Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion of our financial condition and results of operations together with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion and analysis generally addresses 2023 and 2022 items and year-over-year comparisons between 2023 and 2022. Discussions of 2021 items and year-over-year comparisons between 2022 and 2021 that are not included in this Annual Report on Form 10-K can be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 9, 2023. Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business, include forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and elsewhere in this Annual Report on Form 10-K.

Overview

We are a clinical-stage immuno-oncology company focused on helping patients fight cancer by developing therapies that block the CD47 immune checkpoint and bridge the innate and adaptive immune system. Our lead product candidate, the CD47 blocker evorpacept, is currently in multiple Phase 1 and 2 clinical trials. Cancer cells leverage CD47, a cell surface protein, as a “don’t eat me” signal to evade macrophage phagocytosis or as a “don’t activate T-cells” signal that prevents activation of T-cells by dendritic cells. We are developing evorpacept to be a next-generation checkpoint inhibitor designed to have a high affinity for CD47 and to avoid the limitations caused by hematologic toxicities inherent in other CD47 blocking approaches.

Evorpacept is a next-generation CD47 blocking therapeutic that we believe has significantly enhanced properties compared to competing CD47 blocking approaches. Evorpacept is a fusion protein that combines a high-affinity CD47 binding domain with a proprietary inactivated Fc domain. The CD47 binding domain of evorpacept is an affinity enhanced extracellular domain of SIRPα, a protein that is the natural receptor to CD47 found on myeloid cells. We have engineered the Fc domain of evorpacept so that it does not provide a pro-phagocytic signal while still maintaining an antibody-like half-life for the molecule. We believe our inactive Fc approach improves tolerability when compared to other CD47 blocking approaches that have an Fc domain that engages activating receptors on macrophages, causing phagocytosis and death of healthy cells in addition to cancer cells.

Evorpacept’s design has several advantages that we believe will make it broadly applicable to treating a number of oncology indications. Due to the inactive Fc, evorpacept is specifically designed for use in combination with other anti-cancer agents that provide a positive immune-stimulating signal. We believe evorpacept has a favorable tolerability profile that may enable higher dosing levels and greater combination potential with other leading anti-cancer agents.

We are focused on evorpacept development with the standard-of-care agents, revolving around these two cell types: macrophages and dendritic cells. We initially pursued, and continue to pursue, development of evorpacept based on two well-validated mechanisms of action involving SIRP alpha expression on macrophages and dendritic cells as discussed below. In April 2020, we began exploring a third less well-validated mechanism of action, which led us to test the combination of evorpacept with azacitidine in myelodysplastic syndromes (MDS) patients, but our data failed to validate this third mechanism as discussed below.

The distinct mechanism of actions and examples of the combinations of priority are:

(1)

Anti-cancer antibodies (the “don’t eat me” signal): Combining with anti-cancer targeted antibodies with an active Fc domain, where evorpacept enables the Fc-mediated antibody dependent phagocytosis that is impaired by the expression of CD47 on cancer cells.

The positive interim data in our randomized ASPEN-06 clinical trial supports the clinical validation of this mechanism of action. ASPEN-06 evaluates the contribution of evorpacept to HERCEPTIN® (trastuzumab) plus standard of care (CYRAMZA® (ramucirumab) + paclitaxel) versus standard of care plus HERCEPTIN in second line or later HER2-positive gastric/gastroesophageal junction (GEJ) cancer.

Demonstrated evorpacept + trastuzumab + ramucirumab + paclitaxel improved response activity (52% overall response rate (ORR), median duration of response (mDOR) not reached) compared to that of the trastuzumab + ramucirumab + paclitaxel backbone (22% ORR, mDOR 7.4 m).

Clinical activity of evorpacept + trastuzumab + ramucirumab + paclitaxel compares favorably to the RAINBOW historical data where ramucirumab + paclitaxel demonstrated a 28% confirmed ORR and 4.4 month mDOR, as well as to DESTINY-Gastric01 where ENHERTU® (fam-trastuzumab deruxtecan-nxki) reported a 41% confirmed ORR and mDOR of 11.3 months.

Initial magnitude of improvement in ORR over available therapy and over the concurrent control arm with this well-tolerated combination suggests that evorpacept in combination with trastuzumab, ramucirumab, and paclitaxel could benefit patients with HER2-overexpressing advanced gastric/GEJ cancer.

Our earlier ASPEN-01 Phase 1 positive data in combination with rituximab in non-Hodgkin lymphoma (NHL) provide additional support for the clinical validation of this mechanism of action and support exploring combinations of evorpacept with other anti-cancer antibodies.

This mechanism of action may also apply to antibody-drug conjugates (ADCs), which are being investigated in two separate Phase 1 trials: one in combination with PADCEV® (enfortumab vedotin-ejfv) in patients with urothelial cancer (ASPEN-07), and the other in combination with fam-trastuzumab deruxtecan-nxki in patients with unresectable or metastatic HER2-positive and HER2-low breast cancer.

(2)

PD-1/PD-L1 immune checkpoint inhibitors (the “don’t activate T-cells” signal):Combining with PD-1/PD-L1 checkpoint inhibitor, where evorpacept activates dendritic cells that are constitutively inhibited by the CD47/ SIRP alpha pathway.

Activated dendritic cells present neoantigens to T-cells that, once activated, will kill cancer cells when the PD-1/PD-L1 inhibitory interaction is blocked by T-cell checkpoint inhibitors. The combination with a PD-1/PD-L1 checkpoint inhibitor allows maximum activity of these newly activated T-cells. This mechanism of action includes our clinical trials, ASPEN-03 and ASPEN-04, two randomized Phase 2 studies in combination with KEYTRUDA® (pembrolizumab), without or with chemotherapy, respectively, comparing to the same treatments without evorpacept, in first line head and neck squamous cell carcinoma (HNSCC). Validation of this mechanism is supported by our Phase 1 data (N=23) in the same indications and combinations where we saw an improvement in overall survival (OS) at 12 months with respect to historical data.

(3)

Hypomethylation agents:Combining with azacitidine, which is described to upregulate calreticulin and potentially promote macrophage dependent phagocytosis that is inhibited by CD47. We now consider this a failed mechanistic hypothesis.

This mechanistic hypothesis was tested and ultimately not supported in our clinical trial, ASPEN-02, a Phase 1b dose optimization study evaluating evorpacept in combination with azacitidine for the treatment of MDS. Initial support for exploring this mechanism was provided by Phase 1b initial clinical data of magrolimab, an anti CD47 antibody with active Fc, being developed by Gilead, which showed improvements in complete response (CR) rate compared to historical data in addition to a significant increase in cytopenias. As we reported in August 2023, in our preliminary data review of our Phase 1 study, ASPEN-02, despite being well tolerated, evorpacept did not yield sufficient activity to support progression to Phase 2 trials. Gilead has since discontinued its Phase 3 magrolimab trials with this combination in both acute myeloid leukemia (AML) and MDS due to lack of efficacy. Based upon trial results, we are no longer planning to pursue combinations based upon this mechanism of action. Resources originally earmarked for these trials will be allocated to support our ongoing programs evaluating combinations with anti-cancer antibodies and PD-1/PD-L1 immune checkpoint inhibitors.

We are pursuing the following clinical programs, collaborations, and investigator sponsored trials:

Evorpacept

Combination with anti-cancer antibody

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ASPEN-06 - Gastric/GEJ Cancer

In January 2020, the FDA granted Fast Track designation for evorpacept in combination with trastuzumab, ramucirumab and paclitaxel for the treatment of patients with HER2-overexpressing advanced gastric or GEJ adenocarcinoma with disease progression on or after prior trastuzumab and fluoropyrimidine or platinum containing chemotherapy.

In January 2022, the FDA’s Office of Orphan Products Development granted Orphan Drug Designation (ODD) to evorpacept for the treatment of patients with gastric/GEJ cancer.

In March 2022, we announced the dosing of the first patient in the ASPEN-06 trial, a randomized Phase 2/3 trial of evorpacept in combination with trastuzumab, ramucirumab and paclitaxel for the treatment of second- and third-line advanced HER2-overexpressing gastric/GEJ cancer.

In June 2023, the European Commission granted ODD to evorpacept for the treatment of patients with gastric/GEJ cancer.

In October 2023, we announced positive prespecified interim Phase 2 clinical data from our ASPEN-06 clinical trial. This prespecified interim analysis reported results from 54 randomized patients with second and third line gastric/GEJ cancer, including patients previously treated with fam-trastuzumab deruxtecan-nxki and checkpoint inhibitors. A confirmed overall response rate (ORR) of 52% was demonstrated for evorpacept in combination with trastuzumab + ramucirumab + paclitaxel compared to 22% for the control group of trastuzumab + ramucirumab + paclitaxel. Median duration of response (mDOR) was not reached for the evorpacept combination treatment arm

compared to 7.4 months for the control group. The safety profile of evorpacept was consistent with previous clinical trials and was well-tolerated.

Combination with antibody drug conjugate (ADC)

▪

ASPEN-07 - Urothelial Cancer (UC)

In February 2023, we announced the dosing of the first patient in the ASPEN-07 trial, a Phase 1 study evaluating evorpacept in combination with an ADC, enfortumab vedotin-ejfv, for the second-line treatment of locally advanced or metastatic UC.

Combination with PD-1/PD-L1 immune checkpoint inhibitor

▪

ASPEN-03 - Head and Neck Squamous Cell Carcinoma

In May 2021, we announced the dosing of the first patient in the ASPEN-03 trial, a randomized Phase 2 trial of evorpacept in combination with pembrolizumab for the treatment of first-line advanced PD-L1 positive HNSCC.

In July 2022, the Food and Drug Administration (FDA) granted Fast Track designation for evorpacept in combination with pembrolizumab for first-line treatment of adult patients with metastatic or unresectable, recurrent HNSCC whose tumors express PD-L1.

▪

ASPEN-04 - Head and Neck Squamous Cell Carcinoma

In February 2020, the FDA granted Fast Track designation for evorpacept in combination with pembrolizumab, platinum, and fluorouracil for the first-line treatment of adult patients with metastatic or unresectable, recurrent HNSCC.

In July 2021, we announced the dosing of the first patient in the ASPEN-04 trial, a randomized Phase 2 trial of evorpacept in combination with pembrolizumab, platinum, and fluorouracil for the treatment of first-line advanced HNSCC.

