ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and the other financial information included elsewhere in this Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Annual Report, our actual results could differ materially from the results described in or implied by these forward-looking statements.

For the discussion of the financial condition and results of operations for the year ended December 31, 2020 compared to the year ended December 31, 2019, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to our Annual Report on Form 10-K filed with the SEC on March 19, 2021.

Overview

We are a late-stage clinical biopharmaceutical company focused on the research, development and commercialization of novel therapeutics for the treatment of rare diseases, with an initial focus on people with immune system dysfunction. Our lead product candidate, mavorixafor, is a first-in-class, small molecule inhibitor of the chemokine receptor CXCR4 and is being developed as a once-daily oral therapy. Due to mavorixafor’s demonstrated ability to antagonize CXCR4 and improve the healthy maturation and trafficking of white blood cells, we believe that mavorixafor has the potential to provide therapeutic benefit across a wide variety of diseases, including primary immunodeficiencies (“PIDs”) and certain types of cancer.

We are currently studying the safety and efficacy of mavorixafor in a global Phase 3 clinical trial of mavorixafor for the treatment of patients with Warts, Hypogammaglobulinemia, Infections, and Myelokathexis (“WHIM”) syndrome, a rare, inherited PID, caused by genetic mutations in the CXCR4 receptor gene. We are also conducting a Phase 1b clinical trial of mavorixafor in people with a range of chronic neutropenia disorders, both with and without CXCR4 mutations, and a Phase 1b clinical trial of mavorixafor in combination with the Bruton tyrosine kinase inhibitor (“BTKi”) ibrutinib in people with Waldenström’s macroglobulinemia (“Waldenström’s”), a rare B-cell lymphoproliferative disorder, and confirmed mutations to both the CXCR4 and MYD88 genes.

We completed enrollment our global Phase 3 clinical trial of mavorixafor, which we refer to as the 4WHIM trial, in the third quarter of 2021, with 31 patients enrolled and currently expect to report top-line data from the trial in the fourth quarter of 2022.

The U.S. Food and Drug Administration (“FDA”) has granted certain special designations to mavorixafor, including Breakthrough Therapy Designation for the treatment of adults with WHIM syndrome, Fast Track Designation for adults with WHIM syndrome, and Rare Pediatric Designation for the treatment of people aged 12 to 18 with WHIM syndrome, which could result in accelerated review and approval by the agency. We have begun building our commercial team in anticipation of a possible New Drug Application (“NDA”) submission to the FDA in the second half of 2023, with the goal of obtaining approval for mavorixafor for the treatment of people in the United States, aged 12 and older with WHIM syndrome, should the final Phase 3 data support the filing of an NDA.

Following announcements of positive preliminary data from both of the ongoing Phase 1b clinical trials of mavorixafor during 2021, we are continuing patient enrollment in the trials. Additional data are expected from the Phase 1b clinical trial in chronic neutropenia by the third quarter of 2022 and from the Phase 1b clinical trial in Waldenström’s in the second half of 2022.

In addition to mavorixafor, we are advancing earlier-stage product candidates to further expand our pipeline. We have advanced a lead optimization program: X4P-003, a second-generation CXCR4 antagonist is designed to have an enhanced properties relative to mavorixafor, potentially enabling broader opportunities in CXCR4 disorders and primary immunodeficiencies. A second program is in lead optimization: X4P-002, a CXCR4 antagonist designed to cross the blood-brain barrier and provide appropriate therapeutic exposures to potentially treat brain cancers in combination therapy. We are also continuing to leverage our insights into CXCR4 biology and our research capabilities to identify other targets and develop additional product candidates. We anticipate that we will file an Investigational New Drug application with the FDA to begin clinical development of X4P-002 in the second half of 2022.

To date, we have not generated revenue from product sales and do not expect to generate significant revenue from the sale of our products in the foreseeable future. If our development efforts for our product candidates are successful and result in regulatory approval, we may generate revenue in the future from product sales. We cannot predict if, when, or to what extent we will generate revenue from the commercialization and sale of our product candidates. We may never succeed in obtaining regulatory approval for any of our product candidates.

Our Pipeline

X4 Pharmaceuticals, Data on File 1. Phase 2 open label trial extension (OLE) trial for WHIM ongoing 2. Company market research. Qessential market research, 2019 and IPM. ai artificial intelligence study, 20203. Estimate using Andersen et al. J Intern Med. 2016 Jun:279(6):566-75 4. WM Epidemiology Analysis Nemetz Group.

COVID-19 Business Update

In light of the continued COVID-19 pandemic, we have implemented business continuity measures designed to address and mitigate the impact of the COVID-19 pandemic on our employees, our business, including our clinical trials, supply chains and third-party providers. We continue to closely monitor the COVID-19 pandemic as we evolve our business continuity plans and response strategy. While we are currently operating under a “hybrid” model in which in-person attendance in the office is optional, we expect all employees who have been vaccinated back to the office in early 2022. While we are experiencing limited financial impacts at this time, given overall disruptions to the global economy, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the COVID-19 pandemic and continued uncertainty related to its abatement or the possible discovery of new variants of the SARS-CoV-2 virus, our business, financial condition, results of operations and growth prospects could be materially adversely affected.

Clinical Development

With respect to clinical development, we continue to implement risk-based approaches in accordance with FDA and European Medicines Agency (“EMA”) COVID-19 guidance, which includes virtual and remote patient visits and monitoring where possible, while prioritizing patient safety, maintaining trial continuity and preserving data integrity. We have experienced, and expect to continue to experience, a disruption or delay in our ability to initiate trial sites and/or enroll and assess patients in several of our clinical programs as a result of the ongoing COVID-19 pandemic, notwithstanding vaccination efforts. While not currently impacted, there could be an impact on our ability to supply study drug, report trial results, or interact with regulators, ethics committees or other important agencies due to limitations in regulatory authority employee resources or otherwise. In addition, we rely on contract research organizations (“CROs”) or other third parties to assist us with clinical trials, and we cannot guarantee that they will continue to perform their contractual duties in a timely and satisfactory manner as a result of the ongoing COVID-19 pandemic. If the COVID-19 pandemic continues and persists, we could experience further disruptions to our clinical development timelines, which would adversely affect our business, financial condition, results of operations and growth prospects.

Supply Chain

We continue to work closely with our third-party manufacturers, distributors and other partners to manage our supply chain activities and mitigate potential disruptions to our clinical supply as a result of the ongoing COVID-19 pandemic. We have business continuity plans in place and have manufacturing plans that will meet our global supply demands going forward. To best support our patients, we continue to work with our vendors to provide the option for direct-to-patient drug shipments from clinical sites. If the ongoing COVID-19 pandemic impacts essential distribution systems we could experience disruptions to our supply chain and operations, which could adversely impact our ability to carry out our clinical trials.

Regulatory Activities

We expect that we could experience delays in the timing of review and/or our interactions with the FDA or the European Commission (“EC”) due to, for example, inability to conduct planned physical inspections related to regulatory approval, or the diversion of efforts of the FDA or EC and attention to approval of other therapeutics or other activities related to COVID-19, which could delay approval decisions with respect to the preparation and submission to the FDA of a new drug application (“NDA”), or the preparation and submission to the EC of a Marketing Authorization Application (“MAA”), and otherwise delay or limit our ability to make planned regulatory submissions or obtain new product approvals.

Financial Impact

The ongoing COVID-19 pandemic continues to evolve and has already resulted in a significant disruption of global financial markets. If the disruption continues or future variants of COVID-19 emerge globally we could experience an inability to access additional capital, which could in the future negatively affect our operations.

Results of Operations

Comparison of the Years Ended December 31, 2021 and 2020

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

Year Ended December 31,

(in millions)

License revenue $ — $ 3.0 $ (3.0)

Operating expenses:

Impairment of goodwill 9.8 — 9.8

Total other expense, net (3.6) (2.1) (1.5)

Loss before provision for income taxes (88.7) (62.0) (26.7)

Provision for income taxes — 0.1 (0.1)

License Revenue

For the year ended December 31, 2020, we recorded $3.0 million in revenue related to our license agreement with Abbisko Therapeutics Co., Ltd., or Abbisko, due to the achievement of a financial milestone in March 2020. There was no similar revenue recorded in the year ended December 31, 2021. Pursuant to our license agreement with Abbisko, we are eligible to receive potential development and regulatory milestone payments, which vary based on the number of indications developed, and potential commercial milestone payments based on annual net sales of mavorixafor-based licensed products. The transaction price related to these development and regulatory milestones has been allocated to the delivery to Abbisko of the license to develop and commercialize mavorixafor, was satisfied at the inception of the arrangement in July 2019 and has been fully constrained. With respect to the remaining development and regulatory milestones, we will re-evaluate the constraint on the transaction price associated with these milestones in each reporting period and as uncertain events are resolved or other changes in circumstances

occur.

Research and Development Expenses

Research and development expenses consist primarily of costs incurred in connection with the discovery and development of our product candidates, including employee salaries and related expenses, expenses incurred in connection with the preclinical and clinical development of our product candidates, including under agreements with third parties, such as consultants and contract research organizations (“CROs”); the cost of manufacturing drug products for use in our preclinical studies and clinical trials, including under agreements with third parties, such as consultants and contract manufacturing organizations (“CMOs”); facilities, depreciation and other expenses, which include direct or allocated expenses for rent and maintenance of facilities and insurance; costs related to compliance with regulatory requirements; and payments made under third-party licensing agreements. We expense research and development costs as incurred.

Year EndedDecember 31,

(in millions)

Direct research and development expenses by product candidate:

Total research and development expenses $ 50.6 $ 41.9 $ 8.7

Research and development expenses were $50.6 million for the year ended December 31, 2021 (“2021”), as compared to $41.9 million for the year ended December 31, 2020 (“2020”), reflecting an increase of $8.7 million. The increase in research and development expenses in 2021 as compared to 2020 was primarily due to higher clinical trial expenses and third-party manufacturing costs related to mavorixafor to support our three ongoing clinical trials and increased consulting and professional services expenses related to these clinical trials. Research and development expenses also increased in 2021 due to an increase in unallocated expenses, primarily due to an increase in head count within our manufacturing, regulatory and clinical operations functions, resulting in higher compensation expenses, including stock-based compensation. In addition, unallocated research and development expense increased due to additional facility costs associated with our leased facilities, which are allocated to research and development departments based on respective head-count.

