PYXS US Equity☆

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

You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K. Unless the context requires otherwise, references in this Annual Report on Form 10-K to “Pyxis Oncology,” the “Company,” “we,” “us,” and “our” refer to Pyxis Oncology, Inc. and its subsidiary.

We are a clinical-stage oncology company focused on developing a multi-modality portfolio of next-generation therapeutics to target difficult-to-treat cancers and improve quality of life for patients. We develop our product candidates with the objective to directly kill tumor cells, and to address the underlying pathologies created by cancer that enable its uncontrollable proliferation and immune evasion. We consider multi-modality as a variety of technologies, either stand-alone or in combination with others, to build effective cancer therapeutics for patients. Since our launch in 2019, we have developed a broad portfolio that includes novel antibody drug conjugate, or ADC, product candidates, immuno-oncology, or IO, product candidates, and monoclonal antibody, or mAb, preclinical discovery programs that we are developing as monotherapies and in combination with other therapies.

We have assembled a team with deep experience and proficiency in oncology research and development and plan to leverage our team’s decades of experience in drug development to bring a variety of innovative therapies through the clinic. The collective experience across our team spans the spectrum of both pharmaceuticals and biotechnology.

Our portfolio consists of both ADC and IO product candidates. Our pipeline is balanced across programs with an emphasis on solid tumors. We in-licensed two ADC programs in March 2021 from Pfizer and one IO program from Biosion USA, Inc. in March 2022. We have additional preclinical mAb discovery programs derived from work at the laboratory of Dr. Thomas Gajewski. We retain full worldwide development and commercialization rights to all our product candidates, with the exception of PYX-106 in Greater China (mainland China, Hong Kong, Macau and Taiwan). In December 2022, we announced clearance of our investigation new drug applications, or IND, by the U.S. Food and Drug Administration, or FDA, for PYX-201 and PYX-106. We are enthusiastic to have transitioned to a clinical stage oncology company and look forward to leveraging our team’s experience to execute our clinical trials with the aim of providing patients with safer and more efficacious treatment options.

The following is our current clinical development pipeline:

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PYX-201

Our lead ADC product candidate is PYX-201, an investigational, novel ADC consisting of an Immunoglobulin G1, or IgG1, anti-fibronectin Extradomain-B, or EDB, mAb site-specifically conjugated to an auristatin derivative via a cathepsin B-cleavable linker. Fibronectin is a glycoprotein found in the extracellular matrix. Fibronectin EDB regulates blood vessel morphogenesis, which provides the tumor access to nutrition and oxygen, a means to remove waste, and a pathway for metastasizing cells. EDB is overexpressed in many malignancies and is minimally expressed in most normal adult tissues, making it a potentially attractive means to target tumors while sparing healthy cells. In preclinical models of patient-derived xenograft, or PDX models, we observed tumor regression with single agent PYX-201. In addition, we observed that the treatment of preclinical syngeneic tumor models with PYX-201 resulted in enhanced T-cell infiltration into the TME, which is a hallmark of immunogenic cell death, or ICD, enabling synergistic activity in combination with a checkpoint inhibitor.

In December 2022, we announced clearance of our IND by the FDA for PYX-201 to initiate a Phase 1 clinical trial. During the first quarter of 2023, we announced dosing of the first subject in a Phase 1 trial of PYX-201, referred to as PYX-201-101. PYX-201-101 is an open-label, multicenter, dose-escalation trial designed to evaluate the safety, tolerability, pharmacokinetics, pharmacodynamics and preliminary efficacy of PYX-201 and identify recommended doses for further study. Patients with relapsed or refractory solid tumors, including non-small cell lung cancer, or NSCLC, hormone receptor positive breast cancer, ovarian cancer, thyroid cancer, pancreatic ductal adenocarcinoma, or PDAC, soft tissue sarcoma, or STS, hepatocellular carcinoma, or HCC, and kidney cancer are eligible to enroll. We anticipate reporting preliminary data from this Phase 1 clinical trial, including biomarker results and early signs of potential clinical activity, in early 2024.

PYX-106

Our lead IO product candidate is PYX-106, an investigational, fully human IgG1 isotype Siglec-15-targeting antibody designed to block Siglec-15 mediated suppression of T-cell proliferation and function. We plan to initially develop this asset for the treatment of solid tumors. We licensed worldwide rights, other than in Greater China (mainland China, Hong Kong, Macau and Taiwan), to PYX-106 from Biosion USA, Inc.

In December 2022, we announced clearance of our IND by the FDA for PYX-106 to initiate a Phase 1 clinical trial. During the first quarter of 2023, we began activating clinical trial sites and are currently screening patients for enrollment in the Phase 1 trial, referred to as PYX-106-101. PYX-106-101 is a first-in-human, Phase 1, multicenter, open-label dose escalation trial designed to evaluate the safety, tolerability, pharmacokinetics, pharmacodynamics, and preliminary efficacy of PYX-106 in patients with relapsed or refractory solid tumors. This Phase 1 dose escalation trial includes patients who have developed solid tumors and disease progression through standard therapy and patients for whom standard of care therapy that prolongs survival is unavailable or unsuitable. This trial will enroll patients with solid tumors including non-small cell lung cancer without driver mutations/translocations, breast cancer, endometrial cancer, thyroid cancer, kidney cancer, cholangiocarcinoma, bladder cancer, colorectal cancer, and head and neck squamous cell carcinoma, or HNSCC. We anticipate dosing patients in early second quarter of 2023. We anticipate reporting preliminary data from this Phase 1 clinical trial, including biomarker results and early signs of potential clinical activity, in late 2023.

Paused / terminated programs

In August 2022, we paused preclinical development of our anti-CD123 ADC, PYX-203, and anti-KLRG1 IO program, PYX-102. Although these programs remain important to our diversified portfolio of therapeutic candidates, pausing preclinical development efforts currently will allow us to increase the resources available to advance clinical development of PYX-201 and PYX-106. Further, we elected to pause the continued development of our anti-DLK1 ADC, PYX-202, based upon review and analysis of data from preclinical toxicity studies, and the anticipated clinical use and commercial prospects of PYX-202 if approved.

Discovery

In addition to the programs identified above, we are conducting research and development activities on various targets, leveraging our expertise in monoclonal antibodies, ADC conjugation, linker and payload selection, and understanding of immuno-oncology.

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Since our inception, we have focused substantially all of our resources on conducting research and development activities, undertaking preclinical studies and clinical trials, organizing and staffing our company, business planning, raising capital, establishing and maintaining our intellectual property portfolio and identifying potential product candidates. We do not have any products approved for sale and have not generated any revenue from product sales or from any other sources. We have incurred significant operating losses since our inception. We reported net losses of $120.7 million and $76.0 million for the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, we had an accumulated deficit of $212.4 million, net equity of $160.8 million, and cash and cash equivalents of $179.3 million. We expect to continue to incur significant expenses and operating losses for the foreseeable future. We expect that our expenses and capital expenditures will increase substantially in connection with our ongoing activities. Our operations to date have been financed primarily through sales of convertible preferred stock and sale of equity securities and additional funding may be necessary to fund future clinical and preclinical activities.

Licensing and Collaboration Agreements

License Agreement with Pfizer Inc.

In December 2020, we entered into a license agreement, as amended, or the Pfizer License Agreement, with Pfizer Inc., or Pfizer, for worldwide development and commercialization rights to antibody drug conjugate product candidates directed to certain licensed targets, including PYX-201 and PYX-203, and products containing the ADC product candidates. Our rights are exclusive with respect to certain patents owned or controlled by Pfizer covering the licensed ADCs. Pfizer has also granted us a non-exclusive license to use Pfizer’s ADC technology, or FACT, platform. The initial licensed targets include CD123 and extra domain B (EDB of fibronectin) and we have the option to expand the scope of its license to add additional licensed targets that have not been licensed to a third party or are not the subject of a Pfizer ADC development program. The Pfizer License Agreement became effective in March 2021 and we paid a combined $25.0 million for the license fee, consisting of an upfront cash payment of $5.0 million and issued 12,152,145 shares of Series B convertible preferred stock, which was converted into 1,911,015 shares of its common stock upon the initial public offering in October 2021, with a value of $20.0 million to Pfizer.

On October 6, 2022, we entered into an amended and restated license agreement, or the A&R License Agreement, with Pfizer, which amends and restates the Pfizer License Agreement. Pursuant to the A&R License Agreement, Pfizer granted us exclusive worldwide rights under Pfizer’s FACT Platform technology to develop and commercialize ADC product candidates directed to certain licensed targets, including PYX-201 and PYX-203, and products containing the ADC product candidates. Additional ADC targets may be licensed for a nominal upfront payment and milestones. Further, we granted the right of first negotiation to Pfizer, on an exclusive basis, to purchase or to develop, manufacture and commercialize licensed ADCs and licensed products in one or more countries directed to EDB and CD123. In accordance with the terms of the A&R License Agreement, we agreed to pay $8.0 million to Pfizer (which was paid in January 2023) and issued 2,229,654 shares of our common stock. Additionally, we will issue such number of shares of common stock 180 days following the effective date, or the Issuance Date, equivalent to $5.0 million at a per share price equal to the closing price of our common stock on the business day prior to the Issuance Date, such that Pfizer’s ownership interest in us shall not exceed nineteen and a half percent (19.5%) with any difference in value between the value of shares and $5.0 million being payable in cash.

We are also obligated to pay future contingent payments including development, regulatory and commercial milestones up to an aggregate of $665 million for the first four licensed ADCs. In addition, we are required to pay future contingent payments including development, regulatory and commercial milestones for ADCs to each additional licensed target beyond the first four licensed ADCs developed and commercialized via the FACT Platform. Additionally, if ADC licensed products are launched, we will pay Pfizer tiered royalties on net sales of licensed products in varying royalty rates ranging from low single digits to mid-teens. Our royalty obligations apply on a licensed product-by-licensed product and country-by-country basis from first commercial sale until the latest to occur of: (1) 12 years from first commercial sale; (2) the expiration of all regulatory or data exclusivity; and (3) the expiration of the last valid claim of a licensed patent covering the licensed product in a country. We are also obligated to pay Pfizer a percentage of certain sublicensing revenue ranging from twenty percent to low-double digits based on the stage of development of the licensed product at the time of entering into the applicable sublicense.

