nltx-10q_20200930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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, 2020

OR

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

For the transition period from              to

Commission file number:             001-36327

 

Neoleukin Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

98-0542593

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

360-1616 Eastlake Avenue East

Seattle, Washington 98102

(Address of principal executive offices, including zip code)

(Registrant’s telephone number, including area code): (206) 732-2133

 

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 4, 2020, there were 41,894,382 shares of the registrant’s common stock outstanding.

 

 

 

 


 

 

Neoleukin Therapeutics, Inc.

Quarterly Report on Form 10-Q

For the Quarter Ended September 30, 2020

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

14

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

20

 

 

 

 

Item 4.

 

Controls and Procedures

20

 

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

Item 1.

 

Legal Proceedings

21

 

 

 

 

Item 1A.

 

Risk Factors

22

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

59

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

59

 

 

 

 

Item 4.

 

Mine Safety Disclosures

59

 

 

 

 

Item 5.

 

Other Information

59

 

 

 

 

Item 6.

 

Exhibits

60

 

 

 

 

SIGNATURES

61

 

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.

 


1


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,

2020

 

 

December 31,

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

201,150

 

 

$

143,093

 

Other current assets

 

 

5,439

 

 

 

503

 

Total current assets

 

 

206,589

 

 

 

143,596

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

3,303

 

 

 

2,060

 

Operating lease right-of-use assets

 

 

10,398

 

 

 

770

 

Intangible asset, net

 

 

403

 

 

 

567

 

Other non-current assets

 

 

997

 

 

 

30

 

Total assets

 

$

221,690

 

 

$

147,023

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

9,522

 

 

$

4,125

 

Operating lease liabilities

 

 

321

 

 

 

556

 

Finance lease liabilities

 

 

49

 

 

 

62

 

Total current liabilities

 

 

9,892

 

 

 

4,743

 

 

 

 

 

 

 

 

 

 

Non-current operating lease liabilities

 

 

11,350

 

 

 

447

 

Non-current finance lease liabilities

 

 

108

 

 

 

146

 

Total liabilities

 

 

21,350

 

 

 

5,336

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Share capital:

 

 

 

 

 

 

 

 

Common stock - $0.000001 par value - authorized, 100,000,000 as of September 30, 2020 and December 31, 2019; issued and outstanding, 41,876,590 as of September 30, 2020 and 37,996,849 as of December 31, 2019.

 

 

 

 

 

 

Preferred stock - $0.000001 par value - authorized, 5,000,000 as of September 30, 2020 and December 31, 2019; nil issued and outstanding as of September 30, 2020 and December 31, 2019.

 

 

 

 

 

 

Additional paid-in capital

 

 

520,506

 

 

 

441,216

 

Accumulated deficit

 

 

(320,166

)

 

 

(299,529

)

Total stockholders’ equity

 

 

200,340

 

 

 

141,687

 

Total liabilities and stockholders’ equity

 

$

221,690

 

 

$

147,023

 

 

 

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

2


NEOLEUKIN THERAPEUTICS, INC.

Condensed consolidated statements of operations

(Unaudited)  

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

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Operating loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

6,216

 

 

$

1,420

 

 

$

16,557

 

 

$

(471

)

Acquired in-process research and development

 

 

 

 

 

47,716

 

 

 

 

 

 

47,716

 

General and administrative

 

 

3,860

 

 

 

10,380

 

 

 

12,359

 

 

 

15,358

 

Gain on sale of Aquinox Canada

 

 

(7,826

)

 

 

 

 

 

(7,826

)

 

 

 

Total operating loss

 

 

2,250

 

 

 

59,516

 

 

 

21,090

 

 

 

62,603

 

Other income, net

 

 

1

 

 

 

384

 

 

 

453

 

 

 

1,262

 

Net loss

 

$

(2,249

)

 

$

(59,132

)

 

$

(20,637

)

 

$

(61,341

)

Net loss per common stock – basic and diluted

 

$

(0.04

)

 

$

(2.26

)

 

$

(0.41

)

 

$

(2.51

)

Basic and diluted weighted average common shares outstanding

 

 

54,121,676

 

 

 

26,185,839

 

 

 

50,896,014

 

 

 

24,429,893

 

 

 

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

 

 

 

3


NEOLEUKIN THERAPEUTICS, INC.