We expect that our research and development expenses, particularly for our mavorixafor programs, will increase over the next several years as we continue to conduct our WHIM4 trial and our Phase 1b clinical trials of mavorixafor in CN and Waldenström’s. Research and development expenses related to our X4P-002 and X4P-003 programs were not significant in 2021 relative to our overall research and development expenses.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation for personnel in executive, finance and administrative functions. General and administrative expenses also include direct and allocated facility-related costs, as well as professional fees for legal, patent, consulting, investor and public relations, accounting, and audit services.

General and administrative expenses were $24.7 million in 2021, as compared to $21.0 million in 2020, reflecting an increase of $3.7 million. The increase in general and administrative expenses in 2021 as compared to 2020 was primarily due to an increase in stock-based compensation costs, higher recruiting costs and an increase in facility costs. Our head-count in general and administrative functions was relatively consistent with the prior period. We expect general and administrative expenses will grow in the future as we continue to build out our selling, general and administrative functions.

Goodwill Impairment

Goodwill is tested quantitatively 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. During the fourth quarter of 2021, our market capitalization, measured as the price of our common stock multiplied by shares of common stock outstanding, dropped below the value of our net assets, including goodwill. As we have one reporting unit, we determine its fair value based on the market approach, taking into consideration the market value of the company as a whole and any control premium that might be realized upon the sale of the reporting unit. As a result of the sustained decline in the market price of our common stock, the fair value of our single reporting unit, measured based on our market capitalization as of December 31, 2021, was lower than its carrying value and we concluded that goodwill was impaired. Accordingly, we recorded an impairment charge of $9.8 million to reduce the carrying amount of goodwill to $17.4 million as of December 31, 2021. Should the market value of our common stock continue to decline, additional impairment charges may be recorded in future periods.

Other Expense, Net

Year EndedDecember 31,

(in millions)

Interest income $ — $ 0.3 $ (0.3)

Interest expense (3.6) (2.7) (0.9)

Loss on extinguishment of debt — (0.2) 0.2

Total other expense, net $ (3.6) $ (2.1) $ (1.5)

The increase in other expense, net, of $1.5 million for the year ended December 31, 2021 as compared to 2020 was primarily due to higher interest expense due to a higher average outstanding borrowings associated with our loan facility with Hercules Capital Inc. (“Hercules”) and a decline in interest income earned on our money market investments.

Income Taxes

For the year ended December 31, 2021, we recorded an immaterial income tax provision related to our Austrian subsidiary. For the year ended December 31, 2020, we recorded an income tax provision of $0.1 million related to local withholdings associated with a milestone payment received from a customer in a foreign jurisdiction. We do not expect to record a significant income tax benefit or expense for several years as we have significant net operating loss carryforwards that are fully reserved until such time as we begin to generate meaningful taxable income in our U.S. jurisdiction. We expect this will occur when and if we are able to commercialize our drug products in the future.

Liquidity and Capital Resources

To date, we have funded our operations primarily with proceeds from sales of common stock, warrants and prefunded

warrants for the purchase of our preferred stock and our common stock, sales of preferred stock, proceeds from the issuance of

convertible debt and borrowings under loan and security agreements. We have entered into a Controlled Equity OfferingSM Sales Agreement (“ATM Sales Agreement”), with B. Riley Securities, Inc., Cantor Fitzgerald & Co., and Stifel, Nicolaus & Company, Incorporated (collectively the “Sales Agents”), pursuant to which we may offer and sell, at our sole discretion through one or more of the Sales Agents, shares of our common stock having an aggregate offering price of up to $50.0 million. To date, we have sold approximately $15.0 million of our common stock, prior to issuance costs, under the ATM Sales Agreement.

In October 2020, we entered into a common stock purchase agreement, the (“Aspire Agreement”) with Aspire Capital LLC (“Aspire Capital”), pursuant to which Aspire Capital committed to purchase, at our request from time to time over a 36-month period, shares of our common stock having an aggregate offering price of up to $50.0 million, subject to certain limitations. In January 2022, we terminated the Aspire Agreement and entered into an agreement, (the“LPC Agreement”) on similar terms with Lincoln Park Capital Fund LLC (“Lincoln Park”), pursuant to which we have the right to sell to Lincoln Park shares of our

common stock, having an aggregate value of up to $50.0 million, subject to certain limitations and conditions , at our request during a 36-month period. The shares of common stock that we may sell under the LPC Agreement are capped at 5.6 million, which amount may be adjusted under certain conditions as defined in the LPC Agreement. In January 2022, we raised $3.0 million from the sale of shares of our common stock through the LPC Agreement.

In March 2021, we entered into a securities purchase agreement with several institutional and accredited investors (“Investors”) pursuant to which we issued and sold shares of common stock and, in lieu of common stock, pre-funded warrants to purchase shares of common stock for gross proceeds of $53.0 million, before offering expenses. We subsequently registered for resale the common stock and the issuance of the shares of common stock underlying the pre-funded warrants held by the Investors. In November 2021, we raised approximately $10.0 million through the sale of pre-funded warrants to an investor. We subsequently registered for resale the shares of common stock issuable upon exercise of the pre-funded warrants held by this investor.All of our outstanding prefunded warrants are currently exercisable for a nominal amount subject to a cap on the applicable investor’s beneficial ownership interest in our common stock of 9.99%.

To date we have borrowed $32.5 million through our loan facility with Hercules. Under this facility we may borrow an additional $17.5 million in term loans through December 2022 at the lender’s sole discretion. Principal payments under the loan facility with Hercules commence in February 2023, and the Hercules agreement matures in July 2024. The Hercules loan agreement contains a minimum cash covenant as described below.

Going Concern

Since our inception, we have incurred significant operating losses and negative cash flows from our operations. We have not yet commercialized any products and we do not expect to generate revenue from sales of any products for several years, if at all. As of December 31, 2021, our cash and cash equivalents were $81.8 million and our restricted cash balance was $1.3 million. We expect that our research and development and general and administrative expenses will continue to increase as we focus on completing the necessary development, obtaining regulatory approval and preparing for potential commercialization of our product candidates. Based on our current operating plan, we believe that our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements into the fourth quarter of 2022. We have a covenant under our loan facility with Hercules that requires that we maintain a minimum level of cash, as defined, beginning onSeptember 1, 2022. If we are in violation of this covenant, Hercules could require the repayment of all outstanding debt.

These conditions and events raise substantial doubt about our ability to continue as a going concern for the one-year period following the issuance of our consolidated financial statements for the year ended December 31, 2021. To finance our operations, we will need to raise additional capital, which cannot be assured. Unless and until we reach profitability in the future, we will require additional capital to fund our operations, which could be raised through a combination of equity offerings, debt financings, other third-party funding, marketing and distribution arrangements and other collaborations and strategic alliances. If we are unable to obtain funding, we could be forced to delay, reduce or eliminate some or all of our research and development programs, product portfolio expansion or commercialization efforts, which would adversely affect our business prospects, or we may be unable to continue operations.

Cash Flows

The following table summarizes our cash flow activities for each of the periods presented:

Year Ended December 31,

(in thousands)

Changes in operating assets and liabilities (1,498) (4,063)

Net cash used in operating activities (70,905) (58,818)

Net cash used in investing activities (615) (1,362)

Net cash provided by financing activities 74,245 12,394

Impact of foreign exchange on cash and restricted cash (319) 402

Cash, cash equivalents and restricted cash, beginning of period 80,702 128,086

Cash, cash equivalents and restricted cash, end of period $ 83,108 $ 80,702

Operating Activities: During the year ended December 31, 2021, net cash used in operating activities was $70.9 million, primarily resulting from our net losses of $88.7 million, adjusted for noncash expenses of $19.3 million and changes in our operating assets and liabilities of $1.5 million. Noncash expenses primarily includes a goodwill impairment of $9.8 million and stock-based compensation expense of $6.2 million. The change in operating assets and liabilities was primarily due to an increase in prepaid expenses due to the timing of payments related to our CROs and a reduction in lease liabilities due to monthly rent payments made during 2021; partially offset by an increase in accounts payable due to an increase in our operating expenses. Cash used in operating activities was higher for the year ended December 31, 2021 as compared to the prior year primarily due to higher net losses in the current year.

Investing Activities:During the year ended December 31, 2021, cash used in investing activities of $0.6 million, primarily related to furniture and laboratory equipment purchases related to leased facility in Vienna, Austria. During the year ended December 31, 2020, cash used in investing activities of $1.4 million, primarily related to furniture and laboratory equipment purchases related to our Boston lease, and our research and development center in Vienna, Austria.

Financing Activities: During the year ended December 31, 2021, net cash provided by financing activities was $74.2 million, consisting primarily of net proceeds from two private placements of our equity securities, which included prefunded warrants, and the sale of shares of our common stock through our ATM Sales Agreement. During the year ended December 31, 2020, net cash provided by financing activities was $12.4 million, consisting primarily of proceeds from our loan facility with Hercules, as amended.

Loan and Security Agreement with Hercules Capital, Inc.

In October 2018, we entered into a loan facility with Hercules, which was subsequently amended in December 2018, June 2019, March 2020, December 2020, and February 2022 (as amended, the “Hercules Loan Agreement”). As of December 31, 2021, we have borrowed an aggregate of $32.5 million under the Hercules Loan Agreement, which provides for aggregate maximum borrowings of $50.0 million, including $32.5 million of current borrowings, and additional term loans available through December 31, 2022, of up to $17.5 million in the discretion of Hercules’ investment committee.

Borrowings under the Hercules Loan Agreement bear 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 under the agreement would be increased by 4.0%. As of December 31, 2021, the interest rate applicable to borrowings was 8.75% and we were not in default on the Hercules Loan Agreement.

Borrowings 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. At our option, we 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 each case depending on when such repayment is made. In addition, aggregate end-of-term charges of $2.9 million are payable in the amounts of $0.8 million, which was paid on January 1, 2022, and $1.3 million and $0.8 million on July 1, 2023 and July 1, 2024, respectively, which dates are accelerated upon the prepayment of the Hercules Loan Agreement at our election or upon an event of default.