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License Agreement with the University of Chicago

In April 2020, we entered into a license agreement, or the University License Agreement, as well as a sponsored research agreement, with the University of Chicago, or the University. Under the terms of the license, we have the exclusive global right to develop and commercialize products that are covered by a valid claim of a licensed patent, incorporate or use the licensed know-how and materials or are known to assess, modulate or utilize the activity of certain specified biological targets.

In partial consideration for the license from the University, we issued to the University 48,919 shares of our common stock in 2020. Pursuant to the University License Agreement, we are obligated to pay potential development and commercial milestones of up to an aggregate of $7.7 million as well as running royalties on net sales of licensed products at varying rates ranging from less than one percent to the low single digits, subject to a minimum annual royalty of up to $3.0 million during certain years following the first commercial sale of a licensed product. We are also obligated to pay the University a percentage of certain sublicensing revenue ranging from low- to mid-teens based on the date of entering into the applicable sublicense.

Agreements with LegoChem Biosciences, Inc.

In December 2020, we entered into a license agreement, or the LegoChem License Agreement, and an opt-in, investment and additional consideration agreement, or the Opt-In Agreement, with LegoChem Biosciences, Inc., or LegoChem. Pursuant to the LegoChem License Agreement, we obtained worldwide (other than Korea) development and commercialization rights for LCB67, an ADC product candidate targeting DLK-1, and products containing the licensed compound. We paid $9.0 million in March 2021 to LegoChem, which was recorded as research and development expenses. Additionally, we may purchase certain initial quantities of licensed products from LegoChem for an estimated cost of $7.0 million and are also obligated to make future contingent payments including development, regulatory and commercial milestones as well as running royalties on net sales of licensed products at varying rates. In the third quarter of the calendar year 2022, we stopped the continued development of LCB67, based on review and analysis of data from the toxicity studies, and anticipated clinical use and commercial prospects of anti-DLK1 ADC.

In addition, as part of the Opt-in Agreement, LegoChem exercised an option to pay $8.0 million to us, in exchange for the right to receive a milestone payment, or the Extra Milestone Payment, of $9.6 million upon the earliest to occur of certain events, including the date of pricing or offer of the first public offering of its common stock or if we are the subject of a change in control transaction. Upon our IPO in October 2021, the extra milestone payment event triggered, and we paid $9.6 million in January 2022 to LegoChem. We have no further obligations under the Opt-In Agreement.

License Agreement with Biosion USA, Inc.

On March 28, 2022, we entered into a license agreement, or the Biosion License Agreement, with Biosion USA, Inc., or Biosion, pursuant to which we obtained an exclusive, worldwide (other than Greater China (mainland China, Hong Kong, Macau and Taiwan)) license for development, manufacture and commercialization rights for BSI-060T, a Siglec-15 targeting antibody, an IO product candidate (now referred to as PYX-106), and products containing the licensed compound. Under the terms of the Biosion License Agreement, each party granted to the other party a right of first offer to obtain an exclusive license in the other party’s territory (Greater China for Biosion, and the rest of the world for Pyxis) to develop, manufacture and commercialize any bi-specific or multi-specific antibody any antibody-drug conjugate controlled by a party or its affiliate that inhibits, modulates or binds to Siglec-15 as an intended mechanism of action.

Pursuant to the Biosion License Agreement, we paid an upfront fee of $10.0 million and are also obligated to pay future contingent payments including development, regulatory and commercial milestones up to an aggregate of $217.5 million in case of normal approval and $222.5 million in case of accelerated approval. Additionally, if products are launched, we will pay Biosion tiered royalties on net sales of licensed products in varying royalty rates ranging from low single digits to low teens. Our royalty obligations apply on a licensed product-by-licensed product and country-by-country basis from first commercial sale until the latest to occur of: (1) 12 years from first commercial sale; (2) the expiration of all regulatory or data exclusivity; and (3) the expiration of the last valid claim of a licensed patent covering the licensed product in a country. We are also obligated to pay Biosion a percentage of certain sublicensing revenue ranging from mid-double to low-double digits based on the stage of development of the licensed product at the time of entering into the applicable sublicense.

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The Voxall Joint Venture with Alloy Therapeutics, Inc.

In March 2021, we entered into definitive transaction agreements with Alloy to finance and operate Voxall, a joint venture company formed in collaboration with Alloy to leverage Pyxis Oncology’s site-specific target catalog and Alloy’s ATX-GxTMplatform and antibody discovery services. Voxall granted to both Pyxis Oncology and Alloy 50% of the voting membership units of Voxall in exchange for certain initial contributions.

In connection with the formation of Voxall, we entered into a three-year research collaboration with Alloy and Voxall to identify and select certain biological targets and create development candidate antibodies directed to those targets for further preclinical development, clinical development and commercialization. Under the collaboration agreement, the parties will conduct research under a mutually agreed research plan and budget for up to six research programs focused on mutually selected targets. Each of us and Alloy will provide research support for the collaboration through separate services agreements with Voxall, which services will be paid in the form of promissory notes issued by Voxall. Voxall will own all intellectual property arising from the collaboration, subject to certain exceptions for intellectual property relating to Alloy’s ATX-GxTM platform.

If a development candidate antibody under a research program meets certain mutually agreed selection criteria, we will have the exclusive option to obtain an exclusive license from Voxall to further develop and commercialize all the development candidate antibodies discovered under that research program. We may in-license one research program on certain pre-agreed financial terms. For all other in-licensed research programs, we will be obligated to pay fair market value as determined by a third-party valuation. Any research program that we do not in-license may be licensed by Voxall to a third party.

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Components of Our Results of Operations

Operating Expenses

Research and Development Expenses

Research and development expenses consist of costs incurred for our research activities, including our discovery efforts, and the development of our programs. These expenses include:

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employee-related expenses, including salaries, payroll taxes, related benefits, severance and stock-based compensation expense for employees engaged in research and development activities;

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expenses incurred under agreements with clinical research organizations, or CROs, investigative sites that conduct our clinical trials, and other clinical trial-related vendors, and consultants;

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the costs of acquiring, developing, and manufacturing and testing clinical and preclinical materials, including costs incurred under agreements with contract manufacturing organizations, or CMOs;

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costs associated with preclinical activities and regulatory operations;

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license fees and milestone payments related to the acquisition and retention of certain licensed technology and intellectual property rights; and

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facilities, depreciation, market research, and other expenses, which include allocated expenses for rent and maintenance of facilities, depreciation of leasehold improvements and equipment, and laboratory supplies.

We expense research and development costs as incurred. Non-refundable advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed, or when it is no longer expected that the goods will be delivered, or the services rendered.

Our direct external research and development expenses consist of costs that include fees, reimbursed materials and other costs paid to consultants, contractors, CMOs and CROs in connection with our preclinical and clinical activities. We do not allocate employee costs, costs associated with our discovery efforts, laboratory supplies, and facilities expenses, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple programs and our platform and, as such, are not separately classified.

Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will increase substantially in connection with our ongoing and planned preclinical and clinical development activities in the near term and in the future. The successful development of our product candidates is highly uncertain. At this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates and we may never succeed in obtaining regulatory approval for any of our product candidates.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and personnel-related costs, including stock-based compensation, and severance for our personnel in executive, legal, finance and accounting, human resources and other administrative functions. General and administrative expenses also include professional fees for auditing, tax, and legal services, as well as insurance, board of director compensation, consulting, other administrative expenses and facility costs not otherwise included in research and development expenses.

Other Income (Expense)

Interest income consists primarily of interest earned on our invested cash and cash equivalent balances.

The change in fair value of derivative liability represents the increase in the fair value of the derivative liability recorded as a result of an opt-in, investment and additional consideration agreement with LegoChem.

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Income Taxes

Since our inception, we have not recognized any income tax benefits for the net losses we have incurred or for the research and development tax credits earned in each year and interim period, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our net operating losses, or NOLs, carryforwards and tax credit carryforwards will not be realized.

As of December 31, 2022, our federal and state net operating losses in the United States were $10.1 million ($48.0 million before tax) and $3.0 million ($48.1 million before tax) respectively. The federal net operating loss carryforwards in the United States can be carried forward indefinitely but may be subject to annual usage limitations to the extent certain substantial changes our ownership occur. The state net operating loss carryforwards begin expiring in 2039. In addition, as of December 31, 2022, we had $2.5 million and $1.2 million of federal and state credit carryovers which begin to expire in 2039. These loss and credit carryforwards are subject to review and possible adjustment by the appropriate taxing authorities.

Results of Operations

Comparison of the Years Ended December 31, 2022 and 2021

The following table summarizes our results of operations for the years ended December 31, 2022 and 2021 (in thousands):

Year Ended December 31,

Operating expenses:

Other income (expense):

Service fee income from related party — 181 (181 )

Change in fair value of derivative liability — (6,231 ) 6,231

Loss from equity method investment in joint venture — (231 ) 231

Research and Development Expenses

The following table summarizes our research and development expenses for the years ended December 31, 2022 and 2021 (in thousands):

Year Ended December 31,

Research and development expenses increased by $35.1 million, from $51.0 million for the year ended December 31, 2021, to $86.1 million for the year ended December 31, 2022. The program expenses increased by $20.6 million, which was primarily due to increases in contract manufacturing costs of $13.7 million, preclinical costs of $6.2 million primarily related to toxicity studies and preclinical work towards IND filings related to PYX-201 and PYX-106, and clinical trial costs of $3.0 million, offset by a decrease in licensing fees of $2.3 million. The increases in both personnel-related expenses by $8.6 million and stock-based compensation by $2.5 million were primarily due to an increase in headcount to support our research and development activities. Other research and development expenses increased by $3.3 million which was primarily related to the increase in laboratory supplies, allocated cost for laboratory space and higher professional and consulting costs.

