ALXO US Equity☆

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 2021 and 2020 items and year-over-year comparisons between 2021 and 2020. Discussions of 2019 items and year-over-year comparisons between 2020 and 2019 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, 2020, filed with the SEC on March 18, 2021. 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 a pipeline of product candidates based on expertise in protein engineering and oncology led by the CD47 blocker, evorpacept (evorpacept is the recommended United States Adopted Name (USAN); this product is also known as ALX148), currently in phase 1 and 2 clinical trials. Cancer cells leverage CD47, a cell surface protein, as a “don’t eat me” signal to evade detection by the immune system. Our company is developing 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. We believe our lead product candidate, evorpacept will have a wide therapeutic window to block the “don’t eat me” signal on cancer cells, and will leverage the immune activation of broadly used anti-cancer agents through combination strategies. As of December 31, 2021, we had dosed over 185 subjects with evorpacept across a range of hematologic and solid malignancies in combination with a number of leading anti-cancer agents. We plan to initiate additional studies in combination with leading anti-cancer agents. In solid tumors, we have initiated two randomized Phase 2 trials of evorpacept for the treatment of first-line advanced head and neck squamous cell carcinoma, or HNSCC, and enrolled the first subject in the first trial in May 2021 and enrolled the first subject in the second trial in July 2021. Our collaborator, Zymeworks, also initiated a Phase 1 trial for the treatment of advanced HER2-expressing breast cancer and enrolled the first subject in October 2021. We intend to initiate a randomized Phase 2 trial of evorpacept for the treatment of second line advanced HER2-overexpressing gastric/gastroesophageal junction, or GEJ, cancer in the first quarter of 2022. In hematologic malignancies, we have dosed 13 subjects with myelodysplastic syndromes, or MDS, and also advanced evorpacept into clinical development for the treatment of acute myeloid leukemia, or AML, enrolling the first patient in a Phase 1 trial in October 2021. Based on our early clinical results to date in multiple oncology indications showing 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. Our second program, which is a collaboration between ALX Oncology (ALX) and Tallac Therapeutics (Tallac), combines our company’s SIRPα antibodies with Tallac’s toll-like receptor 9 agonist antibody conjugate to deliver ALTA-002, a potent immune activator 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. An IND for ALTA-002 is planned for 2023. Additionally, with our recent acquisition of ScalmiBio, Inc, we seek to expand our pipeline of drug candidates to antibody drug conjugates based on expertise in protein engineering and oncology.

Our predecessor company, ALX Oncology Limited, an Irish private company limited by shares, was initially incorporated in Ireland on March 13, 2015 under the name Alexo Therapeutics Limited and changed its name to ALX Oncology Limited on October 11, 2018. We were then incorporated in Delaware on April 1, 2020 under the name ALX Oncology Holdings Inc. and completed an internal reorganization effective as of the same date whereby ALX Oncology Limited became our wholly-owned subsidiary and all of the stockholders, warrant holders and option holders of ALX Oncology Limited became our stockholders, warrant holders and option holders, holding the same number of corresponding shares, warrants and/or options in us as they did in ALX Oncology Limited immediately prior to the internal reorganization. The information included herein are presented as that of ALX Oncology Holdings Inc., unless such information refers to a date prior to April 1, 2020, in which case it will reflect that of our predecessor company.

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Since our founding, we have devoted substantially all of our resources to identifying and developing evorpacept, 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 consummated 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 consummated a follow-on public 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. From inception through December 31, 2021, we have raised an aggregate of $545.3 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 and $194.9 million were net proceeds from our follow-on public offering.

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 agent in our At the Market, or ATM Offering Program.

We have incurred net losses in each year since inception. Our net losses were $83.5 million, $45.7 million and $19.2 million for the years ended December 31, 2021, 2020 and 2019, respectively. As of December 31, 2021, we had an accumulated deficit of $202.0 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 over at least 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;

• manufacture supplies for our preclinical studies and clinical trials; and

Components of Results of Operations

Related-Party Revenue

To date, we have not generated any revenue from product sales, licenses or collaborations and do not expect to generate any revenue from the sale of products in the foreseeable future. We recognized related-party revenue related to research and development services to Tallac Therapeutics, which ceased as of July 1, 2020. If our clinical development efforts for our product candidates are successful and result in regulatory approval, we may generate revenue from future product sales. If we enter into license or collaboration agreements for any of our product candidates or intellectual property, we may generate revenue in the future from payments as a result of such license or collaboration agreements. We cannot predict if, when, or to what extent we will generate revenue from the commercialization and sale of our product candidates including evorpacept. We may never succeed in obtaining regulatory approval for any of our product candidates.

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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:

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 and 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 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 the numerous risks and uncertainties, including the following:

• successful completion of preclinical studies and clinical trials;

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

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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 any 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 expense. 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, expanded infrastructure and higher 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.

Cost of Services for Related-Party Revenue

We incurred costs associated with related-party contract research services including direct labor and associated employee benefits, laboratory supplies and other expenses with Tallac Therapeutics, which ceased as of July 1, 2020. These costs are recorded in cost of services for related-party transactions as a component of total operating expenses in the accompanying consolidated statements of operations and comprehensive loss.

Interest Expense

Our interest expense consisted 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 expense, net, consists of interest income on cash balances, changes in the fair value of our convertible preferred stock warrant liability and compound derivative liability, gain on assignment of lease, and foreign currency re-measurement and transaction gains and losses. Prior to our initial public offering, the underlying shares of our Series B convertible preferred stock warrants were contingently redeemable, and we accounted for these warrants as a liability at fair value and re-measured the fair value at each balance sheet date. As a result of the completion of our initial public offering, the Series B convertible preferred stock warrant liability was reclassified to stockholders’ equity and re-measurement was no longer required. The compound derivative liability was extinguished upon the extinguishment of the host instrument in December 2020.

Loss on Early Debt Extinguishment

In December 2020, we used approximately $6.5 million of the net proceeds from our follow-on public offering to repay the outstanding principal amount of $6.0 million and early extinguish the outstanding Term Loan with SVB and WestRiver. As a result of the early repayment, we recognized a $0.6 million loss on early debt extinguishment, representing the difference between the reacquisition price of debt and the net carrying amount of the loan as of the date of the payoff.

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Results of Operations and Net Loss

Comparisons of the Years Ended December 31, 2021 and 2020

The following table summarizes our results of operations for the years ended December 31, 2021 and 2020 (dollars in thousands):

Year Ended December 31, Change

Operating expenses

Cost of services for related-party revenue — 1,075 (1,075 ) (100 ) %

Loss on early debt extinguishment — (621 ) 621 (100 ) %

Related-Party Revenue

Related-party revenue for the years ended December 31, 2021 and 2020 was zero and $1.2 million, respectively, which was generated solely from payments received for reimbursement of research and development expenses pursuant to the Research and Development Services Agreement with Tallac Therapeutics, or the Tollnine Agreement, as further described in Note 11 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K. The decrease of $1.2 million from 2020 to 2021 related to decreased fee-for-service hours provided to Tallac Therapeutics as a result of winding down the Tollnine Agreement, which was terminated on July 1, 2020.

