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 September 30, 2023


☐	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.)
321 Harrison Avenue Boston, Massachusetts	02118
(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 November 6, 2023, the registrant had 44,323,046 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 September 30, 2023 and December 31, 2022	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months ended September 30, 2023 and 2022	4
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months ended September 30, 2023 and 2022	5
	Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2023 and 2022	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	36
PART II.	OTHER INFORMATION	37
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	89
Item 3.	Defaults Upon Senior Securities	89
Item 4.	Mine Safety Disclosures	89
Item 5.	Other Information	89
Item 6.	Exhibits	90
Signatures		91

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 clinical 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-106 and PYX-107, which are in the early stages of development, and if PYX-201, PYX-106 and/or PYX-107 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.

•

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 approval or 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 approval or 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 approval or 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 if 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 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 relating thereto 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 Inc., or Pfizer, or Biosion USA, Inc., 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 candidate(s).

•

We are subject to stringent and changing obligations related to data privacy and security. Our actual or perceived failure to comply with such obligations could lead to regulatory investigations or actions, litigation, fines and penalties, a disruption of our business operations, including our clinical trials, harm to our reputation, and other adverse effects on our business or prospects.

•

Our internal computer systems, or those of any of our existing or future contract research organizations, or CROs, manufacturers, other contractors, consultants, or collaborators, may fail or suffer security or data privacy breaches or other unauthorized or improper access to, use of or destruction of our proprietary and confidential data, employee data or personal data, which could result in additional costs, significant liabilities, harm to our reputation and material disruption of our operations.

•

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)


	September 30, 2023			December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	14,715		$	179,293
Marketable debt securities, short-term		118,252			—
Restricted cash		1,472			1,472
Prepaid expenses and other current assets		4,655			5,847
Total current assets		139,094			186,612
Property and equipment, net		12,175			11,165
Intangible assets, net		22,294			—
Operating lease right-of-use assets		13,129			13,602
Total assets	$	186,692		$	211,379
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	3,310		$	7,097
Accrued expenses and other current liabilities		16,629			24,537
Operating lease liabilities, current portion		1,204			—
Deferred revenue		7,189			—
Total current liabilities		28,332			31,634
Operating lease liabilities, net of current portion		20,414			18,921
Total liabilities		48,746			50,555
Commitments and contingencies (Note 16)
Stockholders’ equity:
Preferred stock, par value $0.001 per share, 10,000,000 shares authorized; zero shares issued and outstanding		—			—
Common stock, $0.001 par value per share; 190,000,000 shares authorized; 44,312,767 and 35,110,016 shares issued as of September 30, 2023 and December 31, 2022, respectively, 44,294,092 and 34,958,730 shares outstanding as of September 30, 2023 and December 31, 2022, respectively		44			34
Additional paid-in capital		408,635			373,225
Accumulated other comprehensive loss		(105	)		—
Accumulated deficit		(270,628	)		(212,435	)
Total stockholders’ equity		137,946			160,824
Total liabilities and stockholders’ equity	$	186,692		$	211,379

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 September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Operating expenses:
Research and development	$	14,687		$	19,034		$	37,979		$	56,275
General and administrative		10,667			9,359			26,450			29,233
Total operating expenses		25,354			28,393			64,429			85,508
Loss from operations		(25,354	)		(28,393	)		(64,429	)		(85,508	)
Other income, net:
Interest and investment income		1,707			719			5,036			892
Sublease income		598			—			1,200			—
Total other income, net		2,305			719			6,236			892
Net loss	$	(23,049	)	$	(27,674	)	$	(58,193	)	$	(84,616	)
Net loss per common share - basic and diluted	$	(0.56	)	$	(0.85	)	$	(1.52	)	$	(2.61	)
Weighted average shares of common stock outstanding - basic and diluted		41,331,806			32,561,228			38,379,401			32,444,072
Other comprehensive loss:
Net unrealized loss on marketable debt securities		(20	)		—			(105	)		—
Other comprehensive loss		(20	)		—			(105	)		—
Comprehensive loss	$	(23,069	)	$	(27,674	)	$	(58,298	)	$	(84,616	)

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

PYXIS ONCOLOGY, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share amounts)

(Unaudited)


