Company received $1.79 per pre-funded warrant, or $1.4 million in aggregate proceeds. Each pre-funded warrant may be exercised for an additional $0.01 per pre-funded warrant.

(e) In July 2022, the Company received $1.094 per pre-funded warrant, or $14.5 million in aggregate proceeds. Each pre-funded warrant may be exercised for an additional $0.001 per pre-funded warrant.

11.    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
23

X4 PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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, 2022, there are an aggregate of approximately 1.2 million shares of common stock available for issuance under the Company’s equity incentive plans. Approximately 196,000 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,
2022202120222021
Risk-free interest rate3.3 %1.1 %2.4 %1.0 %
Expected term (in years)6.16.16.1