Research and Development Expenses

The following table summarizes our research and development expenses incurred for the years ended December 31, 2021 and 2020 (dollars in thousands):

Year Ended December 31, Change

Research and development expenses for the year ended December 31, 2021 were $60.2 million, compared to $29.0 million for the year ended December 31, 2020. The increase of $31.2 million was primarily attributable to (i) an increase of $19.3 million in clinical and development costs due to $14.7 million higher clinical costs mainly associated with a higher number of active clinical trials and increased patient enrollment and other research costs in advancement of our current lead product candidate, evorpacept, $2.8 million related to collaborations, of which $2.1 million was related to the Tallac Collaboration, and $1.7 million related to regulatory expenses and other research

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costs, (ii) an increase of $5.3 million in other research and development costs due to $4.7 million of acquired in-process research and developmentthat was immediately expensed related to the ScalmiBio acquisition, an increase of $0.3 million milestone payments triggered by the initiation of our Phase 2 trials and an increase of $0.1 million clinical trial insurance as we continue to initiate our trials, (iii) an increase of $4.0 million in personnel expense due to $2.3 million increase driven by headcount growth, our share of Tallac’s personnel expenses of $0.6 million related to the collaboration and, $0.5 million increase in recruiting expenses, and an $0.5 million retention bonus related to the ScalmiBio acquisition, and (iv) an increase of $2.7 million in stock-based compensation expense mainly due to an increase of $4.0 million in stock-based compensation expense driven by additional stock option awards granted in 2021 at higher fair values, offset by a decrease of $1.3 million expense as we modified stock option awards for former employees who transferred to Tallac Therapeutics in 2020.

General and Administrative Expenses

The following table summarizes our general and administrative expenses incurred for the years ended December 31, 2021 and 2020 (dollars in thousands):

Year Ended December 31, Change

General and administrative expenses for the year ended December 31, 2021 were $23.4 million, compared to $14.8 million for the year ended December 31, 2020. The increase of $8.6 million was primarily attributable to (i) an increase of $5.8 million in stock-based compensation expense driven by an increase of $6.2 million due to additional stock option awards granted in 2021 at higher fair values, offset by a decrease of $0.4 million as we recorded additional expense related to the modification of stock option awards for former employees in 2020, (ii) an increase of $2.3 million in other general and administrative costs primarily driven $1.1 million increase in directors and officers liability insurance premiums and $1.7 million increase in various other expenses including SEC filing related fees, SOX consulting, legal expenses, recruiting fees, information system related expenses, board service fees, and other expenses; partially offset by a decrease of $0.7 million in accounting and consulting service fees, which were higher in 2020 due to the IPO, and (iii) an increase of $0.5 million personnel and related costs primarily driven $1.6 million increase by headcount growth, offset by a decrease of $1.1 million driven by special bonus in 2020 related to the IPO.

Cost of Services for Related-Party Revenue

Cost of services for related-party revenue for the years ended December 31, 2021 and 2020 was zero and $1.1 million, respectively. The decrease of $1.1 million from 2020 to 2021 was attributable to decreased fee-for-service hours provided to Tallac Therapeutics as a result of winding down the Tollnine Agreement, which was terminated on July 1, 2020.

Loss on Early Debt Extinguishment

For the year-ended December 31, 2020 we recognized a $0.6 million loss on early debt extinguishment, representing the difference between the reacquisition price of debt and the net carrying amount of the loan as of the date of the payoff.

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

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from sales of any product candidates for several years, if at all, subject to 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, 2021, we had cash and cash equivalents of $363.7 million.

Debt Extinguishment

In December 2020, we used approximately $6.5 million of the net proceeds from our follow-on public offering to repay the outstanding principal amount of $6.0 million and early extinguish the outstanding Term Loan with SVB and WestRiver. As a result, we recognized a $0.6 million loss on early debt extinguishment, representing the difference between the reacquisition price of debt and the net carrying amount of the loan as of the date of the payoff.

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, 2021, we had an accumulated deficit of $202.0 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:

• the timing and progress of preclinical and clinical development activities;

• successful enrollment in and completion of clinical trials;

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

• addition and retention of key research and development personnel;

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. We do not currently 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 resulting from the ongoing COVID-19 pandemic. 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

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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 agent in our at-the-market equity offering program, or the ATM Offering Program.

We believe our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements through 2024. 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, 2021, 2020, and 2019:

Year Ended December 31,

(in thousands)

Net cash provided by (used in):

Net (decrease) increase in cash and cash equivalents $ (70,552 ) $ 425,202

Operating Activities

In the year ended December 31, 2021, cash used in operating activities of $68.1 million was attributable to a net loss of $83.5 million and a net change of $4.0 million in our operating assets and liabilities, partially offset by $19.4 million in non-cash charges. The change in operating assets and liabilities was due to $9.7 million increase in other assets primarily related to long-term prepaid clinical costs and $1.7 million increases in prepaid expenses and other current assets, offset by $7.3 million increase in accounts payable and other accrued liabilities primarily due to timing of invoice and payments. The non-cash charges consisted of stock-based compensation of $13.9 million, acquired in-process research and development of $4.7 million, and non-cash lease costs of $0.7 million.

In the year ended December 31, 2020, cash used in operating activities of $38.3 million was attributable to a net loss of $45.7 million and a net change of $0.2 million in our net operating assets and liabilities, partially offset by $7.2 million in non-cash charges. The non-cash charges consisted of stock-based compensation expense of $5.4 million, change in fair value of Series B convertible preferred stock warrant liability and term loan compound derivative of $0.7 million, a loss on debt extinguishment of $0.6 million, amortization of term loan discount and

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issuance costs of $0.4 million, anddepreciation and amortization of $0.2 million, partially offset by a gain on assignment of lease of $0.1 million. The change in operating assets and liabilities was primarily due to a $3.7 million decrease in accounts payable and $1.5 million increase in prepaid expenses and other current assets, partially offset by a $5.0 million increase in accrued expenses and other current liabilities, which was primarily due to timing of cash payments for clinical-related activities.

Investing Activities

In the year ended December 31, 2021, cash used in investing activities was $4.9 million due to the acquisition of in-process research and development of $4.3 million and purchase of property and equipment of $0.7 million.

In the year ended December 31, 2020, cash provided by investing activities of $0.6 million was primarily related to proceeds from the sale of certain lab equipment and other assets.

Financing Activities

In the year ended December 31, 2021, cash provided by financing activities was $2.5 million, which were driven by $2.6 million proceeds from exercise of common stock under equity incentive plans and $0.2 million proceeds from issuance of common stock pursuant to employee stock purchase plan, offset by $0.3 million of principal payments on finance leases.

In the year ended December 31, 2020, cash provided by financing activities was $462.9 million, primarily from the net proceeds from our common stock offerings of $368.3 million, the net proceeds from the sale and issuance of Series C convertible preferred stock of $104.7 million and the proceeds from exercise of common stock options under equity incentive plans of $0.3 million. These cash inflows were partially offset by payments for early debt extinguishment of $6.5 million and payments of offering costs of $3.8 million.

Contractual Obligations and Commitments

We have contractual obligations from our operating lease, manufacturing and service contracts and other research and development activities. The following table aggregates our material expected contractual obligations and commitments as of December 31, 2021 (in thousands):

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We enter into contracts in the normal course of business with various third parties for clinical trials, preclinical research studies and testing, manufacturing and other services and products for operating purposes. These contracts generally provide for termination upon notice. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including non-cancellable obligations of our service providers, up to the date of cancellation. These payments are not included in the table of contractual obligations above.

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 Policies and Significant Judgments and 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 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.

While 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 policies related to accrued expenses and equity-based compensation are most critical to understanding and evaluating our reported financial results.

Clinical and 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. 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 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.

We make significant judgments and estimates in determining the accrual balance at the end of each reporting period. 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. 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. Through December 31, 2021, there have been no material differences from our 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, and the actual services performed, and related

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costs may vary from our estimates, resulting in adjustments to clinical trial expense in future periods. Changes in these estimates that result in material changes to our accruals could materially affect its financial position and results of operations.