								Accumulated
					Additional			Other						Total
	Common Stock				Paid-In			Comprehensive			Accumulated			Stockholders'
For the Three Months Ended September 30, 2023 and 2022	Shares		Amount		Capital			Loss			Deficit			Equity
Balance at June 30, 2023		39,376,941	$	39	$	392,900		$	(85	)	$	(247,579	)	$	145,275
Acquisition of Apexigen, Inc. (Refer to Note 3)		4,344,435		4		10,728			—			—			10,732
Stock options exercised		56,774		—		117			—			—			117
Vesting of restricted common stock, net of tax withholdings		455,375		1		(394	)		—			—			(393	)
Issuance of common stock under employee stock purchase plan ("ESPP")		60,567		—		105			—			—			105
Stock-based compensation		—		—		5,179			—			—			5,179
Net unrealized losses on marketable debt securities		—		—		—			(20	)		—			(20	)
Net loss		—		—		—			—			(23,049	)		(23,049	)
Balance at September 30, 2023		44,294,092	$	44	$	408,635		$	(105	)	$	(270,628	)	$	137,946

Balance at June 30, 2022		32,483,883	$	32	$	360,594		$	—		$	(148,660	)	$	211,966
Stock options exercised		9,003		—		6			—			—			6
Vesting of restricted common stock		95,254		—		—			—			—			—
Stock-based compensation		—		—		4,449			—			—			4,449
Net loss		—		—		—			—			(27,674	)		(27,674	)
Balance at September 30, 2022		32,588,140	$	32	$	365,049		$	—		$	(176,334	)	$	188,747


								Accumulated
					Additional			Other						Total
	Common Stock				Paid-In			Comprehensive			Accumulated			Stockholders'
For the Nine Months Ended September 30, 2023 and 2022	Shares		Amount		Capital			Loss			Deficit			Equity
Balance at December 31, 2022		34,958,730	$	34	$	373,225		$	—		$	(212,435	)	$	160,824
Issuance of common stock to Pfizer Inc. (Refer to Note 7)		1,811,594		2		4,998			—			—			5,000
Shares issued pursuant to at-the-market (“ATM”) program, net of commission		1,001,208		1		6,121			—			—			6,122
Acquisition of Apexigen, Inc. (Refer to Note 3)		4,344,435		4		10,728			—			—			10,732
Stock options exercised		77,270		—		120			—			—			120
Vesting of restricted common stock, net of tax withholdings		2,040,288		3		(393	)		—			—			(390	)
Issuance of common stock under ESPP		60,567		—		105			—			—			105
Stock-based compensation		—		—		13,731			—			—			13,731
Net unrealized losses on marketable debt securities		—		—		—			(105	)		—			(105	)
Net loss		—		—		—			—			(58,193	)		(58,193	)
Balance at September 30, 2023		44,294,092	$	44	$	408,635		$	(105	)	$	(270,628	)	$	137,946

Balance at December 31, 2021		32,222,881	$	32	$	352,999		$	—		$	(91,718	)	$	261,313
Stock options exercised		73,841		—		183			—			—			183
Vesting of restricted common stock		291,418		—		1			—			—			1
Stock-based compensation		—		—		11,866			—			—			11,866
Net loss		—		—		—			—			(84,616	)		(84,616	)
Balance at September 30, 2022		32,588,140	$	32	$	365,049		$	—		$	(176,334	)	$	188,747

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)