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General and Administrative Expenses

The following table summarizes our general and administrative expenses for the years ended December 31, 2022 and 2021 (in thousands):

Year Ended December 31,

General and administrative expenses increased by $18.7 million, from $18.7 million for the year ended December 31, 2021, to $37.4 million for the year ended December 31, 2022. Personnel-related expenses including stock-based compensation increased by $10.1 million primarily due to higher personnel-related expenses of $3.3 million and higher stock-based compensation of $6.8 million, both of which were due to an increase in headcount. Professional and consultant fees increased by $5.4 million primarily due to an overall increase in legal, professional, and consulting fees to support our growth and operations. Facilities, insurance and other costs increased by $3.1 million mainly due to an increase in rent expense by $1.6 million and directors and officers insurance expense of $1.5 million.

Other Income (Expense)

Interest income for the years ended December 31, 2022 and 2021 was $2.8 million and $23 thousand, respectively, consisting of interest earned on invested cash and cash equivalent balances. The increase during the year ended December 31, 2022 was primarily due to higher interest rates on our deposits and money market funds.

Other expense consists of change in fair value of the derivative liability of $6.2 million for the year ended December 31, 2021 as a result of the Opt-In Agreement. Service fee income from related party consists of income from services provided to the Voxall joint venture of $0.2 million for the year ended December 31, 2021.

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Liquidity and Capital Resources

We had cash and cash equivalents of $179.3 million as of December 31, 2022. For the years ended December 31, 2022 and 2021, we had net losses of $120.7 million and $76.0 million, respectively. As of December 31, 2022, we had an accumulated deficit of $212.4 million.

We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the clinical trials for our product candidates in development. The timing and amount of our funding requirements will depend on many factors, including:

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the cost associated with Phase 1 clinical trials for PYX-201 and PYX-106;

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the manufacture of product candidates for PYX-201 and PYX-106;

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the timing and progress of our other preclinical and clinical development activities;

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the number and scope of other preclinical and clinical programs we decide to pursue;

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the progress of the development efforts of parties with whom we have entered or may in the future enter into in-licensing, collaborations and research and development agreements;

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

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our ability to maintain our current licenses and research and development programs and to establish new collaboration arrangements;

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the costs involved in prosecuting, maintaining and enforcing patent and other intellectual property rights;

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the costs of maintaining, expanding and protecting our intellectual property portfolio;

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the cost and timing of regulatory licenses;

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our efforts to hire additional clinical, regulatory, scientific, operational, financial and management personnel; and

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incur insurance, legal and other regulatory compliance expenses to operate as a public company.

Until such time, if ever, 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. 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, engaging in acquisition, merger or collaboration transactions, selling or licensing our assets, making capital expenditures, redeeming our stock, making certain investments or declaring dividends.

If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product 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 when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Shelf Registration Statement and “At-the-Market” Program

On November 1, 2022, we filed a registration statement on Form S-3 with the SEC for the issuance of common stock, preferred stock, warrants, debt securities, rights and units up to an aggregate of $250.0 million. On November 14, 2022, the registration statement was declared effective by the SEC. The registration statement includes an at-the-market, or ATM, offering program for the sale of up to $125.0 million of shares of our common stock. We have not sold any shares of our common stock or received any proceeds from the ATM offering program as of the date of this report.

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Cash Flows

The following table provides information regarding our cash flows for the years ended December 31, 2022 and 2021 (in thousands):

Year Ended December 31,

Net cash used in operating activities $ (89,335 ) $ (35,326 )

Net cash used in investing activities (6,399 ) (590 )

Net cash provided by financing activities 183 304,044

Operating Activities

Net cash used in operating activities was $89.3 million for the year ended December 31, 2022 and consisted of our net loss of $120.7 million, partially offset by non-cash charges of $26.9 million and a net change in our operating assets and liabilities of $4.6 million. The non-cash charges primarily consisted of $9.3 million related to license fees for Pfizer FACT Platform settled and payable in common stock, stock-based compensation expenses of $15.8 million, and amortization of operating lease right-of-use assets of $1.1 million. The change in our operating assets and liabilities was primarily due an increase in operating lease liabilities of $4.3 million as a result of the operating lease for our new headquarters and an increase in prepaid expenses and other current assets of $3.4 million primarily related to prepayment of clinical and contract manufacturing costs and directors and officers insurance policy costs, offset by an increase in accrued expenses and other current liabilities of $12.0 million and a decrease in accounts payable of $8.3 million related to timing of routine vendor payments.

Net cash used in operating activities was $35.3 million for the year ended December 31, 2021 and consisted of our net loss of $76.0 million, partially offset by non-cash charges of $34.0 million and a net change in our operating assets and liabilities of $6.7 million. The non-cash charges of $34.0 million was primarily due to the $20.0 million of research and development license fees for Pfizer settled in Series B convertible preferred stock, the $6.2 million change in the fair value of derivative liability and $6.4 million in stock-based compensation. The change in our operating assets and liabilities was primarily due to an increase of $9.7 million in accounts payable and accrued expenses and other current liabilities, partially offset by changes in prepaid and other current assets and lease payments of $3.0 million, all of which were due to growth in our business, the advancement of our research programs, and the timing of vendor invoicing and payments.

Investing Activities

Net cash used in investing activities for the years ended December 31, 2022 and 2021 was $6.4 million and $0.6 million, respectively, primarily due to purchases of property and equipment. The purchases of property and equipment consists of laboratory equipment, furniture and fixtures and leasehold improvements for our new headquarters. During the year ended December 31, 2021, we also made an investment in our joint venture, Voxall Therapeutics, LLC, for $0.1 million.

Financing Activities

Net cash provided by financing activities was $0.2 million for the year ended December 31, 2022 and consisted primarily of net proceeds from stock option exercises.

Net cash provided by financing activities was $304.0 million for the year ended December 31, 2021 and consisted primarily of net proceeds of $152.3 million from the sale of our common stock in the initial public offering and net proceeds of $151.6 million from the sale of our Series B convertible preferred stock.

Based on our existing cash balance as of December 31, 2022 of $179.3 million and our research and development and business development plans, we expect to be able to fund our operating expenses and capital expenditure requirements into the first half of the calendar year 2025. However, we have based this estimate on assumptions that may prove to be wrong, and our operating plan may change as a result of many factors currently unknown to us. In addition, we could utilize our available capital resources sooner than we expect.

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Contractual Obligations and Commitments

The following summarizes our contractual obligations as of December 31, 2022, and the effects that such obligations are expected to have on our liquidity and cash flows in future periods.

We lease an office and laboratory space in Boston, Massachusetts. The lease payments on from December 22, 2022 and will continue through December 31, 2032, and have scheduled rent increases each year of 3%. The remaining contractual fixed lease payments over the term of the lease net of tenant improvement allowance aggregate to $31.8 million.

In addition, we entered into licensing and related agreements in the normal course of business. In accordance with the agreements, we are obligated to pay, among other items, future contingent payments, royalties, and sublicensing revenue in the future, as applicable. We have not included potential future payments due under these licensing and collaboration agreements in contractual obligations because the payment obligations under the agreements are contingent upon future events.

Pursuant to the A&R License Agreement with Pfizer, we are obligated to pay future contingent payments including development, regulatory and commercial milestones up to an aggregate of $665 million for the first four licensed ADCs. In addition, we are required to pay future contingent payments including development, regulatory and commercial milestones for ADCs to each additional licensed target beyond the first four licensed ADCs developed and commercialized via the FACT Platform. Additionally, if products are launched, we will pay Pfizer tiered royalties on net sales of licensed products in varying royalty rates ranging from low single digits to mid-teens. Our royalty obligations apply on a licensed product-by-licensed product and country-by-country basis from first commercial sale until the latest to occur of: (1) 12 years from first commercial sale; (2) the expiration of all regulatory or data exclusivity; and (3) the expiration of the last valid claim of a licensed patent covering the licensed product in a country. We are also obligated to pay Pfizer a percentage of certain sublicensing revenue ranging from twenty percent to low-double digits based on the stage of development of the licensed product at the time of entering into the applicable sublicense.

Additionally, pursuant to the A&R License Agreement with Pfizer, we agreed to issue such number of shares of common stock in April 2023, equivalent to $5.0 million at a per share price equal to the closing price of our common stock on the business day prior to the date of issuance, such that Pfizer’s ownership interest in us shall not exceed nineteen and a half percent (19.5%) with any difference in value between the value of shares and $5.0 million being payable in cash.

Pursuant to the LegoChem License Agreement, we are obligated to pay up to an aggregate of $284.5 million to LegoChem if certain development, regulatory and sales milestones are achieved, as well as tiered royalties on net sales of licensed products ranging from mid-single digit to high single digit royalty rates. As part of our pipeline reprioritization, we have elected to stop the continued development of the PYX-202, which was licensed from LegoChem.

Pursuant to the University License Agreement with the University of Chicago, or the University, we are obligated to pay potential development and commercial milestones of up to an aggregate of $7.7 million as well as running royalties on net sales of licensed products at varying rates ranging from less than one percent to the low single digits, subject to a minimum annual royalty ranging up to $3.0 million during certain years following the first commercial sale of a licensed product. We are also obligated to pay the University a percentage of certain sublicensing revenue ranging from low- to mid-teens based on the date of entering into the applicable sublicense.

Pursuant to the Biosion License Agreement, we are obligated to pay future contingent payments including development, regulatory and commercial milestones up to an aggregate of $217.5 million in case of normal approval and $222.5 million in case of accelerated approval. Additionally, if products are launched, we will pay Biosion tiered royalties on net sales of licensed products in varying royalty rates ranging from low single digits to low teens. Our royalty obligations apply on a licensed product-by-licensed product and country-by-country basis from first commercial sale until the latest to occur of: (1) 12 years from first commercial sale; (2) the expiration of all regulatory or data exclusivity; and (3) the expiration of the last valid claim of a licensed patent covering the licensed product in a country. We are also obligated to pay Biosion a percentage of certain sublicensing revenue ranging from mid-double to low-double digits based on the stage of development of the licensed product at the time of entering into the applicable sublicense.

We also enter into contracts in the normal course of business with CMOs, CROs, and other third parties for preclinical work and clinical development related work. These contracts do not contain minimum purchase commitments and are cancelable by us upon prior written notice. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including non-cancelable obligations of our service providers, up to the date of cancellation. These payments are not included in the contractual obligations above as the amount and timing of such payments are not known.