Stock-Based Compensation

Stock-based compensation expense represents the grant-date fair value of awards recognized over the requisite service period of the awards (usually the vesting period) on a straight-line basis. The grant-date fair value of restricted stock units is the fair value of the underlying stock on the award’s grant date. For stock options and shares purchased under our Employee Stock Purchase Plan, or ESPP, we estimate the grant-date fair value, and the resulting stock-based compensation expense, using the Black-Scholes option-pricing model.

The Black-Scholes option-pricing model requires the derivation and use of subjective assumptions to determine the estimated fair value of stock option awards. These assumptions include:

In addition to the Black-Scholes assumptions, we include the effect of forfeitures as they occur.

We expect the impact of our stock-based compensation expense to grow in future periods due to the potential increases in the value of our common stock and the number of awards we expect to grant.

We issue incentive and non-statutory stock options under the 2020 Amended and Restated Equity Incentive Plan, or 2020 Plan, to certain directors, officers, employees and consultants in consideration for services provided to us. To date, all incentive stock options have provided for vesting over a four year period from either the date of grant or the commencement of service. To date, all non-statutory stock options have provided for vesting over periods ranging from one to four years from either the date of grant or commencement of service. To date, all non-statutory stock options have been granted to directors and vest over a one year or a three year period from the award's date of grant, or the date of the Company’s next annual meeting of stockholders that occurs following the date of grant. New grants issued under the 2020 Plan do not allow the option holders to exercise their options prior to vesting.

Prior to our initial public offering, the fair value of the common stock underlying our stock-based awards was determined on each grant date by our board of directors, with input from management, considering our most recently available third-party valuation of common shares. In the absence of a public trading market for our common stock, our board of directors made a reasonable determination of the fair value of our common stock based on the information known to us on the date of grant, upon a review of any recent events and their potential impact on the estimated fair value per share of the common stock, and timely valuations from an independent third-party valuation

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in accordance with guidance provided by the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, or Practice Aid.

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, 2021, we had cash and cash equivalents of $363.7 million. We generally hold our cash and cash equivalents in interest-bearing bank accounts and money market funds. 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 and cash equivalents.

Financial Institution Risk

Substantially all of our cash and cash equivalents is held with a single financial institution. Due to its size, this financial institution represents a minimal credit risk. Cash amounts held at financial institutions are insured by the Federal Deposit Insurance Corporation up to $250,000. At December 31, 2021, we had $363.4 million in excess of this insured limit.

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.

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Item 8. Financial Statements and Supplementary Data.

INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm 113

Consolidated Balance Sheets 115

Consolidated Statements of Operations and Comprehensive Loss 116

Consolidated Statements of Cash Flows 118

Notes to Consolidated Financial Statements 119

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

ALX Oncology Holdings Inc.:

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of ALX Oncology Holdings Inc. and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders’ equity (deficit) and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2021 due to the adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842).

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting 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 audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements 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. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

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Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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

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 clinical accruals

As discussed in Notes 2 and 5 to the consolidated financial statements, the Company has accrued clinical and nonclinical study costs of $4,125 thousand, which includes accrued contract research organization costs. The Company accrues the costs incurred under agreements with contract research organizations (CROs) based on estimates of clinical activities completed to date 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 clinical accruals as a critical audit matter. Specifically, assessing the estimate of clinical activities completed to date required a higher degree of auditor judgment. Changes to the estimate of clinical activities completed to date could have had a significant impact on the amount of accrued clinical costs recorded by the Company.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to clinical accruals. This included controls related to the estimation of the clinical activities completed to date. For a sample of the Company’s clinical accruals, we assessed the Company’s estimate of the related activities completed to date by: (1) inquiring of Company personnel responsible for overseeing the respective clinical activities to understand their progress; (2) inspecting correspondence received by the Company from CROs, if any, and comparing the reported information to the Company’s estimate; and (3) inspecting the terms of the contract and any executed change orders, including the timeline and budget, and comparing them to the Company’s estimate of clinical activities completed to date.

/s/ KPMG LLP

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

San Francisco, California

February 28, 2022

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ALX ONCOLOGY HOLDINGS INC.

Consolidated Balance Sheets

(in thousands, except share and per share data)

December 31,

Assets

Current assets:

Prepaid expenses and other current assets 3,352 1,773

Property and equipment, net 897 52

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable $ 3,764 $ 4

Payable and accrued liabilities due to related party 1,630 72

Accrued expenses and other current liabilities 9,901 6,128

Other non-current liabilities 1,839 5

Commitments and contingencies (Note 13)

Stockholders’ equity

Total liabilities and stockholders’ equity $ 380,183 $ 436,054

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

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ALX ONCOLOGY HOLDINGS INC.

Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

Year Ended December 31,

Related-party revenue $ — $ 1,182 $ 4,796

Operating expenses:

Cost of services for related-party revenue — 1,075 4,360

Other income (expense), net 84 (404 ) (5 )

Loss on early debt extinguishment — (621 ) —

Income tax benefit (provision) 21 (241 ) (34 )

Cumulative dividends allocated to preferred stockholders — (5,202 ) (4,028 )

Net loss attributable to common stockholders $ (83,463 ) $ (50,942 ) $ (23,271 )

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

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ALX ONCOLOGY HOLDINGS INC.

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(in thousands, except share amounts)

Convertible Preferred Stock Stockholders' Equity (Deficit)

Common Stock Additional Paid-In Accumulated Total Stockholders'

Shares Amount Shares Amount Capital Deficit Equity (Deficit)

Issuance of common stock under equity incentive plans — — 5,199 — 10 — 10

Vesting of early exercised stock options — — — — 75 — 75

Stock-based compensation — — — — 297 — 297

Reclassification of warrants from liability to equity — — — — 1,019 — 1,019

Issuance of common stock upon net exercise of warrants — — 48,932 — — — —

Issuance of common stock under equity incentive plans — — 182,111 — 299 — 299

Vesting of early exercised stock options — — — — 27 — 27

Stock-based compensation — — — — 5,436 — 5,436

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

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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:

Non-cash lease costs 685 — —

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

Amortization of term loan discount and issuance costs — 421 11

Changes in fair value of compound derivative liability and warrants — 650 —

Gain on assignment of lease — (126 ) —

Loss on early debt extinguishment — 621 —

Changes in operating assets and liabilities

Receivables due from related-party — 536 396

Prepaid expenses and other current assets (1,662 ) (1,514 ) 744

Payable and accrued liabilities due to related party 1,419 — —

Accrued expenses and other current liabilities 3,306 4,983 134

Other non-current liabilities (698 ) (4 ) —

Investing activities — — —

Purchase of property and equipment (666 ) (31 ) (353 )

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

Proceeds from assets held for sale — 641 —

Net cash provided by (used in) investing activities (4,923 ) 610 (353 )

Financing activities

Proceeds from common stock offerings, net — 368,256 —

Payments of offering costs — (3,848 ) —

Proceeds from exercise of stock options under equity incentive plan 2,551 299 10

Proceeds from issuance of convertible preferred stock, net 104,680 9,430

Principal payments on finance leases (281 ) — —

Proceeds from issuance of term loan, net — — 5,917

Cash paid for early debt extinguishment — (6,506 ) —

Net increase (decrease) in cash and cash equivalents (70,552 ) 425,202 755

Supplemental disclosure

Cash paid for interest $ 11 $ 427 $ —

Cash paid for taxes $ 274 $ 47 $ —

Supplemental disclosure of non-cash investing and financing activities

Vesting of early exercised stock options $ — $ 27 $ 75

Debt issuance costs in accounts payable $ — $ — $ 95

Accumulated dividend on convertible preferred stock $ — $ 3 $ —

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

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

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. After Inception, ALX Oncology Limited became a wholly-owned subsidiary of the Company as a result of the internal reorganization. As part of the internal reorganization, all of the equity, option and warrant holders of ALX Oncology Limited became equity, option and warrant holders of the Company, holding the same number of corresponding shares, options and/or warrants in the Company as they did in ALX Oncology Limited immediately prior to the internal reorganization. The information included herein is presented as that of ALX Oncology Holdings Inc. unless such information refers to a date prior to April 1, 2020, in which case it will reflect that of ALX Oncology Limited, the predecessor company. 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.