	Nine Months Ended September 30,
	2023			2022
Operating activities
Net loss	$	(58,193	)	$	(84,616	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,237			517
Stock-based compensation		13,731			11,866
Non-cash lease expense		473			855
Accretion of discount on marketable debt securities		(3,347	)		—
Changes in operating assets and liabilities:
Prepaid expenses and other assets		1,712			(332	)
Accounts payable		(3,857	)		(6,443	)
Accrued expenses and other current liabilities		(10,435	)		5,636
Operating lease liabilities		2,697			569
Deferred revenue		527			—
Net cash used in operating activities		(55,455	)		(71,948	)
Investing activities
Cash acquired in acquisition of Apexigen, Inc.		6,659			—
Redemption of marketable debt securities		71,594			—
Purchase of marketable debt securities		(186,604	)		—
Purchase of property and equipment		(6,726	)		(4,541	)
Net cash used in investing activities		(115,077	)		(4,541	)
Financing activities
Proceeds from shares issued under ATM, net of commission		6,122			—
Tax withholding payments related to net settlement of restricted stock units		(393	)		—
Proceeds from the exercise of stock options		120			183
Proceeds from the sale of stock under employee stock purchase plan		105			—
Net cash provided by financing activities		5,954			183
Net decrease in cash, cash equivalents, and restricted cash		(164,578	)		(76,306	)
Cash, cash equivalents and restricted cash at beginning of year		180,765			276,316
Cash, cash equivalents and restricted cash at end of period	$	16,187		$	200,010
Supplemental cash flow information:
Cash received for interest	$	1,658		$	892
Cash paid for taxes	$	48		$	—
Noncash investing activities:
Shares, warrants, and replacement stock options and restricted stock units (“RSUs”) issued for acquisition of Apexigen, Inc.	$	10,732		$	—
Property and equipment in accounts payable and accrued expenses	$	—		$	1,360
Operating lease right-of-use assets obtained in exchange for operating lease liabilities	$	—		$	15,319
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	14,715		$	198,538
Restricted cash		1,472			1,472
Total cash, cash equivalents and restricted cash shown in the statement of cash flows	$	16,187		$	200,010

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 clinical stage company focused on defeating difficult-to-treat cancers. The Company is efficiently building next-generation therapeutics that hold the potential for mono and combination therapies. The Company's therapeutic candidates are designed to directly kill tumor cells and to address the underlying pathologies created by cancer that enable its uncontrollable proliferation and immune evasion. The Company's antibody-drug conjugates (“ADCs”) and immuno-oncology (“IO”) programs employ novel and emerging strategies to target a broad range of solid tumors resistant to current standards of care.

The Company has one operating segment. The Company’s chief operating decision maker, its Chief Executive Officer, manages the Company’s operations on a consolidated basis for the purposes of assessing performance and allocating resources.

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 subsidiaries. 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 and nine months ended September 30, 2023 are not necessarily indicative of those expected for the year ending December 31, 2023 or for any future period. The condensed consolidated balance sheet as of December 31, 2022 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, 2022, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 22, 2023.

Liquidity

As of September 30, 2023, the Company had an accumulated deficit of $270.6 million. The Company has incurred losses and negative cash flows from operations since inception, including net losses of $58.2 million and $84.6 million for the nine months ended September 30, 2023 and 2022, respectively.

The Company has not generated any revenues from product sales to date and does not anticipate generating any revenues from product sales 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, cash equivalents and short-term investments of $133.0 million as of September 30, 2023 will fund its operating expenses and capital requirements at least twelve months from the date these unaudited 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 financing 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 GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, expense, and related disclosures. The Company regularly evaluates estimates and assumptions related to assets, liabilities, stock-based compensation, operating leases, assessment of the useful lives of property and equipment, marketable debt securities, fair value of intangible assets and research and development costs, including clinical trial accruals. 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 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 and manufacturing 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 which potentially subject the Company to significant concentration of credit risk consist of cash and cash equivalents, restricted cash and short-term investments.

The Company invests its excess cash primarily in money market funds and highly liquid U.S. Treasury securities. The Company has adopted an investment policy that includes guidelines relative to credit quality, diversification and maturities to preserve principal and liquidity.

Significant Accounting Policies

Other than the new accounting policies detailed below, there have been no other 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 22, 2023.

Investments

Short-term investments consist of U.S. Treasury securities with original maturities greater than three months. The Company may sell investments at any time for use in current operations even if the investments have not yet reached maturity. As a result, the Company classifies its investments as current assets. All investments have been classified as available-for-sale marketable debt securities. Marketable debt securities are recorded at fair value, with unrealized gains and losses, net of tax, included as a component of accumulated other comprehensive income (loss) in stockholders’ equity (deficit) and a component of total comprehensive loss in the condensed consolidated statements of operations and comprehensive loss, until realized. The fair value of these securities is determined based upon quoted market prices or pricing models for similar securities at period end. Premiums paid or discounts received at the time of purchase of marketable securities, are amortized to interest and investment income over the terms of the related securities. Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of securities sold.