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Off-Balance Sheet Arrangements

We did not have during the years presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission.

Critical Accounting Policies and Significant Judgments and Estimates

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events, and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 2 to our audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe that the following accounting policies are the critical accounting policies used in the preparation of our consolidated financial statements that require significant estimates and judgments.

Research and Development Expenses

As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advance payments. We make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time. At each period end, we corroborate the accuracy of these estimates with the service providers and make adjustments, if necessary. Examples of estimated accrued research and development expenses include those related to fees paid to:

•

CROs in connection with performing research and development services on our behalf;

•

CMOs in connection with manufacturing of drug substance and drug products to be used in clinical trials on our behalf;

•

other providers in connection with clinical trials;

•

vendors in connection with non-clinical development activities; and

•

vendors related to product manufacturing, development and distribution of clinical supplies.

We record the expense and accrual related to contract research and manufacturing based on our estimates of the services received and efforts expended considering a number of factors, including our knowledge of the progress towards completion of the research, development and manufacturing activities; invoicing to date under contracts; communication from the CROs, CMOs and other companies of any actual costs incurred during the period that have not yet been invoiced; and the costs included in the contracts and purchase orders. In accruing service fees, we estimate the period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the amount of prepaid expense accordingly. There have not been any material adjustments to our prior estimates of accrued research and development expenses.

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Stock-Based Compensation

We maintain equity incentive plans as a long-term incentive for employees, consultants, and directors. We account for all stock-based awards granted to employees and non-employees based on their fair value on the date of the grant and recognize compensation expense for those awards over the requisite service period, which is generally the vesting period of the respective award. The grant date fair value of the stock-based awards with graded vesting is recognized on a straight-line basis over the requisite service period. We recognize forfeitures related to stock-based compensation awards as they occur and reverse any previously recognized compensation cost associated with forfeited awards in the period the forfeiture occurs.

We value stock options with service conditions using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model uses various inputs and we make certain assumptions regarding the fair value of our common stock, the expected volatility of our common stock, the expected term of stock options, the risk-free interest rate for a period that approximates the expected term of our common stock options and our expected dividend yield. The following summarizes the inputs used and assumptions made:

Expected Volatility—We lack company-specific historical and implied volatility information. Therefore, we estimate the expected stock volatility based on the historical volatility of a publicly traded set of peer companies and expect to continue to do so until we have adequate historical data regarding the volatility of our traded stock price.

Expected Term—We use the simplified method described in the SEC’s Staff Accounting Bulletin No. 107, Share-Based Payment (“SAB 107”), to determine the expected life of the option grants.

Risk-Free Interest Rate—The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award.

Dividends—Expected dividend yield is zero because we have not paid cash dividends on shares of common stock and do not expect to pay any cash dividends in the foreseeable future.

Determination of Fair Value of Common Stock

Prior to the our IPO on October 8, 2021, the estimated fair value of our common stock has been determined by our board of directors as of the date of grant of each option award, with input from management, considering our most recently available third-party valuations of common stock and our board of directors’ assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant. These third-party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. Our common stock valuations were prepared using either an option pricing method, or OPM, or a hybrid method, both of which used market approaches to estimate our enterprise value.

The assumptions underlying these valuations represented management’s best estimate, which involved inherent uncertainties and the application of management’s judgment. As a result, if we had used significantly different assumptions or estimates, the fair value of our common stock and our stock-based compensation expense could have been materially different.

Following our IPO, we determined the fair value of our common stock based on the quoted market price of our common stock on the Nasdaq Global Select Market.

134

Recent Accounting Pronouncements

For information with respect to recently issued accounting standards and the impact of these standards on our consolidated financial statements, refer to “Note 2 — Summary of Significant Accounting Policies” in our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.

Jumpstart Our Business Startups Act

The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, permits an “emerging growth company” to take advantage of an extended transition period to comply with new or revised accounting standards. We are an “emerging growth company,” as defined in the JOBS Act. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period, and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

We are also a “smaller reporting company,” meaning that the market value of our shares held by non-affiliates is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and have reduced disclosure obligations regarding executive compensation, and, similar to emerging growth companies, if we are a smaller reporting company with less than $100 million in annual revenue, we would not be required to obtain an attestation report on internal control over financial reporting issued by our independent registered public accounting firm.

135

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

Under SEC rules and regulations, because we are considered to be a “smaller reporting company”, we are not required to provide the information required by this item in this report.

Item 8. Financial Statements and Supplementary Data.

The financial information required by Item 8 is located beginning on page F-1 of this report.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures.

We maintain “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act), that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2022, the end of the period covered by this Annual Report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2022, at the reasonable assurance level.

Management’s Report on Internal Control over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with United States GAAP. Our internal control over financial reporting includes those policies and procedures that:

•

pertain to the maintenance of records that, in reasonable detail, accurately, and fairly reflect our transactions and dispositions of our assets;

•

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with United States GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

•

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, in its 2013 Internal Control - Integrated Framework. Based on our assessment, our management has concluded that, as of December 31, 2022, our internal control over financial reporting is effective based on those criteria.

136

Changes in Internal Control Over Financial Reporting.

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended December 31, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitation on the Effectiveness of Internal Control.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures, or our internal controls, will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected.

Attestation Report of the Registered Public Accounting Firm.

This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting due to an exemption established by the JOBS Act for “emerging growth companies.”

Item 9B. Other Information.

On March 16, 2023, or the Effective Date, we entered into the first amendment, or Amendment No. 1, to the Amended and Restated License Agreement, or the A&R License Agreement, dated October 14, 2022 between Pfizer Inc. or Pfizer, and the Company, which amends and restates certain terms of the A&R License Agreement. The A&R License Agreement amends and restates the previously executed license agreement dated December 8, 2020, effective as of March 12, 2021 between Pfizer and the Company, as amended to date. Pursuant to Amendment No. 1, we agreed to issue such number of shares of common stock equivalent to $5.0 million at a per share price equal to the closing price of our common stock on the business day when the closing price of our common stock on the Nasdaq Global Select Market is at or above $2.46 per share on any day from the Effective Date to a date that is within 180 days following October 6, 2022, or the A&R Effective Date. If, within 180 days following the A&R Effective Date, the share price for our common stock has not closed at or above $2.46 per share, then we agreed to issue such number of shares of common stock 180 days following the effective date, or the Issuance Date, equivalent to $5.0 million at a per share price equal to the closing price of our common stock on the business day prior to the Issuance Date, such that Pfizer’s ownership interest in us shall not exceed nineteen and a half percent (19.5%) with any difference in value between the value of shares and $5.0 million being payable in cash.

On March 17, 2023, the closing price of our common stock on the Nasdaq Global Select Market was $2.76 per share. In accordance with the terms of Amendment No. 1, we issued 1,811,594 shares of our common stock to Pfizer, which is an amount equivalent to $5.0 million.

The shares of common stock issued pursuant to Amendment No. 1 are not registered under the Securities Act of 1933, as amended, or the Securities Act, in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

137

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The information required by this Item will be included in our definitive proxy statement to be filed with the SEC, with respect to our 2023 Annual Meeting of Stockholders and is incorporated herein by reference.

Item 11. Executive Compensation.

The information required by this Item will be included in our definitive proxy statement to be filed with the SEC, with respect to our 2023 Annual Meeting of Stockholders and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this Item will be included in our definitive proxy statement to be filed with the SEC, with respect to our 2023 Annual Meeting of Stockholders and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information required by this Item will be included in our definitive proxy statement to be filed with the SEC, with respect to our 2023 Annual Meeting of Stockholders and is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services.

The information required by this Item will be included in our definitive proxy statement to be filed with the SEC, with respect to our 2023 Annual Meeting of Stockholders and is incorporated herein by reference.

138

PART IV

Item 15. Exhibits, Financial Statement Schedules.

(1)

For a list of the financial statements included herein and report of independent registered public accounting firm (PCAOB ID: 42), see Index to the Consolidated Financial Statements on page F-1 of this Annual Report on Form 10-K, incorporated into this Item by reference.

(2)

Financial statement schedules have been omitted because they are either not required or not applicable or the information is included in the consolidated financial statements or the notes thereto.

(3)

Exhibits:

ExhibitNumber Description Form File No. Exhibit Filing Date Filed Herewith

139

21.1 List of Subsidiaries X

101.SCH Inline XBRL Taxonomy Extension Schema Document X

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document X

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document X

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document X

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document X

* The certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Annual Report on Form 10-K and are not deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall they be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, irrespective of any general incorporation language contained in such filing.

+ Indicates management contract or compensatory plan.

† Certain confidential information contained in this exhibit, marked by [***], has been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K.

Item 16. Form 10-K Summary

None.

140

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pyxis Oncology, Inc.

Date: March 22, 2023 By: /s/ Lara Sullivan

Lara Sullivan, M.D.

President and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Lara Sullivan, M.D. and Pamela Connealy and each of them, as such person’s true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for such person and in such person’s name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith and about the premises, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or such person’s substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

Name Title Date

/s/ Lara Sullivan President, Chief Executive Officer and Director March 22, 2023

Lara Sullivan, M.D. (Principal Executive Officer)

Pamela Connealy (Principal Financial Officer)

/s/ Jitendra Wadhane Chief Accounting Officer March 22, 2023

Jitendra Wadhane (Principal Accounting Officer)

/s/ John Flavin Chairman of the Board of Directors March 22, 2023

John Flavin

/s/ Thomas Civik Director March 22, 2023

Thomas Civik

/s/ Darren Cline Director March 22, 2023

Darren Cline

/s/ Freda Lewis-Hall, M.D. Director March 22, 2023

Freda Lewis-Hall, M.D.

/s/ Rachel Humphrey, M.D. Director March 22, 2023

Rachel Humphrey, M.D.

