Xencor reports financial restatements, cites errors

Xencor Inc (NASDAQ:XNCR), a biopharmaceutical company with a market capitalization of $1.14 billion, disclosed on Thursday that it will restate its financial statements for the fiscal year ended December 31, 2023, and for subsequent quarterly periods through September 30, 2024.

According to InvestingPro data, the company currently trades near its 52-week low of $15.31, with the stock down over 29% year-to-date. The decision, which was made by the Audit Committee in consultation with management and the company’s independent registered public accounting firm, RSM US LLP, is due to identified errors in accounting for a royalty transaction and tax misstatements.

The Pasadena, California-based company, which specializes in pharmaceutical preparations, recognized that a royalty transaction with OMERS Life Sciences should have been accounted for as debt rather than deferred income.

This error resulted in an understatement of accounts receivable by $12.4 million and an overstatement of deferred income by $156.9 million for the year ended December 31, 2023. Consequently, debt was understated by $168.5 million, and shareholders’ equity was understated by $0.8 million.

Additionally, revenue and interest expense for the same period were understated by $6.3 million and $5.5 million, respectively. Operating activities cash flow was overstated by $163.0 million, while financing activities cash flow was understated by the same amount. Xencor also identified a material weakness in its internal control over financial reporting related to the royalty transaction.

Furthermore, the company discovered a misstatement in its treatment of research and development expenses under Section 174 of the Internal Revenue Code, leading to an undercapitalization for tax purposes and an uncertain tax position estimated at $5.6 million for the year ended December 31, 2023. An underestimation of state income tax expense by approximately $2.2 million, net of the federal benefit, was also identified.

These financial errors will not impact Xencor’s reported cash, cash equivalents, and marketable debt securities. This is particularly significant as InvestingPro analysis shows the company maintains strong liquidity with a current ratio of 6.23, and holds more cash than debt on its balance sheet.

However, the company is reviewing further changes to previously reported amounts or control findings. The restatement is not expected to materially affect Xencor’s future business or operations, and the company intends to file the necessary amendments before submitting its Annual Report for the fiscal year ended December 31, 2024.

While the company faces near-term challenges, including a 41.37% revenue decline in the last twelve months, investors should note that InvestingPro subscribers have access to 12 additional key insights about Xencor’s financial health and future prospects, with the next earnings report scheduled for March 3, 2025. A comprehensive Pro Research Report is available for deeper analysis of this and 1,400+ other US stocks.

Xencor has communicated these issues with RSM, which has recalled its reports on the company’s internal control over financial reporting and the financial statements for the affected periods. The information is based on a press release statement.

In other recent news, Xencor has seen a flurry of activity with several significant developments.

The biopharmaceutical company received an upgrade from Piper Sandler from Neutral to Overweight, a move influenced by the expansion of Xencor’s XmAb technology into autoimmune disease treatment. In addition, the price target for the company was raised to $30.00 from the previous $20.00.

Notably, Xencor is set to release initial Phase I healthy volunteer data on XmAb942 (TL1A) and will also commence a Phase Ib/IIa study of plamatomab (CD20xCD3) in rheumatoid arthritis in the first half of 2025. The company is also planning a Phase I study of XmAb657 (CD19xCD3) for the second half of the same year.

Furthermore, the company anticipates Phase II data for vudalimab as a monotherapy and in combination with chemotherapy in metastatic castration-resistant prostate cancer (mCRPC), as well as Phase Ib/II data comparing vudalimab to Keytruda in first-line non-small cell lung cancer (NSCLC) in the first half of 2025. Phase I data on XmAb819 (ENPP3xCD3) in kidney cancer, and XmAb808 (B7-H3xCD28) in solid tumors are also expected in the first half of the year.

In collaboration, Amgen (NASDAQ:AMGN) is initiating a Phase III mCRPC study of xaluritamig (STEAP1xCD3), and Johnson & Johnson is conducting Phase I studies of two CD28 bispecific antibodies. Xencor’s financial health remains robust, with a reported cash reserve of $754 million as of the third quarter of 2024, expected to fund its operations into 2028.

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