Pyxis Oncology(PYXS) - 2022 Q2 - Quarterly Report

Summary Risk Factors The company is a preclinical-stage biopharmaceutical firm with a limited operating history and has incurred significant losses since inception, with an expectation of continued losses for the next several years - The company is a preclinical-stage biopharmaceutical firm with a limited operating history and has incurred significant losses since inception, with an expectation of continued losses for the next several years[9] - Future operations are heavily dependent on the success of its two lead product candidates, PYX-201 and PYX-106, which are in the early stages of development and face significant clinical and regulatory risks[9] - The company will require substantial additional capital to finance operations and advance its product candidates; failure to raise capital on acceptable terms could force delays or elimination of development programs[9] - Key operational risks include reliance on third parties for manufacturing, potential failure to obtain and maintain patent protection for its product candidates, and obligations under various licensing agreements[9][10] PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Pyxis Oncology, Inc. as of June 30, 2022, and for the three and six-month periods then ended, including balance sheets, statements of operations, stockholders' equity, and cash flows, along with accompanying notes Condensed Consolidated Balance Sheets The balance sheet as of June 30, 2022, shows a decrease in total assets compared to December 31, 2021, primarily due to a reduction in cash and cash equivalents, while total liabilities increased, leading to a decrease in total stockholders' equity Condensed Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $223.4 | $274.7 | | Total current assets | $226.6 | $278.7 | | Total assets | $242.6 | $280.0 | | Total liabilities | $30.6 | $18.7 | | Accumulated deficit | $(148.7) | $(91.7) | | Total stockholders' equity | $212.0 | $261.3 | Condensed Consolidated Statements of Operations and Comprehensive Loss For the three and six months ended June 30, 2022, the company reported significantly higher operating expenses and a wider net loss compared to the same periods in 2021, driven by substantial growth in both Research and Development (R&D) and General and Administrative (G&A) expenses Statement of Operations Highlights (in millions, except per share data) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Research and development | $17.2 | $3.2 | $37.2 | $36.0 | | General and administrative | $8.6 | $2.7 | $19.9 | $5.7 | | Loss from operations | $(25.7) | $(5.9) | $(57.1) | $(41.7) | | Net loss | $(25.6) | $(8.1) | $(56.9) | $(45.0) | | Net loss per share | $(0.79) | $(5.54) | $(1.76) | $(31.86) | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2022, the company used significantly more cash in operating activities compared to the prior year period, reflecting the increased net loss and operational spend, resulting in a net decrease in cash for the first half of 2022 Cash Flow Summary for Six Months Ended June 30 (in millions) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(51.4) | $(15.9) | | Net cash used in investing activities | $(0.3) | $(0.6) | | Net cash provided by financing activities | $0.2 | $150.9 | | Net (decrease) increase in cash | $(51.5) | $134.4 | Notes to Condensed Consolidated Financial Statements The notes provide crucial context to the financial statements, detailing the company's focus on oncology therapeutics, liquidity assessment, specifics on major licensing agreements, stock-based compensation plans, and a new operating lease - The company believes its existing cash and cash equivalents of $223.4 million as of June 30, 2022, are sufficient to fund operating expenses and capital requirements for at least twelve months from the issuance date of the financial statements[32] - In March 2022, the company entered into a license agreement with Biosion USA, Inc. for PYX-106, paying an upfront license fee of $10 million, which was recorded as R&D expense. The agreement includes potential future milestone payments up to $222.5 million[52][53] - The company commenced a new operating lease for office and laboratory space on April 1, 2022, recognizing a right-of-use asset and lease liability of $15.3 million. The lease term extends through December 2032[71][72] - As of June 30, 2022, the company had $31.0 million of gross unrecognized stock-based compensation expense related to stock options, to be amortized over a weighted average period of 2.77 years, and $9.5 million related to restricted stock, to be amortized over 2.6 years[65][69] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management provides an analysis of the company's financial performance and condition, highlighting pipeline reprioritization to focus on advancing two lead candidates, PYX-201 and PYX-106, while pausing or ceasing other programs to extend the cash runway, and detailing increased operating expenses due to expanded R&D and G&A costs Overview and Recent Developments The company has reprioritized its pipeline to focus resources on its two most advanced programs, PYX-201 and PYX-106, with plans to file Investigational New Drug (IND) applications for both in the second half of 2022, while ceasing development of PYX-202 and pausing preclinical work on PYX-203 and PYX-102 to extend the cash runway through the second half of 2024 - The company has sharpened its focus by reprioritizing development efforts towards its two most advanced programs: PYX-201 and PYX-106[91][93] - Development