At each reporting date the Company will evaluate available-for-sale marketable debt securities in an unrealized loss position, using the discounted cash flow model, to determine whether the unrealized loss or any potential credit losses should be recognized in net loss. For available-for-sale marketable debt securities in an unrealized loss position, the Company will assess (i) whether it intends to sell, or (ii) it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If the aforementioned criteria is met, such marketable debt security’s amortized cost basis will be written down to its fair value through earnings along with any existing allowance for credit losses. For available-for-sale marketable debt securities that do not meet this criteria, the Company will evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the severity of the impairment, any changes in interest rates, underlying credit ratings, and forecasted recovery, among other factors. The credit-related portion of unrealized losses, and any subsequent improvements, are recorded as an allowance in interest income.

There have been no impairment or credit losses recognized during the periods presented in the accompanying condensed consolidated statements of operations and comprehensive loss.

Business Combinations

The Company determines whether a transaction or other event is a business combination by determining whether the assets acquired and liabilities assumed constitute a business. Business combinations are accounted for by applying the acquisition method as set out by ASC 805, Business Combinations (“ASC 805”). The acquisition method of accounting requires the acquirer to recognize and measure all identifiable assets acquired, liabilities assumed and any noncontrolling interest in the acquiree at their acquisition-date fair values, with certain exceptions for specific items.

Goodwill is measured as the excess of the consideration transferred in the business combination over the net acquisition date amounts of the identifiable assets acquired and the liabilities assumed. Alternatively, if acquisition date amounts of the identifiable assets acquired and the liabilities assumed exceeds the consideration transferred, a gain on bargain purchase is recognized in the condensed consolidated statements of operations and comprehensive loss. The consideration transferred in a business combination is measured as the sum of the fair values of the assets transferred, the liabilities incurred to former owners of the target and the equity interests issued.

The results of operations of businesses acquired by the Company are included in the Company’s condensed consolidated statements of operations and comprehensive loss as of the respective acquisition date.

Where the acquirer exchanges its share-based payment awards for awards held by grantees of the acquiree, such exchanges are treated as a modification of share-based payment awards and are referred to as replacement awards. The replacement awards are measured as of the acquisition date and the portion of the fair-value-based measure of the replacement award that is attributable to pre-combination vesting is considered part of the consideration transferred. For awards with service-based vesting conditions only, the amount attributable to pre-combination vesting is the fair-value-based measure of the acquiree award multiplied by the ratio of the employee’s pre-combination service period to the greater of the total service period or the original service period of the acquiree award.

Acquisition-related costs, including advisory, legal and other professional fees and administrative fees are expensed as incurred except for the costs of issuing equity securities, which are recognized as a reduction to the amounts recognized in the condensed consolidated statements of stockholders' equity for the respective equity issuance.

Indefinite-Lived Intangible Asset

The Company’s indefinite-lived intangible assets consist of in-process research and development (“IPR&D”), which was acquired in connection with the acquisition of Apexigen, Inc. (“Apexigen”). IPR&D represents the fair value assigned to research and development projects acquired which are in-process, but not yet completed at the time of acquisition. The primary basis for determining the completion of these projects is obtaining regulatory approval to market the underlying products in an applicable geographic region.

The Company classifies IPR&D acquired in a business combination as an indefinite-lived intangible asset until the associated research and development efforts are either completed or abandoned. IPR&D becomes definite-lived upon the completion or abandonment of the associated research and development efforts. All research and development costs incurred subsequent to the acquisition of IPR&D are expensed as incurred. Indefinite-lived intangible assets are evaluated for impairment on an annual basis or more frequently if an indicator of impairment is present.

Warrants

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of equity at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded as liabilities at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations.

Revenue Recognition

The Company recognizes revenue based on guidance under ASC 606, Revenue from Contracts with Customers (“ASC 606”). Under ASC 606, revenue is recognized when the customer obtains control of the promised goods or services, at an amount that reflects the consideration the Company expect to receive in exchange for those goods or services. The Company has not commenced sales of its drug candidates and does not have any products approved for marketing as of September 30, 2023.

The Company may also earn contingent fees, including milestone payments, based on counterparty performance and royalties on sales, from collaborations and other out-license arrangements. The Company recognizes milestone payments as revenue once the underlying events are probable of being met and there is not a significant risk of reversal. The Company recognizes sales-based royalties as revenue when the underlying sales occur and there are no constrains to recognize the revenue for such sales-based royalties.