141

PYXIS ONCOLOGY, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page

Report of Independent Registered Public Accounting Firm F-2

Consolidated Balance Sheets as of December 31, 2022 and 2021 F-3

Notes to Consolidated Financial Statements F-7

F-1

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Pyxis Oncology, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Pyxis Oncology, Inc. (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, convertible preferred stock and stockholders’ equity (deficit) and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

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

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

Our audits included performing procedures to assess the risks of material misstatement of the 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 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 financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2021.

Boston, Massachusetts

March 22, 2023

F-2

PYXIS ONCOLOGY, INC.

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

December 31,

Assets

Current assets:

Prepaid expenses and other current assets 5,847 2,466

Operating lease right-of-use assets 13,602 232

Other assets, noncurrent — 109

Liabilities and Stockholders’ Equity

Current liabilities:

Accrued expenses and other current liabilities 24,537 6,592

Operating lease liabilities, current portion — 165

Operating lease liabilities, net of current portion 18,921 —

Commitments and contingencies (Note 16)

Stockholders’ equity:

Total liabilities and stockholders’ equity $ 211,379 $ 280,021

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

F-3

PYXIS ONCOLOGY, INC.

Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share amounts)

Year Ended December 31,

Operating expenses:

Other income (expense):

Service fee income from related party — 181

Change in fair value of derivative liability — (6,231 )

Total other income (expense) 2,764 (6,027 )

Loss from equity method investment in joint venture — (231 )

Net loss and comprehensive loss $ (120,717 ) $ (75,975 )

Net loss per common share - basic and diluted $ (3.65 ) $ (8.95 )

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

F-4

PYXIS ONCOL OGY, INC.

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

(In thousands, except share data)

Shares Amount Shares Amount Capital Deficit Equity (Deficit)

Vesting of restricted common stock — — 306,998 — 3 — 3

Stock-based compensation — — — — 6,441 — 6,441

Vesting of restricted common stock — — 432,354 — — — —

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

F-5

PYXIS ONCOLOGY, 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:

Depreciation and amortization 709 647

Non-cash research and development expenses 9,281 20,000

Non-cash loss from equity method investment in joint venture — 50

Changes in fair value of derivative liability — 6,231

Changes in operating assets and liabilities:

Prepaid expenses and other current assets (3,381 ) (2,444 )

Accrued expenses and other current liabilities 11,951 5,092

Operating lease liabilities 4,259 (615 )

Net cash used in operating activities (89,335 ) (35,326 )

Investing activities

Purchase of property and equipment (6,399 ) (540 )

Investment in joint venture — (50 )

Net cash used in investing activities (6,399 ) (590 )

Financing activities

Proceeds from the exercise of stock options 183 167

Net cash provided by financing activities 183 304,044

Cash, cash equivalents and restricted cash at beginning of year 276,316 8,188

Cash, cash equivalents and restricted cash at end of period $ 180,765 $ 276,316

Supplemental cash flow information:

Cash received for interest $ 2,166 $ —

Cash paid for taxes $ 17 $ —

Noncash investing and financing activities:

Property and equipment in accounts payable and accrued expenses $ 4,479 $ 11

Reconciliation of cash, cash equivalents and restricted cash:

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

F-6

PYXIS ONCOLOGY, INC.

Notes to Consolidated Financial Statements

1. Description of Business

Nature of Business

Pyxis Oncology, Inc. (the “Company”), a Delaware corporation, was founded in June 2018 and launched its operations in July 2019. The Company is a clinical stage company focused on defeating difficult-to-treat cancers. The company is efficiently building next-generation therapeutics that hold the potential for mono and combination therapies. The Company's therapeutic candidates are designed to directly kill tumor cells and to address the underlying pathologies created by cancer that enable its uncontrollable proliferation and immune evasion. The Company's antibody-drug conjugates ("ADCs") and immuno-oncology ("IO") programs employ novel and emerging strategies to target a broad range of solid tumors resistant to current standards of care.

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

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The Company’s fiscal year ends on December 31 and its first three quarters end on March 31, June 30 and September 30. The accompanying consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). The consolidated financial statements include the Company and its wholly owned subsidiary. All intercompany balances and transactions have been eliminated upon consolidation.

The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Section 107(b) of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company has irrevocably elected not to avail itself of this extended transition period, and, as a result, the Company will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

Liquidity

As of December 31, 2022, the Company had an accumulated deficit of $212.4 million. The Company has incurred losses and negative cash flows from operations since inception, including net losses of $120.7 million and $76.0 million for the years ended December 31, 2022 and 2021, respectively.

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

The Company currently expects that its existing cash and cash equivalents of $179.3 million as of December 31, 2022 will fund its operating expenses and capital requirements at least twelve months from the date these audited consolidated financial statements are issued. Additional funding may be necessary to fund future clinical and preclinical activities.

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

F-7

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, expense, and related disclosures. The Company regularly evaluates estimates and assumptions related to assets, liabilities, stock-based compensation, operating leases, assessment of the useful lives of property and equipment, valuation of deferred tax assets and liabilities, impairment of investment in joint venture, and research and development costs. The Company bases its estimates and assumptions on historical experience and on various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

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

Risks and Uncertainties

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

Concentration of Credit Risks

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

Cash and Cash Equivalents

The Company considers all short term, highly liquid investments with original maturities of 90 days or less to be cash equivalents. Cash equivalents consist primarily of money market funds as of December 31, 2022 and 2021.

Fair Value Measurements

Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principle or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, the first two are considered observable and the last is considered unobservable:

Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2—Quoted prices in markets that are not considered to be active or financial instrument valuations for which all significant inputs are observable, either directly or indirectly; and

Level 3—Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3.

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Property and Equipment, net

Property and equipment are recorded at cost less accumulated depreciation and amortization. Depreciation and amortization expense is recognized using the straight-line method over the estimated useful lives of the related assets as follows:

Estimated UsefulLife (Years)

Laboratory equipment 3

Furniture and office equipment 3

Leasehold improvements Shorter of remaining lifeof lease or useful life

Construction in process N/A

Depreciation and amortization expense is included in research and development and general and administrative expenses. Major additions and upgrades are capitalized; maintenance and repairs, which do not improve or extend the life of the respective assets, are expensed as incurred. Upon retirement or sale, the cost of assets disposed of, and the related accumulated depreciation and amortization are removed from the respective accounts and any resulting gain or loss is included in income (loss) from operations.

Impairment of Long-Lived Assets

The Company evaluates the long-lived assets, which consist of property and equipment and operating lease right-of-use assets, for impairment at least annually and whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in the use of the assets. Management then determines whether the remaining useful life continues to be appropriate, or whether there has been an impairment of long-lived assets based primarily upon whether expected future undiscounted cash flows are sufficient to support the assets’ recovery. Recoverability of these assets is measured by comparison of the carrying amount of the asset to the future undiscounted cash flows the asset is expected to generate. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. The Company recognized no impairment losses for the years ended December 31, 2022 and 2021.

Leases

Operating lease right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset during the lease term, and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are initially recognized and measured based on the present value of the future fixed lease payments over the expected lease term at the commencement date calculated using the Company’s incremental borrowing rate applicable to the lease asset, unless the implicit rate is readily determinable. The Company determines the lease term as the non-cancelable period of the lease and may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Operating lease 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. Operating lease ROU assets are subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Leases with a term of 12 months or less are not recognized on the consolidated balance sheets. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Variable lease costs such as common area costs and other operating costs are expensed as incurred. The Company accounts for lease and non-lease components as a single lease component for all its facilities leases. The Company had no finance leases as of December 31, 2022 and 2021.

Investment in Joint Venture

Investment in the Company’s joint venture is accounted for using the equity method of accounting. The Company applies the equity method of accounting to investments when the Company has significant influence, but not controlling interest in the investee. Judgment regarding the level of influence over equity method investment includes considering key factors such as ownership interest, representation on the board of directors, participation in policy-making decisions and material intercompany transactions. Under the equity method, investments are initially recorded at cost and are adjusted for dividends, distributed and undistributed earnings and losses, and additional investments. In the event the Company’s share of a joint venture’s cumulative losses exceeds the Company’s investment balance, the balance is reported at zero value until proportionate income exceeds the losses. The Company assesses investments for impairment whenever events or changes in circumstances indicate that the carrying value of an investment may not be recoverable.

F-9

Contingencies

The Company, from time to time, may be a party to various disputes and claims arising from normal business activities. The Company continually assesses disputes and claims including resulting litigation to determine if an unfavorable outcome would lead to a probable loss or reasonably possible loss which could be estimated. The Company accrues for all contingencies at the earliest date at which the Company deems it probable that a liability has been incurred and the amount of such liability can be reasonably estimated. If the estimate of a probable loss is a range and no amount within the range is more likely than another, the Company accrues the minimum of the range. In the cases where the Company believes that a reasonably possible loss exists, the Company discloses the facts and circumstances of the contingencies, including an estimable range, if possible.

Research and Development Expenses

The Company expenses research and development costs as incurred. The Company’s research and development expenses consist primarily of license fees to acquire intellectual property which does not meet the definition of intangible assets and costs incurred in performing research and development activities, including personnel-related expenses such as salaries, stock-based compensation and benefits, facilities costs, depreciation as well as external costs from third parties who conduct research and development activities (including manufacturing) on behalf of the Company. The Company accrues expenses related to development activities performed by third parties based on an evaluation of services received and efforts expended pursuant to the terms of the contractual arrangements. Payments under some of these contracts depend on preclinical and/or clinical trial milestones. There may be instances in which payments made to the Company’s vendors will exceed the level of services provided and result in a prepayment of expenses. In accruing service fees, the Company estimates the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company adjusts the accrual or prepaid expense accordingly.

Stock-Based Compensation

The Company maintains an equity incentive plan as a long-term incentive for employees, consultants, and directors. The Company accounts for all stock-based awards granted to employees and non-employees based on their fair value on the date of the grant and recognizes compensation expense for those awards over the requisite service period, which is generally the vesting period of the respective award. The grant date fair value of the stock-based awards with graded vesting is recognized on a straight-line basis over the requisite service period. The Company recognizes forfeitures related to stock-based compensation awards as they occur and reverses any previously recognized compensation cost associated with forfeited awards in the period the forfeiture occurs. The Company classifies stock-based compensation expense in the statement of operations in the same manner in which the award recipients’ payroll costs are classified or in which the award recipients’ service payments are classified.