Collaborations and Investigator-Sponsored Trials (ISTs)

Combination with anti-cancer antibody

▪

Jazz Pharmaceuticals plc - Breast Cancer

Our collaborator, Jazz Pharmaceuticals plc (Jazz), is sponsoring and managing an ongoing Phase 1 trial of zanidatamab for the treatment of advanced HER2-expressing breast cancer and other solid tumors in combination with evorpacept (Zanidatamab Trial). We announced the dosing of the first patient in this trial in October 2021.

Our initial collaborator for the Zanidatamab Trial was Zymeworks Inc. (Zymeworks), however in a series of transactions commencing in October 2022, Jazz assumed responsibility from Zymeworks for the development and commercialization of zanidatamab in the United States, Europe, Japan and certain other territories, including responsibility for the Zanidatamab Trial.

▪

Quantum Leap Healthcare Collaborative - I-SPY Trial - Breast Cancer

Our collaborator, Quantum Leap Healthcare Collaborative (Quantum Leap), is sponsoring and managing an ongoing Phase 1 trial (I-SPY) to evaluate evorpacept in combination with an ADC, fam-trastuzumab deruxtecan-nxki, for the treatment of patients with unresectable or metastatic HER2-positive and HER2-low breast cancer. We announced the dosing of the first patient in March 2023.

▪

MD Anderson Cancer Center - Non-Hodgkin Lymphoma

In 2021, an IST of evorpacept was initiated in combination with rituximab and lenalidomide for the treatment of patients with indolent and aggressive NHL, sponsored by MD Anderson Cancer Center in Texas. We announced the dosing of the first patient in September 2021.

▪

Sanofi - Multiple Myeloma

In April 2023, we announced a collaboration with Sanofi who will sponsor and manage a Phase 1/2 trial of isatuximab and dexamethasone in combination with evorpacept for the treatment of patients with relapsed or refractory multiple myeloma.

Combination with anti-cancer antibody and PD-1/PD-L1 immune checkpoint inhibitor

▪

Academic Gastrointestinal Cancer Consortium - Colorectal Cancer

In 2022, a Phase 2 IST of evorpacept was initiated in combination with pembrolizumab and cetuximab in patients with refractory microsatellite stable metastatic colorectal cancer, sponsored by the Academic Gastrointestinal Cancer Consortium (AGICC) in New York. We announced the dosing of the first patient in August 2022.

Combination with PD-1/PD-L1 immune checkpoint inhibitor

▪

University of Pittsburgh - Ovarian Cancer

In 2023, a Phase 2 IST of evorpacept was initiated in combination with liposomal doxorubicin and pembrolizumab in patients with recurrent platinum-resistant ovarian cancer, sponsored by the University of Pittsburgh in Pennsylvania. We announced the dosing of the first patient in May 2023.

Pre-clinical Programs

▪

Tallac Therapeutics - ALTA-002

Our second program, ALTA-002, is a collaboration between us and Tallac Therapeutics, Inc. (Tallac) that combines our company’s SIRPα antibody with Tallac’s toll-like receptor 9 (TLR9) agonist, resulting in a potent immune activator targeted to myeloid cells in the tumor to promote innate and adaptive anti-cancer immune responses. This novel Toll-like receptor agonist antibody conjugation platform (TRAAC) enables systemic delivery of targeted TLR9 activation.

Based on our clinical results to date in multiple oncology indications that show encouraging anti-tumor activity and tolerability and our clinical development plans, our strategy is to pursue evorpacept as a potentially critical component of future oncology combination treatments.

Additionally, with our acquisition of ScalmiBio, Inc. (ScalmiBio) in October 2021, we are developing ADC drug candidates based on our expertise in protein engineering and oncology.

Since our founding, we have devoted substantially all of our resources to developing evorpacept, identifying and advancing preclinical programs, scaling up manufacturing, conducting clinical trials and providing general and administrative support for these operations. We have no products approved for marketing and we have never received any revenue from drug product sales.

In July 2020, we completed our initial public offering, raising net proceeds of $169.5 million, after deducting underwriting discounts and commissions of $13.0 million and offering-related expenses of $3.2 million. In December 2020, we completed a follow-on offering, raising net proceeds of $194.9 million, after deducting underwriting discounts and commissions of $12.5 million and offering-related expenses of $0.7 million.

In March 2022, we filed a universal shelf registration statement (Shelf Registration Statement), which provides for aggregate offerings of up to $450.0 million of the Company’s securities. In May 2022, we filed an amendment to the Shelf Registration Statement, which was declared effective by the Securities and Exchange Commission (SEC) on May 31, 2022. We believe that our Shelf Registration Statement provides us with flexibility to raise additional capital to finance our operations as needed. In December 2021, we entered into a sales agreement (Sales Agreement) with Cantor Fitzgerald & Co. and Credit Suisse Securities (USA) LLC (Credit Suisse), under which we may, subject to the effectiveness of the Shelf Registration Statement, offer and sell our common stock, having aggregate gross proceeds of up to $150.0 million, from time to time through them as our sales agents in an at-the-market offering. In August 2023, we entered into an amendment to the Sales Agreement to include UBS Securities LLC as an additional sales agent and to remove Credit Suisse as a sales agent.

In October 2022, we entered into a loan and security agreement (Loan Agreement) with Oxford Finance LLC, Oxford Finance Credit Fund II LP, and Silicon Valley Bank (SVB) (collectively, the Lenders). Upon closing of the Loan Agreement, we drew $10.0 million and have access to draw an additional $40.0 million through the end of 2023. A further $50.0 million may become available to us, $25.0 million upon the achievement of pre-determined development milestones and $25.0 million at the Lenders’ sole discretion. The Company received net proceeds of $9.3 million from the issuance of the term loan, after deducting debt issuance costs of approximately $0.7 million.

In March 2023, SVB was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (FDIC) to act as receiver. The FDIC created Silicon Valley Bridge Bank, N.A. (SVBB) as successor to SVB. First Citizens BancShares, Inc. (First Citizens Bank) acquired SVBB from the FDIC and operates SVBB as Silicon Valley Bank, a division of First Citizens Bank (SVB-First Citizens). Under the Loan Agreement, 50% of the funding comes from SVB, one of the three Lenders. Given the SVBB acquisition by First Citizens Bank, SVB-First Citizens will continue to fulfill SVB’s obligations under the Loan Agreement.

In May 2023, we entered into a second amendment to the Loan Agreement. The primary purpose of the second amendment was to reduce the percentage of the amount required to be held in our collateral account with SVB-First Citizens from 100% to not less than 50% of the aggregate dollar value of all our collateral accounts.

In October 2023, we completed an underwritten follow-on public offering pursuant to the Shelf Registration Statement (the October 2023 Offering). In the follow-on public offering, we issued and sold an aggregate of 8,663,793 shares of common stock, including the underwriters’ exercise in full of their overallotment option of 1,293,103 shares of common stock, and, in lieu of common stock to certain investors, pre-funded warrants to purchase 1,250,000 shares of common stock at a public offering price of $6.38 per

share and $6.379 per pre-funded warrant. Net proceeds were approximately $58.9 million, after deducting underwriting discounts and commissions of $3.8 million and offering-related expenses of $0.6 million.

In December 2023, we entered into a third amendment to the Loan Agreement. The primary purpose of the third amendment was to (i) extend the draw period for the first tranche loans from December 31, 2023 to June 30, 2024, (ii) add as a condition for the funding of any first tranche loans after the effective date of the amendment, requirement that the Phase 2 portion of the ASPEN-06 study in gastric/GEJ cancer either remains ongoing or the achievement of a milestone related to the development of the ASPEN-06 study, and (iii) add a contingency fee in the amount of $0.6 million to the Lenders if the Company prepays any of the loans under the Loan Agreement other than in connection with refinancing of the Loan Agreement with the Lenders and their affiliates.

From inception through December 31, 2023, we have raised an aggregate of $613.6 million to fund our operations, of which $175.1 million were net proceeds from sales of our convertible preferred stock, $5.8 million were net proceeds from borrowings under a term loan, $169.5 million were net proceeds from our initial public offering, $194.9 million were net proceeds from our follow-on offering, $9.3 million were net proceeds from borrowings under the Loan Agreement, and $58.9 million were net proceeds from our follow-on offering in October 2023.

We have incurred net losses in each year since inception. Our net losses were $160.8 million, $123.5 million and $83.5 million for the years ended December 31, 2023, 2022 and 2021, respectively. As of December 31, 2023, we had an accumulated deficit of $486.3 million. Substantially all of our operating losses are a result of expenses incurred in connection with our research and development programs, primarily evorpacept, and from general and administrative expenses associated with our operations.

We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We expect our expenses will increase substantially in connection with our ongoing activities, as we:

•

advance evorpacept through multiple clinical trials in multiple indications;

•

pursue regulatory approval of evorpacept in solid tumors and hematological malignancies;

•

continue our discovery and preclinical and clinical development efforts, including our collaborations with Sanofi, Tallac, Jazz, and Quantum Leap and our acquisition of ScalmiBio;

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obtain and maintain patent, trade secret and other intellectual property protection and regulatory exclusivity for our product candidates;

•

manufacture supplies for our preclinical studies and clinical trials; and

•

continue to add operational, financial and management information systems to support ongoing operations as a public company.

Components of Results of Operations

Operating Expenses

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for the development of our lead product candidate, evorpacept, which include:

•

expenses incurred in connection with preclinical and clinical development, including expenses incurred under collaboration agreements and under agreements with contract research organizations, or CROs;

•

employee-related expenses, including salaries, related benefits, travel and stock-based compensation expenses for employees engaged in research and development functions;

•

expenses related to production of clinical materials, including fees paid to contract manufacturing organizations, or CMOs;

•

laboratory, vendor expenses and third-party drugs related to the execution of preclinical studies and clinical trials;

•

facilities and other expenses, which include expenses for rent and maintenance of facilities, depreciation and amortization expense and other supplies; and

•

acquired in-process research and development (IPR&D) and milestone payments related to our ScalmiBio acquisition.

We expense research and development costs as incurred. Nonrefundable advance payments for goods or services to be received in future periods for use in research and development activities are deferred and capitalized. The capitalized amounts are then expensed as the related goods are delivered or as services are performed. We record accruals for estimated costs of research,

preclinical studies, clinical trials and manufacturing development, which are a significant component of research and development expenses. We determine the estimated costs through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fees to be paid for such services.

