SEC Filing | Pyxis Oncology

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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-40881

Pyxis Oncology, Inc.

(Exact Name of Registrant as Specified in its Charter)


Delaware	83-1160910
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
35 Cambridgepark Drive Cambridge, Massachusetts	02140
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (617) 221-9059

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

PYXS

Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 13, 2022, the registrant had 32,817,062 shares of common stock, $0.001 par value per share, outstanding.

Table of Contents


		Page
Summary Risk Factors		1
PART I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2022 and 2021	4
	Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit for the three months ended March 31, 2022 and 2021	5
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24
PART II.	OTHER INFORMATION	26
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	74
Item 3.	Defaults Upon Senior Securities	74
Item 4.	Mine Safety Disclosures	74
Item 5.	Other Information	74
Item 6.	Exhibits	75
Signatures		76

SUMMARY RISK FACTORS

You should consider carefully the risks described under “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q. References to “Pyxis Oncology,” the “Company,” “we,” “us,” and “our” in this section titled “Summary Risk Factors” refer to Pyxis Oncology, Inc. and its wholly owned subsidiary. A summary of the risks that could materially and adversely affect our business, financial condition, operating results and prospects include the following:

•

We are a preclinical stage biopharmaceutical company with a limited operating history and have incurred significant losses since our inception. We expect to incur losses over at least the next several years and may never achieve or maintain profitability.

•

We will require substantial additional capital to finance our operations, obtain regulatory approval for our product candidates, and commercialize our product candidates. If we are unable to raise such capital when needed, or on acceptable terms, we may be forced to delay, reduce or eliminate one or more of our research and product development programs or future commercialization efforts.

•

We are heavily dependent on the success of PYX-201, PYX-202, PYX-203, PYX-106 and PYX-102 all of which are in the early stages of development, and if PYX-201, PYX-202, PYX-203, PYX-106 and/or PYX-102 are not successful in clinical trials or do not receive regulatory approval or licensure or are not successfully commercialized, our business will be materially and adversely affected.

•

All of our product candidates are currently in preclinical development. Our product candidates may fail in development or suffer delays that materially and adversely affect their commercial viability. If we or our existing or future collaborators are unable to initiate and complete clinical development of, obtain regulatory licensure for or commercialize our product candidates or experience significant delays in doing so, our business will be materially harmed.

•

Our preclinical studies and clinical trials may fail to demonstrate adequately the safety, purity and potency of any of our product candidates, which would prevent or delay development, regulatory licensure and commercialization.

•

Our preclinical programs may experience delays or may never advance to clinical trials, which would adversely affect our ability to obtain regulatory licensure or commercialize these programs on a timely basis or at all.

•

We face competition from entities that have developed or may develop product candidates for cancer, including companies developing novel treatments and technology platforms. If these companies develop technologies or product candidates more rapidly than we do or their technologies are more effective, our ability to develop and successfully commercialize product candidates may be adversely affected.

•

Clinical testing and product development is a lengthy and expensive process with an uncertain outcome. We may incur unexpected costs or experience delays in completing, or ultimately be unable to complete, the clinical testing and the development and commercialization of our product candidates.

•

The regulatory licensure and approval processes of the FDA and other comparable regulatory authorities are lengthy, time-consuming and inherently unpredictable and, if we are ultimately unable to obtain marketing licensure or approval for our product candidates, our business will be substantially harmed.

•

If we fail to attract and retain qualified senior management and key scientific personnel, our business may be materially and adversely affected.

•

We face risks related to health epidemics and outbreaks, including the COVID-19 pandemic, which could significantly disrupt our preclinical studies and clinical trials, and therefore our receipt of necessary regulatory licensure or approvals could be delayed or prevented.

•

We rely on third parties to manufacture our product candidates. Any failure by a third-party manufacturer to produce acceptable raw materials or product candidates for us or to obtain authorization from the FDA or comparable foreign regulatory authorities may delay or impair our ability to initiate or complete our clinical trials, obtain regulatory licensure or approvals or commercialize approved products.