The Company owns subsidiaries, consisting of ALX Oncology Limited, incorporated in Ireland; ALX Oncology Inc., incorporated in the United States, Alexo International Holdings Ltd, incorporated in Malta; ScalmiBio, Inc., incorporated in the United States, Alexo Therapeutics International, incorporated in the Cayman Islands, which is a wholly-owned subsidiary of Alexo International Holdings Ltd., and Sirpant Therapeutics, incorporated in the Cayman Islands, which is a wholly-owned subsidiary of Alexo Therapeutics International, or collectively, the Subsidiaries.

As of December 31, 2021, 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 has no 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 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 balance sheet as of December 31, 2020 to conform to the current year presentation. The Company reclassified approximately $0.1 million out of accrued expenses and other current liabilities into payable and accrued liabilities due to related-party. Total current liabilities as of December 31, 2020 did not change as a result of these reclassifications.

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Principles of Consolidation

All intercompany balances and transactions have been eliminated in consolidation.

Reverse Stock Split

On July 8, 2020, the Company’s board of directors approved an amendment to the Company’s certificate of incorporation to effect a 1-for-6.5806 reverse split of its common stock and convertible preferred stock. The par values of the common and convertible preferred stock were not adjusted as a result of the reverse stock split. All authorized, issued and outstanding common stock, convertible preferred stock, stock options, warrants, and related per share amounts contained in the consolidated financial statements have been retroactively adjusted to reflect this reverse stock split for all periods presented. The reverse stock split was effected on July 9, 2020.

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 those related to the estimated useful lives of long-lived assets, clinical trial accruals, fair value of assets and liabilities, Series B convertible preferred stock warrant liability, term loan compound derivative liability, term loan, valuation of the Company’s common stock, income taxes 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 accounts that are stated at cost, which approximate fair value.

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 and cash equivalents. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits, and invests in money market funds. The Company is exposed to credit risk in the event of default by the financial institutions holding its cash and cash equivalents. The Company believes that the institutions are financially stable and, accordingly, minimal credit risk exists. The Company has not experienced any losses on its deposits of cash and cash equivalents.

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.

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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 sheet and the resulting gain or loss is reflected in the consolidated statement of operations and comprehensive loss. Maintenance and repairs are charged to the consolidated statement of operations and comprehensive loss as incurred.

Deferred Offering Costs

The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated. After consummation of the equity financing, these costs are recorded in stockholders’ equity as a reduction of additional paid-in capital generated as a result of the equity financing.

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, while prior period amounts have not been adjusted and continue to be reported in accordance with the historical accounting under ASC 840.

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.

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Fair Value of Financial Instruments

The Company applies fair value accounting for all financial assets and liabilities and nonfinancial assets and liabilities that are required to be recognized or disclosed at fair value in the consolidated financial statements. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where observable prices or inputs are not available valuation models are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity.

Convertible Preferred Stock

The Company records convertible preferred stock net of issuance costs on the dates of issuance, which represents the carrying value. In the event of a change of control of the Company, proceeds will be distributed in accordance with the liquidation preferences set forth in its organization documents unless the holders of convertible preferred stock have converted their convertible preferred stock into common stock. Convertible preferred stock is classified outside of stockholders’ equity (deficit) on the accompanying consolidated balance sheets as events triggering the liquidation preferences are not solely within the Company’s control. The Company has elected not to adjust the carrying values of the convertible preferred stock to the liquidation preferences of such shares because of the uncertainty of whether or when such an event would occur. Upon the consummation of the Company’s initial public offering in July 2020, all shares of convertible preferred stock outstanding and accrued cumulative dividends automatically converted into 23,934,533 shares of common stock.

Series B Convertible Preferred Stock Warrant Liability

The Company has issued freestanding warrants to purchase its Series B convertible preferred stock. Freestanding warrants for the Company’s convertible preferred stock that are classified outside of permanent equity are recorded at fair value, and are subject to re-measurement at the end of every period until the earlier of the exercise of the warrants or the completion of a liquidation event, including the completion of an initial public offering. Upon exercise, the Series B convertible preferred stock warrant liability would be reclassified to additional paid-in capital, with any change in fair value recognized as a component of other expense, net. Following the Company’s initial public offering, the warrants were automatically converted to warrants to purchase shares of common stock. The Company revalued the Series B convertible preferred stock warrants as of the completion of the initial public offering and reclassified the outstanding preferred stock warrant liability balance to additional paid-in capital with no further re-measurement required as common stock warrants are considered permanent equity.

Revenue Recognition

To date, the Company has derived revenue from providing research and development services on a time and materials basis to a related-party.

The Company recognizes such revenues over time as services are delivered, and invoices the customer as the work is incurred in arrears.

The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services.

To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, Revenue from Contracts with Customers, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation.

As part of the Company’s consideration as to whether the Company has entered into a contract with a customer, it considers whether it is probable that it will collect the consideration it is entitled to in exchange for the goods and services it transfers to the customer. At contract inception, the Company assesses the goods or services promised within each contract that falls under the scope of ASC 606, determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

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Cost of Services for Related-Party Revenue

The Company incurs costs associated with related-party services including direct labor and associated employee benefits, laboratory supplies, and other expenses. These costs are recorded in cost of services for related-party revenue as a component of total operating expenses in the accompanying consolidated statements of operations and comprehensive loss.

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 entities that conduct certain research and development activities on behalf of the Company 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 assetacquisition, 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.

Clinical and 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.

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. To assist in its estimates the Company relies upon the receipt of timely and accurate reporting

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from its clinical and non-clinical studies and other third-party vendors. Through December 31, 2021, 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, and 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.

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 statement of operations and comprehensive loss and recorded in other expense, net, and were immaterial for the years December 31, 2021, 2020 and 2019.

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.

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.

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Comprehensive Loss

Comprehensive loss is equal to net loss 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 outstanding during the period, without consideration for common stock equivalents. 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.

The Company applies the two-class method to compute basic and diluted net loss per share when it has issued shares that meet the definition of participating securities. The two-class method determines net loss per share for each class of common stock and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires net loss available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to share in the earnings as if all net loss for the period had been distributed. The Company’s convertible preferred stock participated in any dividends declared by the Company and are therefore considered to be participating securities. The participating securities were not required to participate in the losses of the Company, and therefore during periods of loss there was no allocation required under the two-class method. Upon the consummation of the Company’s initial public offering in July 2020, all shares of convertible preferred stock outstanding and accrued cumulative dividends automatically converted into common stock.

Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board, or FASB, issued ASU No. 2016-02, Topic 842, Leases (ASU 2016-02). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both operating and finance leases. ASU No. 2016-02 also requires new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. In June 2020, the FASB issued ASU No. 2020-05, which extended the effective date of ASU No. 2016-02 for non-public business entities, including smaller reporting companies, to fiscal years beginning after December 15, 2021, with early adoption permitted. The Company adopted ASC 842 on January 1, 2021 using the alternative modified transition method, which applies the standard as of the adoption date and therefore, the Company has not applied the standard to the comparative periods presented in the Company's financial statements. The Company elected the following practical expedients:

(ii) combine lease and non-lease components

(iii) not to recognize ROU assets or lease liabilities for short term leases

As a lessee, the primary impact of the adoption of ASC 842 was the recognition of operating and finance lease ROU assets of $0.3 million and $0.2 million, respectively, and operating and finance lease liabilities of $0.3 million and $0.2 million, respectively, as of January 1, 2021. ROU assets are presented within other assets, current lease liabilities are presented within accrued expenses and other current liabilities, and non-current lease liabilities are presented within other non-current liabilities on the consolidated balance sheet. See Note 6 "Leases" for additional details.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes, Topic 740: Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2021. ASU 2019-12 is effective for the Company beginning January 1, 2022. Early adoption is permitted. The Company adopted this standard as of January 1, 2021 on a prospective basis and there was no material impact on its consolidated financial statements and disclosures as a result of the adoption.