Our research and development expenses consist primarily of costs associated with the development of our lead product candidate, evorpacept, and include external costs, such as fees paid to consultants, central laboratories, contractors, collaborators, CMOs and CROs in connection with our preclinical and clinical development activities.

Almost all of our research and development expenses to date have been related to the clinical development of our lead product candidate, evorpacept. We expect our research and development expenses to increase substantially for the foreseeable future as we continue to invest in research and development activities related to progress on our existing product candidates and developing new product candidates. As our product candidates advance into later stages of development, we begin to conduct larger clinical trials. The process of conducting the necessary clinical trials to obtain regulatory approval is costly and time-consuming, and the successful development of our product candidates is highly uncertain. As a result, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates. In addition, we will incur expenses related to the preclinical research conducted internally and through the contract with Tallac Therapeutics, as further described in Note 11 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

The successful development of our current and future product candidates is highly uncertain. This is due to numerous risks and uncertainties, including the following:

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successful completion of preclinical studies and clinical trials;

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delays in regulators or institutional review boards authorizing us or our investigators to commence our clinical trials;

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our ability to negotiate agreements with clinical trial sites or CROs;

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the number and location of clinical sites included in the trials;

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raising additional funds necessary to complete clinical development of our product candidates;

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obtaining and maintaining patent, trade secret and other intellectual property protection and regulatory exclusivity for our product candidates;

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contracting with third-party manufacturers for clinical supplies of our product candidates;

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protecting and enforcing our rights in our intellectual property portfolio, including, if necessary, litigation; and

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maintaining a continued acceptable safety profile of the products following approval.

A change in the outcome of any of these variables with respect to the development of our product candidates may significantly impact the costs and timing associated with the development of our product candidates. We may never succeed in obtaining regulatory approval for any of our product candidates.

Research and development activities are essential to our business model. There are numerous factors associated with the successful commercialization of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. In addition, future regulatory factors beyond our control may impact the success, cost or timing of our clinical development programs.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel-related expenses, business development expenses, facilities expenses, depreciation and amortization expenses and professional services expenses, including legal, human resources, audit, accounting and tax-related services, and directors and officers liability insurance premiums. Personnel and related costs consist of salaries, benefits and stock-based compensation expenses. Facilities costs consist of rent and maintenance of facilities.

We anticipate that our general and administrative expenses will continue to increase as a result of increased headcount, inflationary pressures, expanded infrastructure and higher costs of consulting, legal, tax and regulatory-related services associated with maintaining compliance with stock exchange listing and SEC requirements, audit and investor relations costs, director and officer insurance premiums and other costs associated with being a public company.

Interest Income

Our interest income consists primarily of interest income on cash, cash equivalents and short-term and long-term investments.

Interest Expense

Our interest expense consists primarily of interest expense on the term loan, amortization of deferred debt issuance costs, and interest related to finance leases.

Other Income (Expense), Net

Our other income (expense), net consists primarily of realized foreign currency transaction gains and losses and other income from an immaterial service contract.

Results of Operations and Net Loss

Comparisons of the Years Ended December 31, 2023 and 2022

The following table summarizes our results of operations for the years ended December 31, 2023 and 2022 (in thousands):

Year Ended

December 31, Change

Operating expenses:

Income tax (provision) benefit — (64 ) 64 -100 %

Research and Development Expenses

The following table summarizes our research and development expenses incurred for the years ended December 31, 2023 and 2022 (in thousands):

Year Ended

December 31, Change

Research and development (R&D) expenses increased by $43.4 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase was primarily attributable to (i) an increase of $35.9 million in clinical and development costs primarily due to increase of $39.9 million in costs to support a higher number of active clinical trials and future expected patient enrollment for the advancement of our lead product candidate, evorpacept, including costs to manufacture clinical trial materials, and an increase of $0.9 million related to the Zymeworks/Jazz Collaboration due to increase in patient enrollment, offset by a $4.8 million decrease related to the Tallac Collaboration for costs related to the IND filing planned for the first quarter of 2024, for which the primary work was completed in 2022, (ii) an increase of $4.9 million in personnel and related costs due primarily to a $6.4 million increase driven by headcount growth offset by a $1.5 million decrease due to absence of retention bonus paid to ScalmiBio stockholders in the current year compared to prior year, (iii) an increase of $3.9 million in stock-based compensation expense primarily due to a full year of expense for awards granted during the year ended December 31, 2022 as well as additional awards granted since December 31, 2022 and a change in role for our former Chief Executive Officer who transitioned in September 2023 to the Chief Scientific Officer role, which is solely focused on R&D activities, resulting in additional R&D stock-based compensation, and (iv) a decrease of $1.2 million in other research costs due primarily to a decrease of $2.5 million in VAT fees related to companion drugs purchase for use in our clinical trials offset by an increase of $1.5 million in facility and IT costs due to substantial increase in R&D headcount as compared to G&A headcount leading to higher percentage of allocation of costs to R&D.

General and Administrative Expenses

The following table summarizes our general and administrative expenses incurred for the years ended December 31, 2023 and 2022 (in thousands):

Year Ended

December 31, Change

Total general and administrative expenses $ 28,483 $ 29,036 $ (553 ) -2 %

General and administrative expenses decreased by $0.6 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. The decrease was primarily attributable to (i) a decrease of $1.5 million in stock-based compensation expense due to a change in role for our former Chief Executive Officer who transitioned in September 2023 to the Chief Scientific Officer role, which is solely focused on R&D activities, resulting in reduction in G&A stock-based compensation, (ii) a decrease of $0.4 million in other costs primarily driven by decrease in business insurance costs, and (iii) an increase of $1.3 million in personnel and related costs primarily driven by merit increases.

Interest Income

Interest income increased by $6.4 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increases were primarily attributable to higher interest rates.

Interest Expense

Interest expense increased by $1.3 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase was primarily attributable to interest expense associated with the Loan Agreement, which the Company entered into in October 2022. There was a full twelve months of interest expense in 2023 as compared to 2022, when the Company only incurred interest expense from October to December.

Other Income (Expense), Net

Other income (expense), net increased by $0.4 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase was primarily attributable to other income from an immaterial service contract, under which the Company provides R&D services for another company. There was no comparable other income during the nine months ended December 31, 2022.

Liquidity and Capital Resources; Plan of Operations

Sources of Liquidity

Since our inception, we have incurred significant operating losses and have not generated any product revenue. We have not yet commercialized any of our product candidates and we do not expect to generate revenue from sales of any product candidates for several years, if at all, subject to regulatory and marketing approval of any of our product candidates. To date, we have funded our operations with proceeds from the sales of shares of our common stock and convertible preferred stock and borrowings under our term loan. As of December 31, 2023, we had cash, cash equivalents and short-term and long-term investments of $218.1 million.

Funding Requirements

We have incurred losses and negative cash flows from operations since inception and anticipate that we will continue to incur net losses for the foreseeable future. As of December 31, 2023, we had an accumulated deficit of $486.3 million. We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials for our product candidates in development. In addition, we expect to incur additional costs associated with operating as a public company. Management recognizes the need to raise additional capital to fully implement its business plan. The timing and amount of such future capital requirements are difficult to forecast and will depend on many factors, including:

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the timing and progress of preclinical and clinical development activities;

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successful enrollment in and completion of clinical trials;

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the timing and outcome of regulatory review of our product candidates;

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our ability to establish agreements with third-party manufacturers for clinical supply for our clinical trials and, if any of our product candidates are approved, commercial manufacturing;

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addition and retention of key research and development personnel;

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our efforts to enhance operational, financial and information management systems, and hire additional personnel, including personnel to support development of our product candidates;

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the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any of our product candidates for which we obtain marketing approval;

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the legal patent costs involved in prosecuting patent applications and enforcing patent claims and other intellectual property claims;

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the terms and timing of any collaboration, license or other arrangement, including the terms and timing of any milestone and royalty payments thereunder;

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macroeconomic conditions, such as inflation, economic downturns, disasters, and medical or public health crises; and

•

the impact of the COVID-19 pandemic, bank failures or instability in the financial services sector, or geopolitical risks, which may exacerbate the magnitude of the factors discussed above.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. Other than the Loan Agreement, we do not have any committed external source of funds. Our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to and volatility in the credit and financial markets in the United States and worldwide. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts or grant rights to develop and market drug candidates that we would otherwise prefer to develop and market ourselves.

In July 2020, we completed our initial public offering pursuant to a registration statement on Form S-1. In the initial public offering, we issued and sold an aggregate of 9,775,000 shares of common stock, including the underwriters’ exercise in full of their overallotment option, under the registration statement at a public offering price of $19.00 per share. Net proceeds were approximately $169.5 million, after deducting underwriting discounts and commissions of $13.0 million and offering-related expenses of $3.2 million.

In December 2020, we completed our follow-on public offering pursuant to a registration statement on Form S-1. In the follow-on public offering, we issued and sold an aggregate of 2,737,000 shares of common stock, including the underwriters’ exercise in full of their overallotment option, under the registration statement at a public offering price of $76.00 per share. Net proceeds were approximately $194.9 million, after deducting underwriting discounts and commissions of $12.5 million and offering-related expenses of $0.7 million.

In December 2021, we entered into a sales agreement with Cantor Fitzgerald & Co. and Credit Suisse Securities (USA) LLC, under which we may offer and sell our common stock, having aggregate gross proceeds of up to $150.0 million, from time to time through them as our sales agents in our at-the-market equity offering program. In March 2022, we filed a Shelf Registration Statement with the SEC. In May 2022, we filed an amended Shelf Registration Statement, which was declared effective by the SEC on May 31, 2022. In August 2023, we entered into an amendment to the Sales Agreement to include UBS Securities LLC as an additional sales agent and to remove Credit Suisse as a sales agent.

In October 2022, we entered into the Loan Agreement as described above. Upon closing of the Loan Agreement, we drew $10.0 million and have access to draw an additional $40.0 million through the end of 2023. A further $50.0 million may become available to us, $25.0 million upon the achievement of pre-determined development milestones and $25.0 million at the Lenders’ sole discretion. For a description of the terms of the Loan Agreement, see “Note 7. Term Loan” to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. On May 31, 2023, we entered into a second amendment to the Loan Agreement. The primary purpose of the second amendment was to reduce the percentage of the amount required to be held in our collateral account with SVB-First Citizens from 100% to not less than 50% of the aggregate dollar value of all our collateral accounts.