•

If we are unable to obtain and maintain patent protection for our product candidates, or if the scope of the patent protection obtained is not sufficiently broad, or if our patents are insufficient to protect our product candidates for an adequate amount of time, or if we are unable to obtain adequate protection for our proprietary know-how, we may not be able to compete effectively in our markets.

•

If we fail to comply with our obligations under any license, collaboration or other agreements, we may be required to pay damages and could lose intellectual property rights that are necessary for developing and protecting our product candidates or we could lose certain rights to grant sublicenses.

•

Licensing of intellectual property is of critical importance to our business and involves complex legal, business and scientific issues. If we breach our University of Chicago, Pfizer, LegoChem, or Biosion license agreements or any of the other agreements under which we acquired, or will acquire, intellectual property rights covering our product candidates, we could lose the ability to continue the development and commercialization of the related product.

•

If the market opportunities for any product that we develop are smaller than we believe they are, our revenue may be adversely affected, and our business may suffer.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

PYXIS ONCOLOGY, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)


	March 31, 2022			December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	247,087		$	274,735
Restricted cash		1,472			1,472
Prepaid expenses and other current assets		2,698			2,466
Total current assets		251,257			278,673
Property and equipment, net		995			1,007
Operating lease right-of-use assets		—			232
Other assets, noncurrent		449			109
Total assets	$	252,701		$	280,021
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	2,055		$	11,951
Accrued expenses and other current liabilities		17,132			6,592
Operating lease liabilities, current portion		—			165
Total current liabilities		19,187			18,708
Total liabilities		19,187			18,708
Commitments and contingencies (Note 12)
Stockholders’ equity:
Preferred stock, par value $0.001 per share, 10,000,000 shares authorized as of March 31, 2022 and December 31, 2021, zero shares issued and outstanding as of March 31, 2022 and December 31, 2021		—			—
Common stock, $0.001 par value per share; 190,000,000 shares authorized as of March 31, 2022 and December 31, 2021; 32,843,985 and 32,792,867 shares issued as of March 31, 2022 and December 31, 2021, respectively, and 32,374,907 and 32,222,881 shares outstanding as of March 31, 2022 and December 31, 2021, respectively		32			32
Additional paid-in capital		356,580			352,999
Accumulated deficit		(123,098	)		(91,718	)
Total stockholders’ equity		233,514			261,313
Total liabilities and stockholders’ equity	$	252,701		$	280,021

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

PYXIS ONCOLOGY, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share amounts)

(Unaudited)


	Three Months Ended March 31,
	2022			2021
Operating expenses:
Research and development	$	20,071		$	32,774
General and administrative		11,318			2,955
Total operating expenses		31,389			35,729
Loss from operations		(31,389	)		(35,729	)
Other income (expense):
Interest income		9			4
Change in fair value of derivative liability		—			(1,100	)
Total other income (expense)		9			(1,096	)
Net loss and comprehensive loss	$	(31,380	)	$	(36,825	)
Net loss per common share - basic and diluted	$	(0.97	)	$	(27.26	)
Weighted average shares of common stock outstanding - basic and diluted		32,316,689			1,350,743

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

PYXIS ONCOLOGY, INC.

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit

(In thousands, except share amounts)

(Unaudited)


	Convertible Preferred Stock				Common Stock				Additional Paid-in		Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount		Capital		Deficit			Equity (Deficit)
Balance at January 1, 2022		—	$	—		32,222,881	$	32	$	352,999	$	(91,718	)	$	261,313
Stock options exercised		—		—		51,118		—		176		—			176
Vesting of restricted common stock		—		—		100,908		—		1		—			1
Stock-based compensation		—		—		—		—		3,404		—			3,404
Net loss		—		—		—		—		—		(31,380	)		(31,380	)
Balance at March 31, 2022		—	$	—		32,374,907	$	32	$	356,580	$	(123,098	)	$	233,514