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(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 will make an additional payment of $2.0 million at the one-year anniversary of the transaction subject to ScalmiBio employee remaining employed with the Company at the anniversary date. This additional payment will be recorded as compensation expense in the Company’s statement of operations and comprehensive loss over the one-year period. 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 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 CEO and President, 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 CEO recused himself from the negotiation and approval of the transaction.

To determine the accounting for this transaction under ASC 805 Business Combinations, 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 Comprehensive Loss for the year ended December 31, 2021.

(4) 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.

Cash and cash equivalents are stated at cost which approximate their respective fair values on the Company’s consolidated balance sheets. Where quoted prices are available in an active market, securities are classified as Level 1. The Company classifies money market funds as Level 1. When quoted market prices are not available for the specific security, then the Company estimates fair value by using quoted prices for identical or similar instruments in markets that are not active and 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.

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The following table sets forth the Company’s financial assets that are measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):

Level 1 Level 2 Level 3 Fair Value

Financial assets

Cash equivalents

Level 1 Level 2 Level 3 Fair Value

Financial assets

Cash equivalents

The Company did not have any outstanding financial liabilities to be re-measured on a recurring basis as of December 31, 2021 and 2020.

There were no transfers of assets or liabilities between the fair value measurement levels during the years ended December 31, 2021 and 2020.

The carrying values of the Company’s financial instruments, such as accounts payable and accrued expenses and other current liabilities, approximated fair value due to the short-term nature of these items.

(5) BALANCE SHEET COMPONENTS

Property and Equipment, Net

The following table presents the components of property and equipment, net as of December 31, 2021 and 2020 (in thousands):

December 31, December 31,

Laboratory Equipment $ 324 $ —

Computer hardware and software 241 63

Leasehold improvements 229 5

Furniture and fixtures 166 9

Property and equipment, gross 960 77

Less: accumulated depreciation and amortization (63 ) (25 )

Property and equipment, net $ 897 $ 52

Depreciation and amortization expense was nominal, $0.2 million and $0.4 million for years ended December 31, 2021, 2020 and 2019, respectively.

In July 2020, the Company transferred certain lab equipment and other assets to Tallac Therapeutics, Inc. (formerly known as Tollnine, Inc., or Tollnine), or Tallac Therapeutics, a related-party (Note 11), in exchange for $0.6 million.

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Other Assets

The following table presents the components of other assets, net as of December 31, 2021 and 2020 (in thousands):

December 31, December 31,

Long-term prepaid clinical expenses $ 6,694 $ —

Long-term prepaid contract manufacturing costs 2,854 —

Operating lease right-of-use assets 1,829 —

Finance lease right-of-use assets 746 —

Accrued Expenses and Other Current Liabilities

The following table presents the components of accrued expenses and other current liabilities as of December 31, 2021 and 2020 (in thousands):

December 31, December 31,

Accrued clinical and nonclinical study costs $ 4,125 $ 1,401

Accrued compensation and related expenses 3,294 1,974

Accrued professional fees 790 300

Accrued contract manufacturing 693 2,123

Finance lease liabilities, current 429 —

Operating lease liabilities, current 313 —

Accrued federal income tax — 179

Total accrued expenses and other current liabilities $ 9,901 $ 6,128

(6) LEASES

In 2017, the Company entered into a lease agreement for office space for a period of five years and four months, commencing February 1, 2018 and ending May 31, 2023. In July 2020, the Company (i) assigned to Tallac Therapeutics, Inc., or Tallac Therapeutics, a related party, the Company’s lease with respect to the premises located at 866 Malcolm Road, Burlingame, California, and (ii) entered a sub-lease agreement for the same premise from Tallac Therapeutics. The sub-lease is an operating lease. As of December 31, 2021, the Company had approximately $0.2 million right-of-use asset and lease liability related to this lease.

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 expire in August 2023 with no stated option to extend the term. The Company classified the leases as finance leases.

In May 2021, the Company entered into a lease agreement for office space totaling approximately 10,000 square feet at 323 Allerton Avenue, South San Francisco, California. The term of the lease is from July 5, 2021 to August 31, 2026, with early entry date of June 6, 2021. The lease does not provide an option to extend after it expires. The total lease payments for the life of the lease is approximately $2.0 million. The Company obtained the right to direct the usage of the office space on the early entry date, and therefore considered June 6, 2021 as the lease commencement date. The lease was evaluated as an operating lease. As of December 31, 2021, the Company had a ROU asset and lease liability of approximately $1.6 million and $1.8 million, respectively, related to this lease.

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The ROU assets recorded under the operating lease and finance lease were $1.8 million and $0.7 million, respectively, at December 31, 2021. The amounts were included in the other assets on the consolidated balance sheet.

The following table presents the maturities and balance sheet information of the Company's operating and finance lease liabilities as of December 31, 2021 (in thousands, except lease term and discount rate):

Operating Leases Finance Leases

Thereafter 301 —

Less: imputed interest (166 ) (11 )

Total lease liabilities $ 2,015 $ 709

Lease liabilities: current (i) $ 457 $ 429

Lease liabilities: non-current (ii) 1,558 280

Total lease liabilities $ 2,015 $ 709

Weighted average remaining lease term (in years) 4.3 1.7

Weighted average discount rate 3.5 % 1.7 %

The following table presents the components of lease costs (in thousands):

Operating lease cost $ 360

Variable lease cost and other, net (i) 84

Finance lease cost

Amortization of right-of-use assets 369

Interest 13

Total lease cost $ 826

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The following table presents supplemental cash flow information related to leases:

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

Operating cash flows from operating leases $ 243

Operating cash flows from finance leases $ 11

Financing cash flows from finance leases $ 281

Right-of-use asset acquired under leases

Operating leases $ 1,780

Finance leases $ 776

ASC 840 Disclosures

The Company elected the alternative modified transition method, which applies ASC 842 as of the effective date on January 1, 2021. Prior to the adoption of ASC 842, the Company applied ASC 840 to its lease transactions.

The following table presents the future minimum lease commitments under the Company’s operating leases as of December 31, 2020, as previously disclosed (in thousands):

Total future minimum lease payments $ 346

Rent expense was $0.6 million and $0.8 million for the years ended December 31, 2020 and 2019, respectively.

(7) TERM LOAN

The Company’s wholly-owned subsidiaries Alexo Therapeutics International and Sirpant Therapeutics, as borrowers, entered into a Loan and Security Agreement, or the Loan Agreement, dated as of December 20, 2019, with Silicon Valley Bank, or SVB, and WestRiver, collectively as lenders, and SVB, as administrative agent and collateral agent. On the closing date of the Loan Agreement in December 2019, $6.0 million was funded to the Company. In December 2020, the Company fully repaid the loan balance.