The Company values its stock options with service conditions using the Black-Scholes option-pricing model. The Company uses certain assumptions to determine fair value of the stock options pursuant to the Black-Scholes option-pricing model, including the expected life of the award, volatility of the underlying shares, the risk-free interest rate, expected dividend yield and the fair value of the Company’s common stock. Since the Company lacks sufficient historical option exercise data to provide a reasonable basis upon which to estimate the expected term, the Company uses the simplified method described in the SEC’s Staff Accounting Bulletin No. 107, Share-Based Payment (“SAB 107”), to determine the expected life of the option grants. The Company lacks sufficient company-specific historical and implied volatility information. Therefore, the Company estimates the expected stock volatility based on the historical volatility of a publicly traded set of peer companies. The risk-free interest rate is based on the rates paid on securities issued by the U.S. Treasury with a term approximating the expected life of the equity award. As the Company has never paid and does not anticipate paying cash dividends on its common stock, the expected dividend yield is considered as zero.

Prior to the completion of the Company’s initial public offering ("IPO") of common stock, the fair value of the Company's common stock which is one of the key inputs in Black-Scholes option-pricing model, was determined by the board of directors with input from management and based on certain assumptions including probability weighting of events, business and market conditions, volatility, time to liquidation, a risk-free interest rate and an assumption for a discount for lack of marketability. The Company used 409A valuations to determine the fair value of the shares of common stock. The 409A valuations were performed using methodologies, approaches, and assumptions consistent with the American Institute of Certified Public Accountants Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. After completion of the IPO on October 8, 2021, the Company uses the fair value of its publicly traded common stock to determine grant date fair value.

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Income Taxes

The Company accounts for income taxes in accordance with FASB ASC 740, Income Taxes (“ASC 740”), which requires the use of the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between amounts in the consolidated financial statements and the tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income tax (benefit) expense in the consolidated statements of operations and comprehensive loss in the period that includes the enactment date.

The Company recognizes deferred tax assets to the extent that it believes these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies and results of recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances.

Net Loss per Share

Basic net income (loss) per share attributable to common stockholders is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per share attributable to common stockholders is computed by dividing the diluted net income (loss) attributable to common stockholders by the diluted weighted average number of common shares outstanding for the period, including potential dilutive common shares.

In periods in which the Company reports a net loss, all common stock equivalents are deemed anti-dilutive such that basic net loss per common share and diluted net loss per common share are equivalent. Potentially dilutive common stock has been excluded from the diluted net loss per common share computations in all periods presented because such securities have an anti-dilutive effect on net loss per common share due to the Company’s net loss. There are no reconciling items used to calculate the weighted-average number of total common stock outstanding for basic and diluted net loss per common share data.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model that requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses on available-for-sale debt securities to be recorded through an allowance for credit losses instead of as a reduction in the amortized cost basis of the securities. For "emerging growth companies", ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The Company is currently evaluating the new standard and expects it to have no material impact on the Company's consolidated financial statements and related disclosures.

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”). ASU 2020-06 revises the guidance on calculating earnings per share, requiring use of the if-converted method for all convertible instruments and rescinding an entity’s ability to rebut the presumption of share settlement for instruments that may be settled in cash or other assets. As an "emerging growth company", ASU 2020-06 will become effective for the Company for fiscal years beginning after December 15, 2023, and early adoption is permitted. The Company is currently evaluating the new standard and expects it to have no material impact on the Company's consolidated financial statements and related disclosures.

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

F-11

3. Licensing Agreements

The University of Chicago Agreement

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

Pursuant to the University License Agreement, the Company is obligated to pay potential development and commercial milestones of up to $7.7 million as well as running royalties on net sales of licensed products at varying rates ranging from less than a percent to the low single digits, subject to a minimum annual royalty of up to $3.0 million during certain years following the effective date. The Company is also obligated to pay the University a percentage of certain sublicensing revenue ranging from low- to mid-teens based on the date of entering into the applicable sublicense.

The Company assessed the milestone and royalty events under University License Agreement as of December 31, 2022 and 2021, and determined that no such amounts were required.

Pfizer Inc. Agreement

In December 2020, the Company entered into a license agreement (as amended, the “Pfizer License Agreement”) with Pfizer Inc. (“Pfizer”) for worldwide development and commercialization rights to ADC product candidates directed to certain licensed targets, including PYX-201 and PYX-203, and products containing the ADC product candidates. The Company’s rights are exclusive with respect to certain patents owned or controlled by Pfizer covering the licensed ADCs. Pfizer has also granted the Company a non-exclusive license to use Pfizer’s ADC technology (“FACT”) platform. The initial licensed targets include CD123 and extra domain B (EDB of fibronectin) and the Company has the option to expand the scope of its license to add additional licensed targets that have not been licensed to a third party or are not the subject of a Pfizer ADC development program. The Pfizer License Agreement became effective in March 2021 and the Company paid a combined $25.0 million for the license fee, consisting of an upfront cash payment of $5.0 million and issued 12,152,145 shares of Series B convertible preferred stock, which was converted into 1,911,015 shares of its common stock upon the IPO in October 2021, with a value of $20.0 million to Pfizer.

On October 6, 2022, the Company entered into an amended and restated license agreement (the “A&R License Agreement”) with Pfizer, which amends and restates the Pfizer License Agreement. Pursuant to the A&R License Agreement, Pfizer granted to the Company exclusive worldwide rights under Pfizer’s FACT Platform technology to develop and commercialize ADC product candidates directed to certain licensed targets, including PYX-201 and PYX-203, and products containing the ADC product candidates. Additional ADC targets may be licensed for a nominal upfront payment and milestones. Further, the Company granted the right of first negotiation to Pfizer, on an exclusive basis, to purchase or to develop, manufacture and commercialize licensed ADCs and licensed products in one or more countries directed to EDB and CD123. In accordance with the terms of the A&R License Agreement, the Company agreed to pay $8.0 million to Pfizer (which was paid in January 2023) and issued 2,229,654 shares of its common stock. Additionally, the Company will issue such number of shares of common stock 180 days following the effective date (the “Issuance Date”), equivalent to $5.0 million at a per share price equal to the closing price of the Company’s common stock on the business day prior to the Issuance Date, such that Pfizer’s ownership interest in the Company shall not exceed nineteen and a half percent (19.5%) with any difference in value between the value of shares and $5.0 million being payable in cash. The Company recorded $17.3 million as research and development expenses for the A&R License Agreement during fourth quarter of the calendar year 2022.

The Company is also obligated to pay future contingent payments including development, regulatory and commercial milestones up to an aggregate of $665 million for the first four licensed ADCs. In addition, the Company is required to pay future contingent payments including development, regulatory and commercial milestones for ADCs to each additional licensed target beyond the first four licensed ADC targets developed and commercialized via the FACT Platform. Additionally, if ADC licensed products are launched, the Company will pay Pfizer tiered royalties on net sales of licensed products in varying royalty rates ranging from low single digits to mid-teens. The Company’s royalty obligations apply on a licensed product-by-licensed product and country-by-country basis from first commercial sale until the latest to occur of: (1) 12 years from first commercial sale; (2) the expiration of all regulatory or data exclusivity; and (3) the expiration of the last valid claim of a licensed patent covering the licensed product in a country. The Company is also obligated to pay Pfizer a percentage of certain sublicensing revenue ranging from twenty percent to low-double digits based on the stage of development of the licensed product at the time of entering into the applicable sublicense.

The Company assessed the milestone and royalty events under A&R License Agreement as of December 31, 2022 and 2021, and determined that no such amounts were required.

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LegoChem Biosciences, Inc. Agreements

In December 2020, the Company entered into a license agreement (the “LegoChem License Agreement”) and an opt-in, investment and additional consideration agreement (the “Opt-In Agreement”) with LegoChem Biosciences, Inc. (“LegoChem”). Pursuant to the LegoChem License Agreement, the Company obtained worldwide (other than Korea) license for development and commercialization rights for LCB67, an ADC product candidate targeting DLK-1, and products containing the licensed compound. The Company paid $9.0 million in March 2021 to LegoChem, which was recorded as research and development expenses. Additionally, the Company may purchase certain initial quantities of licensed products from LegoChem for an estimated cost of $7.0 million.

The Company is obligated to make future contingent payments including development, regulatory and commercial milestones as well as running royalties on net sales of licensed products at varying rates. During the year ended December 31, 2022, the Company stopped the continued development of LCB67, based on review and analysis of data from the toxicity studies, and anticipated clinical use and commercial prospects of anti-DLK1 ADC. Due to stoppage of clinical development of LCB67, no amounts were due and payable related to the manufacturing of the initial quantities of licensed product as well as the milestones and royalties related to LCB67 ADC of December 31, 2022.

In addition, as part of the Opt-in Agreement, LegoChem had an option to pay $8.0 million to the Company, in exchange for the right to receive a milestone payment (the “Extra Milestone Payment”) of $9.6 million upon the earliest to occur of certain events, including the date of pricing or offer of the first public offering of its common stock or if the Company is the subject of a change in control transaction. The Company determined that the Extra Milestone Payment met the definition and recognition condition of derivative under ASC 815, “Derivatives and Hedging” for which there was a binding contract and firm commitment in January 2021. An initial derivative liability was recognized for $3.4 million with an offset to research and development expenses in January 2021. The derivative liability was re-measured at each reporting date, and as a result, $6.2 million was recorded in “Other income (expense)” in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2021. The liability was realized upon the IPO of the Company and Extra Milestone Payment of $9.6 million was paid to LegoChem in January 2022. The Company has no further obligations under the Opt-In Agreement as of December 31, 2022.

License Agreement with Biosion USA, Inc.