	Convertible Preferred Stock				Common Stock				Additional Paid-in		Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount		Capital		Deficit			Equity (Deficit)
Balance at January 1, 2021		22,724,925	$	21,942		1,289,342	$	1	$	97	$	(15,743	)	$	(15,645	)
Issuance of Series B convertible preferred stock to Pfizer, Inc. (Refer to Note 5)		12,152,145		20,000		—		—		—		—			—
Issuance of Series B convertible preferred stock, net of issuance costs of $419		92,660,103		152,081		—		—		—		—			—
Vesting of restricted common stock		—		—		123,085		—		3		—			3
Stock-based compensation		—		—		—		—		2,450		—			2,450
Net loss		—		—		—		—		—		(36,825	)		(36,825	)
Balance at March 31, 2021		127,537,173	$	194,023		1,412,427	$	1	$	2,550	$	(52,568	)	$	(50,017	)

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

PYXIS ONCOLOGY, INC.

Condensed Consolidated Statements of Cash Flows (In thousands)

(Unaudited)


	Three Months Ended March 31,
	2022			2021
Operating activities
Net loss	$	(31,380	)	$	(36,825	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		158			113
Stock-based compensation		3,404			2,450
Non-cash research and development expenses		—			20,000
Non-cash lease expense		232			217
Changes in fair value of derivative liability		—			1,100
Changes in operating assets and liabilities:
License receivable		—			(8,000	)
Prepaid expenses and other assets		(232	)		(71	)
Other assets, noncurrent		(340	)		—
Accounts payable		(9,896	)		(447	)
Accrued expenses and other current liabilities		10,540			(491	)
Operating lease liabilities		(165	)		(146	)
Derivative liability		—			3,369
Net cash used in operating activities		(27,679	)		(18,731	)
Investing activities
Purchase of property and equipment		(146	)		(169	)
Investment in joint venture		—			(50	)
Net cash used in investing activities		(146	)		(219	)
Financing activities
Proceeds from issuance of Series B convertible preferred stock, net of issuance costs		—			151,581
Deferred offering costs		—			(47	)
Proceeds from the exercise of stock options		176			—
Net cash provided by financing activities		176			151,534
Net (decrease) increase in cash, cash equivalents, and restricted cash		(27,649	)		132,584
Cash, cash equivalents and restricted cash at beginning of year		276,316			8,188
Cash, cash equivalents and restricted cash at end of year	$	248,667		$	140,772
Supplemental schedule of noncash investing and financing activities:
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	247,087		$	140,663
Restricted cash		1,580			109
Total cash, cash equivalents and restricted cash shown in the statement of cash flows	$	248,667		$	140,772

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

PYXIS ONCOLOGY, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Description of Business

Nature of Business

Pyxis Oncology, Inc. (the “Company”), a Delaware corporation, was founded in June 2018 and launched its operations in July 2019. The Company is a preclinical oncology company focused on developing an arsenal of next-generation therapeutics to target difficult-to-treat cancers and improve quality of life for patients. The Company develops its product candidates with the objective to directly kill tumor cells, and to address the underlying pathologies created by cancer that enable its uncontrollable proliferation and immune evasion. Since the Company’s launch in 2019, the Company has developed a broad portfolio of novel antibody drug conjugate, or ADC, product candidates and monoclonal antibody, or mAb, preclinical discovery programs that the Company is developing as monotherapies and in combination with other therapies.

The Company has determined that it has one operating and reporting segment.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The Company’s fiscal year ends on December 31 and its first three fiscal quarters end on March 31, June 30 and September 30. The accompanying condensed consolidated financial statements are unaudited. The unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and follow the requirements of the Securities and Exchange Commission (“SEC”) for interim financial reporting. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for complete financial statements as certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements. The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. The Company has no unconsolidated subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).

In the opinion of management, the unaudited condensed consolidated financial statements include all normal and recurring adjustments that are considered necessary for the fair statement of results for the interim periods. The results for the three months ended March 31, 2022 are not necessarily indicative of those expected for the year ending December 31, 2022 or for any future period. The condensed consolidated balance sheet as of December 31, 2021 included herein was derived from the audited consolidated financial statements as of that date. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the related notes thereto for the year ended December 31, 2021, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 29, 2022.

Liquidity

As of March 31, 2022, the Company had an accumulated deficit of $123.1 million. The Company has incurred losses and negative cash flows from operations since inception, including net losses of $31.4 million and $36.8 million for the three months ended March 31, 2022 and 2021, respectively.