Borrowings under the Hercules Loan Agreement are collateralized by substantially all of our personal property and other assets except for our intellectual property (but including rights to payment and proceeds from the sale, licensing or disposition of the intellectual property). Our obligations under the agreement are subject to acceleration upon occurrence of specified events of default, including payment default, insolvency and a material adverse change in our business, operations or financial or other conditions.

Under the Hercules Loan Agreement, we have agreed to affirmative and negative covenants. The covenants also include a requirement that, from and after a defined initial test date of September 1, 2022 that we maintain cash in an aggregate amount equal to the greater of $30.0 million or six multiplied by a metric based on prior months’ cash expenditures; provided, however, that from and after our achievement of certain financing milestones through June 30, 2022, we must maintain cash in an account or accounts in which Hercules has a first priority security interest in an aggregate amount of $30.0 million. Following the achievement of certain performance milestones, the required cash shall be reduced to the greater of $20.0 million, or, if we had not met the financing milestones noted above, three multiplied by the current cash expenditures metric; and provided further, that subject to the achievement of additional operational milestones, this covenant will be extinguished. A breach of any of the covenants under the Hercules Loan Agreement could result in a default under the loan. Upon the occurrence of an event of default under the loan facility with Hercules, the lender could elect to declare all amounts outstanding, if any, to be immediately due and payable and terminate all commitments to extend further credit. If there are any amounts outstanding that we are unable to repay, the lenders could proceed against the collateral granted to them to secure such indebtedness.

Lease Obligations

We have long-term lease obligations for office and laboratory space. Non-cancellable lease obligations are $1.6 million in 2022, $1.6 million in 2023, $1.4 million in 2024, and $3.1 million thereafter.

Funding Requirements

We believe that our cash and cash equivalents will allow us to fund operations into the fourth quarter of 2022. As noted above, in order to satisfy a minimum cash covenant in our Hercules Loan Agreement, we will be required to raise additional capital, which may be through a combination of equity offerings, debt financings, other third-party funding, marketing and distribution arrangements and other collaborations and strategic alliances. During 2022 and beyond, assuming no changes to our current operational expectations, we expect our expenses to continue to increase in connection with our ongoing activities, particularly as we advance the current and anticipated clinical trials of our product candidates in development. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical product candidates, we are unable to estimate the exact amount of our funding requirements. Our short term and long term funding requirements will depend on and could increase significantly as a result of many factors, including:

•the scope, number, initiation, progress, timing, costs, design, duration, any potential delays, and results of clinical trials and nonclinical studies for our current or future product candidates, particularly our Phase 3 pivotal clinical trial of mavorixafor for the treatment of patients with WHIM syndrome, our Phase 1b clinical trial of mavorixafor in CN and our Phase 1b clinical trial of mavorixafor in Waldenström’s;

•the continued global impact of the ongoing COVID-19 pandemic and its effect on our ongoing clinical trials, our supply chain and the financial markets in general;

•the outcome, timing and cost of regulatory reviews, approvals or other actions to meet regulatory requirements established by the FDA and comparable foreign regulatory authorities, including the potential for the FDA or comparable foreign regulatory authorities to require that we perform more studies for our product candidates than those that we currently expect;

•our ability to obtain marketing approval for our product candidates;

•the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights covering our product candidates, including any such patent claims and intellectual property rights that we have licensed from Genzyme pursuant to the terms of our license agreement with Genzyme;

•our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the cost of defending intellectual property disputes, including patent infringement actions brought by third parties against us or our product candidates;

•the cost and timing of completion of commercial-scale outsourced manufacturing activities with respect to our product candidates;

•our ability to establish and maintain licensing, collaboration or similar arrangements on favorable terms and whether and to what extent we retain development or commercialization responsibilities under any new licensing, collaboration or similar arrangement;

•the cost of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval in regions where we choose to commercialize our products on our own;

•the success of any other business, product or technology that we acquire or in which we invest;

•the costs of acquiring, licensing or investing in businesses, product candidates and technologies;

•our need and ability to hire additional management and scientific and medical personnel;

•the costs to continue to operate as a public company, including the need to implement additional financial and reporting systems and other internal systems and infrastructure for our business;

•market acceptance of our product candidates, to the extent any are approved for commercial sale; and

•the effect of competing technological and market developments.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, and marketing, distribution or licensing arrangements with third parties. We have effective universal shelf registration statements on Form S-3 registering the saleof our common stock, warrants to purchase our common stock and other securities on terms that we may determine; due to our current public float and applicable SEC rules and regulations, our ability to raise capital pursuant to these shelf registration statements may be limited. We have an ATM Sales Agreement with the Sales Agents, pursuant to which we have offered to sell and continue to offer to sell, at our sole discretion through one or more of the Sales Agents, shares of our common stock having an aggregate offering price of up to $50.0 million, of which we have sold $15.0 million to date. We have entered into a common stock purchase agreement with Lincoln Park Capital, pursuant to which Lincoln Park Capital has committed to purchase, at our request from time to time over a 36-month period, shares of our common stock having an aggregate offering price of up to $50.0 million, of which $3.0 million have been sold to date, subject to certain limitations.

To the extent that we raise additional capital through future equity offerings or debt financings, the ownership interest of our stockholders may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect the rights of our stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, reduce or eliminate our product development efforts or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements included elsewhere in this Annual Report, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Accrued Research and Development Expenses. As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advance payments. We make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to them at that time.For our significant vendors, we confirm the accuracy of these estimates with the service providers and makeadjustments, if necessary. Examples of estimated accrued research and development expenses include fees paid to:

•vendors in connection with preclinical development activities;

•CROs and investigative sites in connection with preclinical studies and clinical trials; and

•CMOs in connection with the production of preclinical and clinical trial materials.

We base the expense recorded related to external research and development on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple CMOs and CROs that supply, conduct and manage preclinical studies and clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the amount of prepaid expenses accordingly.

Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses.

Stock-Based Compensation. We measure all stock-based awards granted to employees, directors and consultants based on the grant-date fair value of the award and recognized compensation expense, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award. The stock-based awards that we have issued to date include a service-based vesting condition and the expense for these awards is recognized using the straight-line method. We have also issued stock-based awards with performance-based vesting conditions that vest in part upon our achievement of operational milestones and over time thereafter for the subsequent two years as the employee continues to provide services. We assess the probability of achievement of these operational milestones and recognize stock-based compensation for these awards using the accelerated attribution model based on the fair value of the awards as of the date of grant and our best estimate of the date each operational milestone will be achieved. We update our estimates related to the probability and timing of achievement of the operational milestones each period until the award either vests or is forfeited.

The fair value of stock option grants is estimated on the date of grant using the Black-Scholes option-pricing model, which uses as inputs the fair value of our common stock and assumptions we make for the volatility of our common stock, the expected term of the stock options, the risk-free interest rate for a period that approximates the expected term of our stock options and an expected dividend yield. Prior to the closing of the Merger and the listing of our common stock on the Nasdaq Capital Market, our board of directors historically determined, as of the date of each option grant and with input from our management, the assistance of a third-party valuation specialist the estimated fair value of our common stock on the date of grant based on a number of objectives and subjective factors. Since the Merger and the listing of our common stock on the Nasdaq Capital Market, we have relied on the market price of our common stock to determine the fair value on the date of grant. As our common stock does not have a sufficient history of trading, we estimate our volatility based on the historical volatility of publicly traded peer companies. We estimate the expected term of our stock awards by utilizing the “simplified” method, which calculates the expected term based on weighted average midpoint of the award’s vesting and expiration dates. We determine the risk-free interest rate by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. We estimate that no dividends will be paid as we do not expect to pay cash dividends in the foreseeable future.

The assumptions underlying these valuations represent the best estimates of our management, which involve inherent uncertainties and the application of our judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, the resulting share-based compensation expense could be materially different.

Revenue Recognition. Our revenues are generated primarily through research, development and commercialization agreements. The terms of such agreements may contain multiple promised goods and services, which may include (i) licenses, or options to obtain licenses, to our intellectual property, and (ii) in certain cases, payment in connection with the manufacturing and delivery of clinical supply materials. Payments to us under these arrangements typically include one or more of the following: non-refundable, upfront license fees; option exercise fees; milestone payments; payments for clinical product supply, and royalties on future product sales. To date, our license agreement with Abbisko represents our only revenue-generating agreement.

We analyze our arrangements to assess whether such arrangements involve joint operating activities. For collaboration arrangements that are deemed to be within the scope of ASC Topic 808, Collaborative Arrangements, or ASC 808, we allocate the contract consideration between such joint operating activities and elements that are reflective of a vendor-customer relationship and, therefore, within the scope of ASC Topic 606,Revenue from Contracts with Customers, orASC 606. Our policy is to recognize amounts allocated to joint operating activities as a reduction in research and development expense.

Under ASC 606, we recognize revenue when our customers obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that we determine are within the scope of ASC 606, we perform the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligation(s) in the contract and determine whether these are distinct; (3) determine the transaction price; (4) allocate the transaction price to the performance obligation(s) in the contract; and (5) recognize revenue when (or as) we satisfy our performance obligation(s).

We must make significant judgments in our revenue recognition process, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each performance obligation. In addition, arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered discretionary purchase options. We assess if these options provide a material right to the customer and if so, they are considered performance obligations.

Goodwill.Business combinations are accounted for under the acquisition method. The total purchase price of an acquisition is allocated to the underlying identifiable net assets, based on their respective estimated fair values as of the acquisition date. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, probabilities of success, discount rates, and asset lives, among other items. Assets acquired and liabilities assumed are recorded at their estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.

Goodwill is tested quantitatively 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.

We have determined that we operate in a single operating segment and have a single reporting unit. To perform its quantitative test, we compare the fair value of our single reporting unit to the carrying value of its net assets, including goodwill. We use our market capitalization (common shares outstanding multiplied by the price per share of our common stock) to measure the fair value of the reporting unit. 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 the carrying value, we measure the impairment loss as the excess of the carrying value over the fair value of the reporting unit. See Note 4 for more information on our goodwill impairment test as of December 31, 2021.

Emerging Growth Company and Smaller Reporting Company Status

We are an emerging growth company (“EGC”), as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). The JOBS Act permits an EGC to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have irrevocably elected to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards when they are required to be adopted by public companies that are not EGCs.

In addition, we are also a smaller reporting company as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as (i) our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements appearing at the end of this Annual Report on Form 10-K.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we are not required to provide disclosure for this Item.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements required to be filed pursuant to this Item 8 are appended to this Annual Report.