In March 2023, SVB was closed by the California Department of Financial Protection and Innovation, which appointed the FDIC to act as receiver. The FDIC created SVBB as successor to SVB. First Citizens Bank acquired SVBB from the FDIC and operates SVBB as SVB-First Citizens. While we have cash in operating accounts with SVB, the majority of our cash, cash equivalents and investments are deposited in custodial accounts held by U.S. Bank for which SVB Asset Management is the investment advisor. There has been no material negative impact to our cash liquidity as a result of the closure of SVB or the subsequent acquisition of SVBB by First Citizens Bank. Under the Loan Agreement, 50% of the funding comes from SVB, one of the three Lenders. Given the SVBB acquisition by First Citizens Bank, SVB-First Citizens will continue to fulfill SVB’s obligations under the Loan Agreement.

In October 2023, we completed the October 2023 Offering. In the follow-on public offering, we issued and sold an aggregate of 8,663,793 shares of common stock, including the underwriters’ exercise in full of their overallotment option of 1,293,103 shares of common stock, and, in lieu of common stock to certain investors, pre-funded warrants to purchase 1,250,000 shares of common stock at a public offering price of $6.38 per share and $6.379 per pre-funded warrant. Net proceeds were approximately $58.9 million, after deducting underwriting discounts and commissions of $3.8 million and offering-related expenses of $0.6 million.

We believe our existing cash, cash equivalents, short-term and long-term investments along with the ability to draw down an additional $40 million of our term loan at our discretion will enable us to fund our operating expenses and capital expenditure requirements into early 2026. We have based these estimates on assumptions in which actuals may materially differ, and we could utilize our available capital resources sooner than we expect.

Cash Flows

The following table presents a summary of the net cash flow activity for the years ended December 31, 2023 and 2022 (in thousands):

Year Ended

December 31,

Net cash provided by (used in):

Operating Activities

In the year ended December 31, 2023, net cash used in operating activities of $130.4 million was attributable to a net loss of $160.8 million, offset by non-cash charges of $22.1 million and an increase in net operating assets and liabilities of $8.3 million. Non-cash charges consisted primarily of stock-based compensation expense of $26.3 million, non-cash lease costs of $1.3 million, and depreciation and amortization costs of $0.8 million offset by net amortization of premiums and accretion of discounts on investments of $6.5 million. The change in operating assets and liabilities was primarily due to an increase in accounts payable and accrued expenses and other current liabilities of $10.6 million primarily due to timing of invoices and payments and a decrease in other assets of $1.4 million offset by an increase in prepaid and other current assets of $1.3 million and a decrease in other non-current liabilities of $2.4 million.

In the year ended December 31, 2022, net cash used in operating activities of $89.2 million was attributable to a net loss of $123.5 million, offset by non-cash charges of $24.4 million and an increase in net operating assets and liabilities of $9.9 million. Non-cash charges consisted primarily of stock-based compensation expense of $23.8 million and non-cash lease costs of $1.1 million. The change in operating assets and liabilities was primarily due to an increase in accounts payable and accrued expenses and other current

liabilities of $11.6 million primarily due to timing of invoices and payments and a decrease in other assets of $0.8 million offset by an increase in prepaid and other current assets of $1.5 million and a decrease in other non-current liabilities of $1.0 million.

Investing Activities

In the year ended December 31, 2023, net cash used in investing activities of $44.7 million was attributable to purchases of short-term and long-term investments of $246.6 million and purchases of property and equipment of $1.3 million, offset by cash received for maturities of investments of $292.6 million.

In the year ended December 31, 2022, net cash used in investing activities of $235.4 million was attributable to purchases of short-term and long-term investments of $376.8 million and purchases of property and equipment of $1.4 million, offset by cash received for maturities of investments of $142.8 million.

Financing Activities

In the year ended December 31, 2023, net cash provided by financing activities of $59.3 million was attributable to proceeds from equity offerings, net of underwriter discounts and issuance costs, of $58.9 million, proceeds from issuance of common stock pursuant to employee stock purchase plan of $0.5 million, and proceeds from the exercise of stock options under equity incentive plans of $0.3 million, offset by principal payments on finance leases of $0.4 million.

In the year ended December 31, 2022, net cash provided by financing activities of $9.9 million was attributable to proceeds from issuance of the term loan of $10.0 million offset by payments for debt issuance costs of $0.7 million, proceeds from the exercise of stock options under equity incentive plans of $0.6 million, and proceeds from issuance of common stock pursuant to employee stock purchase plan of $0.3 million, offset by principal payments on finance leases of $0.4 million.

Off-Balance Sheet Arrangements

During the period presented, we did not have, nor do we currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Critical Accounting Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses during the reporting periods. These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ significantly from these estimates under different assumptions or conditions.

Our significant accounting policies are more fully described in the notes to our audited consolidated financial statements elsewhere in this Annual Report on Form 10-K. We believe that the following accounting policy reflects the most critical judgments and estimation uncertainty used in the preparation of our Consolidated Financial Results.

Clinical and Contract Manufacturing Accruals

We record accruals for estimated costs of research, preclinical studies and clinical trials, and manufacturing development, which are a significant component of research and development expenses. A substantial portion of our ongoing research and development activities are conducted by third-party service providers, including CROs and contract manufacturing organizations, or CMOs. Our contracts with CROs generally include pass-through fees such as regulatory expenses, investigator fees, travel costs and other miscellaneous costs, including shipping and printing fees. Similarly, our contracts with CMOs generally include pass-through fees such as raw materials and other miscellaneous costs, including shipping. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to us under such contracts. We accrue the costs incurred under agreements with these third parties based on estimates of actual work completed but not yet invoiced in accordance with the respective agreements. We determine the estimated costs through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fees to be paid for such services. To assist in our estimates, we rely upon the receipt of timely and accurate reporting from our clinical and non-clinical studies and other third-party vendors.

We make significant judgments and estimates in determining the accrual balance related to our CMOs at the end of each reporting period based on discussion with internal personnel who work directly and meet regularly with the CMOs. As actual costs become known, we adjust our accruals. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in our reporting amounts that are too high or too low in any particular period. Through December 31, 2023, there have been no material differences from our accrued estimated expenses to the actual clinical trial and manufacturing development expenses. However, variations in the assumptions used to estimate accruals, including, but not limited to, the number of patients enrolled, the rate of patient enrollment, the actual services performed, and related costs may vary from our estimates, resulting in adjustments to clinical trial expense and manufacturing costs in future periods. Changes in these estimates that result in material changes to our accruals could materially affect our financial position and results of our operations.

Recent Accounting Pronouncements

See “Note 2. Significant Accounting Policies” of the Notes to Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” for a full description of recent accounting pronouncements, including the respective expected dates of adoption and estimated effects, if any, on our consolidated financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk

We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities.

As of December 31, 2023, we had cash, cash equivalents and investments of $218.1 million. We generally hold our cash and cash equivalents in interest-bearing bank accounts and money market funds. We have invested primarily in U.S. Treasury securities, U.S. government agency securities, corporate debt securities, commercial paper and asset-backed securities and all our investments are classified as available-for-sale. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. An immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our cash, cash equivalents and investments.

As of December 31, 2023, we had borrowings of $10.0 million outstanding under the Loan Agreement. Borrowings under the Loan Agreement bear interest at a floating rate per annum equal to the greater of (i) 1-month term SOFR, and (ii) 2.33%, plus 6.25%. An immediate 10% change in the 1-month term SOFR would not have a material impact on our debt-related obligations, financial position or results of operations.

Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist of cash, cash equivalents and investments. The Company invests its cash equivalents in highly rated money market funds. The Company’s investments consist of debt securities issued by highly rated corporate entities, the U.S. federal government or state and local governments. The Company’s exposure to any individual corporate entity is limited by our investment policy. Deposits may exceed federally insured limits, and the Company is exposed to credit risk on deposits in the event of default by the financial institutions to the extent account balances exceed the amount insured by the Federal Deposit Insurance Corporation (FDIC).

The Company is closely monitoring ongoing events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions or other companies in the financial services industry or the financial services industry generally, including Silicon Valley Bank (SVB). In March 2023, SVB, where the Company maintained operating accounts with a cash balance of less than 1% of the Company’s total cash, cash equivalents and investments, was closed by the California Department of Financial Protection and Innovation, which appointed the FDIC to act as receiver. The FDIC created Silicon Valley Bridge Bank, N.A. (SVBB) as successor to SVB. First Citizens BancShares, Inc. (First Citizens Bank) acquired SVBB from the FDIC and assumed all of SVB’s deposits and loans. In light of the foregoing, the Company does not believe that it had exposure to loss as a result of SVB’s receivership.

During the periods presented, the Company has not experienced any realized losses on its deposits of cash, cash equivalents or investments.

Foreign Currency Risk

Our expenses are generally denominated in U.S. dollars. However, we have entered into a limited number of contracts with vendors for services with payments denominated in foreign currencies, primarily the euro. We are subject to foreign currency transaction gains or losses on our contracts denominated in foreign currencies. To date, foreign currency transaction gains and losses have not been material to our consolidated financial statements, and we have not had a formal hedging program with respect to foreign currency. A 10.0% increase or decrease in current exchange rates would not have a material effect on our financial results.

Item 8. Financial Statements and Supplementary Data.

INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (PCAOB ID: 185) 100

Consolidated Balance Sheets 102

Consolidated Statements of Operations 103

Consolidated Statements of Comprehensive Loss 104

Consolidated Statements of Stockholders’ Equity (Deficit) 105

Consolidated Statements of Cash Flows 106

Notes to Consolidated Financial Statements 107

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors

ALX Oncology Holdings Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of ALX Oncology Holdings Inc. and subsidiaries (the Company) as of December 31, 2023 and December 31, 2022, the related consolidated statements of operations, comprehensive loss, stockholders’ equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and December 31, 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

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

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

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

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Assessment of contract manufacturing accruals

As discussed in Notes 2 and 5 to the consolidated financial statements, the Company has contract manufacturing accruals of $9,543 thousand. The Company accrues the costs incurred under agreements with contract manufacturing organizations (CMOs) based on estimates of actual work completed but not yet invoiced in accordance with the respective agreements. The Company determines the estimated costs incurred through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fees to be paid for such services.