The Company has not generated any revenues to date and does not anticipate generating any revenues unless and until it successfully completes development and obtains regulatory approval for its current or any future product candidates. The Company expects that its operating losses and negative cash flows will continue for the foreseeable future as the Company continues to expand its research and development programs and develop its product candidates.

The Company currently expects that its existing cash and cash equivalents of $247.1 million as of March 31, 2022 to fund its operating expenses and capital requirements at least twelve months from the date these unaudited condensed consolidated financial statements are issued. Additional funding may be necessary to fund future clinical and preclinical activities.

The Company plans to continue to fund its losses from operations and capital funding needs through public or private equity, convertible or debt financings or other sources. If the Company is not able to secure adequate additional funding, the Company may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, or suspend or curtail planned programs. Any of these actions could materially harm the Company’s business, results of operations and future prospects.

Use of Estimates

The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. The Company regularly evaluates estimates and assumptions related to assets, liabilities, stock-based compensation, derivative liability, operating leases, and research and development costs. The Company bases its estimates and assumptions on historical experience and on various other factors that it believes to be 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. Actual results could differ from those estimates.

Actual results could differ from those estimates and there may be changes to management’s estimates in future periods.

Risks and Uncertainties

The Company is subject to risks common to early-stage companies in the biopharmaceutical industry including, but not limited to, uncertainties related to commercialization of products, regulatory approvals, dependence on key suppliers for active ingredients and third-party service providers such as contract research organizations, protection of intellectual property rights and the ability to make milestone, royalty or other payments due under any license, collaboration or supply agreements.

Concentration of Credit Risks

Financial instruments that subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company’s cash and cash equivalents are held at an accredited financial institution and the Company has not experienced any losses in such accounts. The Company maintains its cash in bank deposit accounts, which at times may exceed federally insured limits. The Company’s cash equivalents consist primarily of short-term money market funds held in accredited financial institutions. The Company believes it is not exposed to any significant risk in cash and cash equivalents.

Significant Accounting Policies

There have been no changes to the Company’s significant accounting policies disclosed in “Note 2 – Summary of Significant Accounting Policies” of the Company’s Annual Report on Form 10-K filed with the SEC on March 29, 2022.

Recent Accounting Pronouncements

Recent authoritative guidance issued by the FASB (including technical corrections to the ASC), the American Institute of Certified Public Accountants, and the SEC did not, or are not expected to, have a material impact on the Company’s unaudited condensed consolidated financial statements and related disclosures.

3. Fair Value Measurements

The following tables present the financial instruments carried at fair value on a recurring basis as of March 31, 2022 and December 31, 2021, respectively, in accordance with the FASB ASC 820 hierarchy (in thousands):


	Fair Value Measurements at March 31, 2022
	Level 1		Level 2		Level 3		Total
Assets
Money market funds	$	227,219	$	—	$	—	$	227,219

	Fair Value Measurements at December 31, 2021
	Level 1		Level 2		Level 3		Total
Assets
Money market funds	$	272,210	$	—	$	—	$	272,210

The Company’s cash equivalents represent deposits in a short-term United States Treasury money market fund quoted in an active market and classified as a Level 1 asset. There were no assets or liabilities measured at fair value on a nonrecurring basis at March 31, 2022 and December 31, 2021. There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the three months ended March 31, 2022 and 2021.

The Company recognized initial derivative liability of $3.4 million related to LegoChem Extra Milestone Payment and revalued it as of March 31, 2021, with a fair value adjustment to the derivative liability of $1.1 million. The fair value of the derivative liability was initially determined using a probability-weighted income approach and is revalued at each reporting date or more frequently if circumstances dictate. The significant unobservable inputs used in the fair value measurement of the derivative liability include probability of payment factors and the discount rate. Refer to Note 5, Licensing Agreements, for additional information on the derivative liability.