Condensed consolidated statements of cash flows

(Unaudited)

(In thousands of U.S. dollars)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2020

 

 

2019

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(20,637

)

 

$

(61,341

)

Adjustments to reconcile net cash used in operating activities:

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

3,393

 

 

 

7,017

 

Acquired in-process research and development

 

 

 

 

 

47,716

 

Depreciation and amortization

 

 

578

 

 

 

180

 

Loss on disposal of property and equipment

 

 

180

 

 

 

 

Amortization of operating lease right-of-use assets

 

 

784

 

 

 

76

 

Write-off of right-of-use asset upon lease termination

 

 

113

 

 

 

 

Unrealized foreign exchange loss

 

 

 

 

 

20

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Other current assets and other non-current assets

 

 

(5,026

)

 

 

(453

)

Accounts payable and accrued liabilities

 

 

5,125

 

 

 

(3,828

)

Operating lease right-of-use assets

 

 

(169

)

 

 

 

Operating lease liabilities

 

 

313

 

 

 

(145

)

Net cash used in operating activities

 

 

(15,346

)

 

 

(10,758

)

 

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

 

 

Acquisition of Former Neoleukin, net of cash acquired

 

 

 

 

191

 

Purchase of property and equipment

 

 

(1,566

)

 

 

(97

)

Net cash provided by (used in) investing activities

 

 

(1,566

)

 

 

94

 

 

 

 

 

 

 

 

 

 

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

 

 

4,576

 

 

 

40

 

Payment on finance lease obligations

 

 

(49

)

 

 

(7

)

Net cash provided by financing activities

 

 

75,847

 

 

 

33

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

 

 

 

9

 

Net change in cash, cash equivalents and restricted cash during the period

 

 

58,935

 

 

 

(10,622

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

143,093

 

 

 

76,928

 

 

 

 

 

 

 

 

 

 

Cash, cash equivalents and restricted cash, end of period

 

$

202,028

 

 

$

66,306

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment unpaid at period-end

 

 

271

 

 

 

 

Operating lease liabilities arising from obtaining ROU asset

 

 

10,618

 

 

 

515

 

 

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

 

 

4


NEOLEUKIN THERAPEUTICS, INC.

Condensed consolidated statements of stockholders’ equity

(Unaudited)

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

 

 

 

Common Stock

 

 

Non-Voting Convertible Preferred Stock

 

 

Additional Paid-In

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Number

 

 

Amount

 

 

Number

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balances, December 31, 2019

 

 

37,996,849

 

 

$

 

 

 

 

 

$

 

 

$

441,216

 

 

$

(299,529

)

 

$

141,687

 

Options exercised

 

 

376,311

 

 

 

 

 

 

 

 

 

 

 

 

3,392

 

 

 

 

 

 

3,392

 

Restricted stock units vested

 

 

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

 

Options exercised

 

 

98,882

 

 

 

 

 

 

 

 

 

 

 

 

303

 

 

 

 

 

 

303

 

Restricted stock units vested

 

 

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

 

Options exercised

 

 

106,077

 

 

 

 

 

 

 

 

 

 

 

 

882

 

 

 

 

 

 

882

 

Restricted stock units vested

 

 

21,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,688

 

 

 

 

 

 

1,688

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,249

)

 

 

(2,249

)

Balances, 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.

5


NEOLEUKIN THERAPEUTICS, INC.

Condensed consolidated statements of stockholders’ equity

(Unaudited)

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

 

 

 

Common Stock

 

 

Non-Voting Convertible Preferred Stock

 

 

Additional Paid-In

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Number

 

 

Amount

 

 

Number

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balances, December 31, 2018

 

 

23,537,368

 

 

$

 

 

 

 

 

$

 

 

$

302,759

 

 

$

(230,087

)

 

$

72,672

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,078

 

 

 

 

 

 

1,078

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,208

)

 

 

(2,208

)

Balances, March 31, 2019

 

 

23,537,368

 

 

$

 

 

 

 

 

$

 

 

$

303,837

 

 

$

(232,295

)

 

$

71,542

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

788

 

 

 

 

 

 

788

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

(1

)

Balances, June 30, 2019

 

 

23,537,368

 

 

$

 

 

 

 

 

$

 

 

$

304,625

 

 

$

(232,296

)

 

$

72,329

 