The financial statements contain a Report of Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP, Boston, Massachusetts, US (Firm ID 238)

An index of those financial statements is found in Item 15 of Part IV of this Annual Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and

procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, who serve as our principal executive officer and principal financial officer, respectively, has evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2021. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the company. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

•pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;

•provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management is responsible for establishing and maintaining an adequate system of internal control over financial reporting, as defined in the Exchange Act Rule 13a-15(f). Management conducted an assessment of our internal control over financial reporting based on the framework established in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). Based on the assessment, management concluded that, as of December 31, 2021, our internal control over financial reporting was effective.

This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting due to an exemption established by the JOBS Act for “emerging growth companies”.

Changes in Internal Control over Financial Reporting

There has been no significant change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this Item is incorporated by reference to the information set forth in the sections titled “Proposal 1- Election of Directors,” “Information Regarding the Board of Directors and Corporate Governance” and “Executive Officers” in our 2022 Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated by reference to the information set forth in the sections titled “Executive Compensation” in our 2022 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this Item is incorporated by reference to the information set forth in the section titled “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in our 2022 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this Item is incorporated by reference to the information set forth in the section titled “Transactions with Related Persons and Indemnification” and “Information regarding the Board of Directors and Corporate Governance” in our 2022 Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item is incorporated by reference to the information set forth in the section titled “Principal Accountant Fees and Services” contained in our 2022 Proxy Statement.

PART IV

ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES

(1) Financial Statements

The following documents are included on pages F-1 through F-36 attached hereto and are filed as part of this Annual Report.

Page

Report of Independent Registered Public Accounting Firm F-2

PricewaterhouseCoopers LLP Boston, MA (Firm ID 238)

Consolidated Balance Sheets F-3

Consolidated Statements of Operations and Comprehensive Loss F-4

Consolidated Statements of Cash Flows F-6

Notes to Consolidated Financial Statements F-7

(2) Financial Statement Schedules:

All financial statement schedules have been omitted because they are not applicable, not required or the information required is shown in the consolidated financial statements or the notes thereto.

(3) Exhibits.

Exhibit No. Exhibit Description Form Exhibit Date Se File/ Ref No.

21.1* List of Subsidiaries

101.INS XBRL Instance Document

101.SCH XBRL Taxonomy Extension Schema Document

101.CAL SXRL Taxonomy Extension Calculation Linkbase Document

101.DEF XBRL Taxonomy Extension Definition Linkbase Document

101.LAB XBRL Taxonomy Extension Label Linkbase Document

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

104 Cover Page Interactive Data File (formatted as Inline XBRL)

*Filed herewith

** Furnished and not filed herewith

# Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[***]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed

@ Indicates management contract or compensatory plan

ITEM 16. FORM 10-K SUMMARY

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

X4 PHARMACEUTICALS, INC.

Date: March 17, 2022 By: /s/ Paula Ragan

Paula Ragan, Ph D.

President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature Title Date

/s/ Paula Ragan President, Chief Executive Officer and Director March 17, 2022

Paula Ragan, Ph.D. (Principal Executive Officer)

/s/ Adam S. Mostafa Chief Financial Officer and Treasurer March 17, 2022

Adam S. Mostafa (Principal Financial Officer and Principal Accounting Officer)

/s/ Michael S. Wyzga Chairman of the Board of Directors March 17, 2022

Michael S. Wyzga

/s/ William Aliski Director March 17, 2022

William E. Aliski

/s/ Gary J. Bridger Director March 17, 2022

Gary J. Bridger, Ph.D.

/s/ Francoise De Craecker Director March 17, 2022

Francoise De Craecker

/s/ Alison Lawton Director March 17, 2022

Alison F. Lawton

/s/ David McGirr Director March 17, 2022

David McGirr

/s/ Murray W. Stewart Director March 17, 2022

Murray W. Stewart, M.D.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page

Report of Independent Registered Public Accounting Firm F-2

Consolidated Balance Sheets F-3

Consolidated Statements of Operations and Comprehensive Loss F-4

Consolidated Statements of Cash Flows F-6

Notes to Consolidated Financial Statements F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of X4 Pharmaceuticals, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of X4 Pharmaceuticals, Inc. and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations and comprehensive loss, of convertible preferred stock, redeemable common stock and stockholders’ equity (deficit) and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America.

Substantial Doubt about the Company’s Ability to Continue as a Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has certain conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

We have served as the Company’s auditor since 2016.

F-2

X4 PHARMACEUTICALS INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

Assets

Current assets:

Research and development incentive receivable 747 917

Prepaid expenses and other current assets 5,344 3,682

Liabilities and Stockholders’ Equity

Current liabilities:

Current portion of lease liability 1,075 786

Current portion of long-term debt 795 —

Long-term debt, including accretion, net of discount 33,139 33,178

Commitments and contingencies (Note 9)

Stockholders’ equity:

Accumulated other comprehensive loss (119) (119)

Total liabilities and stockholders’ equity $ 117,176 $ 122,871

F-3

X4 PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except per share amounts)

Year Ended December 31,

License revenue $ — $ 3,000 $ —

Operating expenses:

Goodwill impairment 9,758 — —

Loss on transfer of nonfinancial assets — — 3,900

Other income (expense):

Change in fair value of preferred stock warrant liability — — (288)

Change in fair value of derivative liability (366) (437) 183

Loss on extinguishment of debt — (162) (566)

Provision for income taxes 17 148 —

Accruing dividends on Series A convertible preferred stock — — (592)

Deemed dividend on Class B Warrant price reset (13,943) — —

Currency translation adjustments — — (119)

F-4

X4 PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK, REDEEMABLE COMMON STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share amounts)

Shares Amount Shares Amount Shares Amount

Fair value of replacement equity awards 817 817

Reclassification of warrant liability to permanent equity 5,235 5,235

Stock-based compensation expense 2,050 2,050

Foreign currency translation adjustment (119) (119)

Stock-based compensation expense 5,428 5,428

Issuance of shares under employee stock purchase plan 26,643 169 169

Issuance of common stock under employee stock purchase plan 45,816 219 219

Vesting of restricted stock units 204,531 —

Repurchase and retirement of redeemable common stock (229,885) (1,875) —

F-5

Table of Contents

X4 PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Year EndedDecember 31,

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization expense 499 351 103

Goodwill impairment 9,758 — —

Loss on transfer of non-financial assets — — 3,900

Loss on extinguishment of debt — 162 566

Changes in operating assets and liabilities:

Operating lease right-of-use asset, net of non-cash portion (59) (3,889) —

Cash flows from investing activities:

Proceeds from transfer of non-financial assets — — 1,000

Purchase of property, equipment and intangible assets (615) (1,362) (174)

Net cash provided by (used in) investing activities (615) (1,362) 27,232

Cash flows from financing activities:

Repayments of borrowings under loan and security agreement — — (9,368)

Settlement and retirement of redeemable common stock (2,000) — —

Supplemental disclosure of cash flow information

Supplemental disclosure of non-cash investing and financing activities:

Acquisition of right-of-use assets financed by lease liabilities $ 1,343 $ — $ —

Issuance costs not yet paid $ 24 $ — $ 775

Conversion of convertible preferred stock into common stock $ — $ — $ 64,675

Conversion of redeemable common stock into common stock $ — $ — $ 734

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

F-6

X4 PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 chronic neutropenia disorders, and a Phase 1b clinical trial of mavorixafor in combination with ibrutinib in Waldenström’s macroglobulinemia. The Company is headquartered in Boston, Massachusetts and has an additional facility in Vienna, Austria.

Going Concern Assessment—In accordance with Accounting Standards Update (“ASU”) No. 2014-15,Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40) (“ASU 2014-15”), 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 the consolidated financial statements are issued. As of December 31, 2021, the Company had $81.8 million of cash and cash equivalents and an accumulated deficit of $282.9 million. As further discussed in Note 2, the Company has a covenant under its Amended and Restated Loan Agreement (the “Hercules Loan Agreement”) with Hercules Capital Inc. (“Hercules”), which will require that the Company maintain a minimum level of cash, as defined, beginning on September 1, 2022. If the Company is in violation of this covenant, Hercules could require the repayment of all outstanding debt. Based on its current cash expenditure forecast and considering this covenant, the Company expects that its existing cash and cash equivalents will fund its operations into thefourth quarter of 2022.

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 consolidated financial statements are issued. Nevertheless, the accompanying 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 2022, the Company will need to raise additional funds, which could be 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.

Merger with Arsanis—On November 26, 2018, Arsanis, Inc., a publicly held Delaware corporation (“Arsanis”), Artemis AC Corp., a Delaware corporation and a wholly-owned subsidiary of Arsanis (“Merger Sub”), and X4 Therapeutics, Inc. (“X4”) entered into an Agreement and Plan of Merger, as amended on December 20, 2018 and March 8, 2019 (the “Merger Agreement”), pursuant to which the Merger Sub merged with and into X4, with X4 surviving the merger as a wholly-owned subsidiary of Arsanis. The transactions described in the foregoing sentence may be referred to in these consolidated financial statements as “the Merger.”

The transaction was accounted for as a reverse merger in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Under this method of accounting, X4 was deemed to be the accounting acquirer for financial reporting purposes. This determination was primarily based on the facts that, immediately following the Merger: (i) the Company’s stockholders own a substantial majority of the voting rights in the combined organization, (ii) the Company designated a majority of the members of the initial board of directors of the combined organization and (iii) the Company’s senior management hold all key positions in the senior management of the combined organization. Accordingly, for accounting purposes, the business combination was treated as the equivalent of X4 issuing stock to acquire the net assets of Arsanis. As a result, as of the closing date of the Merger, the net assets of Arsanis were recorded at their acquisition-date fair values in the

F-7

X4 PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

consolidated financial statements of the Company and the reported operating results prior to the business combination are those of the Company. In addition, transaction costs incurred by the Company in connection with the business combination have been expensed as incurred.