4. Joint Venture

In March 2021, the Company entered into definitive transaction agreements with Alloy Therapeutics, Inc. (“Alloy”) and Voxall Therapeutics, LLC (“Voxall”), to finance and operate Voxall, a joint venture company formed in collaboration with Alloy to leverage the Company’s technology and Alloy’s ATX-Gx™ platform and antibody discovery services. Voxall granted to the Company and Alloy 50% of the voting membership units of Voxall in exchange for certain initial contributions. The Company’s initial contribution included $50 thousand and a non-exclusive fully paid-up license to certain intellectual property owned or controlled by the Company and the execution of the services agreement to enable the collaboration with Voxall. Alloy’s initial contribution included $50 thousand and the execution of the Alloy license agreement and the Alloy services agreement to enable the collaboration with Voxall. Voxall is governed by a board of directors consisting of an equal number of the Company’s representatives and Alloy’s representatives. The protective provisions under Voxall’s operating agreement require the approval of both the Company and Alloy before Voxall may take certain actions.

The Company accounted for investment in Voxall under the equity method of accounting. The initial contribution of $50 thousand was recorded as “Investment in equity method investment in joint venture” in March 2021.

Voxall has incurred losses since inception and the Company has recognized its share of losses of Voxall only to the extent of the carrying value of its investment in Voxall and the promissory note issued by Voxall, which aggregated to $0.2 million in 2021. The Company has not recognized any further losses of Voxall during the three months ended March 31, 2022. The remaining unabsorbed loss will be offset against future income, if any. As the Company has no commitment to fund the losses of the equity method investment, the carrying value of the equity method investment has not been reduced below zero.

5. Licensing Agreements

The University of Chicago Agreement

In April 2020, the Company entered into a license agreement (the “University License Agreement”), as well as a sponsored research agreement, with the University of Chicago (the “University”). Under the terms of the license, the Company has the global right to develop and commercialize products that are covered by a valid claim of a licensed patent, incorporate or use the licensed know-how and materials or are known to assess, modulate or utilize the activity of certain specified biological targets. In partial consideration for the license from the University, the Company issued to the University 48,919 shares of its Common Stock in 2020.

Further, pursuant to the University License Agreement, the Company is obligated to pay to the University, the future contingent payments including development, regulatory and commercial milestones as well as running royalties on net sales of licensed products at varying rates. The Company assessed the milestone and royalty events involving the University as of March 31, 2022 and concluded no such amounts were due.

Pfizer, Inc. Agreement

In December 2020, the Company entered into a license agreement (as amended, the “Pfizer License Agreement”) with Pfizer, Inc. (“Pfizer”) for worldwide development and commercialization rights to antibody drug conjugate ("ADC") product candidates directed to certain licensed targets, including PYX-201 and PYX-203, and products containing the ADC product candidates. The Company’s rights are exclusive with respect to certain patents owned or controlled by Pfizer covering the licensed ADCs. Pfizer has also granted the Company a non-exclusive license to use Pfizer’s ADC technology platform to develop and commercialize the licensed ADCs and licensed products. The initial licensed targets include CD123 and extra domain B (EBD of fibronectin) and the Company has the option to expand the scope of its license to add additional licensed targets that have not been licensed to a third party or are not the subject of a Pfizer ADC development program. The Pfizer License Agreement became effective in March 2021. During the three months ended March 31, 2021, the Company paid a combined $25.0 million for the license fee, which was recorded as research and development expenses, consisting of an upfront fee equal to a cash payment of $5.0 million and the issuance of 12,152,145 shares of Series B convertible preferred stock with a value of $20.0 million to Pfizer.

Further, pursuant to the Pfizer License Agreement, the Company is obligated to pay the future contingent payments including development, regulatory and commercial milestones as well as running royalties on net sales of licensed products at varying rates. The Company assessed the milestone and royalty events involving Pfizer as of March 31, 2022 and concluded no such amounts were due.