of the anti-DLK1 ADC, PYX-202, has been ceased after a review of data from toxicity studies[92] - Preclinical development of anti-CD123 ADC (PYX-203) and anti-KLRG1 IO program (PYX-102) has been paused to conserve resources[93] - The company anticipates submitting INDs for both PYX-201 and PYX-106 in the second half of 2022[93][94][95] Results of Operations The analysis of operating results shows a significant increase in expenses for the three and six months ended June 30, 2022, compared to 2021, with R&D and G&A expenses rising due to contract manufacturing, preclinical toxicity studies, higher headcount, and public company costs Comparison of Operating Expenses for the Three Months Ended June 30 (in millions) | Expense Category | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Research and development | $17.2 | $3.2 | $14.0 | | General and administrative | $8.6 | $2.7 | $5.8 | Comparison of Operating Expenses for the Six Months Ended June 30 (in millions) | Expense Category | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Research and development | $37.2 | $36.0 | $1.3 | | General and administrative | $19.9 | $5.7 | $14.2 | - The Q2 2022 R&D expense increase was primarily due to a $8.7 million rise in contract manufacturing costs and a $1.6 million increase in preclinical toxicity study costs[121] - The H1 2022 G&A expense increase was driven by higher personnel-related costs (+$7.3 million), professional and consultant fees (+$4.5 million), and facilities/insurance costs (+$2.3 million)[126] Liquidity and Capital Resources As of June 30, 2022, the company held $223.4 million in cash and cash equivalents and had an accumulated deficit of $148.7 million, with management projecting current cash to fund operations through the second half of 2024, despite a substantial increase in net cash used in operations for the first six months of 2022 - The company had cash and cash equivalents of $223.4 million as of June 30, 2022[128] - Based on current plans, the company expects its cash to fund operating expenses and capital expenditure requirements through the second half of 2024[137] - Net cash used in operating activities increased to $51.4 million in the first six months of 2022 from $15.9 million in the same period of 2021, primarily due to a higher net loss and changes in operating assets and liabilities[132][133][134] - The company has significant future contingent payment obligations under its license agreements, including up to $660 million to Pfizer and up to $222.5 million to Biosion[140][143] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is classified as a "smaller reporting company" under SEC rules and is therefore not required to provide the information for this item - As a "smaller reporting company," Pyxis Oncology is not required to provide quantitative and qualitative disclosures about market risk[151] Item 4. Controls and Procedures Based on an evaluation conducted by management, including the CEO and CFO, the company's disclosure controls and procedures were concluded to be effective at a reasonable assurance level as of June 30, 2022, with no material changes in internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[152] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[153] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company reports that it is not currently a party to any material legal proceedings and is not aware of any pending or threatened legal actions that could have a material adverse effect on its business - The company is not currently involved in any material legal proceedings[157] Item 1A. Risk Factors This section provides a comprehensive overview of the risks facing the company, categorized into risks related to its financial position and capital needs, the discovery and development of its product candidates, regulatory and legal compliance, dependence on third parties, intellectual property, and risks associated with its common stock Risks Related to Financial Position and Need for Additional Capital This subsection highlights the company's financial vulnerabilities, including its limited operating history, history of significant net losses, and the critical need to raise substantial additional capital to fund future operations, with the risk that the company may never achieve profitability or that failure to secure funding could jeopardize its development programs - The company has a limited operating history, has incurred significant losses since inception (accumulated deficit of $148.7 million as of June 30, 2022), and expects to incur losses for at least the next several years[160] - Substantial additional capital is required to finance operations. The current cash is estimated to last through the second half of 2024, but could be depleted sooner than expected[165][166] Risks Related to the Discovery and Development of our Product Candidates This subsection details the inherent risks in the company's core business of drug development, including the high risk of failure for all preclinical product candidates, heavy dependence on the success of PYX-201 and PYX-106, potential failure in clinical trials, unexpected safety issues, competition from more established companies, and the possibility that preclinical results will not translate to human trials - The company is heavily dependent on the success of its early-stage product candidates, PYX-201 and PYX-106[174] - All product candidates are in preclinical development, a stage with a high risk of failure. The company recently ceased development of PYX-202 due to unfavorable toxicity