On March 13, 2019, Arsanis, X4 and Merger Sub completed the Merger pursuant to the terms of the Merger Agreement. Pursuant to the terms of the Merger Agreement, each outstanding share of X4’s common stock and preferred stock was exchanged for 0.5702 shares of Arsanis’ common stock (the “Exchange Ratio”). In addition, all outstanding options exercisable for common stock and warrants exercisable for convertible preferred stock of X4 became options and warrants exercisable for the same number of shares of common stock of Arsanis multiplied by the Exchange Ratio. In connection with the Merger, X4 changed its name to X4 Therapeutics, Inc. Following the closing of the Merger, X4 Therapeutics, Inc. became a wholly-owned subsidiary of the Company, which changed its name to X4 Pharmaceuticals, Inc. As used herein, the words “the Company” refers to, for periods following the Merger, X4 Pharmaceuticals, Inc. (formerly Arsanis, Inc.), together with is direct and indirect subsidiaries, and for periods prior to the Merger, X4 Therapeutics, Inc. (formerly X4 Pharmaceuticals, Inc.), and its direct and indirect subsidiaries, as applicable.

Immediately following the Merger, stockholders of X4 owned approximately 64% of the combined organization’s outstanding common stock. On March 14, 2019, the combined organization’s common stock began trading on The Nasdaq Capital Market under the ticker symbol “XFOR.”

Reverse Stock Split— On March 13, 2019, immediately following the closing of the Merger, the Company effected a1-for-6reverse stock split of its common stock (the “Reverse Stock Split”). Accordingly, all share and per share amounts for all periods presented in the accompanying consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect the Reverse Stock Split. No fractional shares were issued in connection with the Reverse Stock Split. Unless otherwisenoted, all references to common stock share and per share amounts have also been adjusted to reflect the exchange ratio of 0.5702.

Principles of Consolidation— The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, including X4 Pharmaceuticals (Austria) GmbH (“X4 Austria”), which is incorporated in Vienna, Austria, and X4 Therapeutics, Inc. All significant intercompany accounts and transactions have been eliminated.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates— The preparation of the Company’s 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 consolidated financial statements, and the reported amounts of expenses during the reporting period. Significant estimates and assumptions reflected in these 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 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 consolidated financial statements.

Foreign Currency and Currency Translation— The functional currency of the Company’s foreign subsidiary, X4 Austria, is the U.S. dollar but X4 Austria maintains its books and records in Euro. Monetary assets and liabilities are translated at current exchange rates as of the balance sheet date, non-monetary assets such as property and equipment and equity accounts are translated at historic rates and income and expenses are translated at the average exchanges rates for the period. Adjustments resulting from the translation of the consolidated financial statements of the Company’s foreign operations into U.S. dollars are included in the determination of net loss and are recorded in other expense, net.

F-8

X4 PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Concentrations of Credit Risk and Significant Suppliers— Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and research and development incentive receivables. The Company generally maintains cash balances in various operating accounts at financial institutions that management believes to be of high credit quality in amounts that may exceed federally insured limits. The Company has not experienced losses related to its cash and cash equivalents.

The Company is dependent on third-party manufacturers to supply products for research and development activities in its programs. The Company relies and expects to continue to rely on a small number of manufacturers to supply it with its requirements for the active pharmaceutical ingredients and formulated drugs related to these programs. These programs could be adversely affected by a significant interruption in these manufacturing services or in the supply of active pharmaceutical ingredients and formulated drugs.

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 December 31, 2021 and 2020.

Restricted Cash

(in thousands) As of December 31, 2021 As of December 31, 2020

Letter of credit security: Cambridge lease $ — $ 264

Letter of credit security: Waltham lease 250 250

Letter of credit security: Vienna Austria lease 216 336

Letter of credit security: Boston lease 855 1,144

Restricted cash included in prepaid expenses and other current assets $ — $ 264

Restricted cash included in other assets $ 1,321 $ 1,730

In connection with the Company’s lease agreement for its facilities in Massachusetts and Austria, the Company maintains letters of credit, which are secured by restricted cash, for the benefit of the landlord. In accordance with the Company’s Loan and Security Agreement with Hercules, as most recently amended on February 9, 2022 and as further described in Note 7, 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) September 1, 2022, the Company at all times thereafter must maintain cash in an account or accounts in which Hercules has a first priority security interest as further described in Note 7.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets to the sum to the total of amounts shown in the Company’s consolidated statements of cash flows as of December 31, 2021, 2020, 2019 and 2018:

Property and Equipment— Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization expense is recognized using the straight-line method over the estimated useful life of each asset, as follows:

F-9

X4 PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Estimated Useful Life

Office furniture 3 to 7 years

Computer equipment 3 years

Laboratory equipment 3 to 10 years

Leasehold improvements Shorter of lease term or 10 years

Estimated useful lives are periodically assessed to determine if changes are appropriate. Maintenance and repairs are charged to expense as incurred. When assets are retired or otherwise disposed of, the cost of these assets and related accumulated depreciation or amortization are eliminated from the consolidated balance sheet and any resulting gains or losses are included in the consolidated statements of operations and comprehensive loss in the period of disposal. Costs for capital assets not yet placed into service are capitalized as construction-in-progress and depreciated once placed into service.

Right-of-Use Assets and Leases— The Company accounts for leases in accordance with Accounting Standards Codification (“ASC”), Topic 842,Leases(“ASC 842”). Under ASC 842, at the inception of an arrangement, the Company determines whether the arrangement contains a lease based on the unique facts and circumstances present. Leases with a non-cancellable term greater than one year are recognized on the balance sheet as right-of-use assets with associated current and non-current lease liabilities. The Company has elected not to recognize on the balance sheet leases with terms of one year or less. Options to renew a lease are not included in the Company’s initial lease term assessment unless there is reasonable certainty that the Company will renew the lease. If a lease is cancellable without penalty, the Company excludes from the lease term periods following the cancellation notice period unless it is reasonably certain that the Company will not cancel the lease.

Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected remaining lease term. Certain adjustments to the right-of-use operating asset may be required for items such as incentives received or accrued rent. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rates, which are the rates it incurs to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The Company has referenced the effective rate of its Hercules borrowings, as adjusted for differences terms, to determine calculate its incremental borrowing rate for each of its operating leases.

In accordance with the guidance in ASC 842, components of a lease are split into lease components and non-lease components. A policy election is available pursuant to which an entity may elect to not separate lease and non-lease components. Rather, each lease component and the related non-lease components are accounted for together as a single component. For new and amended leases beginning in 2019 and after, the Company has elected to account for the lease and non-lease components as a combined lease component for its office and laboratory building leases.

Impairment of Long-Lived Assets— Long-lived assets consist of property and equipment and operating lease right-of-use assets. Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset group for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset group to its carrying value. An impairment loss would be recognized in loss from operations when estimated undiscounted future cash flows expected to result from the use of an asset group are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset group over its fair value. To date, the Company has not recorded any material impairment losses on long-lived assets.

Goodwill— Business combinations are accounted for under the acquisition method. The total purchase price of an acquisition is allocated to the underlying identifiable net assets, based on their respective estimated fair values as of the acquisition date. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, probabilities of success, discount rates, and asset lives, among other items. Assets acquired and liabilities assumed are recorded at their estimated fair values. The excess of the purchase price over the estimated fair values of the net assets acquired is recorded as goodwill.

F-10

X4 PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Goodwill is tested quantitatively 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, a significant decline in the price of the Company’s common stock, or unanticipated competition.

The Company has determined that it operates in a single operating segment and has a single reporting unit. To perform its quantitative test, 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 the 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. See Note 4 for more information on the Company’s goodwill impairment test as of December 31, 2021.

Intangible Assets— In connection with the Merger, the Company acquired certain in-process research and development (“IPR&D”) assets, which were classified as indefinite-lived intangible assets. Acquired IPR&D represents the fair value assigned to research and development assets that the Company acquires and have not been completed at the acquisition date. The fair value of IPR&D acquired in a business combination is recorded on the Company’s consolidated balance sheets at the acquisition-date fair value and is determined by estimating the costs to develop the technology into commercially viable products, estimating the resulting revenue from the projects, and discounting the projected net cash flows to present value. IPR&D is not amortized, but rather is reviewed for impairment on an annual basis or more frequently if indicators of impairment are present, until the project is completed, abandoned or transferred to a third party.

The projected discounted cash flow models used to estimate the Company’s IPR&D reflect significant assumptions regarding the estimates a market participant would make in order to evaluate a drug development asset, including the following:

•Probability of successfully completing clinical trials and obtaining regulatory approval;

•Market size, market growth projections, and market share;

•Estimates of future cash flows from potential milestone payments and royalties related to out-licensed product sales; and

•A discount rate reflecting the Company's weighted average cost of capital and specific risk inherent in the underlying assets.

During the year ended December 31, 2019, the Company entered into an out-licensing arrangement with a third party that transferred the rights to develop and commercialize one of the programs underlying an IPR&D intangible asset. In addition, the Company entered into amended out-licensing option agreements with a third party who had previously entered into an option agreement with Arsanis to license the rights to develop and commercialize two other programs underlying the IPR&D intangible assets. Following the amendment to these option agreements, the options were exercised by the third party and the in-process research and development programs were out-licensed to the third party. As of December 31, 2019, all programs underlying IPR&D intangible assets acquired in the Merger were transferred to these third parties. As a result of the transfer of the IPR&D projects to third parties, the Company derecognized the IPR&D intangibles asset through a charge to “loss on transfer of nonfinancial assets” during 2019. (See Note 15)

Fair Value Measurements— Certain assets and liabilities of the Company are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

•Level 1—Quoted prices in active markets for identical assets or liabilities.

•Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

•Level 3—Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

F-11

X4 PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Prior to the Merger, the Company’s preferred stock warrant liability and preferred stock repurchase liability were carried at fair value, determined according to Level 3 inputs in the fair value hierarchy described above. The embedded derivative liability related to the redemption features of the Company’s debt with Hercules as described further below is carried at fair value and is a Level 3 measurement. The Company’s cash equivalents, consisting of money market funds invested in U.S. Treasury securities, are carried at fair value, determined based on Level 1 and Level 2 inputs in the fair value hierarchy described above. The carrying values of the Company’s accounts payable and accrued expenses approximate their fair values due to the short-term nature of these liabilities. The carrying value of the Company’s outstanding loan and security agreement with Hercules approximates its fair value at December 31, 2021 because the debt bears interest at a variable market rate and the Company’s credit risk has not materially changed since the inception of the agreement.

Segment Information— The Company manages its operations as a single operating segment for the purposes of assessing performance and making operating decisions. The Company’s focus is on the research, development and commercialization of novel therapeutics for the treatment of rare diseases.