We identified the assessment of contract manufacturing accruals as a critical audit matter. Specifically, assessing the estimate of contract manufacturing activities completed but not yet invoiced required a higher degree of auditor judgment. Changes to the estimate of contract manufacturing activities completed but not yet invoiced could have had a significant impact on the contract manufacturing accrual recorded by the Company.

The following are the primary procedures we performed to address this critical audit matter. We assessed the Company’s estimate of the related contract manufacturing activities completed but not yet invoiced for a sample of the Company’s contract manufacturing accruals by: (1) inquiring of Company personnel responsible for overseeing the respective manufacturing activities to understand their progress; (2) inspecting correspondence received by the Company from CMOs, if any, and comparing the reported information to the

100

Company’s estimate; and (3) inspecting the terms of the contract and any executed change orders and comparing them to the Company’s contract manufacturing accruals.

/s/ KPMG LLP

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

San Francisco, California

March 7, 2024

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ALX ONCOLOGY HOLDINGS INC.

Consolidated Balance Sheets

(in thousands, except share and per share data)

December 31, December 31,

Assets

Current assets:

Prepaid expenses and other current assets 5,923 4,762

Liabilities and stockholders’ equity

Current liabilities:

Payable and accrued liabilities due to related party 543 1,650

Accrued expenses and other current liabilities 26,867 18,602

Other non-current liabilities 7,201 5,311

Commitments and contingencies (Note 13)

Stockholders’ equity

Accumulated other comprehensive loss 256 (845 )

Total liabilities and stockholders’ equity $ 242,553 $ 306,489

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

102

ALX ONCOLOGY HOLDINGS INC.

Consolidated Statements of Operations

(in thousands, except share and per share amounts)

Year Ended

December 31,

Operating expenses:

Other income (expense), net 389 (22 ) (7 )

Income tax (provision) benefit — (64 ) 21

Net loss per share, basic and diluted $ (3.74 ) $ (3.03 ) $ (2.07 )

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

103

ALX ONCOLOGY HOLDINGS INC.

Consolidated Statements of Comprehensive Loss

(in thousands)

Year Ended

December 31,

Other comprehensive gain (loss), net of tax:

Unrealized gain (loss) on available-for-sale investments 1,101 (845 ) —

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

104

ALX ONCOLOGY HOLDINGS INC.

Consolidated Statements of Stockholders’ Equity (Deficit)

(in thousands, except share amounts)

Shares Amount Capital Loss Deficit Equity (Deficit)

Issuance of common stock under equity incentive plans 734,922 1 2,550 — — 2,551

Issuance of common stock under employee stock purchase plan 7,623 — 202 — — 202

Issuance of common stock under equity incentive plans 225,612 — 567 — — 567

Issuance of common stock under employee stock purchase plan 48,707 — 336 — — 336

Unrealized loss on available-for-sale investments — — — (845 ) — (845 )

Issuance of common stock under equity incentive plans 344,213 — 269 — — 269

Issuance of common stock under employee stock purchase plan 82,597 — 523 — — 523

Unrealized gain on available-for-sale investments — — — 1,101 — 1,101

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

105

ALX ONCOLOGY HOLDINGS INC.

Consolidated Statements of Cash Flows

(in thousands)

Year Ended

December 31,

Operating activities

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

Acquired in-process research and development — — 4,739

Accretion of term loan discount and issuance costs 250 44 —

Changes in operating assets and liabilities

Prepaid expenses and other current assets (1,291 ) (1,476 ) (1,662 )

Payable and accrued liabilities due to related party (1,107 ) 20 1,419

Other non-current liabilities (2,353 ) (977 ) (698 )

Investing activities

Purchase of property and equipment (1,274 ) (1,427 ) (666 )

Acquisition of in-process research and development — — (4,257 )

Net cash provided by (used in) investing activities 44,657 (235,416 ) (4,923 )

Financing activities

Principal payments on finance leases (388 ) (388 ) (281 )

Proceeds from issuance of term loan, net — 10,000 —

Payments of debt issuance costs — (655 ) —

Supplemental disclosure

Cash paid for taxes $ — $ — $ 274

Supplemental disclosure of non-cash investing and financing activities

Right-of-use asset acquired under operating leases $ — $ 4,613 $ 1,780

Right-of-use asset acquired under finance leases $ 2,600 $ — $ 776

Reconciliation of cash and cash equivalents and restricted cash:

Restricted cash (included in other assets) 66 66 —

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

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ALX ONCOLOGY HOLDINGS INC.

Notes to Consolidated Financial Statements

(1) ORGANIZATION

Organization

ALX Oncology Holdings Inc., or the Company, was formed as a Delaware corporation on April 1, 2020, or Inception. The Company was formed for the purpose of completing the Company’s initial public offering of its common stock and related transactions in order to carry on the business of ALX Oncology Limited. The Company is a clinical-stage immuno-oncology company focused on helping patients fight cancer by developing therapies that block the CD47 checkpoint pathway and bridge the innate and adaptive immune system.

ALX Oncology Holdings Inc. is incorporated in Delaware. ALX Oncology Limited, incorporated in Ireland, is a wholly-owned subsidiary of ALX Oncology Holdings Inc. ALX Oncology Inc., incorporated in Delaware, is a wholly-owned subsidiary of ALX Oncology Limited. Alexo International Holdings Limited, incorporated in Malta, is a wholly-owned subsidiary of ALX Oncology Inc. All the companies are collectively known as the Subsidiaries.

As of December 31, 2023, the Company has devoted substantially all of its efforts to the formation and financing of the Company, as well as product development, and has not realized product revenues from its planned principal operations. The Company does not have manufacturing facilities and all manufacturing related activities are contracted out to third-party service providers.

Management expects to incur additional losses in the future to conduct product candidate research and development and to conduct pre-commercialization activities and recognizes that the Company will likely raise additional capital to fully implement its business plan. The Company intends to raise such capital through the sale of additional equity, debt financings and/or strategic alliances with third parties. However, there can be no assurance that the Company will be successful in acquiring additional funding at levels sufficient to fund its operations or on terms acceptable to the Company. If the Company is unsuccessful in its efforts to raise additional financing, the Company could be required to significantly reduce operating expenses and delay, reduce the scope of or eliminate some of its development programs or its future commercialization efforts, out-license intellectual property rights to its product candidates and sell unsecured assets, or a combination of the above, any of which may have a material adverse effect on the Company’s business, results of operations, financial condition and/or its ability to fund its scheduled obligations on a timely basis or at all. The Company believes that the existing capital resources will be sufficient to fund the projected operating requirements for at least the next twelve months.

(2) SIGNIFICANT ACCOUNTING POLICIES

Basis of Preparation

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP, and the applicable rules and regulations of the U.S. Securities and Exchange Commission, or SEC.

Reclassifications

Certain reclassifications have also been made within the consolidated statements of operations for the years ended December 31, 2022 and 2021 to conform to the current year presentation. For the year ended December 31, 2022, the Company reclassified approximately $0.2 million out of other expense, net into a separate interest expense financial statement line item and renamed other expense, net to other income (expense), net. For the year ended December 31, 2021, the Company reclassified less than $0.1 million out of other expense, net into a separate interest income financial statement line item and renamed other expense, net to other income (expense), net. Total loss before income taxes as of December 31, 2022 and 2021 did not change as a result of these reclassifications.

Principles of Consolidation

All intercompany balances and transactions have been eliminated in consolidation.

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Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, management evaluates its estimates, including, but not limited to, those related to the estimated useful lives of long-lived assets, clinical and contract manufacturing accruals, fair value of assets and liabilities, fair value of investments, valuation of the Company’s common stock in periods prior to its initial public offering and stock-based compensation. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company holds its cash and cash equivalents in checking and money market accounts. The Company considers all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. Cash equivalents consist primarily of amounts invested in money market funds and U.S. government agency securities that are stated at cost, which approximate fair value.

Investments

Investments consist of money market funds, U.S. Treasury securities, U.S. government agency securities, corporate debt securities, commercial paper and asset-backed securities. The Company’s investments are classified as available-for-sale and carried at estimated fair values and reported in cash equivalents, short-term investments and long-term investments. Management determines the appropriate classification of the investments at the time they are purchased and evaluates the appropriateness of such classifications at each balance sheet date. Investments with contractual maturities greater than 12 months are considered long-term investments. Management has elected to use transaction settlement date as the purchase date of investments.

The Company regularly reviews its investments for declines in estimated fair value below amortized cost. The factors considered in determining whether a credit loss exists include the creditworthiness of the security issuers, the number of investments in an unrealized loss position, the severity and duration of the unrealized losses, and whether it is more likely than not that the Company will be required to sell the investments before the recovery of their amortized cost basis. The cost of investments sold is based on the specific identification method. In circumstances when an unrealized loss is determined to be credit-related, or when the Company intends to sell or is more likely than not required to sell a security before it recovers its amortized cost basis, the difference between the fair value and the amortized cost of the security is recognized within other income (expense), net in the consolidated statements of operations, and an allowance for credit loss is recorded on the consolidated balance sheets. In circumstances when the decline in fair value is non-credit related, the difference is reported in accumulated other comprehensive loss, net of tax as a separate component of consolidated stockholders’ equity.

Concentration of Credit Risk, Credit Losses and Other Risks and Uncertainties

Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash, cash equivalents, and investments. The primary objectives for the Company’s investment portfolio are the preservation of capital and the maintenance of liquidity. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company is exposed to credit risk in the event of default by the financial institutions holding its cash, cash equivalents and investments and issuers of investments. The Company manages its credit risk by holding its cash, cash equivalents and investments in large financial institutions within the U.S. In addition, the Company’s investment policy limits investments to certain types of instruments such as money market funds, debt securities issued by the U.S. government and its agencies, corporate debt securities, commercial paper as well as asset-backed securities, and places restrictions on the credit ratings, maturities and concentration by type and issuer. The Company has not experienced any realized losses on its deposits of cash, cash equivalents and investments.