data[177][182] - The company faces intense competition from well-capitalized biopharmaceutical companies with more experience and resources in developing ADCs and immunotherapies[211][212][216] Risks Related to Regulatory Licensure or Approval and Other Legal Compliance Matters This subsection outlines the significant regulatory hurdles the company faces, including the long, costly, and unpredictable FDA approval process, ongoing regulatory scrutiny even if a product is approved, the dependence of commercial success on securing adequate reimbursement from payors, and the need to comply with complex healthcare fraud, abuse, and data privacy laws - The regulatory approval process for new drugs is lengthy, expensive, and inherently unpredictable, with no guarantee that any product candidates will ever be approved[222] - Even if approved, products will be subject to extensive ongoing regulatory requirements, and failure to comply can result in significant penalties or withdrawal of approval[229] - Commercial success depends on obtaining coverage and adequate reimbursement from third-party payors, which is uncertain and subject to pricing pressures from healthcare reform initiatives[271][277] Risks Related to Our Dependence on Third Parties This subsection emphasizes the company's significant reliance on external partners, including in-licensing critical intellectual property from Pfizer and Biosion, contracting with third-party manufacturers (CMOs) for all product supply, and depending on contract research organizations (CROs) to conduct clinical trials, with any failure by these third parties to perform their obligations potentially severely disrupting development and commercialization efforts - The company relies on license agreements with Pfizer, LegoChem, Biosion, and others for its product candidates. A breach or termination of these agreements could result in the loss of necessary intellectual property rights[324] - The company depends entirely on third-party contract manufacturers for its product supply and does not own any manufacturing facilities. Any failure by these manufacturers to comply with cGMP or meet supply needs could delay or halt clinical trials and commercialization[329][330] - The company plans to rely on third-party CROs to conduct its clinical trials. Poor performance by these CROs could jeopardize data integrity and delay regulatory approvals[342] Risks Related to Our Intellectual Property This subsection discusses the risks associated with protecting the company's intellectual property, including the dependence of its success on obtaining and maintaining patent protection for its product candidates, the possibility that patents may not be granted, may be challenged and invalidated, or may not provide sufficient protection against competitors, and the risks of infringing third-party patents and of its trade secrets being misappropriated - The company's ability to compete effectively depends on its ability to obtain and maintain patent protection for its product candidates, which is an uncertain and costly process[346][347] - The company could face infringement lawsuits from third parties, which are expensive and could force it to halt development or pay significant damages or royalties[362][363] - The company relies on trade secrets and confidentiality agreements, but these may be breached, and it may not have adequate remedies, potentially harming its competitive position[378][383] Risks Related to Our Common Stock This subsection outlines risks for investors in the company's common stock, including high stock price volatility, potential dilution from future equity financings, significant ownership concentration among principal stockholders and management, and reduced public disclosure requirements due to the company's status as an "emerging growth company" and "smaller reporting company" - The company's stock price is expected to be highly volatile due to factors such as clinical trial results, regulatory developments, and market conditions[390] - As of August 15, 2022, executive officers, directors, and 5%+ stockholders beneficially owned approximately 54.2% of the outstanding common stock, giving them significant influence over corporate actions[394] - The company is an "emerging growth company" and a "smaller reporting company," which allows for reduced disclosure requirements that may make its stock less attractive to some investors[397][400] - The company does not anticipate paying any cash dividends in the foreseeable future; returns will depend on stock price appreciation[412] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section addresses the use of proceeds from the company's Initial Public Offering (IPO) on October 7, 2021, which generated net proceeds of $152.3 million, stating there has been no material change in the planned use of these funds, which have been invested in a money market fund - The company's IPO on October 7, 2021, raised net proceeds of $152.3 million after deducting underwriting discounts and other costs[418] - There has been no material change in the planned use of the net proceeds from the IPO as described in the final prospectus[418] Other Items (Items 3-6) This section covers remaining miscellaneous items, reporting no defaults upon senior securities (Item 3), no mine safety disclosures (Item 4), and no other information to report (Item 5), with Item 6 listing the exhibits filed with the report - The company reported no information for Item 3 (Defaults Upon Senior Securities), Item 4 (Mine Safety Disclosures), and Item 5 (Other Information)[419]