nltx-20210930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

__________________________________________________

FORM 10-Q

__________________________________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934

For the transition period from ________ to ________

Commission file number: 001-36327

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Neoleukin Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

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Delaware						98-0542593
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

188 East Blaine Street, Suite 450

Seattle, Washington 98102

(Address of principal executive offices, including zip code)

(Registrant’s telephone number, including area code): (866) 245-0312

__________________________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.000001	NLTX	The Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:


Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ☒

As of November 3, 2021, there were 42,428,134 shares of the registrant’s common stock outstanding.

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NEOLEUKIN THERAPEUTICS, INC.

Quarterly Report on Form 10-Q

For the Quarter Ended September 30, 2021

INDEX



			Page
		PART I. FINANCIAL INFORMATION (Unaudited)

Item 1.		Condensed Consolidated Balance Sheets	2

		Condensed Consolidated Statements of Operations	3

		Condensed Consolidated Statements of Cash Flows	4

		Condensed Consolidated Statements of Stockholders’ Equity	5

		Notes to Condensed Consolidated Financial Statements	7

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

Item 3.		Quantitative and Qualitative Disclosures About Market Risk	19

Item 4.		Controls and Procedures	19

		PART II. OTHER INFORMATION

Item 1.		Legal Proceedings	21

Item 1A.		Risk Factors	21

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	64

Item 3.		Defaults Upon Senior Securities	64

Item 4.		Mine Safety Disclosures	64

Item 5.		Other Information	64

Item 6.		Exhibits	65

	SIGNATURES		65

Except as otherwise indicated herein or as the context otherwise requires, references in this report to, “the Company,” “we,” “us,” “our” and similar references refer to Neoleukin Therapeutics, Inc. (formerly Aquinox Pharmaceuticals, Inc.), a Delaware corporation. The name “Neoleukin” is a registered trademark of the Company in the United States. This report also contains references to registered marks, trademarks and trade names of other companies that are property of their respective holders.

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PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

NEOLEUKIN THERAPEUTICS, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands of U.S. dollars, except per share and share amounts)


	September 30, 2021		December 31, 2020
Assets
Current assets
Cash and cash equivalents	$	154,924	$	192,556
Other current assets	1,574		1,966
Total current assets	156,498		194,522

Property and equipment, net	6,257		3,570
Operating lease right-of-use assets	11,008		10,154
Intangible asset, net	183		347
Other non-current assets	1,988		1,926
Total assets	$	175,934	$	210,519

Liabilities
Current liabilities
Accounts payable and accrued liabilities	$	7,774	$	7,181
Operating lease liabilities	1,118		659
Finance lease liabilities	104		49
Total current liabilities	8,996		7,889

Non-current operating lease liabilities	12,004		11,306
Non-current finance lease liabilities	68		108
Total liabilities	21,068		19,303

Stockholders’ equity
Common stock - $0.000001 par value - authorized, 100,000,000 as of September 30, 2021 and December 31, 2020; issued and outstanding, 42,428,134 as of September 30, 2021 and 42,196,296 as of December 31, 2020.	—		—
Preferred stock - $0.000001 par value - authorized, 5,000,000 as of September 30, 2021 and December 31, 2020; issued and outstanding, 0 as of September 30, 2021 and December 31, 2020.	—		—
Additional paid-in capital	533,197		524,022
Accumulated deficit	(378,331)		(332,806)
Total stockholders’ equity	154,866		191,216
Total liabilities and stockholders’ equity	$	175,934	$	210,519

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

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NEOLEUKIN THERAPEUTICS, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands of U.S. dollars, except per share and share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Operating loss
Research and development	$	9,896	$	6,216	$	29,402	$	16,557
General and administrative	5,556		3,860		16,122		12,359
Gain on sale of Aquinox Canada	—		(7,826)		—		(7,826)
Total operating loss	15,452		2,250		45,524		21,090
Other income (loss), net	6		1		(1)		453
Net loss	$	(15,446)	$	(2,249)	$	(45,525)	$	(20,637)
Net loss per share – basic and diluted	$	(0.28)	$	(0.04)	$	(0.83)	$	(0.41)
Basic and diluted weighted average common shares outstanding	55,087,777		54,121,676		55,020,059		50,896,014

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

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NEOLEUKIN THERAPEUTICS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands of U.S. dollars)