The Company’s future results of operations involve a number of other risks and uncertainties. Factors that could affect the Company’s future operating results and cause actual results to vary materially from expectations include, but are not limited to, uncertainty of results of clinical trials and reaching milestones, uncertainty of regulatory approval of the Company’s potential product candidates, uncertainty of market acceptance of the Company’s product candidates, competition from substitute products and larger companies, securing and protecting proprietary technology, strategic relationships and dependence on key individuals or sole-source suppliers.

The Company’s product candidates require approvals from the U.S. Food and Drug Administration, or FDA, and comparable foreign regulatory agencies prior to commercial sales in their respective jurisdictions. There can be no assurance that any product candidates will receive the necessary approvals. If the Company was denied approval, approval was delayed or the Company was unable to maintain approval for any product candidate, it could have a materially adverse impact on the Company.

108

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation of property and equipment is provided using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized on a straight-line basis over the shorter of the term of the lease, or the useful life of the assets. Upon sale or retirement of assets, the cost and related accumulated depreciation or amortization are removed from the consolidated balance sheets and the resulting gain or loss is reflected in the consolidated statements of operations. Maintenance and repairs are charged to the consolidated statements of operations as incurred.

Leases

On January 1, 2021, the Company adopted Accounting Standards Update No. 2016-02, Leases, Topic 842, or Accounting Standards Codification (ASC) 842, using the alternative modified transition method, which applies the standard as of the adoption date. Results and disclosure requirements for reporting periods beginning after January 1, 2021 are presented under ASC 842.

The Company determines if an arrangement contains a lease at inception. For arrangements where the Company is the lessee, leases are included in operating or finance lease right-of-use, or ROU, assets; current operating or finance lease liabilities; and non-current operating or finance lease liabilities.

Lease ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. ROU assets also include any initial direct costs incurred and any lease payments made on or before the lease commencement date, less lease incentives received. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the lease liabilities as the Company’s leases generally do not provide an implicit rate. The incremental borrowing rate is reevaluated upon a lease modification. The Company considered information available at the adoption date of ASC 842 to determine the incremental borrowing rate for leases in existence as of this date. Lease terms may include options to extend or terminate the lease when the Company is reasonably certain that the option will be exercised. Lease expense for operating leases is recognized on a straight-line basis over the lease term. For finance leases, ROU assets are amortized on a straight-line basis over the shorter of the expected useful life or the lease term, and the carrying amount of the lease liability is adjusted to reflect interest, which is recorded in interest expense.

The Company elected to apply each of the practical expedients described in ASC 842 which allow companies (i) not to reassess prior conclusions on whether any expired or existing contracts are or contain a lease, lease classification, and initial direct costs, (ii) combine lease and non-lease components for all underlying assets groups, and (iii) not recognize ROU assets or lease liabilities for short term leases. A short-term lease is a lease that, at the commencement date, has a lease term of 12 months or less and does not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise.

Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability is measured by comparison of the carrying amount to the future undiscounted net cash flows which the asset or asset group are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds its fair value. Fair value is determined using various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. The Company has not recorded impairment of any long-lived assets.

Fair Value of Financial Instruments

The fair value of the Company’s financial assets and liabilities are determined in accordance with the fair value hierarchy established in ASC 820, Fair Value Measurements and Disclosures. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy of ASC 820 requires an entity to maximize the use of observable inputs when measuring fair value and classifies those inputs into three levels:

Level 1—Observable inputs, such as quoted prices in active markets;

Level 2—Inputs, other than the quoted prices in active markets, which are observable either directly or indirectly such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the instrument’s anticipated life; and

Level 3—Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

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As of December 31, 2023 and 2022, the carrying amount of cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued liabilities approximated their estimated fair value due to their relatively short maturities. The carrying amount of our non-current debt approximates fair value based on Level 2 inputs since the debt carries a variable interest rate that is tied to the current SOFR rate plus a spread.

The Company classifies money market funds and U.S. treasury securities as Level 1 within the fair value hierarchy as the fair value is based on quoted prices. The Company classifies its investments in U.S. government agency securities, corporate debt securities, commercial paper, and asset-backed securities as Level 2 within the fair value hierarchy as the fair value is estimated by third-party pricing sources using quoted prices for identical or similar instruments in markets that are not active and industry-standard model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs obtained from various third-party data providers, including but not limited to benchmark yields, reported trades and broker/dealer quotes. Where applicable the market approach utilizes prices and information from market transactions for similar or identical assets.

Issuance Costs

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

Equity issuance costs consist of certain legal, professional accounting and third-party fees directly associated with in-process equity financings. These amounts are capitalized as deferred offering costs until such financings are consummated. After consummation of the equity financing, these costs are recorded in stockholders’ equity (deficit) as a reduction of additional paid-in capital generated as a result of the equity financing. In the event an anticipated offering is terminated or significantly delayed, deferred offering costs will be immediately expensed as part of general and administrative expenses. As of December 31, 2023 and 2022, no deferred offering costs were included as prepaid expenses and other current assets on the consolidated balance sheets, and all offering costs were offset against offering proceeds and reclassified to additional paid-in capital on the consolidated balance sheets.

Research and Development Costs

Research and development costs are expensed as incurred and consist primarily of salaries and benefits, stock-based compensation expense, lab supplies and facility costs, as well as fees paid to nonemployees and external entities on behalf of the Company, such as consultants, central laboratories, contractors, collaborators, CMOs and CROs, in connection with our preclinical and clinical development activities and expenses incurred in connection with license agreements. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are capitalized and recorded in prepaid expenses and other current assets, and then expensed as the related goods are delivered or the services are performed.

Asset Acquisition including Acquired In-Process Research and Development Expenses

When determining whether a transaction gives rise to an acquisition of a business or asset group, the Company applies a screening test to determine whether substantially all of the fair value of the gross assets acquired in the transaction is concentrated in a single identifiable asset or group of similar identifiable assets. If so, then the assets are not considered a business and the transaction is accounted for as an asset acquisition.

The Company measures and recognizes asset acquisitions that are not deemed to be business combinations based on the cost to acquire the asset or group of assets, which includes transaction costs. Goodwill is not recognized in asset acquisitions or transactions to license intellectual property. In an asset acquisition, the cost allocated to acquired in-process research and development (IPR&D) with no alternative future use is recognized as an expense on the acquisition date.

When a transaction is accounted for as an asset acquisition, an in-process research and development, or IPR&D asset is only capitalized if it has an alternative future use other than in a particular research and development project. Otherwise, amounts allocated to IPR&D that have no alternative use are expensed.

Upfront and milestone payments made related to an asset acquisition are accrued for and expensed when the achievement of the milestone is considered probable.

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Clinical and Contract Manufacturing Accruals

The Company records accruals for estimated costs of research, preclinical studies and clinical trials, and manufacturing development, which are a significant component of research and development expenses. A substantial portion of the Company’s ongoing research and development activities are conducted by third-party service providers, including contract research organizations, or CROs, and contract manufacturing organizations, or CMOs. The Company’s contracts with CROs generally include pass-through fees such as regulatory expenses, investigator fees, travel costs and other miscellaneous costs, including shipping and printing fees. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to the Company under such contracts. The Company accrues the costs incurred under agreements with these third parties based on estimates of actual work completed in accordance with the respective agreements. The Company determines the estimated costs through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fees to be paid for such services. To assist in its estimates the Company relies upon the receipt of timely and accurate reporting from its clinical and non-clinical studies and other third-party vendors.

The Company makes significant judgments and estimates in determining the accrual balance at the end of each reporting period. As actual costs become known, the Company adjusts its accruals. Although the Company does not expect its estimates to be materially different from amounts actually incurred, the Company’s understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in the Company reporting amounts that are too high or too low in any particular period. Through December 31, 2023, there have been no material differences from the Company’s accrued estimated expenses to the actual clinical trial expenses. However, variations in the assumptions used to estimate accruals, including, but not limited to, the number of patients enrolled, the rate of patient enrollment, the actual services performed, and related costs may vary from the Company’s estimates, resulting in adjustments to clinical trial expense in future periods. Changes in these estimates that result in material changes to the Company’s accruals could materially affect its financial position and results of operations.

Stock-based Compensation Expense

The Company incurs stock-based compensation expense primarily from stock options, restricted stock units, and ESPP purchase rights.

The Company estimates the fair value of stock options granted to employees, directors and non-employees and ESPP purchase rights using the Black-Scholes option-pricing model. The Black-Scholes model requires the input of subjective assumptions, including expected volatility, expected dividend yield, expected term, risk-free rate of return and the estimated fair value of the underlying common stock on the date of grant. Prior to the Company’s initial public offering, the fair value of the common stock underlying the stock-based awards was determined on each grant date by the board of directors, with input from management, considering the most recently available third-party valuation of common shares. The grant-date fair value of restricted stock units is the fair value of the underlying stock on the award’s grant date. The Company uses the straight-line method to allocate compensation expense to reporting periods over the requisite service period, which is generally the vesting period. The Company accounts for the effect of forfeitures as they occur.

Segment Reporting

The Company manages its operations as a single operating segment for the purposes of assessing performance and making operating decisions. All of the Company’s long-lived assets are located in the United States.

Foreign Currency Transactions

The functional currency of the Company’s operation and each of its subsidiaries is U.S. dollars. All assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the exchange rate prevailing on the balance sheet date. Expenses are translated at the average exchange rates prevailing during the applicable period. Foreign currency transaction gains and losses are included in the consolidated statements of operations and recorded in other income (expense), net, and were immaterial for the years December 31, 2023, 2022 and 2021.

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the consolidated financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect for the period in which the temporary differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the consolidated statements of operations and comprehensive loss in the period that includes the enactment date.

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Deferred income taxes comprise the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and the amounts recognized for income tax reporting purposes, net operating loss carryforwards, and other tax credits measured by applying currently enacted tax laws. A valuation allowance is provided when necessary to reduce deferred tax assets to an amount that is more likely than not to be realized. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, it would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. The Company recognizes benefits of uncertain tax positions if it is more likely than not that such positions will be sustained upon examination based solely on their technical merits, as the largest amount of benefit that is more likely than not to be realized upon the ultimate settlement. The Company’s policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense or benefit.

Comprehensive Loss

Comprehensive loss consists of net loss and changes in unrealized gains and losses on investments for all periods presented.

