of X4 Pharmaceuticals, Inc. s (formerly Arsanis, Inc.) Amendment No. 1 to the Current Report on Form 8-K filed on

X4 MANAGEMENT S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of X4 Pharmaceuticals Inc. ( X4 ) s financial condition and results of operations

together with X4 s consolidated financial statements and the related notes included in Exhibit 99.1 of X4 Pharmaceuticals, Inc. s (formerly Arsanis, Inc.) Amendment No. 1 to the Current Report on Form

8-K filed with the Securities and Exchange Commission ( SEC ) on April 3, 2019. Some of the information contained in this discussion and analysis including information with respect to X4 s

plans and strategy for X4 s 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 included in

statements contained in the following discussion and analysis.

X4 is a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of novel therapeutics for the treatment of rare

diseases. X4 s pipeline is comprised of first-in-class, oral, small molecule antagonists of chemokine receptor CXCR4, which have the potential to treat a

broad range of rare diseases, including primary immunodeficiencies, or PIs, and cancer. X4 s lead product candidate, X4P-001, has completed a Phase 2 trial in patients with Warts,

Hypogammaglobulinemia, Infections, and Myelokathexis, or WHIM, syndrome. X4 initiated a global Phase 3 pivotal trial of X4P-001 in patients with WHIM syndrome in the first half of 2019 and plans to report top-line data from this Phase 3 trial in 2021. Beyond WHIM syndrome, X4 plans to initiate a Phase 1/2 trial of X4P-001 in another PI,

severe congenital neutropenia, or SCN, and a Phase 1/2 trial of X4P-001 in Waldenstr m macroglobulinemia, or WM, in 2019, with data expected from each trial in 2020.

Since X4 s inception in 2012, X4 has devoted substantially all of its efforts and financial resources to organizing and staffing its company, business

planning, raising capital, acquiring or discovering product candidates and securing related intellectual property rights and conducting discovery, research and development activities for its product candidates. X4 does not have any products approved

for sale and has not generated any revenue from product sales. X4 has funded its operations to date primarily with proceeds from sales of preferred stock, proceeds from the issuance of convertible debt and borrowings under loan and security

agreements. Through December 31, 2018, X4 has received net proceeds of $73.7 million from sales of its preferred stock (including proceeds from convertible debt, which converted into preferred stock) and gross proceeds of $6.0 million

from borrowings under the SVB Loan Agreement, gross proceeds of $10.0 million from borrowings under the Hercules Loan Agreement and repaid all amounts due under the SVB Loan Agreement, totaling $4.6 million.

X4 has incurred significant operating losses since inception. X4 s ability to generate product revenue sufficient to achieve profitability will depend

heavily on the successful development and eventual commercialization of one or more of X4 s current or future product candidates. X4 s net losses were $17.9 million, $22.0 million and $33.3 million for the years ended

December 31, 2016, 2017 and 2018, respectively. As of December 31, 2018, X4 had an accumulated deficit of $79.2 million. X4 expects to continue to incur significant expenses and increasing operating losses for at least the next

several years. X4 expects that its expenses and capital requirements will increase substantially in connection with its ongoing activities, particularly if and as X4:

X4 will not generate revenue from product sales unless and until X4 successfully completes clinical

development and obtains regulatory approval for its product candidates. If X4 obtains regulatory approval for any of its product candidates and does not enter into a commercialization partnership, X4 expects to incur significant expenses related to

developing X4 s internal commercialization capability to support product sales, marketing and distribution. Further, X4 expects to incur additional costs associated with operating as a public company as a result of the Merger described below.

As a result, X4 will need substantial additional funding to support its continuing operations and pursue its growth strategy. Until such time as X4 can

generate significant revenue from product sales, if ever, X4 expects to finance its operations through the sale of equity, debt financings or other capital sources, which may include collaborations with other companies or other strategic

transactions. X4 may not be able to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If X4 fails to raise capital or enter into such agreements as and when needed, X4 may have to

significantly delay, reduce or eliminate the development and commercialization of one or more of its product candidates or delay its pursuit of potential in-licenses or acquisitions.