In conjunction with the Loan Agreement, the Company issued warrants to purchase Series B convertible preferred stock to SVB and WestRiver, and recorded a warrant liability of approximately $0.4 million at the date of issuance. The Company also determined that certain loan features were embedded derivatives requiring bifurcation and separate accounting, and recorded a term loan compound derivative liability of approximately $51,000. The Company measured its Series B convertible preferred stock warrant liability and term loan compound derivative liability at fair value on a recurring basis, which were classified as Level 3 liabilities. During the year ended December 31, 2020, the increase in fair value in warrant liability was approximately $658,000. During the year ended December 31, 2020, the decreases in fair value in compound derivative liability was approximately $8,000. Those amounts were recognized as a component of other income (expense), net in the consolidated statement of operations and comprehensive loss. The Company reclassified the preferred stock warrant liability balance into additional paid-in capital in July 2020 with no further re-measurement required, as the common stock warrants are considered permanent equity effective with the completion of the initial public offering. The compound derivative liability was extinguished upon the extinguishment of the host instrument in December 2020.

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(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 and 100,000,000 shares of undesignated preferred stock. As of December 31, 2021 and 2020, the Company had 40,587,067 and 39,844,522 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.

Common stock reserved for future issuance as of December 31, 2021 consists of the following:

December 31,

Stock options issued and outstanding 5,128,639

Restricted stock units issued and outstanding 15,075

Employee Stock Purchase Plan shares authorized for future issuance 790,822

Dividends

Prior to the Company’s initial public offering, cumulative dividends of 6.0% per annum of the original issue price for each convertible preferred stock series were payable when and as declared by the Company’s Board of Directors, or Board of Directors, upon the occurrence of a liquidation event or upon a contingent mandatory conversion of the convertible preferred stock in connection with a qualified initial public offering as described below. The Series A original issue price was $6.58, and the Series B and Series C original issue price was $9.4972. The original issue price was subject to adjustment in the event of any share dividend, share split, combination, consolidation or other recapitalization. The dividends accrued from day to day from the issue date of such preferred stock whether or not declared and were cumulative. In addition, the preferred stockholders participated on an as-converted basis in any dividends payable to common stockholders. As of July 20, 2020, there were approximately $18.0 million of accrued cumulative dividends on the Series A, Series B and Series C convertible preferred stock, which became payable upon the consummation of the Company’s initial public offering and automatically converted into 2,564,759 shares of the Company’s common stock.

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(9) STOCK-BASED COMPENSATION

Equity Incentive Plans

2015 Share Award Scheme

During 2015, the Company adopted an equity compensation plan, the 2015 Share Award Scheme, or the 2015 Share Award Scheme, for eligible employees, officers, directors, advisors, and consultants. The 2015 Share Award Scheme provided for the grant of incentive and non-statutory share options. The 2015 Share Award Scheme permitted the Company to grant up to 2,143,117 shares of common stock pursuant to awards granted thereunder, including incentive share options, non-statutory share options, conditional share awards and restricted share awards.

2020 Equity Incentive Plan

On April 1, 2020, the Board of Directors approved a new equity incentive plan, or the 2020 Equity Incentive Plan, that replaced the 2015 Share Award Scheme. The 2020 Equity Incentive Plan permitted the issuance of up to 4,379,139 shares of the Company’s common stock pursuant to awards granted under it, and authorized the award of stock options, restricted stock awards, stock appreciation rights and restricted stock units to employees, directors, and consultants.

2020 Amended and Restated Equity Incentive Plan

In July 2020, the Company adopted the Amended and Restated 2020 Equity Incentive Plan, or the 2020 Plan. The 2020 Plan replaced the Company’s 2020 Equity Incentive Plan and a total of 7,874,862 shares were reserved under the 2020 Plan.

The terms of the stock option agreements, including vesting requirements, are determined by the Board of Directors, subject to the provisions of the 2020 Plan. The term of the options generally expire, upon the earliest of (i) termination of continuous service for cause (ii) three months after the termination of continuous service for reasons other than cause, death or disability (iii) twelve months after the termination of continuous service due to disability (iv) eighteen months after the employee’s death if the employee died during the period of continuous service (v) expiration date in the grant notice or (vi) the day before the tenth anniversary of the date of grant. The per share exercise price of the incentive share options must equal at least the fair market value of a share underlying such options on the date of grant.

All awards that are canceled, forfeited or expired are returned to the 2020 Plan and are available for grant in conjunction with the issuance of new awards. Share options granted are exercisable over a maximum term of 10 years from the date of grant and generally vest over an agreed service period, usually four years. Certain share options granted under the 2020 Plan provide option holders the right to elect to exercise unvested options in exchange for common stock. Such unvested common stock is subject to a repurchase right held by the Company at the original issuance price in the event the optionee’s service to the Company is terminated either voluntarily or involuntarily. The right lapses as the underlying repurchase right expires. These repurchase terms are considered to be a forfeiture provision. The cash received from employees for exercise of unvested options is treated as a refundable deposit and is classified as a liability on the consolidated balance sheets. At December 31, 2020, there were unvested early exercised options covering an aggregate of 63 shares and the liability related to these unvested options was approximately $0. At December 31, 2021, there was no such unvested early exercised options and related liability.

Stock Option Modification

In connection with the transfer of employees to Tallac Therapeutics, Dr. Hong Wan, the Company’s former Chief Scientific Officer, and eight of the Company’s employees, or Transferred Employees, terminated their employment with the Company effective as of June 30, 2020 and became employees of Tallac Therapeutics effective as of July 1, 2020. The options to purchase shares of the Company’s common stock that were previously granted to the Transferred Employees will continue to vest and be exercisable subject to the Transferred Employees remaining service providers to the Company under the original terms of the award. The Company evaluated the change in status from an employee to a consultant in accordance with ASC 718. While the Company concluded that the change in status did not affect the vesting condition or the classification of the initial awards, the significant reduction in the level of services that the grantees were expected to provide under the original awards as compared to the level of services expected under the Tallac Services Agreement will no longer meet the substantive service condition requirements and therefore the compensation cost for the unvested awards was recognized immediately with no future service requirement. In September 2020, in connection with the resignation of the Company’s former Chief Business Officer and the entry into a consulting agreement with him, the Company evaluated the change in status from an employee to a consultant in accordance with ASC 718. While the Company concluded that

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the change in status did not affect the vesting condition or the classification of the initial awards, the significant reduction in the level of services that the grantee was expected to provide under the original awards as compared to the level of services expected under the consulting agreement will no longer meet the substantive service condition requirements and therefore the compensation expense for the unvested awards expected to vest during the consultancy was recognized immediately with no future service requirement. The Company recorded $1.7 million in stock-based compensation expenses related to the modifications for the year ended December 31, 2020.

Employee Stock Purchase Plan

In July 2020, the Board of Directors and stockholders approved the ALX Oncology Holdings Inc. 2020 Employee Stock Purchase Plan, or the ESPP. The ESPP allows eligible employees to have up to 15 percent of their eligible compensation withheld and used to purchase common stock, subject to a maximum of $25,000 worth of stock purchased in a calendar year or no more than 3,000 shares in an offering period, whichever is less. An offering period consists of a six-month purchase period, with a look back feature to our stock price at the commencement of the offering period. Eligible employees can purchase the Company’s common stock at the end of the offering period at 85% of the lower of the closing price of our common stock on The Nasdaq Global Select Market on the first and last day of the offering period.

The initial number of shares of common stock available for issuance under the ESPP, was 400,000. Unless the Board of Directors provides otherwise, beginning on January 1, 2021, the maximum number of shares which shall be made available for sale under the ESPP will automatically increase on the first day in January of each calendar year (i.e., the first day of our fiscal year) during the term of the ESPP by an amount equal to the least of:

Accordingly, on January 1, 2021, the number of shares available under the ESPP was increased by 398,445 shares. As of December 31, 2021, 7,623 shares of common stock have been purchased under the ESPP, and the number of shares of common stock available for issuance under the ESPP was 790,822.