On March 28, 2022, the Company entered into a license agreement (the “Biosion License Agreement”) with Biosion USA, Inc. ("Biosion"), pursuant to which the Company obtained an exclusive, worldwide (other than Greater China (mainland China, Hong Kong, Macau and Taiwan)) license for development, manufacture and commercialization rights for BSI-060T, a Siglec-15 targeting antibody, an IO product candidate (now referred to as PYX-106), and products containing the licensed compound. Under the terms of the Biosion License Agreement, each party granted to the other party a right of first offer to obtain an exclusive license in the other party’s territory (Greater China for Biosion, and the rest of the world for Pyxis) to develop, manufacture and commercialize any bi-specific or multi-specific antibody any antibody-drug conjugate controlled by a party or its affiliate that inhibits, modulates or binds to Siglec-15 as an intended mechanism of action.

Pursuant to the Biosion License Agreement, the Company paid an upfront license fee of $10.0 million, which was recorded as research and development expenses. The Company is also obligated to pay future contingent payments including development, regulatory and commercial milestones up to an aggregate of $217.5 million in case of normal approval and $222.5 million in case of accelerated approval. Additionally, if products are launched, the Company will pay Biosion tiered royalties on net sales of licensed products in varying royalty rates ranging from low single digits to low teens. The Company’s royalty obligations apply on a licensed product-by-licensed product and country-by-country basis from first commercial sale until the latest to occur of: (1) 12 years from first commercial sale; (2) the expiration of all regulatory or data exclusivity; and (3) the expiration of the last valid claim of a licensed patent covering the licensed product in a country. The Company is also obligated to pay Biosion a percentage of certain sublicensing revenue ranging from mid-double to low-double digits based on the stage of development of the licensed product at the time of entering into the applicable sublicense.

The Company assessed the milestone and royalty events involving Biosion as of December 31, 2022 and determined that no such amounts were required.

4. Joint Venture

In March 2021, the Company entered into definitive transaction agreements with Alloy Therapeutics, Inc. (“Alloy”) and Voxall Therapeutics, LLC (“Voxall”), to finance and operate Voxall, a joint venture company formed in collaboration with Alloy to leverage the Company’s technology and Alloy’s ATX-GxTM platform and antibody discovery services. Voxall granted to the Company and Alloy, 50% of the voting membership units of Voxall in exchange for certain initial contributions.

The Company accounted for investment in Voxall under the equity method of accounting. Voxall has incurred losses since inception and the Company’s share in the losses of Voxall aggregated to $0.5 million and $1.2million for the years ended December 31, 2022 and 2021, respectively. The Company recognized its share of losses of Voxall only to the extent of the carrying value of its

F-13

investment in Voxall and the promissory note issued by Voxall, which aggregated to $0.2million for the year ended December 31, 2021. The remaining unabsorbed loss will be offset against future income, if any. As the Company has no commitment to fund the losses of the equity method investment, the carrying value of the equity method investment has not been reduced below zero.

5. Fair Value Measurements

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

Fair Value Measurements atDecember 31, 2022

Level 1 Level 2 Level 3 Total

Assets

Fair Value Measurements atDecember 31, 2021

Level 1 Level 2 Level 3 Total

Assets

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

The Company recorded the derivative liability of $3.4 million in January 2021 for Extra Milestone Payment due under the Opt-in Agreement with LegoChem. The fair value of the derivative liability was initially determined using a probability-weighted income approach and revalued at each reporting date. Changes in the fair value of the derivative liability of $6.2 million were recorded as expense within other (expense) income in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2021. The significant unobservable inputs used in the fair value measurement of the derivative liability include probability of payment factors and the discount rate. The liability was realized upon the IPO of the Company and Extra Milestone Payment of $9.6 million was paid to LegoChem in January 2022. Refer to Note 3, Licensing Agreements, for additional information on the derivative liability.

There were no Level 3 assets or liabilities as of December 31, 2022 and 2021.

6. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):

December 31,

Research and development $ 3,560 $ 619

Accrued interest receivable 598 —

Total prepaid expenses and other current assets $ 5,847 $ 2,466

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7. Property and Equipment, Net

Property and equipment, net, consisted of the following (in thousands):

December 31,

Furniture and office equipment 1,036 94

Construction in process 9,177 —

Less: accumulated depreciation and amortization (1,825 ) (1,116 )

Total property and equipment, net $ 11,165 $ 1,007

Depreciation and amortization expense for the years ended December 31, 2022 and 2021 was $0.7 million and $0.6million, respectively.

8. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

December 31,

Research and development expenses $ 17,414 $ 2,381

Employee compensation and benefits 4,238 2,963

Legal and professional fees 1,794 982

Total accrued expenses and other current liabilities $ 24,537 $ 6,592

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9. Operating Leases

In September 2021, the Company entered into an operating lease agreement, with a lease term commencement date of April 1, 2022, the date the Company took control of the property, for an office and laboratory space in Boston, Massachusetts. The lease payments began on December 21, 2022 and will continue through December 31, 2032 and with scheduled rent increases each year of 3%. In addition to the rent, the Company bears the costs of certain insurance, property taxes and maintenance, which represent the Company’s proportionate share of the actual expenses incurred by the landlord. There is an additional five-yearoption to extend the lease beyond December 31, 2032.

At the lease commencement date, the operating lease ROU assets of $15.3 million and lease liabilities of $15.3 million were recognized based on the present value of remaining fixed lease payments over the expected lease term using an incremental borrowing rate of 9.4%. As the Company’s operating lease does not provide an implicit rate, an estimated incremental borrowing rate based on the information available at the time of lease commencement date was used in determining the present value of lease payments. Under the lease agreement the landlord provided for a tenant improvement allowance of $6.4 million to be applied to the costs of the construction of the leasehold improvements, of which $3.0 million was received by the Company during the year ended December 31, 2022. The tenant improvement allowance is recognized as a reduction in operating lease ROU assets and lease liabilities on the lease commencement date.

The components of lease expense were as follows (in thousands):

Year Ended December 31,

Lease cost

Short-term lease cost 1,681 5

Variable lease cost 121 75

Other information

Weighted-average remaining lease term (in years) 10.00 0.25

Weighted-average discount rate 9.40 % 10.00 %

Variable lease costs primarily relate to common area costs and other operating costs, which are assessed based on the Company’s proportionate share of such costs for the leased premises. Total lease costs are included as operating expenses in the Company’s consolidated statements of operations and comprehensive loss.

Maturities of lease liabilities as of December 31, 2022, were as follows (in thousands):

Years Ending December 31, Operating Leases

Total undiscounted payments 34,715

Less: tenant improvement allowance (3,026 )

Less: present value adjustment (12,768 )

Present value of future payments 18,921

Less: current portion of operating lease liabilities —

Operating lease liabilities, net of current portion $ 18,921

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10. Convertible Preferred Stock

Series A Convertible Preferred Stock

In June 2019, the Company entered into a securities purchase agreement (as amended, “Series A Agreement”) with certain investors to sell shares of Series A convertible preferred stock (“Series A”) at $0.9681 per share. In June and July 2019, the Company issued 22,724,925 shares of Series A to institutional investors at $0.9681 per share for gross cash proceeds of $22.0 million, less issuance costs of $0.1 million, resulting in net proceeds of $21.9 million. On October 1, 2021, the Company effected a 1-for-6.359 reverse stock split. Upon completion of the IPO, 22,724,925 shares of Series A were converted to 3,573,659 shares of common stock.

Series B Convertible Preferred Stock

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

11. Stockholders’ Equity

Preferred Stock

In connection with the closing of the IPO, the Company filed an Amended Certificate of Incorporation and authorized 10,000,000 shares of preferred stock, with a par value of $0.001 per share. The board of directors has the authority, without further action by the stockholders to issue such shares of preferred stock in one or more series, to establish from time to time the number of shares to be included in each such series, and to fix the dividend, dividend rights, conversion rights, voting, redemption terms, liquidation preference and other rights, preferences and privileges of the shares. There were no issued and outstanding shares of preferred stock as of December 31, 2022 and 2021, respectively.

Common Stock

Initial Public Offering

On October 8, 2021, the Company completed an IPO in which the Company issued and sold 10,500,000 shares of its common stock at a public offering price of $16.00 per share, for aggregate gross proceeds of $168.0 million. The Company raised approximately $152.3 million in net proceeds after deducting underwriting discounts and commissions of $11.8 million and offering expenses of $3.9 million.

The Company was authorized to issue up to 190,000,000 shares of common stock as of December 31, 2022 and 2021, respectively, of which 35,110,016 and 32,792,867 shares were issued as of December 31, 2022 and 2021, respectively, 34,958,730 and 32,222,881 shares were outstanding at December 31, 2022 and 2021, respectively.

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

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

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

December 31,

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12. Stock-Based Compensation

2022 Equity Inducement Plan

On July 1, 2022, the Company’s board of directors approved the 2022 Equity Inducement Plan (the “2022 Plan”), which became effective on that date. The 2022 Plan allows the Company to make equity-based incentive awards to its officers and employees without stockholder approval pursuant to Rule 5635(c)(4) of the NASDAQ Listing Rules, or any successor rule relating to inducement awards. Unless earlier terminated by the Board, 2022 Plan will terminate on the tenth anniversary of the effective date. The Company has initially reserved 1,400,000 shares of its common stock for the issuance of awards under the 2022 Plan. As of December 31, 2022, options to purchase 400,692 shares of common stock and 320,550 restricted stock units were outstanding under the 2022 Plan and 678,758 shares remained available for future issuance under the 2022 Plan.

2021 Equity Incentive Plan

On September 27, 2021, the Company’s board of directors and stockholders approved the 2021 Equity Incentive Plan (the “2021 Plan”), which became effective on October 7, 2021, when the Company’s registration statement was declared effective by the SEC. The 2021 Plan allows the Company to make equity-based and cash-based incentive awards to its officers, employees, directors and consultants. The Company has initially reserved 3,852,807 shares of its common stock for the issuance of awards under the 2021 Plan. The number of shares of common stock reserved for issuance under the 2021 Plan will automatically increase annually on the first day of each fiscal year, beginning with the fiscal year ending December 31, 2022, and continuing until (and including) the fiscal year ending December 31, 2031 by the lesser of (i) 5% of the total number of shares of common stock outstanding on December 31st of the immediately preceding fiscal year and (ii) the number of shares as may be determined by the board of directors. As a result of the evergreen provision of the 2021 Plan, the Company added an additional 1,639,643 shares of common stock to the 2021 Plan as of January 1, 2022. The maximum number of shares of common stock that may be issued pursuant to the exercise of incentive options under the 2021 Plan is 7,705,614. Unless earlier terminated by the Board, 2021 Plan will terminate on the tenth anniversary of the effective date. As of December 31, 2022, options to purchase 2,668,700 shares of common stock and 2,449,172 restricted stock units were outstanding under the 2021 plan and 360,924 shares remained available for future issuance under the 2021 plan.