Because of the numerous risks and uncertainties associated with product development, X4 is unable to predict the timing or amount of increased expenses or

when or if it will be able to achieve or maintain profitability. Even if X4 is able to generate product sales, X4 may not become profitable. If X4 fails to become profitable or is unable to sustain profitability on a continuing basis, then X4 may be

unable to continue its operations at planned levels and be forced to reduce or terminate its operations.

As of April 2, 2019, the issuance date of

the annual consolidated financial statements for the year ended December 31, 2018, X4 expected that its cash and cash equivalents, including cash and cash equivalents received in connection with closing of the merger with Arsanis, would be

sufficient to fund its operating expenses, capital expenditure requirements and debt service payments into the third quarter of 2019. See Liquidity and Capital Resources. X4 will need to raise additional capital to finance

its operations, which cannot be assured. X4 concluded on April 2, 2019, the issuance date of the annual consolidated financial statements for the year ended December 31, 2018, that this circumstance raised substantial doubt about its ability to

continue as a going concern within one year of the issuance date of its annual consolidated financial statements for the year ended December 31, 2018.

Similarly, in its report on X4 s financial statements for the year ended December 31, 2018, X4 s independent registered public accounting firm

included an explanatory paragraph stating that X4 s recurring losses from operations and required additional funding to finance X4 s operations raise substantial doubt about its ability to continue as a going concern.

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 the Company 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 would merge 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 the Notes to Consolidated Financial Statements as the

merger or the merger with Arsanis contained within the consolidated financial statements and the related notes included in Exhibit 99.1 of X4 Pharmaceuticals, Inc. s (formerly Arsanis, Inc.) Amendment No. 1 to the Current

Report on Form 8-K filed on April 3, 2019. The merger was completed on March 13, 2019 pursuant to the terms of the Merger Agreement.

Pursuant to the terms of the Merger Agreement, upon closing of the merger, all of X4 s outstanding common stock and convertible preferred stock was

exchanged for common stock of Arsanis and all outstanding options exercisable for common stock and warrants exercisable for convertible preferred stock of X4 were exchanged for options and warrants exercisable for common stock of Arsanis. In

addition, immediately following the closing of the merger, the combined organization effected a 1-for-6 reverse stock split of its common stock and changed its name to

X4 Pharmaceuticals, Inc. In connection with the merger, Arsanis changed its name to X4 Therapeutics, Inc. Following the closing of the merger, X4 Therapeutics, Inc. became a wholly owned subsidiary of X4 Pharmaceuticals, Inc. Except as noted

otherwise, the consolidated financial statements and notes included in Exhibit 99.1 of X4 Pharmaceuticals, Inc. s (formerly Arsanis, Inc.) Amendment No. 1 to the Current Report on Form 8-K filed on April 3, 2019 do not give effect to this

reverse stock split.

The business combination was accounted for as a reverse merger in accordance with 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) X4 s stockholders own a substantial majority of the voting rights in the

combined organization, (ii) X4 designated a majority of the members of the initial board of directors of the combined organization and (iii) X4 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 financial statements of X4 and the reported operating results prior to the business combination will be those of X4. In addition, transaction costs incurred by X4 in connection with the business

combination will be expensed as incurred.