Revenue Recognition— Effective January 1, 2018, the Company adopted ASC Topic 606,Revenue from Contracts with Customers(“ASC 606”), as amended, using the modified retrospective transition method. The modified retrospective method requires that the cumulative effect of initially applying ASC 606 be recognized as an adjustment to the opening balance of retained earnings or accumulated deficit of the annual period that includes the dateof initial application. The Companyhad noarrangements that were in the scope of ASC 606 on January 1, 2018 and thus there was no impact to the consolidated financial statements as a result of the adoption. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as collaboration arrangements and leases.

The Company’s revenues are generated primarily through research, development and commercialization agreements. The terms of these agreements may contain multiple promised goods and services, which may include (i) licenses, or options to obtain licenses, to the Company’s technology, and (ii) in certain cases, services in connection with the manufacturing of preclinical and clinical materials. Payments to the Company under these arrangements typically include one or more of the following: non-refundable, upfront license fees; option exercise fees; milestone payments; payments for clinical and commercial product supply, and royalties on future product sales. To date, the Company’s license agreement with Abbisko Therapeutics Co., Ltd. (“Abbisko”) represents its only revenue-generating agreement.

The Company analyzes its arrangements to assess whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities and are therefore within the scope of ASC Topic 808, Collaborative Arrangements (“ASC 808”). This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration arrangements that are deemed to be within the scope of ASC 808, the Company first determines which elements of the collaboration are deemed to be within the scope of ASC 808 and those that are more reflective of a vendor-customer relationship and, therefore, within the scope of ASC 606. The Company’s policy is generally to recognize amounts received from collaborators in connection with joint operating activities that are within the scope of ASC 808 as a reduction in research and development expense. To date, there have been no transactions within the scope of ASC 808.

Under ASC 606, the Company recognizes revenue when its customers obtain control of promised goods or services, in an amount that reflects the consideration which the Company determines it expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligation(s) in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligation(s) in the contract; and (5) recognize revenue when (or as) the Company satisfies its performance obligation(s).

As part of the accounting for these arrangements, the Company must make significant judgments, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and; allocating the transaction price to each performance obligation.

Once a contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within the contract and determines those that are performance obligations. Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options. The Company assesses if these options provide a material right to the customer and if so, they are considered performance obligations.

F-12

X4 PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company assesses whether each promised good or service is distinct for the purpose of identifying the performance obligations in the contract. This assessment involves subjective determinations and requires management to make judgments about the individual promised goods or services and whether such are separable from the other aspects of the contractual relationship. Promised goods and services are considered distinct provided that:

i.the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (that is, the good or service is capable of being distinct) and

ii.the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (that is, the promise to transfer the good or service is distinct within the context of the contract).

In assessing whether a promised good or service is distinct, the Company considers factors such as the research, manufacturing and commercialization capabilities of the customer and the availability of the associated expertise in the general marketplace. The Company also considers the intended benefit of the contract in assessing whether a promised good or service is separately identifiable from other promises in the contract. If a promised good or service is not distinct, an entity is required to combine that good or service with other promised goods or services until it identifies a bundle of goods or services that is distinct.

The transaction price is then determined and allocated to the identified performance obligations in proportion to their standalone selling prices (“SSP”) on a relative SSP basis. SSP is determined at contract inception and is not updated to reflect changes between contract inception and when the performance obligations are satisfied. Determining the SSP for performance obligations requires significant judgment. In developing the SSP for a performance obligation, the Company considers applicable market conditions and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs. The Company validates the SSP for performance obligations by evaluating whether changes in the key assumptions used to determine the SSP will have a significant effect on the allocation of arrangement consideration between multiple performance obligations.

If the consideration promised in a contract includes a variable amount, the Company estimates the amount of consideration to which it will be entitled in exchange for transferring the promised goods or services to a customer. The Company determines the amount of variable consideration by using either the expected value method or the most-likely-amount method. The Company includes the unconstrained amount of estimated variable consideration in the transaction price. The amount included in the transaction price reflects the amount for which it is probable that a significant reversal of cumulative revenue recognized will not occur. At the end of each subsequent reporting period, the Company re-evaluates the estimated variable consideration included in the transaction price and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis in the period of adjustment.

In determining the transaction price, the Company adjusts consideration for the effects of the time value of money if the timing of payments provides the Company with a significant benefit of financing. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the licensees and the transfer of the promised goods or services to the licensees will be one year or less. The Company assesses each of its revenue generating arrangements in order to determine whether a significant financing component exists and concluded that a significant financing component does not exist in any of its arrangements.

The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) each performance obligation is satisfied at a point in time or over time, and if over time based on the use of an output or input method.

At the inception of each arrangement that includes non-refundable payments for contingent milestones, including preclinical research and development, clinical development and regulatory, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most-likely-amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. At the end of each reporting period, the Company re-evaluates the probability of the achievement of contingent milestones and the likelihood of a significant reversal of such milestone revenue, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect licensing revenue in the period of adjustment. This quarterly assessment may result in the recognition of revenue related to a contingent milestone payment before the milestone event has been achieved.

F-13

X4 PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Research and Development Programs— Proceeds under the research and development incentive program from the Austrian government are recognized as other income in an amount equal to the qualifying expenses incurred in each period multiplied by the applicable reimbursement percentage. Incentive income recognized upon incurring qualifying expenses in advance of receipt of proceeds from research and development incentives is recorded in the consolidated balance sheet as research and development incentive receivable.

Research and Development Costs— Costs associated with internal research and development and external research and development services, including drug development and preclinical studies, are expensed as incurred. Research and development expenses include costs for salaries, employee benefits, subcontractors, facility-related expenses, depreciation and amortization, stock-based compensation, third-party license fees, laboratory supplies, and external costs of outside vendors engaged to conduct discovery, preclinical and clinical development activities and clinical trials as well as to manufacture clinical trial materials, and other costs. The Company recognizes external research and development costs based on an evaluation of the progress to completion of specific tasks using information provided to the Company by its service providers.

Nonrefundable advance payments for services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such prepaid expenses are recognized as an expense when the related services have been performed, or when it is no longer expected that the goods will be delivered or the services rendered.

Patent Costs— All patent-related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred due to the uncertainty about the recovery of the expenditure. Amounts incurred are classified as general and administrative expenses.

Debt Issuance Costs— Debt issuance costs consist of payments made to secure commitments under certain debt financing arrangements. These amounts are recognized as interest expense over the period of the financing arrangement using the effective interest method. If the financing arrangement is canceled or forfeited, or if the utility of the arrangement to the Company is otherwise compromised, these costs are recognized as interest expense immediately. The Company’s consolidated financial statements present debt issuance costs related to a recognized debt liability as a direct reduction from the carrying amount of that debt liability.

Stock-Based Compensation— The Company measures all stock-based awards granted to employees, nonemployees and directors based on the fair value on the date of the grant and recognizes compensation expense for those awards, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award. The Company issues stock-based awards with service-based vesting conditions and records the expense for these awards using the straight-line method. The Company has also issued stock-based awards with performance-based vesting conditions that vest in part upon the Company’s achievement of operational milestones and over time thereafter for the subsequent two years as the employee continues to provide services. The Company assesses the probability of achievement of these operational milestones and recognizes stock-based compensation for these awards using the accelerated attribution model based on the fair value of the awards as of the date of grant and its best estimate of the date each operational milestone will be achieved.

The Company classifies stock-based compensation expense in its consolidated statements of operations and comprehensive loss in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified.

The Company recognizes compensation expense for only the portion of awards that are expected to vest. In developing a forfeiture rate estimate, the Company has considered its historical experience to estimate pre-vesting forfeitures for service-based awards. The impact of a forfeiture rate adjustment is recognized in full in the period of adjustment, and if the actual forfeiture rate is materially different from the Company’s estimate, the Company may be required to record adjustments to stock-based compensation expense in future periods.

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. Prior to March 13, 2019, the Company was a private company and lacked company-specific historical and implied volatility information for its common stock. Therefore, the Company estimates its expected common stock price volatility based on the historical volatility of publicly traded peer companies and expects to continue to do so until it has adequate historical data regarding the volatility of its own traded stock price. The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The expected term of stock options granted to non-employee consultants is equal to the contractual term of the option award. The risk-free interest rate is determined by reference to

F-14

X4 PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield considers the fact that the Company has never paid cash dividends on common stock and does not expect to pay any cash dividends in the foreseeable future.

Derivative Liabilities: Hercules Loan Redemption Feature— The Company’s loan agreement with Hercules (see Note 7) contains a redemption feature that, upon an event of default, provides Hercules the option to accelerate and demand repayment of the debt, including a prepayment premium, or, at its election, charge additional contingent interest fees on any overdue interest or principal payments. The redemption feature meets the definition of a derivative instrument as the repayment of the debt contains a substantial premium, resulting in the redemption feature not being clearly and closely related to its host instrument. Accordingly, the Company classifies this derivative as a liability within other liabilities (non-current) on its consolidated balance sheets. The derivative liability was initially recorded at fair value on the date of the Hercules Loan Agreement and is subsequently remeasured to fair value at each reporting date. Changes in the fair value of this derivative liability, which is included in other liabilities, are recognized as a component of other income (expense), net in the consolidated statement of operations and comprehensive loss. Changes in the fair value of this derivative liability will continue to be recognized until all amounts outstanding under the Hercules Loan Agreement are repaid or until the Hercules Loan Agreement is terminated.

Comprehensive Loss— For the year ended December 31, 2021 and 2020, all foreign currency remeasurement gains and losses were included in net loss as the Company has deemed the functional currency of its foreign subsidiary to be the U.S. Dollar. Comprehensive loss includes net loss as well asforeign currencytranslation adjustments of$119 thousand for the year ended December 31, 2019.

Income Taxes— The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements or in the Company’s tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.

The Company accounts for uncertainty in income taxes recognized in the consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the consolidated financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.

Net Loss per Share— For periods prior to the Merger with Arsanis on March 13, 2019, the Company followed the two-class method when computing net loss per share as the Company had issued shares that met the definition of participating securities. The two-class method determines net loss per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. In addition, during the year ended December 31, 2021, in accordance with the Class B Warrant agreement, the exercise price of each outstanding Class B Warrant was adjusted to the price of subsequent sales of common stock. Such adjustment is accounted for as a deemed dividend that adjusts net loss available to common shareholders for purposes of basic earnings per share. The deemed dividend is calculated using the Black-Scholes pricing model, taking into account historical volatility of the Company’s common stock and the estimated remaining life of the outstanding Class B Warrants.