LegoChem Biosciences, Inc. Agreements

In December 2020, the Company entered into a license agreement (the “LegoChem License Agreement”) and an opt-in, investment and additional consideration agreement (the “Opt-In Agreement”) with LegoChem Biosciences, Inc. (“LegoChem”). Pursuant to the LegoChem License Agreement, the Company obtained worldwide (other than Korea) license for development and commercialization rights for LCB67, an ADC product candidate targeting DLK-1, and products containing the licensed compound. The Company paid $9.0 million in March 2021 to LegoChem, which was recorded as research and development expenses for the three months ended March 31, 2021. Further, pursuant to the LegoChem License Agreement, the Company is obligated to pay the future contingent payments including development, regulatory and commercial milestones as well as running royalties on net sales of licensed products at varying rates.

In addition, as part of the Opt-in Agreement, LegoChem had an option to pay $8.0 million to the Company, in exchange for the right to receive a milestone payment (the “Extra Milestone Payment”) of $9.6 million upon the earliest to occur of certain events, including the date of pricing or offer of the first public offering of its common stock or if the Company is the subject of a change in control transaction. The Company determined that the Extra Milestone Payment met the definition and recognition condition of derivative under ASC 815, “Derivatives and Hedging” for which there was a binding contract and firm commitment. An initial derivative liability was recognized for $3.4 million with an offset to research and development expenses in January 2021. The derivative liability is re-measured at each reporting date, with changes recorded in “Other income (expense)” in the unaudited condensed consolidated statements of operations and comprehensive loss. The Company recorded a fair value adjustment to the derivative liability of $1.1 million for the three months ended March 31, 2021. The Company settled derivative liability by paying the Extra Milestone Payment of $9.6 million to LegoChem in January 2022.

The Company assessed the milestone and royalty events involving LegoChem as of March 31, 2022 and concluded no such amounts were due.

License Agreement with Biosion USA, Inc.

On March 28, 2022, the Company entered into a license agreement, or the “Biosion License Agreement,” with Biosion USA, Inc., or Biosion, pursuant to which the Company obtained exclusive, worldwide (other than Greater China (mainland China, Hong Kong, Macau and Taiwan)), licenses for development, manufacture and commercialization rights for BSI-060T, a Siglec-15 targeting antibody, an IO product candidate (now referred to as PYX-106), and products containing the licensed compound.

Pursuant to the Biosion License Agreement, the Company agreed to pay a license fee of $10 million, which was recorded as research and development expenses for the three months ended March 31, 2022. The Company paid upfront license fee of $10 million in April 2022 and is obligated to pay future contingent payments including development, regulatory and commercial milestones up to an aggregate of $217.5 million in case of normal approval and $222.5 million in case of accelerated approval. Additionally, if products are launched, the Company will pay Biosion tiered royalties on net sales of licensed products in varying royalty rates ranging from low single digits to low teens. The Company’s royalty obligations apply on a licensed product-by-licensed product and country-by-country basis from first commercial sale until the latest to occur of: (1) 12 years from first commercial sale; (2) the expiration of all regulatory or data exclusivity; and (3) the expiration of the last valid claim of a licensed patent covering the licensed product in a country.

The Company assessed the milestone and royalty events involving Biosion as of March 31, 2022 and concluded no such amounts were due.

6. Convertible Preferred Stock

Series B Convertible Preferred Stock

On March 5, 2021, the Company entered into a securities purchase agreement (as amended, “Series B Agreement”) with certain investors to sell shares of Series B convertible preferred stock (“Series B”) at $1.6458 per share. In March 2021, the Company issued 92,356,299 shares of Series B to institutional investors at $1.6458 per share for gross cash proceeds of $152.0 million, less issuance costs of $0.4 million, resulting in net proceeds of $151.6 million. In addition, the Company granted 12,455,949 shares, or $20.5 million, of Series B convertible preferred stock through separate agreements with Pfizer, Inc. and LegoChem Biosciences Inc. The Company effected a 1-for-6.359 reverse stock split in October 2021. Upon the initial public offering, 104,812,248 shares of Series B were converted to 16,482,486 shares of common stock.

7. Stockholders' Equity

Preferred Stock

There were no issued and outstanding shares of preferred stock as of March 31, 2022 and December 31, 2021.

Common Stock

The Company was authorized to issue up to 190,000,000 shares of common stock as of March 31, 2022 and December 31, 2021, of which 32,843,985 and 32,792,867 shares were issued as of March 31, 2022 and December 31, 2021, respectively, 32,374,907 and 32,222,881 shares were outstanding at March 31, 2022 and December 31, 2021, respectively.