Net Loss Per Share Attributable to Common Stockholders

Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock and pre-funded warrants outstanding during the period, without consideration for common stock equivalents. Shares of common stock into which the pre-funded warrants may be exercised are considered outstanding for the purposes of computing net loss per share because the shares may be issued for little or no consideration, are fully vested, and are exercisable after the original issuance date. Diluted net loss per share is the same as basic net loss per share, since the effects of potentially dilutive securities are antidilutive given the net loss for each period presented.

Recent Accounting Pronouncements

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) (ASU 2020-06). ASU 2020-06 eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. The new guidance also modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. ASU 2020-06 is effective for annual periods beginning after December 15, 2023, including interim periods within those annual periods. Early adoption is permitted. ASU 2020-06 allows companies to adopt the guidance through either a modified retrospective method of transition or a fully retrospective method of transition. The Company is evaluating the impact of this guidance on its consolidated financial statements and related disclosures.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07). The amendments in ASU 2023-07 are intended to improve reportable segment disclosure, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for annual periods beginning after December 15, 2023, and interim periods beginning after December 15, 2024. The amendments in this ASU should be applied retrospectively to all prior periods presented in the financial statements. Early adoption is permitted. The Company is evaluating the impact of this guidance on its consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09). ASU 2023-09 requires enhanced annual disclosures regarding the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for annual periods beginning after December 15, 2024 and may be adopted on a prospective or retrospective basis. Early adoption is permitted. The Company is evaluating the impact of this guidance on its consolidated financial statements and related disclosures.

(3) ACQUISITION OF ASSETS AND OWNERSHIP

On October 4, 2021, the Company entered into a stock purchase agreement with ScalmiBio, Inc., or ScalmiBio, as the Company expands its pipeline with plans to develop new anti-cancer drug candidates based on ScalmiBio’s platform. Under the terms of the stock purchase agreement, the Company made an initial payment to the stockholders of ScalmiBio at closing on October 4, 2021 of approximately $4.5 million in cash, net of certain expenses and adjustments, and made an additional payment of $2.0 million at the one-year anniversary of the transaction on October 4, 2022 to the stockholders of ScalmiBio. This additional payment was recorded as research and development costs within the consolidated statements of operations and consolidated statements of comprehensive loss over the one-year period given the payment was contingent on the majority stockholder remaining employed with the Company through the one-year anniversary of the closing. In addition, the Company has agreed to pay up to $35.0 million, in aggregate, in certain milestones based on the clinical development of the acquired ScalmiBio technology and has also agreed to pay a

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low single digit royalty on net sales of any products developed from the ScalmiBio acquired technology for a defined term. The Company has the option to buy-out the royalty payment, prior to the first marketing approval of the developed product.

The Company’s former Chief Executive Officer and current President and Chief Scientific Officer, who is also a director, was also a director of ScalmiBio prior to the acquisition, and owned 31.7% of ScalmiBio stock. As a result, he received or will receive a proportional share of the consideration to ScalmiBio stockholders as described above. He also received approximately $87,000 out of the closing proceeds for the repayment of a note and accrued interest for a loan to ScalmiBio. Given his interest in the ScalmiBio acquisition, the Company’s audit committee approved the acquisition under its related-party transaction policy and the Company’s former Chief Executive Officer recused himself from the negotiation and approval of the transaction.

To determine the accounting for this transaction, an assessment was made as to whether an integrated set of assets and activities should be accounted for as a business combination or an asset acquisition. The guidance requires an initial screen test to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single asset or group of similar assets. If that screen is met, the set is not considered a business. The Company concluded that substantially all of the fair value is concentrated in a group of similar identifiable assets. Pursuant to asset acquisition accounting, acquired IPR&D with no alternative future use is expensed at acquisition. Accordingly, $4.7 million including $0.2 million of legal and other professional fees related to the acquisition, was recognized in “Research and development” expenses in the consolidated statements of operations and consolidated statements of comprehensive loss for the year ended December 31, 2021.

(4) FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table presents the Company’s financial assets that are measured at fair value on a recurring basis by level within the fair value hierarchy as of December 31, 2023 and 2022 (in thousands):

Cash equivalents

Short-term investments

Asset-backed securities Level 2 423 — (2 ) 421

Long-term investments

U.S. government agency securities Level 2 3,009 31 — 3,040

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Cash equivalents

U.S. government agency securities Level 2 3,484 — — 3,484

Short-term investments

Long-term investments

U.S. government agency securities Level 2 9,760 — (15 ) 9,745

The Company did not have any outstanding financial liabilities to be re-measured on a recurring basis as of December 31, 2023 and 2022.

The fair value of cash equivalents and available-for-sale investments by classification included in the consolidated balance sheets was as follows as of December 31, 2023 and 2022 (in thousands):

December 31, December 31,

Cash and cash equivalents in the above table excludes bank account cash of $2.3 million and $8.6 million as of December 31, 2023 and 2022, respectively.

The fair value of cash equivalents and available-for-sale investments by contractual maturity was as follows as of December 31, 2023 and 2022 (in thousands):

December 31, December 31,

Maturing after one year through five years 35,411 16,699

The primary objective of the Company’s investment portfolio is to maintain safety of principal, prudent levels of liquidity and acceptable levels of risk. The Company’s investment policy limits investments to certain types of instruments issued by institutions with investment-grade credit ratings, and it places restrictions on maturities and concentration by asset class and issuer.

There were no transfers of assets or liabilities between the fair value measurement levels during the years ended December 31, 2023 and 2022 and there were no financial instruments classified as Level 3 as of December 31, 2023 and 2022.

As of December 31, 2023 and 2022, accrued interest receivable related to the Company’s investments of $1.0 million and $1.0 million, respectively, was included in prepaid expenses and other current assets as well as other assets on the consolidated balance sheets.

As of December 31, 2023, the unrealized losses for available-for-sale investments were non-credit related and the Company does not intend to sell the investments that were in an unrealized loss position, nor will it be required to sell those investments before recovery of their amortized costs basis, which may be maturity. As of December 31, 2023 and 2022, no allowance for credit losses for the Company’s investments was recorded. As of December 31, 2023 and 2022, securities with a fair value of $5.9 million and zero, respectively, were in a continuous net unrealized loss position for more than 12 months. As of December 31, 2023 and 2022, the Company has not recognized any impairment losses on available-for-sale investments.

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(5) BALANCE SHEET COMPONENTS

Property and Equipment, Net

The following table presents the components of property and equipment, net as of December 31, 2023 and 2022 (in thousands):

December 31, December 31,

Computer hardware and software 414 344

Property and equipment, gross 4,826 4,292

Less: accumulated depreciation (1,237 ) (403 )

Property and equipment, net $ 3,589 $ 3,889

Depreciation was $0.8 million, $0.3 million, and nominal for years ended December 31, 2023, 2022 and 2021, respectively.

Other Assets

The following table presents the components of other assets, net as of December 31, 2023 and 2022 (in thousands):

December 31, December 31,

Long-term prepaid clinical expenses $ 7,442 $ 7,264

Operating lease right-of-use assets 4,847 5,626

Finance lease right-of-use assets 2,405 298

Long-term prepaid contract manufacturing costs — 1,456

Accrued Expenses and Other Current Liabilities

The following table presents the components of accrued expenses and other current liabilities as of December 31, 2023 and 2022 (in thousands):

December 31, December 31,

Accrued contract manufacturing $ 9,543 $ 5,249

Accrued clinical and nonclinical study costs 8,873 5,485

Accrued compensation and related expenses 6,067 3,708

Accrued property and equipment 179 2,110

Total accrued expenses and other current liabilities $ 26,867 $ 18,602

(6) LEASES

In conjunction with the adoption of ASC 842 on January 1, 2021, the Company evaluated its vendor contracts to identify embedded leases, if any, and noted that a pharmaceutical support services agreement entered into in May 2016 included leases under ASC 842 because the Company has the right to direct the use of certain equipment. The embedded leases commenced in September 2020 and were set to expire in August 2023 with no stated option to extend the term. In May 2023, the Company entered into an addendum to extend the existing lease through May 2026 and lease additional number of certain equipment. In October 2023, the Company entered into an additional addendum to lease an additional number of certain equipment through May 2026. The Company classified the leases as finance leases.

In May 2021, the Company entered into a lease agreement for approximately 10,000 square feet of office space located in South San Francisco, California. The lease commenced on June 6, 2021 and expires on August 31, 2026. The lease does not provide an option to extend after it expires. The total lease payments for the life of the lease are approximately $2.0 million. The Company classified the lease as an operating lease.

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In February 2022, the Company entered into a lease agreement totaling approximately 11,074 square feet of office and laboratory space located in Palo Alto, California. The lease consists of two premises and expires in February 2030. The lease provides for an option to extend for two years after expiration. The lease for one of the premises commenced in February 2022 and the lease for the second premises commenced in April 2022. The lease provides for an annual base rent of approximately $0.8 million, which increases on an annual basis by 3%. The total lease payments for the life of the lease are approximately $6.9 million. The Company is also responsible for leasehold improvement costs related to the second premises, which totaled to $2.3 million, of which $1.5 million is to be paid with interest at a rate of 7% per annum as additional payments over the life of the lease. The Company classified the lease as an operating lease. Under the terms of the lease agreement, the Company issued a letter of credit to the landlord in the amount of $0.1 million, which is collateralized by a restricted cash deposit of $0.1 million (see Note 5 “Other Assets”).

As of December 31, 2023, the ROU assets recorded for operating leases and finance leases were $4.8 million and $2.4 million, respectively. As of December 31, 2022, the ROU assets recorded for operating leases and finance leases were $5.6 million and $0.3 million, respectively. The amounts were included in the other assets on the consolidated balance sheets.

The following table presents the maturities and balance sheet information of the Company’s operating and finance lease liabilities as of December 31, 2023 (in thousands, except lease term and discount rate):

Operating Leases Finance Leases

Less: imputed interest (1,482 ) (252 )

Lease liabilities: current (i) $ 847 $ 728

Lease liabilities: non-current (ii) 4,411 1,572

Weighted average remaining lease term (in years) 5.4 2.4

Weighted average discount rate 8.7 % 8.5 %

(i)

Current lease liabilities are presented within accrued expenses and other current liabilities on the consolidated balance sheets.

(ii)

Non-current lease liabilities are presented within other non-current liabilities on the consolidated balance sheets.