	Nine Months Ended September 30,
	2021		2020
Operating activities
Net loss	$	(45,525)	$	(20,637)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation	8,548		3,393
Depreciation and amortization	916		578
Amortization of operating lease right-of-use assets	730		784
Loss on disposal of property and equipment	—		180
Write-off of right-of-use asset upon lease termination	—		113
Changes in operating assets and liabilities:
Other current assets and other non-current assets	36		(5,026)
Accounts payable and accrued liabilities	332		5,125
Operating lease right-of-use assets	—		(169)
Operating lease liabilities	(427)		313
Net cash used in operating activities	(35,390)		(15,346)

Investing activities
Purchase of property and equipment	(2,867)		(1,566)
Net cash used in investing activities	(2,867)		(1,566)

Financing activities
Proceeds from issuance of common stock and pre-funded warrants, net of commissions of $4.6 million	—		71,675
Payment of offering costs	—		(355)
Proceeds from exercise of stock options	408		4,576
Proceeds from the issuance of common stock under Employee Stock Purchase Plan	219		—
Payment on finance lease obligations	(2)		(49)
Net cash provided by financing activities	625		75,847

Net change in cash, cash equivalents, and restricted cash during the period	(37,632)		58,935
Cash, cash equivalents, and restricted cash, beginning of period	193,434		143,093

Cash, cash equivalents, and restricted cash, end of period	$	155,802	$	202,028

Supplemental disclosure of non-cash investing and financing activities:
Operating lease liabilities arising from obtaining ROU asset	1,584		10,618
Purchases of property and equipment unpaid at period-end	297		271

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

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NEOLEUKIN THERAPEUTICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands of U.S. dollars, except share amounts)


	Common Stock			Additional Paid-In		Accumulated		Total Stockholders'
	Number	Amount		Capital		Deficit		Equity
Balances, December 31, 2020	42,196,296	$	—	$	524,022	$	(332,806)	$	191,216
Shares issued upon exercises of stock options	91,737	—		282		—		282
Shares issued upon vesting of restricted stock units	38,000	—		—		—		—
Stock-based compensation	—	—		2,420		—		2,420
Net loss	—	—		—		(14,950)		(14,950)
Balances, March 31, 2021	42,326,033	$	—	$	526,724	$	(347,756)	$	178,968
Shares issued upon exercises of stock options	25,124	—		95		—		95
Issuance of shares under Employee Stock Purchase Plan	22,972	—		219		—		219
Shares issued upon vesting of restricted stock units	45,000	—		—		—		—
Stock-based compensation	—	—		2,918		—		2,918
Net loss	—	—		—		(15,129)		(15,129)
Balances, June 30, 2021	42,419,129	$	—	$	529,956	$	(362,885)	$	167,071
Shares issued upon exercises of stock options	7,505	—		31		—		31
Shares issued upon vesting of restricted stock units	1,500	—		—		—		—
Stock-based compensation	—	—		3,210		—		3,210
Net loss	—	—		—		(15,446)		(15,446)
Balance, September 30, 2021	42,428,134	$	—	$	533,197	$	(378,331)	$	154,866

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

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NEOLEUKIN THERAPEUTICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands of U.S. dollars, except share amounts)


	Common Stock			Additional Paid-In		Accumulated		Total Stockholders'
	Number	Amount		Capital		Deficit		Equity
Balances, December 31, 2019	37,996,849	$	—	$	441,216	$	(299,529)	$	141,687
Shares issued upon exercises of stock options	376,311	—		3,392		—		3,392
Shares issued upon vesting of restricted stock units	13,000	—		—		—		—
Stock-based compensation	—	—		683		—		683
Net loss	—	—		—		(8,642)		(8,642)
Balances, March 31, 2020	38,386,160	$	—	$	445,291	$	(308,171)	$	137,120
Shares issued upon exercises of stock options	98,882	—		303		—		303
Shares issued upon vesting of restricted stock units	1,500	—		—		—		—
Stock-based compensation	—	—		1,022		—		1,022
Net loss	—	—		—		(9,746)		(9,746)
Balances, June 30, 2020	38,486,542	$	—	$	446,616	$	(317,917)	$	128,699
Issuance of common stock and pre-funded warrants, net of commissions and offering expenses	3,262,471	—		71,320		—		71,320
Shares issued upon exercises of stock options	106,077	—		882		—		882
Shares issued upon vesting of restricted stock units	21,500	—		—		—		—
Stock-based compensation	—	—		1,688		—		1,688
Net loss	—	—		—		(2,249)		(2,249)
Balance, September 30, 2020	41,876,590	$	—	$	520,506	$	(320,166)	$	200,340