Voting, dividend and liquidation rights of the holders of the common stock are subject to and qualified by the rights, powers and preferences of the holders of the preferred stock.

Voting—Each holder of outstanding shares of common stock shall be entitled to one vote in respect of each share.

Reserved Shares— The Company reserved the following shares of common stock for issuance:


	March 31, 2022		December 31, 2021
Unvested restricted stock awards		2,600,538		618,494
Stock options available for issuance		620,084		1,289,259
Stock options outstanding		6,166,516		5,926,969
Employee stock purchase plan		424,595		424,595
Total		9,811,733		8,259,317

8. Stock-Based Compensation

2021 Equity Incentive Plan

On September 27, 2021, the Company’s board of directors and stockholders approved the 2021 Equity Incentive Plan (the “2021 Plan”), which became effective on October 7, 2021, when the Company’s registration statement was declared effective by the SEC. The 2021 Plan allows the Company to make equity-based and cash-based incentive awards to its officers, employees, directors and consultants. The Company has initially reserved 3,852,807 shares of its common stock for the issuance of awards under the 2021 Plan. The number of shares of common stock reserved for issuance under the 2021 Plan will automatically increase annually on the first day of each fiscal year, beginning with the fiscal year ending December 31, 2022, and continuing until (and including) the fiscal year ending December 31, 2031 by lesser of 5% of the total number of shares of common stock outstanding on December 31st of the immediately preceding fiscal year or number of shares as may be determined by the board of directors. As a result of the evergreen provision of the 2021 Plan, the Company added an additional 1,639,643 shares of common stock to the 2021 Plan as of January 1, 2022. The maximum number of shares of common stock that may be issued pursuant to the exercise of incentive options under the 2021 Plan is 7,705,614. As of March 31, 2022, options to purchase 2,868,303 shares of common stock and 2,131,460 restricted stock units were outstanding under the 2021 Plan and 492,687 shares remained available for future issuance under the 2021 Plan.

2019 Equity Incentive Plan

In 2019, the Company established the 2019 Plan, under which the Company grant options and restricted stock to its employees and certain non-employees. The maximum number of shares of common stock reserved for issuance under the 2019 Plan is 4,042,408 shares.

The Company may grant options to purchase authorized but unissued shares of the Company’s common stock. Options granted under the 2019 Plan include incentive stock options that can be granted only to the Company’s employees and non-statutory stock options that can be granted to the Company’s employees, consultants, advisors and directors. The 2019 Plan also permits the Company to issue restricted stock awards.

Prior to the initial public offering, the exercise prices, vesting and other restrictions of the awards to be granted under the 2019 Plan are determined by the board of directors, except that no stock option may be issued with an exercise price less than the fair market value of the common stock at the date of the grant or have a term in excess of ten years. Options granted under the 2019 Plan are exercisable in whole or in part at any time subsequent to vesting. As of March 31, 2022, options to purchase 3,298,213 shares of common stock were outstanding under the 2019 Plan and 127,397 shares remained available for future issuance under the 2019 Plan.

Stock Options

The summary of stock option activity for the three months ended March 31, 2022 (in thousands, except share and per share amounts):


	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value

Outstanding at January 1, 2022		5,926,969		$	10.03		9.5	$	16,414
Granted		353,263			7.96
Exercised		(51,118	)		3.45
Forfeited		(62,598	)		4.88
Outstanding at March 31, 2022		6,166,516		$	10.02		9.3	$	440
Options exercisable at March 31, 2022		1,202,273		$	5.46		9.0	$	189

The aggregate intrinsic value is calculated as the difference between the exercise price of all outstanding and exercisable stock options and the fair value of the Company’s common stock of $4.04 per share as of March 31, 2022. The options granted during the three months ended March 31, 2022 and 2021 had a weighted-average fair value of $6.27 per share and $3.51 per share, respectively.