Components of Results of Operations

To date, X4 has not generated any revenue

from product sales and does not expect to generate any revenue from the sale of products in the foreseeable future. If X4 s development efforts for its product candidates are successful and result in regulatory approval, X4 may generate revenue

in the future from product sales. X4 cannot predict if, when, or to what extent it will generate revenue from the commercialization and sale of its product candidates. X4 may never succeed in obtaining regulatory approval for any of its product

and Development Expenses

Research and development expenses consist primarily of costs incurred in connection with the discovery and development of

X4 s product candidates. X4 expenses research and development costs as incurred. These expenses include:

X4 recognizes external development costs based on an evaluation of the progress to completion of specific tasks using information provided to X4 by its

service providers. This process involves reviewing open contracts and purchase orders, communicating with its personnel to identify services that have been performed on its behalf, and estimating the level of service performed and the associated

cost incurred for the service when X4 has not yet been invoiced or otherwise notified of actual costs. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as

prepaid expenses. Such amounts are recognized as an expense when the goods have been delivered or the services have been performed, or when it is no longer expected that the goods will be delivered or the services rendered. Upfront payments,

milestone payments and annual maintenance fees under license agreements are expensed in the period in which they are incurred.

X4 s direct research

and development expenses are tracked by product candidate and consist primarily of external costs, such as fees paid to outside consultants, CROs, CMOs and research laboratories in connection with its preclinical development, process development,

manufacturing and clinical development activities. X4 s direct research and development expenses by product candidate also include fees incurred under third-party license agreements. X4 does not allocate employee costs and costs associated with

its discovery efforts, laboratory supplies and facilities, including depreciation or other indirect costs, to specific product candidates because these costs are deployed across multiple programs and, as such, are not separately classified. X4 uses

internal resources primarily to conduct its research and discovery as well as for managing its preclinical development, process development, manufacturing and clinical development activities. These employees work across multiple programs and,

therefore, X4 does not track its costs by product candidate.

The table below summarizes X4 s research and development expenses incurred by product candidate:

Research and development activities are central to X4 s business model. Product candidates in later stages of clinical

development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. As a result, X4 expects that its research and development

expenses will increase over the next several years as it completes its ongoing Phase 2 trial in patients with WHIM syndrome; initiates a Phase 3 pivotal trial of X4P-001 in patients with WHIM

syndrome in the first half of 2019; initiates a Phase 1/2 clinical trial of X4P-001 in WM in 2019; and initiates a Phase 1/2 clinical trial

of X4P-001 in SCN in 2019. In addition, X4 expects research and development expenses to increase related to conducting preclinical development and pursuing initial clinical stages of its product candidates X4P-002 and X4P-003.

The successful development and

commercialization of X4 s product candidates are highly uncertain. At this time, X4 cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of

any of its product candidates. This is due to the numerous risks and uncertainties associated with product development and commercialization, including the following:

A change in the outcome of any of these variables with respect to the development of X4 s product candidates could significantly

change the costs and timing associated with the development of that product candidate. X4 may never succeed in obtaining regulatory approval for any of its product candidates.

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.

X4 anticipates that its general and administrative expenses will increase in the future as it increases its headcount to support its continued research

activities and development of its product candidates. X4 also anticipates that it will incur increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses

associated with being a public company.

Other Income (Expense), Net

Interest income consists of interest

earned on X4 s cash equivalents, which consist of money market funds. X4 s interest income has not been significant due to low interest rates earned on invested balances.

Interest expense consists of interest

on outstanding borrowings under X4 s 2016 loan and security agreement with Silicon Valley Bank, or SVB, which X4 refers to as the SVB Loan Agreement, as well as amortization of debt issuance costs and accretion of a final payment payable upon

the maturity or the repayment in full of all obligations under the SVB Loan Agreement. In October 2018, in connection with entering into the loan and security agreement with Hercules Capital, Inc., or Hercules, which X4 refers to as the Hercules

Loan Agreement, all amounts due under the SVB Loan Agreement, including unpaid principal of $4.3 million and a final payment $0.3 million, were repaid with proceeds from the Hercules Loan Agreement and the SVB Loan Agreement was

terminated. X4 expects that its interest expense will increase in connection with its Hercules Loan Agreement, under which it borrowed $8.0 million in October 2018 and an additional $2.0 million in December 2018.

Change in Fair Value of Preferred Stock Warrant Liability