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

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NEOLEUKIN THERAPEUTICS, INC.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

1. Nature of operations

Neoleukin Therapeutics, Inc. (“Neoleukin” or “the Company”) is a biopharmaceutical company creating next generation immunotherapies for cancer, inflammation, and autoimmunity using de novo protein design technology. Neoleukin uses sophisticated computational methods to design proteins that demonstrate specific pharmaceutical properties that provide potentially superior therapeutic benefit over native proteins.

2. Summary of significant accounting policies

(a)Basis of presentation

The accompanying unaudited condensed consolidated financial statements are presented in United States (“U.S.”) dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, these consolidated financial statements do not include all of the information and footnotes required for complete consolidated financial statements and should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission on March 25, 2021.

On December 31, 2020, Neoleukin Corporation, the Company's wholly owned subsidiary, was merged into the Company. As a result, the Company has consisted of a single operating company since December 31, 2020.

In management’s opinion, the unaudited condensed consolidated financial statements reflect all adjustments (including reclassifications and normal recurring adjustments) necessary to present fairly the financial position of the Company as of September 30, 2021, and results of operations and cash flows for all periods presented. The interim results presented are not necessarily indicative of results that can be expected for a full year.

(b)Use of estimates and assumptions

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Significant areas requiring estimates include valuation and recognition of stock-based compensation, the incremental borrowing rate utilized in the measurement of operating and finance lease liabilities, amortization and depreciation of property, plant and equipment and intangible assets, and pre-clinical, clinical, and other accruals. Actual results could differ from those estimates.

(c)Leases

At contract inception, the Company determines if the contract is or contains a lease. Lease liabilities are recognized on the lease commencement date based on the estimated present value of lease payments over the lease term. To determine the present value of the lease payments, the Company utilizes its estimated incremental borrowing rate based on information available at the lease commencement date as the interest rate implicit in the lease is typically not readily determinable. The related right-of-use assets are recorded net of any lease incentives received. Variable lease cost primarily includes building operating expenses as charged to the Company by its landlords and payments for lessor-owned assets that are not covered by a tenant improvement allowance.

The Company includes options to extend the lease in its lease liability and right-of-use asset when it is reasonably certain that it will exercise that option. None of the Company's options to extend the rental term of any of its existing leases were considered reasonably certain as of September 30, 2021.

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For leases of office space and equipment, the Company has elected to not separate the lease components from the non-lease components.

For leases with a lease term of 12 months or less and which do not include an option to purchase the underlying asset, the Company has elected to recognize the lease payments in the statement of operations on a straight-line basis over the lease term.

(d)Fair value of financial instruments

The carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, restricted cash, receivables, accounts payable and other liabilities, approximate their fair values because of their nature and/or short maturities.

At September 30, 2021, and December 31, 2020, the Company had $152.4 million and $108.3 million in money market funds, respectively. Money market funds are level one financial instruments as they are valued at the closing price reported by the fund sponsor from an actively traded exchange.

(e)Earnings (loss) per share

Basic net loss per share is calculated by dividing the net loss by the weighted average number of shares of common stock outstanding for the period, without consideration for common stock equivalents. Common stock equivalents such as outstanding stock options and unvested restricted stock units are included in the calculation of diluted earnings per share only in periods of net income. Such common stock equivalents are excluded in the calculation of diluted net loss per share in periods of net loss as inclusion of such amounts would be anti-dilutive. Outstanding pre-funded warrants as of September 30, 2021 and September 30, 2020 were 12,663,010 and are considered outstanding as of their issuance date and are included in the basic and diluted net loss per share calculation because they are fully vested and exercisable after 61 days' notice for nominal cash consideration.

(f)Accounting for stock-based compensation

The Company has issued stock options and restricted stock units (“RSUs”). The Company measures the cost of services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost of such award is recognized on a straight-line basis over the requisite service period, which is generally the vesting period. Awards subject to performance-based vesting requirements are expensed utilizing a graded vesting model if achievement of the performance criteria is determined to be probable. The Company accounts for forfeitures as they occur. The Company utilizes newly issued shares to satisfy option exercises and the vesting of RSUs.