Shares Available for Grant

The following table provides a summary of share option and restricted stock unit activity under the 2020 Plan:

Shares Available to Grant

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Stock Option Activity

The following table provides a summary of share option activity under the Plan and related information:

Outstanding Options

(in thousands)

Authorized

The aggregate intrinsic values represent the total pre-tax intrinsic value, of options outstanding and exercisable calculated as the difference between the exercise price of the options and the fair value of the Company’s common stock as of December 31, 2021 and 2020. The total intrinsic value of options exercised during the years ended December 31, 2021, 2020 and 2019 were $48.1 million, $4.4 million and immaterial, respectively.

Stock Option Valuation Assumptions

The Company uses the Black-Scholes option pricing model to determine the estimated fair value of stock options at the date of the grant, and stock-based compensation is adjusted for actual forfeitures as they occur. The fair value of each option grant during the years ended December 31, 2021, 2020 and 2019 was estimated with thefollowing assumptions:

Year Ended December 31,

Expected dividend rate - - -

Expected Term. The expected term of the options represents the average period the share options are expected to remain outstanding. As the Company does not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior, the expected term of options granted is derived from the average midpoint between the weighted average vesting and the contractual term, also known as the simplified method.

Risk-Free Interest Rate. The risk-free interest rate is based on the yield of U.S. Treasury notes as of the grant date with terms commensurate with the expected term of the option.

Dividend Yield. The expected dividends assumption is based on the Company’s expectation of not paying dividends in the foreseeable future.

Volatility. Since the Company does not have sufficient trading history for its common stock, the expected volatility is based on the historical volatilities of the common shares of comparable publicly traded companies. The Company selected companies with comparable characteristics, including enterprise value, risk profiles, position within the industry, and with historical share price information sufficient to meet the expected life of the Company’s share-based awards.

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Fair Value. Historically, for all periods prior to our initial public offering, the fair value of the shares of common stock underlying our stock option was determined by the Company’s board of directors. Because there was no public market for the Company’s common stock, the board of directors determined fair value of the common stock at the time of grant of the options by considering a number of objective and subjective factors including important developments in the Company’s operations, valuations performed by an independent third party, sales of convertible preferred stock, actual operating results and financial performance, the conditions in the biotechnology industry and the economy in general, the stock price performance and volatility of comparable public companies, and the lack of liquidity of the Company’s common stock, among other factorsthe board of directors deemed relevant to such determination. Since the completion of our initial public offering, the fair value of each share of common stock underlying stock option grants is based on the closing price of our common stock on the Nasdaq Global Select Market as reported on the date of grant.

Restricted Stock Unit Activity

The following table provides a summary of restricted stock unit activity under the Plan and related information:

Outstanding RSUs

(in thousands)

Restricted stock units as of December 31, 2020 — $ —

Vested — —

Canceled/forfeited — —

Stock-based Compensation Expenses

Stock options granted are measured based on the grant-date fair value estimated using the Black-Scholes option pricing model. The grant-date fair value of restricted stock units is the fair value of the underlying stock on the award’s grant date. Compensation expense is recognized over the vesting period of the applicable awards on a straight-line basis. The weighted-average grant-date fair value per share for stock options granted during the years ended December 31, 2021, 2020 and 2019 was $42.29, $7.74 and $1.27, respectively. The grant date-fair value per share for restricted stock units during 2021 was $58.56. There were no restricted stock units granted in 2020 and 2019.

Stock-based compensation expense includes stock options and restricted stock units and has been reported in the Company’s consolidated statements of operations and comprehensive loss as follows (in thousands):

Cost of services for related-party revenue — — 159

As of December 31, 2021, there was unrecognized share-based compensation expense of $68.7 million, related to unvested share options which the Company expects to recognize over a weighted-average period of 2.8 years. There was unrecognized share-based compensation expense of $0.8 million, related to unvested restricted stock units which the Company expects to recognize over a weighted-average period of 3.6 years.

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(10) INCOME TAXES

The U.S. domestic and international components of pre-tax loss for the years ending December 31, 2021, 2020 and 2019 are as follows (in thousands):

Year Ended December 31,

The federal and state provision (benefit) for income taxes consist of the following (in thousands):

Year Ended December 31,

Current provision for income taxes:

State — 2 1

International — — —

Deferred tax provision:

Federal — — —

State — — —

International — — —

Total deferred — — —

Provision for income taxes $ (21 ) $ 241 $ 34

Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards.

A reconciliation of the U.S. federal statutory income tax rate to the effective tax for the years ended December 31, 2021, 2020 and 2019 are as follows (in thousands):

Year Ended December 31,

At federal statutory income tax rate $ (17,532 ) $ (9,555 ) $ (4,034 )

Stock-based compensation (4,031 ) (5 ) 60

Research & Development credits (2,131 ) (512 ) (861 )

Prior period true ups 1,098 — (950 )

Provision for income taxes $ (21 ) $ 241 $ 34

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Significant components of the Company’s deferred tax assets as of December 31, 2021 and 2020 are as follows (in thousands):

December 31,

Deferred tax assets:

Lease Liabilities 542 —

Deferred tax liabilities:

Lease ROU assets 541 —

Total deferred tax liabilities 614 11

Net deferred tax assets $ — $ —

ASC 740 requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is "more likely than not." Realization of the future tax benefits is dependent on the Company's ability to generate sufficient taxable income within the carryforward period. Because of the Company's recent history of operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a valuation allowance. The valuation allowance increased by approximately $11.4 million and $4.6 million for the years ended December 31, 2021 and 2020, respectively.

Net operating losses and tax credit carryforwards as of December 31, 2021 are as follows (in thousands):

Amount Expiration Years

Net operating losses, federal (Post December 31, 2017) $ 47,142 Do Not Expire

Tax credits, state $ 3,236 N/A

Net operating losses, foreign $ 5,509 N/A

Utilization of the Company’s U.S. net operating loss and credit carryforwards may be subject to substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such annual limitation could result in the expiration of the U.S. net operating loss and credit carryforwards before utilization. To date, the Company has not performed an analysis to determine whether there would be a substantial annual limitation due to a change in ownership.

Unrecognized Tax Benefits

The Company recognizes the tax benefit from uncertain tax positions if it is more likely than not that the tax positions will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefit is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. The Company will file income tax returns in the U.S. federal and California jurisdiction, which is not currently under exam, and all years since inception are opened to examination.

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The unrecognized tax benefits as of December 31, 2021, 2020 and 2019 were $1.2 million, $0.8 million and $0.7 million, respectively. Future changes in the unrecognized tax benefits will not impact the effective tax rate due to the Company's full valuation allowance.

The Company has the following activity relating to unrecognized tax benefits (in thousands):

Year Ended December 31,

Balance at beginning of year $ 842 $ 692 $ 418

Additions/reversals based on tax positions of prior years (69 ) (64 ) 2

Additions based on tax positions related to the current year 494 240 272

Lapses in statutes of limitations (50 ) (26 ) —

Although it is reasonably possible that certain unrecognized tax benefits may increase or decrease within the next 12 months due to tax examination changes, settlement activities, expirations of statute of limitations or the impact on recognition and measurement considerations related to the results of published tax cases or other similar activities, the Company does not anticipate any significant changes to unrecognized tax benefits over the next 12 months. During the years ended December 31, 2021, 2020 and 2019, no interest or penalties were required to be recognized relating to unrecognized tax benefits.