The Company estimated the fair value of each option on the date of grant using the Black-Scholes option pricing model applying the range of assumptions in the following table:


	Three Months Ended March 31,
	2022	2021
Expected volatility	98.05% - 101.66%	75.17%
Risk-free interest rate	1.60%	1.16%
Expected dividend yield	0.00%	0.00%
Expected term (in years)	6.08	6.02 – 6.08

Stock-based compensation expense related to stock options recorded is as follows (in thousands):


	Three Months Ended March 31,
	2022		2021
Research and development	$	472	$	820
General and administrative		2,874		1,624
Total	$	3,346	$	2,444

The Company has an aggregate $36.6 million of gross unrecognized stock-based compensation expense as of March 31, 2022 remaining to be amortized over a weighted average period of 2.77 years. The Company has not recognized and does not expect to recognize in the near future, any tax benefit related to employee stock-based compensation expense as a result of the full valuation allowance related to its net deferred tax assets.

Restricted Stock Awards

Under the 2021 Plan, the Company issued 2,131,460 restricted common stock to employees. Compensation cost related to these awards were recorded based on the Company's stock price on the date of issuance.

The Company issued 994,650 shares of restricted common stock to the employee co-founders and certain non-employee consultants in 2019. The shares of restricted common stock were issued pursuant to standalone restricted stock purchase agreements that are independent of the 2019 Plan and 2021 Plan. The shares of restricted common stock carried a purchase price equivalent of $0.01 per share. The compensation cost was measured based on the fair value of the underlying common stock less the purchase price of the restricted common stock and the Company recognizes compensation costs over the requisite service period.

Under the terms of the restricted stock purchase agreements, the Company has a repurchase option whereby it has the right to repurchase any unvested shares upon termination at a price per share equal to the lesser of: (i) the fair market value of the Company’s common stock on the date of repurchase and (ii) the original purchase price. The shares of restricted common stock issued to the Company’s co-founders and non-employee consultants vest based on a predefined number of shares.

The Company recognized an associated deposit liability for restricted stock awards issued pursuant to standalone restricted stock purchase agreements upon issuance based on the purchase price of the awards as the unvested shares are subject to repurchase upon termination. As the awards of restricted stock vest, the Company reclassifies the deposit liability to additional paid-in capital.

The summary of restricted stock activity for the three months ended March 31, 2022:


	Number of Shares			Weighted Average Grant Date Fair Value
Non-vested at December 31, 2021		618,494		$	3.04
Granted		2,082,952			4.07
Vested		(100,908	)		0.01
Non-vested at March 31, 2022		2,600,538		$	4.06

The Company has recorded stock-based compensation expense related to the restricted stock of $58 thousand and $6 thousand for the three months ended March 31, 2022 and 2021, respectively. The Company has an aggregate $9.2 million of gross unrecognized restricted stock-based compensation expense as of March 31, 2022 remaining to be amortized over a weighted average period of 2.8 years.

2021 Employee Stock Purchase Plan

On September 27, 2021, the Company’s board of directors and stockholders approved the 2021 Employee Stock Purchase Plan (the “2021 ESPP”), which became effective on October 7, 2021, when the Company’s registration statement was declared effective by the SEC. The 2021 ESPP reserved and authorized the issuance of up to a total of 424,595 shares of common stock to participating employees. No shares are issued under 2021 ESPP plan as of the date of issuance of these unaudited condensed consolidated financial statements.

9. Income Taxes

The Company’s effective tax rate from continuing operations was 0% for the three months ended March 31, 2022 and 2021. The Company has not recorded a federal income tax provision for the three months ended March 31, 2022 and 2021. The Company recorded a nominal state and local income tax provision for the three months ended March 31, 2022 and 2021.

The Company assesses the realizability of the deferred tax assets at each reporting date. The Company continues to maintain a full valuation allowance for its U.S. federal and state deferred tax assets, which significantly consists of net operating losses and tax credits. If certain substantial changes in the entity's ownership occur, there may be an annual limitation on the amount of the carryforwards that can be utilized. The Company will continue to assess the need for a valuation allowance on its deferred tax assets.

10. Net Loss per Common Share

Basic and diluted net loss per common share was calculated as follows (in thousands, except share and per share amounts):