The Company estimates the fair value of options using the Black-Scholes option pricing model on the grant date. This approximation uses assumptions regarding a number of inputs that requires management to make significant estimates and judgments. The expected term represents the period that the Company’s stock-based awards are expected to be outstanding. As the Company does not have sufficient historical experience for determining the expected term of the stock option awards granted, the Company has based its expected term for awards issued to employees on the simplified method, which represents the average period from vesting to the expiration of the stock option. In addition, the Company does not have sufficient trading history for the Company’s common stock, and therefore, the expected stock price volatility for the Company’s common stock was estimated by taking the average historical price volatility for industry peers. The Company has never declared or paid any cash dividends to common stockholders and does not presently plan to pay cash dividends in the foreseeable future. Consequently, the Company used an expected dividend yield of zero. The risk-free interest rate was based on the yields of treasury securities with maturities similar to the expected term of the options for each option group.

The fair value of each RSU is measured using the closing price of the Company’s common stock on the date of grant.

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(g)Recently issued and recently adopted accounting standards

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12 “Simplifying the Accounting for Income Taxes.” The objective of this ASU is to improve areas of GAAP by removing certain exceptions permitted by Accounting Standards Codification (“ASC”) Topic 740 - Income Taxes and clarifying existing guidance to facilitate consistent application. ASU 2019-12 became effective for fiscal years and interim periods beginning after December 15, 2020. The Company adopted this standard on January 1, 2021 on a prospective basis. The adoption of this ASU did not have a material impact on the Company's financial condition, results of operations, cash flows, and financial statement disclosures.

3. Cash, cash equivalents, and restricted cash

Restricted cash, included in other non-current assets in the condensed consolidated balance sheets, includes $0.9 million in cash deposits the Company maintains with its bank as collateral for the irrevocable letters of credit related to its lease obligations.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash in the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows:


(in thousands)	September 30, 2021		December 31, 2020
Cash and cash equivalents	$	154,924	$	192,556
Restricted cash	878		878
Total cash, cash equivalents, and restricted cash	$	155,802	$	193,434

4. Leases

The Company enters into lease arrangements for its facilities as well as certain equipment, classified either as operating or finance leases.

The Company has a lease agreement, as amended by the execution of two subsequent amendments, for approximately 33,300 square feet of office space in Seattle, Washington for the Company’s principal executive offices, a laboratory for research and development, and related uses. The lease commenced on January 15, 2020 and expires on February 1, 2029, with the option to extend the lease for two five-year terms. The lease provides for a tenant improvement allowance of up to $9.5 million, which had been fully utilized as of September 30, 2021.

The Company has a lease agreement for approximately 6,272 square feet of office space in Seattle, Washington, for additional office and laboratory space for research and development and related uses. In March 2021, the Company executed an amendment to this lease pursuant to which the contractual lease term was extended through September 30, 2026, unless terminated earlier, with the option to extend the lease for an additional 28-month term. The execution of this amendment was accounted for as a modification to the lease due to the extension of the lease term and an increase in lease payments, and the Company recorded an increase in the lease liability and related right-of-use asset of $1.6 million.

The Company had a lease agreement for approximately 10,946 square feet of office space in Vancouver, Canada. On June 30, 2020, the Company entered into a lease amendment agreement. Under the amended agreement, the lease term expired on June 30, 2020, and the Company paid an early termination fee of $0.5 million. The Company accounted for the lease amendment as a lease termination which resulted in an extinguishment of the lease liability and the write-off of the related right-of-use asset. After incurring additional expenses included in the termination fee, the Company recognized a loss of $0.3 million on the termination of the lease, which was recorded in general and administrative expenses in the nine months ended September 30, 2020. In addition, the Company wrote-off leasehold improvements and other property and equipment associated with the lease and incurred a loss on disposal of $0.2 million in the nine months ended September 30, 2020.

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As of September 30, 2021, and December 31, 2020, the Company’s operating lease right-of-use assets were $11.0 million and $10.2 million, respectively. As of September 30, 2021, and December 31, 2020, the Company’s finance lease right-of-use assets were $0.2 million and $0.3 million, respectively.

SEC Form 10-Q filed by Neoleukin Therapeutics, Inc.