2019 Equity Incentive Plan

In 2019, the Company established the 2019 Equity Incentive Plan (the "2019 Plan"), under which the Company is allowed to grant options and restricted stock to its employees and non-employees. The maximum number of shares of common stock reserved for issuance under the 2019 Plan is 4,042,408 shares. Options granted under the 2019 Plan include incentive stock options that can be granted only to the Company’s employees and non-statutory stock options that can be granted to the Company’s employees, consultants, advisors and directors. The 2019 Plan also permits the Company to issue restricted stock awards. Unless earlier terminated by the Board, the 2019 Plan will terminate on the tenth anniversary of the effective date.

Prior to the IPO, the exercise prices, vesting and other restrictions of the awards granted under the 2019 Plan were determined by the board of directors, except that no stock option may be issued with an exercise price less than the fair market value of the common stock at the date of the grant or have a term in excess of ten years. Options granted under the 2019 Plan are exercisable in whole or in part at any time subsequent to vesting. As of December 31, 2022, options to purchase 2,651,023 shares of common stock and 94,379 restricted stock units were outstanding under the 2019 Plan and 657,484 shares remained available for future issuance under the 2019 Plan.

2021 Employee Stock Purchase Plan

On September 27, 2021, the Company’s board of directors and stockholders approved the 2021 Employee Stock Purchase Plan (the “2021 ESPP”), which became effective on October 7, 2021, when the Company’s registration statement was declared effective by the SEC. The 2021 ESPP initially reserved and authorized the issuance of up to a total of 424,595 shares of common stock to participating employees. The number of shares of common stock reserved for issuance under the ESPP will automatically increase annually on the first day of each fiscal year, beginning with the fiscal year ending December 31, 2022, and continuing until (and including) the fiscal year ending December 31, 2031 by the lesser of (1) 1% of the total number of shares of common stock outstanding on December 31st of the immediately preceding fiscal year and (ii) the number of shares as may be determined by the board of directors. As a result of the evergreen provision of the 2021 ESPP, the Company added an additional 327,929 shares of common stock to the 2021 ESPP as of January 1, 2022. No shares are issued under 2021 ESPP plan as of the date of issuance of these consolidated financial statements.As of December 31, 2022, the authorized number of shares and shares available for issuance under the 2021 ESPP is 752,524.

F-18

Stock Options

Stock options granted under the 2022 Plan, 2021 Plan and 2019 Plan (together, the “Plans”) to employees generally vest over four years and expire after 10 years.

The following table summarizes stock option activity for the year ended December 31, 2022 (in thousands, except share and per share amounts):

The weighted-average grant-date fair value of options granted during the years ended December 31, 2022 and 2021, was $3.06 and $7.57per share, respectively. The aggregate intrinsic value is calculated as the difference between the exercise price of all outstanding and exercisable stock options and the fair value of the Company’s common stock of $1.34 per share as of December 31, 2022. The aggregate intrinsic value of stock options exercised during the years ended December 31, 2022 and 2021 was less than $0.1 million and $0.6 million, respectively.

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

Year Ended December 31,

Expected dividend yield 0.00% 0.00%

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

Year Ended December 31,

The Company has an aggregate $25.2million of gross unrecognized stock-based compensation expense as of December 31, 2022, remaining to be amortized over a weighted average period of 2.29 years. The Company has not recognized and does not expect to recognize in the near future, any tax benefit related to employee stock-based compensation expense as a result of the full valuation allowance related to its net deferred tax assets.

F-19

Restricted Stock Awards

Under the 2019 Plan, 2021 Plan and 2022 Inducement Plan, the Company issued 3,174,656 restricted stock units ("RSU") to employees and non-employees. Compensation costs related to these RSUs were recorded based on the Company's stock price on the date of issuance and amortized over the service period.

Additionally, the Company issued certain shares of restricted common stock ("RSA") to the employee co-founders and certain non-employee consultants in 2019. The shares of restricted common stock were issued pursuant to standalone restricted stock purchase agreements that are independent of the 2019 Plan, 2021 Plan and 2022 Inducement Plan. The shares of restricted common stock pursuant to standalone restricted stock purchase agreements carried a purchase price equivalent of $0.01 per share. As of December 31, 2022, 151,286 RSAs were unvested and outstanding.

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

The Company recognized an associated deposit liability for restricted stock awards issued pursuant to standalone restricted stock purchase agreements upon issuance based on the purchase price of the awards as the unvested shares are subject to repurchase upon termination. As the awards of restricted stock vest, the Company reclassifies the deposit liability to additional paid-in capital. The compensation cost was measured based on the fair value of the underlying common stock less the purchase price of the restricted common stock and the Company recognizes compensation costs over the requisite service period.

The following table summarizes restricted stock activity for the year ended December 31, 2022:

Number of Shares WeightedAverageGrant Date Fair Value

The Company has recorded stock-based compensation expense related to the restricted stock of $3.8 million and $0.1 million for the years ended December 31, 2022, and 2021, respectively. The Company has an aggregate $7.4 million of gross unrecognized restricted stock-based compensation expense as of December 31, 2022, remaining to be amortized over a weighted average period of 2.26 years.

F-20

13. Income Taxes

During the years ended December 31, 2022 and 2021, the Company recorded no current or deferred income tax expenses or benefits as the Company has incurred losses since inception and has provided a full valuation allowance against its deferred tax assets.

A reconciliation of the expected income tax benefit computed using the federal statutory income tax rate to the Company’s effective income tax rate is as follows for the years ended December 31, 2022 and 2021:

Year Ended December 31,

Income tax computed at federal statutory rate % 21.0 % 21.0 %

State taxes, net of federal benefit 5.6 5.7

Change in valuation allowance (26.6 ) (27.7 )

Research and development credit carryovers 1.7 1.9

Permanent differences (1.7 ) (0.9 )

Effective income tax rate % 0.0 % 0.0 %

The Company's effective tax rate was 0% for the years ended December 31, 2022 and 2021, as a result of the valuation allowance that eliminates the company's net deferred tax assets.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s net deferred tax assets as of December 31, 2022 and 2021 are as follows (in thousands):

Year Ended December 31,

Deferred tax assets:

Capitalized research expenditures 20,059 —

Operating lease liability 5,107 45

Total deferred tax assets before valuation allowance 61,486 25,811

Total deferred tax assets $ 3,674 $ 63

Deferred tax liabilities:

Operating lease ROU assets (3,674 ) (63 )

Net deferred tax asset $ — $ —

As of December 31, 2022, the Company's federal and state net operating losses ("NOL") in the United States were $10.1 million ($48.0 million before tax) and $3.0 million ($48.1 million before tax) respectively. The federal net operating loss carryforwards in the United States can be carried forward indefinitely but may be subject to annual usage limitations to the extent certain substantial changes in the entity's ownership occur. The state net operating loss carryforwards begin expiring in 2039. In addition, as of December 31, 2022, the Company had $2.5 million and $1.2 million of federal and state credit carryovers which begin to expire in 2039. These loss and credit carryforwards are subject to review and possible adjustment by the appropriate taxing authorities.

F-21

The Company assesses the realizability of the deferred tax assets at each balance sheet date based on the available positive and negative evidence in order to determine the amount which is more likely than not to be realized and records a valuation allowance as necessary. Due to the Company's cumulative loss position which provides significant negative evidence, which is difficult to overcome, the Company has recorded a valuation allowance of $57.8 million as of December 31, 2022, representing the portion of the deferred tax asset that is not more likely than not to be realized. For the years ended December 31, 2022 and 2021, the valuation allowance for deferred tax assets increased by $32.2 million and $21.4 million, respectively. The amount of the deferred tax asset considered realizable, could be adjusted for future factors that would impact the assessment of the objective and subjective evidence. The Company will continue to assess the realizability of deferred tax assets at each balance sheet date in order to determine the proper amount, if any, required for a valuation allowance.

The Tax Cuts and Jobs Act contained a provision which requires the capitalization of Section 174 costs incurred in the years beginning on or after January 1, 2022. Section 174 costs are expenditures which represent research and development costs that are incident to the development or improvement of a product, process, formula, invention, computer software or technique. This provision changes the treatment of Section 174 costs such that the expenditures are no longer allowed as an immediate deduction but rather must be capitalized and amortized. We have included the impact of this provision, which results in a deferred tax asset of approximately $20.1 million as of December 31, 2022.

The U.S. tax attributes may be subject to an annual limitation under Section 382 of the Internal Revenue Code of 1986 (the “Code”), and similar state provisions if the Company experiences one or more ownership changes, which would limit the amount of the tax attributes that can be utilized to offset future taxable income. In general, an ownership change as defined by Section 382, results from the transactions increasing ownership of certain stockholders or public groups in the stock of the corporation of more than fifty percentage points over a three-year period. If a change in ownership occurs in the future, the net operating loss and research and development credit carryforwards could be eliminated or restricted. If eliminated, the related asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance. Due to the existence of the valuation allowance, limitations created by future ownership changes, if any, will not impact the Company’s effective tax rate.

The Company is subject to tax and will continue to file federal income tax returns in the United States as well as in certain state and local jurisdictions. The Company is subject to tax examinations for tax years ended December 31, 2019 and forward in all applicable income tax jurisdictions. Tax audits and examinations can involve complex issues, interpretations and judgements. The resolution of matters may span multiple years particularly if subject to litigation or negotiation. The Company believes that it has appropriately recorded its tax position using reasonable estimates and assumptions, however the potential tax benefits may impact the results of operations or cashflows in the period of resolution, settlement, or when the statutes of limitations expire. The Company does not currently have any reserves related to unrecognized tax benefits.

F-22

14. Net Loss per Share

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