F-15

X4 PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. Basic shares outstanding includes the weighted average effect of the Company’s outstanding prefunded warrants, the exercise of which requires little or no consideration for the delivery of shares of common stock. Diluted net loss attributable to common stockholders is computed by adjusting net loss attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net loss per share attributable to common stockholders is computed by dividing the diluted net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period, including potential dilutive shares of common stock. For purpose of this calculation, outstanding stock options, convertible preferred stock and warrants to purchase shares of convertible preferred stock or common stock are considered potential dilutive shares of common stock.

Recently Issued Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“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 ARRANGEMENTS

Genzyme Agreement

In July 2014, the Company entered into a license agreement with Genzyme (the “Genzyme Agreement”) pursuant to which the Company was granted an exclusive license to certain patents and intellectual property owned or controlled by Genzyme related to the CXCR4 receptor to develop and commercialize products containing licensed compounds (including but not limited to mavorixafor) for all therapeutic, prophylactic and diagnostic uses, with the exception of autologous and allogenic human stem cell therapy. Under the terms of the Genzyme Agreement, the Company is obligated to use commercially reasonable efforts to develop and commercialize licensed products for use in the field in the United States and at least one other major market country. The Company has the right to grant sublicenses of the licensed rights that cover mavorixafor to third parties.

Under the Genzyme Agreement, the Company is obligated to pay Genzyme milestone payments in the aggregate amount of up to $25.0 million, contingent upon the achievement by the Company of certain clinical-stage regulatory and sales milestones with respect to licensed products. The Company is also obligated to pay Genzyme tiered royalties based on net sales of licensed products that the Company commercializes under the agreement. The obligation to pay royalties for each licensed product expires on a country-by-country basis on the latest of (i) the expiration of licensed patent rights that cover that licensed product in that country, (ii) the expiration of regulatory exclusivity in that country and (iii) ten years after the first commercial sale of such licensed product in that country. Royalty rates are subject to reduction under the agreement in specified circumstances, including in any country if the Company is required to obtain a license from any third party to the extent the Company’s patent rights might infringe the third party’s patent rights, if a licensed product is not covered by a valid claim in that country or if sales of generic products reach certain thresholds in that country. If the Company enters into a sublicense under the Genzyme Agreement, the Company will be obligated to pay Genzyme a percentage of certain upfront fees, maintenance fees, milestone payments and royalty payments paid to the Company by the sublicensee. Under the Genzyme Agreement, the Company will itself manufacture and supply, or enter into manufacturing or supply agreements with Genzyme or third parties to manufacture and supply, clinical and commercial supplies of licensed compounds and each licensed product. The Company is also responsible for all costs related to the filing, prosecution and maintenance of the licensed patent rights.

The Genzyme Agreement will remain in effect until the expiration of the royalty term in all countries for all licensed products. The Genzyme Agreement may be terminated by either party with at least 90 days’ notice in the event of material breach by the other party that remains uncured for 90 days, by either party for insolvency or bankruptcy of the other party, immediately by Genzyme if the Company challenges the licensed patents, or immediately by the Company if a material safety issue arises.

F-16

X4 PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During the year ended December 31, 2020, the Company incurred $0.9 million of payment obligations to Genzyme. For the years ended December 31, 2021 and 2019, the Company did not incur any payment obligations to Genzyme under the Genzyme Agreement.

Georgetown Agreement

In December 2016, the Company entered into a license agreement (the “Georgetown Agreement”) with Georgetown University (“Georgetown”) pursuant to which the Company obtained an exclusive, worldwide license to make, have made, use, sell, offer for sale and import of products covered by patent rights co-owned by Georgetown. The rights licensed to the Company are for all therapeutic, prophylactic and diagnostic uses in all disease indications in humans and animals.

Under the terms of the Georgetown Agreement, the Company paid a one-time, upfront fee of $50 thousand and the Company may be required to make milestone payments of up to an aggregate of $800 thousand related to commercial sales of a product. The Company recorded the upfront payment as research and development expense in the consolidated statement of operations and comprehensive loss because the acquired technology represented in-process research and development and had no alternative future use. Under the Georgetown Agreement, the Company is solely responsible for all development and commercialization activities and costs in its respective territories. The Company is also responsible for all costs related to the filing, prosecution and maintenance of the licensed patent rights. The term of the Georgetown Agreement will continue until the expiration of the last valid claim within the patent rights covering the product. Georgetown may terminate the agreement in the event (i) the Company fails to pay any amount and fails to cure such failure within 30 days after receipt of notice, (ii) the Company defaults in its obligation to obtain and maintain insurance and fails to remedy such breach within 45 days after receipt of notice, or (iii) the Company declares insolvency or bankruptcy. The Company may terminate the Georgetown Agreement at any time upon at least 60 days’ written notice. During the years ended December 31, 2021, 2020 and 2019, the Company did not incur any payment obligations to Georgetown under the Georgetown Agreement and no milestone payments were made or due under the Georgetown Agreement.

Beth Israel Deaconess Medical Center Agreement

In December 2016, the Company entered into a license agreement (the “BIDMC Agreement”) with Beth Israel Deaconess Medical Center (“BIDMC”), pursuant to which the Company obtained an exclusive, worldwide license to make, have made, use, sell, offer for sale and import products covered by patent rights co-owned by BIDMC. The rights licensed to the Company are for all fields of use. Under the terms of the BIDMC Agreement, the Company paid a one-time, upfront fee of $20 thousand and the Company is responsible for all future patent prosecution costs. The Company recorded the upfront payment as research and development expense in the consolidated statement of operations because the acquired technology represented in-process research and development and had no alternative future use. The term of the BIDMC Agreement will continue until the expiration of the last valid claim within the patent rights covering the licensed products. BIDMC may terminate the agreement in the event (i) the Company fails to pay any amount and fails to cure such failure within 15 days after receipt of notice, (ii) the Company is in material breach of any material provision of the BIDMC Agreement and fails to remedy such breach within 60 days after receipt of notice, or (iii) the Company declares insolvency or bankruptcy. The Company may terminate the BIDMC Agreement at any time upon at least 90 days’ written notice. The Company did not incur any payment obligations under the BIDMC Agreement during the years ended December 31, 2021, 2020 and 2019.

Dana Farber Cancer Institute Agreement

In November 2020, the Company entered into a license agreement (the “DFCI Agreement”) with the Dana Farber Cancer Institute (“DFCI”) pursuant to which the Company obtained a non-exclusive, royalty-bearing license to use, make, have made, develop, market, import, distribute, sell and have sold products covered by patent rights owned by DFCI. Under the terms of the DFCI Agreement, the Company paid a one-time, upfront fee of $25 thousand and approximately $35 thousand for reimbursement of DFCI’s past patent expenses relating to the patent rights. The Company will pay 25% of DFCI’s ongoing patent prosecution expenses and an annual license maintenance fee of $10 thousand in each of the first three years, $40 thousand in each of the subsequent three years and $50 thousand every year after that until commercialization. The Company may be required to make milestone payments of up to an aggregate of approximately $32.0 million related to development, regulatory and commercial sales events. No such milestone payments have been incurred to date. The Company recorded the upfront payment as research and development expense in the consolidated statement of operations and comprehensive loss because the acquired technology represented in-process research and development and had no alternative future use. The term of the DCFI Agreement will continue until the expiration of the last valid claim within the patent rights covering the product. DFCI may terminate the agreement if certain events occur.

F-17

X4 PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Research and Development Incentive Program

The Company's wholly-owned subsidiary X4 Austria 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 incurred by X4 Austria. Under the program, the reimbursement rate for qualifying research and development expenses incurred by the Company through X4 Austria is 14% for the current year. X4 Austria also participated in a COVID-19 incentive program, which provides reimbursement for qualified capital spending during a defined time period.

The Company recognizes incentive income from Austrian research and development incentives when qualifying expenses have been incurred, there is reasonable assurance that the payment will be received, and the consideration can be reliably measured. Management has assessed the Company’s research and development activities and expenditures to determine which activities and expenditures are likely to be eligible under the research and development incentive program described above. At each reporting date, management estimates the reimbursable incentive income available to the Company based on available information at the time.

As of the years ended December 31, 2021 and 2020, the amounts due under these programs were $0.7 million and $0.9 million, respectively, which is included in research and development incentive receivable on the consolidated balance sheet. During the years ended December 31, 2021, 2020 and 2019, the Company recorded $0.8 million, $0.5 million and $0.4 million, respectively, of income related to the program on the consolidated statement of operations and comprehensive loss within “other income”.

Abbisko Agreement

In July 2019, the Company entered into a license agreement with Abbisko (the “Abbisko Agreement”). Under the terms of the Abbisko Agreement, the Company granted Abbisko the exclusive right to develop, manufacture and commercialize mavorixafor in mainland China, Taiwan, Hong Kong and Macau, the (“Abbisko Territory”). The agreement provides Abbisko with the exclusive rights in the Abbisko Territory to develop and commercialize mavorixafor in combination with checkpoint inhibitors or other agents in multiple oncology indications. The Company retains the full rest-of-world rights to develop and commercialize mavorixafor outside of Greater China for all indications and the ability to utilize data generated pursuant to the Abbisko collaboration for rest-of-world development. Assuming mavorixafor is developed by Abbisko in six indications, the Company would be entitled to milestone payments of up to $208.0 million, which will vary based on the ultimate sales, if any, of the approved licensed products. In addition, upon commercialization of mavorixafor in the Abbisko Territory, the Company is eligible to receive a tiered royalty, with a percentage range in the low double-digits, on net sales of approved licensed products. Abbisko is obligated to use commercially reasonable efforts to develop and commercialize mavorixafor in the Abbisko Territory. Abbisko has responsibility for all activities and costs associated with the further development, manufacture and commercialization of mavorixafor in the Abbisko Territory.