The following table presents the components of lease costs for the years ended December 31, 2023, 2022, and 2021 (in thousands):

Year Ended

December 31,

Variable lease cost and other, net (i) 461 262 84

Short-term lease cost 17 88 —

Finance lease cost:

Amortization of right-of-use assets 493 447 369

(i)

The variable lease cost and other, net is comprised primarily of common area maintenance charges for the operating lease, which are dependent on usage. These costs are classified as operating lease expense due to the election to not separate lease and non-lease components. These costs were not included within the measurement of the Company’s operating lease ROU assets and operating lease liabilities.

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The following table presents the supplemental cash flow disclosures for cash paid for the years ended December 31, 2023, 2022, and 2021 (in thousands):

Year Ended

December 31,

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

Operating cash flows from operating leases $ 1,241 $ 933 $ 243

Operating cash flows from finance leases $ 20 $ 8 $ 11

Financing cash flows from finance leases $ 388 $ 388 $ 281

Right-of-use asset acquired under leases

(7) TERM LOAN

Oxford Finance and Silicon Valley Bank Loan

In October 2022, the Company entered into a loan and security agreement, or the Loan Agreement, with Oxford Finance LLC, Oxford Finance Credit Fund II LP, and Silicon Valley Bank, or Lenders, for a secured term loan facility of up to $100.0 million. Pursuant to the Loan Agreement, the Company drew an initial loan of $10.0 million and has access to draw an additional $40.0 million through the end of 2023. The Loan Agreement provides for an additional $50.0 million over three tranches, with $12.5 million available in each of two tranches based upon the achievement of milestones related to the development of evorpacept and one preclinical product candidate, and $25.0 million at the Lenders’ sole discretion. The proceeds of the loans may be used by the Company for working capital and to fund its general business requirements.

Borrowings under the Loan Agreement bear interest at a floating rate per annum equal to the greater of (i) 1-month term Secured Overnight Financing Rate, or SOFR, and (ii) 2.33%, plus 6.25%. The minimum per annum interest rate is 8.58%. Interest on the term loans is payable monthly in arrears. The Company will begin to make principal payments in equal monthly installments beginning on December 1, 2025. However, if either of the milestone related tranche term loans are funded, then the Company will begin to make principal payments in equal monthly installments beginning on December 1, 2026. The term loans mature on October 1, 2027.

The term loans may be prepaid in full or in part, in increments of $10.0 million, with various prepayment premiums. Upon the earlier prepayment or maturity of any term loan, the Company is required to pay a final payment fee of 6.0% of the original principal amount of such funded term loan. The final payment will be accreted to the final payment amount as interest expense using the effective interest method over the term of the loan through maturity date. The term loans once repaid or prepaid may not be reborrowed. The Company is also obligated to pay other customary fees for a loan facility of this size and type.

The term loans under the Loan Agreement are secured by substantially all of the Company’s assets, except the Company’s intellectual property, which is the subject of a negative pledge, and will be guaranteed by the Company’s future subsidiaries, subject to certain limitations. Upon the outstanding balance of the term loans reaching $75.0 million or greater, the Company’s intellectual property will become collateral. The Company and its subsidiary, ALX Oncology Limited, have guaranteed the obligations under the Loan Agreement. The Loan Agreement contains customary affirmative and negative covenants, including covenants limiting the ability of the Company to, among other things, dispose of assets, effect certain mergers, incur debt, grant liens, pay dividends and distributions on its capital stock, make investments and acquisitions, and enter into transactions with affiliates, in each case subject to customary exceptions for a loan facility of this size and type.

The Loan Agreement contains customary events of default, which include, but are not limited to payment defaults, material misrepresentations, breaches of covenants, cross defaults with certain other material indebtedness, bankruptcy and insolvency events, and judgment defaults. The occurrence of an event of default could result in the acceleration of our obligations under the Loan Agreement, the termination of the Lenders’ commitments, a 5.0% increase in the applicable rate of interest and the exercise by the Lender of other rights and remedies provided for under the Loan Agreement.

The Company received net proceeds from issuance of the term loan of $9.3 million after deducting debt issuance costs of approximately $0.7 million. Debt issuance costs were recorded as debt discount on the term loan, offsetting term loan, non-current on the consolidated balance sheets. The debt discount will be amortized over the term of the loan as interest expense using the effective interest method. During the years ended December 31, 2023 and 2022, interest expense incurred in connection with the Loan Agreement was $1.1 million and $0.2 million respectively. We had no outstanding debt and did not incur interest expense in 2021.

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The Company determined that certain loan features were embedded derivatives requiring bifurcation and separate accounting. Those embedded derivatives were bundled together as a single, compound embedded derivative and then bifurcated and accounted for separately from the host contract. As of December 31, 2023, the value of the embedded derivative is not material, but could become material in future periods if an event of default became more probable than is currently estimated. As of December 31, 2023, we were in compliance with all financial reporting covenants under the Loan Agreement.

In March 2023, Silicon Valley Bank (SVB) was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation, or FDIC, to act as receiver. The FDIC created Silicon Valley Bridge Bank, N.A., or SVBB, as successor to SVB. First Citizens BancShares, Inc., or First Citizens Bank, acquired SVBB from the FDIC and operates SVBB as Silicon Valley Bank, a division of First Citizens Bank, or SVB-First Citizens. Under the Loan Agreement, 50% of the funding comes from SVB, one of the three Lenders. Given the SVBB acquisition by First Citizens Bank, SVB-First Citizens will continue to fulfill SVB’s obligations under the Loan Agreement.

As of December 31, 2023, the future maturities under the Loan Agreement are as follows (in thousands):

Total future maturities 10,600

Less: current portion of term loan —

Total term loan, net of current portion 10,600

Less: unamortized debt issuance costs (781 )

Less: unaccreted final payment costs (180 )

Term loan, non-current, net $ 9,639

(8) STOCKHOLDERS’ EQUITY

On July 21, 2020, the Company’s amended and restated certificate of incorporation became effective, authorizing 1,000,000,000 shares of common stock, $0.001 par value per share, and 100,000,000 shares of undesignated preferred stock, $0.001 par value per share. As of December 31, 2023 and 2022, the Company had 49,951,989 and 40,861,386 shares of common stock outstanding, respectively.

Common Stock

In July 2020, the Company consummated its initial public offering and issued 9,775,000 shares of common stock for net proceeds of approximately $169.5 million, after deducting underwriting discounts and commissions of $13.0 million and offering-related expenses of $3.2 million. Upon the closing of the initial public offering, all shares of convertible preferred stock outstanding and accrued cumulative dividends were automatically converted into 23,934,533 shares of common stock.

In December 2020, the Company consummated its follow-on public offering and issued 2,737,000 shares of common stock for net proceeds of approximately $194.9 million, after deducting underwriting discounts and commissions of $12.5 million and offering-related expenses of $0.7 million.

In October 2023, the Company completed an underwritten follow-on public offering and issued an aggregate of 8,663,793 shares of common stock, including the underwriters’ exercise in full of their overallotment option of 1,293,103 shares of common stock, and, in lieu of common stock to certain investors, pre-funded warrants to purchase 1,250,000 shares of common stock at a public offering price of $6.38 per share and $6.379 per pre-funded warrant. Net proceeds were approximately $58.9 million, after deducting underwriting discounts and commissions of $3.8 million and offering-related expenses of $0.6 million.

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Common stock reserved for future issuance as of December 31, 2023 consists of the following:

Stock options issued and outstanding 8,984,671

Stock options authorized for future issuance 1,305,386

Employee Stock Purchase Plan shares authorized for future issuance 1,065,389

Restricted stock issued and outstanding 949,669

At-the-Market Equity Offering

In December 2021, the Company entered into a sales agreement with Cantor Fitzgerald & Co. and Credit Suisse Securities (USA) LLC (Sales Agreement), under which it may offer and sell shares of the Company's common stock, having aggregate gross proceeds of up to $150.0 million, from time to time through them as the Company's sales agents in its at-the-market equity offering program (ATM Offering). In March 2022, the Company filed a Shelf Registration Statement with the SEC. In May 2022, the Company filed an amended Shelf Registration Statement, which was declared effective by the SEC on May 31, 2022. In August 2023, the Company entered into an amendment to the Sales Agreement to include UBS Securities LLC as an additional sales agent and to remove Credit Suisse as a sales agent. No securities have been sold under the ATM Offering as of December 31, 2023.

Pre-Funded Warrants

As part of the October 2023 underwritten public offering, the Company issued pre-funded warrants to certain investors to purchase 1,250,000 shares of common stock in an underwritten public offering at a public offering price of $6.379 per pre-funded warrant. Each pre-funded warrant entitles the holder to purchase one share of common stock at an exercise price of $0.001 per share.

The pre-funded warrants to purchase shares of common stock are exercisable at any time after their original issuance. However, the pre-funded warrants include a separate provision whereby the exercisability of the pre-funded warrants may be limited if, upon exercise, the warrant holder or any of its affiliates would beneficially own more than 9.99% of the Company’s common stock. This threshold is subject to the warrant holder’s rights under the pre-funded warrants to increase or decrease such percentage to any other percentage not in excess of 19.99% upon at least 61 days’ prior notice from the warrant holder to the Company. The pre-funded warrants will expire on the date the warrants are exercised in full.

The pre-funded warrants were classified as equity and accounted for as a component of additional paid-in capital. The pre-funded warrants were classified as equity because they (i) are freestanding financial instruments that are legally detachable and separately exercisable from the equity instruments, (ii) are immediately exercisable, (iii) do not embody an obligation for the Company to repurchase its shares, (iv) permit the holders to receive a fixed number of shares of common stock upon exercise, (v) are indexed to the Company's common stock and (vi) meet the equity classification criteria. In addition, such pre-funded warrants do not provide any guarantee of value or return. The Company valued the pre-funded warrants at issuance, concluding that their offering price approximated their fair value, and allocated the aggregate net proceeds from the offering proportionately to the common stock and pre-funded warrants, including approximately $7.4 million allocated to the pre-funded warrants and recorded as a component of additional paid-in capital on the consolidated balance sheets.

ALXO US Equity

ALXO · 10-K · period ended 2023-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Item 8. Financial Statements and Supplementary Data.

ALXO US Equity☆

ALXO · 10-K · period ended 2023-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Item 8. Financial Statements and Supplementary Data.

ALXO US Equity