(11) RELATED-PARTY TRANSACTIONS

Related-party revenue

In June 2018, the Company entered into a Research and Development Services Agreement, or Tollnine Agreement, with Tollnine Therapeutics, Inc., or Tollnine, a related-party of the Company, to provide research and development services to Tollnine. The Company’s Chief Executive Officer was the Chief Executive Officer of Tollnine until April 2020 but remains on the Board of Directors. In addition, two of the Company’s investors were also investors in Tollnine. As such, Tollnine was deemed to be a related-party. The Tollnine Agreement had an initial term of 3 years. The services were provided at a price based on the costs incurred by the Company plus a mark-up equal to 10% of such costs. The Company recognized revenue when Tollnine, as the Company’s customer, obtained control of promised goods or services, in an amount that reflects the consideration which the Company received in exchange for those goods or services.

The Company recognized related-party revenues of zero, $1.2 million and $4.8 million for the years ended December 31, 2021, 2020 and 2019, respectively, under the Tollnine Agreement. Effective as of July 1, 2020, the Company terminated the Tollnine Agreement and entered into the Tallac Services Agreement with Tallac Therapeutics.

Tallac Service Agreement

The Company entered into a research and development services agreement, or the Tallac Services Agreement, with Tallac Therapeutics effective as of July 1, 2020. The Tallac Services Agreement provides that Tallac Therapeutics will provide certain preclinical research services to the Company for a service fee based on the costs incurred by Tallac Therapeutics plus a mark-up equal to 10.0% of such costs. The Tallac Services Agreement has an initial term of four years and is renewed automatically for additional one year terms thereafter. The Company records the payments for the research and development services as research and development costs within the consolidated statement of operations and comprehensive loss. The Company has recorded $0.8 million and $0.6 million as research and development costs for the year ended December 31, 2021 and December 31, 2020.

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Tallac Collaboration Agreement

On March 4, 2021, the Company entered into a Collaboration Agreement with Tallac Therapeutics to jointly develop, manufacture, and commercialize a novel class of cancer immunotherapeutics. The collaboration builds on the Company’s expertise in developing therapies that block the CD47 checkpoint pathway and expands its immuno-oncology pipeline. The companies will leverage their respective scientific and technical expertise to advance an anti-SIRPα antibody conjugated to a Toll-like receptor 9, or TLR9, agonist for targeted activation of both the innate and adaptive immune systems. The key economic components of the collaboration transaction include that both parties will share equally (a) in the cost and expenses of research and development and (b) any profit or loss.

The Company accounts for research and development, or R&D, costs in accordance ASC 730, Research and Development, which states R&D costs must be charged to expense as incurred. Accordingly, the Company records its internal and third-party costs associated with the collaboration as R&D expenses as incurred. When the Company is entitled to reimbursement of the R&D expenses that it incurs under the collaboration, the Company records those reimbursable amounts as a reduction to R&D expenses. The Company also records as R&D expenses, the portion of Tallac’s expenses that the Company is obligated to reimburse, in the period when Tallac incurs such expenses. During the year ended December 31, 2021, the Company recorded $2.8 million in R&D expenses related to the collaboration.

The Collaboration Agreement includes the right to set off clause, as such, the Company records the amount due to or reimbursable from Tallac on a net basis. As of December 31, 2021, the Company had $1.4 million of accrued expenses due to Tallac which was presented within the payable and accrued liabilities due to related party on the consolidated balance sheet.

Acquisition of assets and ownership of ScalmiBio

On October 4, 2021, the Company entered into a stock purchase agreement with ScalmiBio. The Company’s CEO and President, who is a director, was also a director of ScalmiBio prior to the acquisition, and owned 31.7% of ScalmiBio stock. Refer to Note 3 Acquisition of assets and ownership for additional discussion.

Transfer of assets to Tallac Therapeutics

In July 2020, the Company transferred certain lab equipment and other assets to Tallac Therapeutics in exchange for $0.6 million.

Operating sub-lease agreement with Tallac Therapeutics

The Company leases office space in Burlingame, California under a single operating sub-lease agreement with Tallac Therapeutics. Refer to Note 6 Leases for additional discussion.

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(12) NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS

The following table sets forth the computation of the basic and diluted net loss per share attributable to common stockholders (in thousands, except share and per share data):

Year Ended December 31,

Numerator:

Net loss attributable to common stockholders $ (83,463 ) $ (50,942 ) $ (23,271 )

Denominator:

Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share for all periods presented as the inclusion of all potential common stock outstanding would have been anti-dilutive.

The following outstanding potentially dilutive securities were excluded from the computation of diluted net loss per share for the years ended December 31, 2021, 2020 and 2019, because including them would have been anti-dilutive:

December 31,

Convertible preferred stock — — 10,313,808

Warrants to purchase convertible preferred stock — — 61,292

Common stock subject to repurchase — 63 34,024

Restricted stock units issued and outstanding 15,075 — —

(13) COMMITMENTS AND CONTINGENCIES

Guarantees and Indemnifications

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future but have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations. The Company also has indemnification obligations to its officers and directors for specified events or occurrences, subject to some limits, while they are serving at the Company’s request in such capacities. There have been no claims to date and the Company has director and officer insurance that may enable the Company to recover a portion of any amounts paid for future potential claims. The Company believes the fair value of these indemnification agreements is minimal. Accordingly, the Company has not recorded any liabilities for these agreements as of December 31, 2021.

Contingencies

From time to time, the Company may be a party to various claims in the normal course of business. Legal fees and other costs associated with such actions will be expensed as incurred. The Company will assess, in conjunction with its legal counsel, the need to record a liability for litigation and contingencies. Reserve estimates will be recorded when and if it is determined that a loss related matter is both probable and reasonably estimable. For the years ended December 31, 2021, 2020 and 2019, the Company had no pending or threatened litigation.

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License Agreements

In March 2015, the Company entered into a license agreement, or the Stanford Agreement, with the Board of Trustees of the Leland Stanford Junior University, or Stanford, under which the Company obtained a worldwide, royalty-bearing, sublicensable license under certain patents relating to the Company’s current product candidates, to develop, manufacture and commercialize products for use in certain licensed fields, the scope of which would include the application of the licensed intellectual property in oncology. The Company paid Stanford a nonrefundable license royalty and reimbursed Stanford for past patent expenses, together totaling less than $0.1 million, and granted Stanford a specified number of shares of common stock of the Company. The Company is required to make milestone payments up to an aggregate of $5.0 million in respect of a specified number of licensed products that successfully satisfy certain clinical and regulatory milestones. The Company recorded the first milestone payment of $0.2 million during the year ended December 31, 2021.

In June 2016, the Company entered into a license agreement with Selexis SA, or Selexis, under which the Company obtained a worldwide, royalty-bearing, sublicensable license under certain patents, know-how and other intellectual property, to use Selexis generated cell lines to manufacture evorpacept, and to make, use and sell licensed product containing such compound in all fields of use. The Company paid Selexis a nominal one-time fee and will pay Selexis an annual maintenance fee. The Company also agreed to pay Selexis milestone payments up to an aggregate of 1.2 million Swiss Francs in respect of all licensed products developed and/or commercialized under the grant that successfully satisfies certain milestone events. The Company recorded a milestone payment of $0.1 million during the year ended December 31, 2021.

In March 2017, the Company entered into an agreement with Crystal Bioscience Inc. (now a subsidiary of Ligand Pharmaceuticals Incorporated), or Crystal, under which the Company obtained an assignment of certain patents, covering certain SIRPα antibodies. Under this agreement, the Company also received a worldwide, royalty-bearing non-exclusive license, with the right to grant sublicenses through multiple tiers of sublicenses, under certain of Crystal’s background patents and know-how necessary to commercialize the rights under the assigned patents. The Company agreed to pay Crystal milestone payments up to $11.1 million in respect of all licensed products developed under the assigned patents, that successfully satisfy certain clinical and regulatory milestones, each milestone being paid only once for all products. No milestone payments have been recorded as of December 31, 2021.

Other Contractual Obligations and Other Commitments