Following the closing of a qualified financing (as such term is defined in the Abbisko Agreement), Abbisko was required to pay the Company a one-time, non-refundable, non-creditable financial milestone payment of $3.0 million. Abbisko achieved such qualified financing in March 2020 and, as a result, the Company was eligible to receive the milestone payment, which was received by the Company in April 2020. The Company is also eligible to receive potential development and regulatory milestone payments, which vary based on the number of indications developed, and potential commercial milestone payments based on annual net sales of mavorixafor-based licensed products.

Upon entering into the Abbisko Agreement, the Company evaluated the Abbisko Agreement under ASC 606 and determined the Abbisko Agreement contained a single performance obligation related to the exclusive license to develop and commercialize mavorixafor and the transfer of know-how that was satisfied at the inception of the arrangement. The transaction price related to the transfer of the license and know-how was fully constrained and the Company ascribed no transaction price to the development, regulatory and commercial milestones under the “most-likely amount” method. The Company concluded that any consideration related to the initial transfer of the license and know-how will be recognized when it is probable that Abbisko will achieve the related financial milestone and other operational milestones. Any consideration related to sales-based milestones (including royalties) will be recognized when the related sales occur as these amounts have been determined to relate predominantly to the license granted to Abbisko and therefore are recognized at the later of when the performance obligation is satisfied or the related sales occur. As a result of Abbisko’s achievement of the qualified financing, the Company reversed the constraint related to this milestone and recognized $3.0 million of license revenue during the year ended December 31, 2020.

F-18

X4 PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company determined that the future sale of clinical and commercial supply are optional goods that will be subject to the customer's future purchasing decisions and do not represent performance obligations in the Abbisko Agreement. The Company concluded that the amount to be charged for the clinical supply will be reflective of market value and, therefore, the Abbisko Agreement does not provide a discount on such supply that would be accounted for as material right at the outset of the contract. In arriving at these conclusions, the Company considered the complexity of the manufacturing process for the licensed compound and the potential ability for Abbisko to obtain the compound directly from other manufactures in the future. The Company expects that it will recognize revenue at a point in time when such clinical supply (and commercial supply, if applicable) is delivered to Abbisko in the future.

The Company re-evaluates the transaction price, including its estimated variable consideration for milestones included in the transaction price and all constrained amounts, in each reporting period and as uncertain events are resolved or other changes in circumstances occur.

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 December 31, 2021 Using:

(in thousands) Level 1 Level 2 Level 3 Total

Assets:

Liabilities:

Embedded derivative liability $ — $ — $ 821 $ 821

Fair Value Measurements as of December 31, 2020 Using:

(in thousands) Level 1 Level 2 Level 3 Total

Assets:

Liabilities:

Embedded derivative liability $ — $ — $ 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 asset or by using inputs observable in active markets for similar securities, which represents a Level 2 measurement in the fair value hierarchy.

The following table provides a roll-forward of the aggregate fair values of the Company’s warrant liability and derivative liability, for which fair values are determined using Level 3 inputs:

(in thousands) Embedded Derivative Liability

Change in fair value 437

Change in fair value 366

F-19

X4 PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Valuation of 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 consolidated balance sheets, is estimated by the Company at each reporting date based, in part, on the results of third-party valuations, which were prepared based on a discounted cash flow model that considered 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%. As of December 31, 2021 and December 31, 2020, the fair value of this derivative liability was $821 thousand and $455 thousand, respectively.

Impairment of Goodwill

Goodwill is tested quantitatively 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. During the fourth quarter of 2021, the Company’s market capitalization, measured as the price of the Company’s common stock multiplied by common shares outstanding, was below the value of the Company’s net assets, including goodwill. As a result of the sustained decline in the market price of the Company’s common stock, the fair value of the Company’s single reporting unit, determined based on Company’s market capitalization on December 31, 2021, was lower than its carrying value and the Company concluded that goodwill was impaired. Accordingly, the Company recorded an impairment charge of $9.8 million to reduce the carrying amount of goodwill to $17.4 million as of December 31, 2021. Should the market value of the Company’s common stock continue to decline, additional impairment charges may be recorded in the future.

The following table provides a rollforward of the Company’s goodwill and accumulated impairment losses.

(in thousands) Goodwill

Accumulated impairment loss, at December 31, 2020 —

Additions —

Impairment losses (9,758)

F-20

X4 PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. PROPERTY AND EQUIPMENT

Property and equipment, net consisted of the following:

Leasehold improvements $ 228 $ 228

Less: Accumulated depreciation and amortization (724) (274)

Depreciation and amortization expense related to property and equipment was approximately $499 thousand, $351 thousand, and $103 thousand for the years ended December 31, 2021, 2020 and 2019, respectively.

6. ACCRUED EXPENSES

Accrued expenses consisted of the following

Accrued employee compensation and benefits $ 5,417 $ 3,756

Accrued external research and development expenses 1,507 3,150

Accrued professional fees 632 627

7. LONG-TERM DEBT

Long-term debt consisted of the following:

Principal amount of long-term debt $ 32,500 $ 32,500

Debt premium, net of accretion 277 223

Cumulative accrual of end of term payments 1,157 455

Less: current portion of long-term debt (795) —

Long-term debt, net of current portion $ 33,139 $ 33,178

Hercules Loan Agreements-— In October 2018, the Company entered into the Hercules Loan Agreement, as amended in June 2019, December 2019, March 2020, December 2020, and February 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 accrue 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 under the Amended and Restated Loan Agreement would be increased by 4.0%.

F-21

X4 PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 $0.8 million, which was settled on January 1, 2022, $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 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 3 trial of mavorixafor for the treatment of WHIM and (b) September 1, 2022, 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 $30.0 million or six multiplied by a metric based on prior months’ cash expenditures; provided, however, that from and after the Company’s achievement of certain financing milestones through June 30, 2022, the Company must maintain cash in an account or accounts in which Hercules has a first priority security interest in an aggregate amount of $30.0 million. Following the achievement of certain operational performance milestones, the required level shall be reduced to the greater of $20.0 million, or, if the Company had not met the financing milestones noted above, three multiplied by the current cash expenditures metric; and provided further, that subject to the achievement of additional operational milestones, this covenant will be extinguished.

The Hercules Loan Agreement 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) For the years ended

The annual effective interest rate on the Hercules Loan Agreement as of December 31, 2021 is 10.7%. There were no principal payments due or paid under the Hercules Loan Agreement during the year ended December 31, 2021.

As of December 31, 2021, future principal payments and accrued end-of-term payments due under the Hercules Loan Agreement were as follows (in thousands):

Year Ending December 31 Total

Long-term debt, including end-of-term payments $ 33,657

F-22

X4 PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. LEASES

The Company has lease agreements for its facilities in Boston, Massachusetts, which is the Company’s principal executive offices; Vienna, Austria, which is the Company’s research and development center; and Waltham, Massachusetts, which the Company has sublet to a third party. The Company previously had a lease agreement for a facility in Cambridge, Massachusetts, which served as its prior corporate headquarters. There are no restrictions or financial covenants associated with any of the lease agreements.

Boston Lease— The Company leases approximately 28,000 square feet of office space in Boston, Massachusetts (“Boston Lease”), which leased was entered into in November 2019 and 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 $0.9 million for the benefit of the landlord.

For the Boston lease, the Company participated in the construction of the office space and incurred construction costs to prepare the office space for its use, which have been partially reimbursed by the landlord. The Company concluded that these construction costs generate and enhance the landlord’s assets, and, as such, unreimbursed construction costs incurred to prepare the office space for its use have been classified a part of the right-of-use asset. The commencement date for the Boston Lease was September 1, 2020 upon substantial completion of the landlord's asset. On the commencement date, the Company recognized a lease liability of $4.6 million reflecting the future rent payments for the term of the Boston Lease discounted at the Company’s collateralized borrowing rate, and a right-of-use asset of $8.0 million measured as the lease liability plus rent payments made and unreimbursed construction costs incurred prior to the commencement date. The Company began recognizing rent expense following the commencement date.

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 5 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 5 year term of the lease.

Vienna Austria Leases— The Company has 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 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, will be approximately $300 thousand.

Cambridge Lease— In August 2017, the Company entered into a non-cancellable operating lease agreement for office space of

approximately 13,000 square feet in Cambridge, Massachusetts (“Cambridge Lease”), which had an original expiration date of

July 31, 2022. Base rent was approximately $832 thousand annually and the monthly rent expense was recognized on a straight-line basis over the term of the lease as the Company amortizes the associated operating lease right-of-use asset. The Company reached an agreement with the landlord on July 17, 2020 to terminate the lease effective September 30, 2020 in exchange for a fee. The Company accounted for the lease modification prospectively from the date of the termination through the new lease termination date of September 30, 2020, at which time the right-of-use asset and associated lease liabilities were retired from the consolidated balance sheet. The Company was required to maintain a letter of credit of $264 thousand, secured by restricted cash, for the benefit of the landlord through December 31, 2020.

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 an amount equal to the lease payments in a similar economic environment.

F-23

X4 PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The components of lease expense for the three years ended December 31, 2021, 2020, and 2019 were as follows (dollars in thousands):

For the Year Ended December 31,

Other information

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases $ 1,257 $ 3,820 $ 1,007

Weighted-average discount rate—operating leases 11.3 % 11.2 % 9.0 %

Maturities of lease liabilities due under lease agreements that have commenced as of December 31, 2021 are as follows (in thousands):

Maturity of lease liabilities OperatingLeases

Total lease payments 7,722

Less: interest (1,871)

Total operating lease liabilities as of December 31, 2021 $ 5,851

9. COMMITMENTS AND CONTINGENCIES

The Company has agreements with clinical 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 CN. 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.

License Agreements. See Note 3 for a summary of the Company’s license agreements, which commit the Company to contingent milestone and royalty fees based on future operational events. In March 2021, the Company terminated its license agreement with Adimab LLC and has no further obligations on the agreement.

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

F-24

X4 PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 consolidated financial statements as of December 31, 2021 or December 31, 2020.

XFOR US Equity

XFOR · 10-K · period ended 2021-12-31

ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

ITEM 9A. CONTROLS AND PROCEDURES

ITEM 9B. OTHER INFORMATION

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES

ITEM 16. FORM 10-K SUMMARY

XFOR US Equity☆

XFOR · 10-K · period ended 2021-12-31

ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

ITEM 9A. CONTROLS AND PROCEDURES

ITEM 9B. OTHER INFORMATION

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

ITEM 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES

ITEM 16. FORM 10-K SUMMARY

XFOR US Equity