Issuance of common stock for Former

   Neoleukin common stock

 

 

4,589,771

 

 

 

 

 

 

 

 

 

 

 

 

15,055

 

 

 

 

 

 

15,055

 

Issuance of convertible preferred stock for

   Former Neoleukin common stock

 

 

 

 

 

 

 

 

 

101,927

 

 

 

 

 

 

 

33,432

 

 

 

 

 

 

 

33,432

 

Options exercised

 

 

13,104

 

 

 

 

 

 

 

 

 

 

 

 

40

 

 

 

 

 

 

 

40

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,151

 

 

 

 

 

 

5,151

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(59,132

)

 

 

(59,132

)

Balances, September 30, 2019

 

 

28,140,243

 

 

$

 

 

 

101,927

 

 

$

 

 

$

358,303

 

 

$

(291,428

)

 

$

66,875

 

 

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

6


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, 2019, filed with the Securities and Exchange Commission on March 12, 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 as of September 30, 2020, 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, leases, amortization and depreciation of property, plant and equipment and intangible assets, and pre-clinical and other accruals. Actual results could differ from those estimates.

(c) Reclassification

The Company reclassified prior year amortization of operating lease right-of-use assets, depreciation and amortization, and changes in operating lease liabilities in the condensed consolidated statements of cash flows to conform to current year presentation. This reclassification had no effect on net cash used in operating activities.

(d) Leases

At contract inception, the Company determines if the contract is a lease or contains a lease. Operating leases are recorded as operating lease right-of-use assets, operating lease liabilities and non-current operating lease liabilities. Finance leases are recorded as finance lease right-of-use assets, finance lease liabilities and non-current finance lease liabilities.

Right-of-use assets and 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 rate implicit in the lease is not readily determinable.  The 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.

For leases of office space with a lease term 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.  

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

7


(e) 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, 2020, and December 31, 2019, the Company had $108.3 million and $40.0 million in money market funds, respectively. Money market funds are level one financial instruments as they are valued at fair value, which is the closing price reported by the fund sponsor from an actively traded exchange.

(f) 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 of 12,663,010 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 at any time for a nominal cash consideration.

(g) Asset acquisitions

At the time of acquisition, the Company determines if a transaction should be accounted for as a business combination or acquisition of assets.

For an acquisition of assets, the cost of acquiring the asset group, including transaction costs, is allocated to the acquired assets and assumed liabilities based on their relative fair values without giving rise to goodwill. Acquired in-process research and development assets are expensed if management determines that the assets do not have an alternative future use. Other long-lived intangible assets are recorded at the acquired cost and amortized using the straight-line method over their estimated useful life.

The intangible asset is tested for impairment when events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. The Company recognizes an impairment loss when carrying amount is not recoverable and the estimated fair value of the intangible asset is less than its carrying value.

(h) 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 the standard 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 is effective for fiscal years and interim periods beginning after December 15, 2020. The Company has incurred net losses since its inception and maintains a full valuation allowance on the net deferred tax assets. As such, the Company does not expect the adoption of this standard to have a material impact on the financial condition, results of operations and cash flows, or financial statement disclosures.

In August 2018, the FASB issued “ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” The objective of the standard is to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. We adopted this standard on January 1, 2020 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. Merger of Neoleukin Therapeutics, Inc. and Aquinox Pharmaceuticals, Inc.

On August 8, 2019, Aquinox Pharmaceuticals, Inc. (“Aquinox”) and Neoleukin Therapeutics, Inc. (“Former Neoleukin”) completed a transaction pursuant to the Agreement and Plan of Merger dated August 5, 2019. Former Neoleukin became a wholly owned subsidiary of Aquinox and Aquinox subsequently changed its name to Neoleukin Therapeutics, Inc. All of the outstanding shares of common stock of the Former Neoleukin were exchanged for 4,589,771 shares of common stock of the Company and 101,927 shares of non-voting convertible preferred stock of the Company.

 

 

 

8


The total consideration paid was $51.6 million and consists of:

 

(in thousands)

 

 

 

 

Fair value of 4,589,771 shares of Aquinox common stock

 

$

15,054

 

Fair value of 101,927 shares of Aquinox convertible preferred stock

 

 

33,432

 

Cash consideration for fractional shares

 

 

5

 

Transaction costs

 

 

3,087

 

Total consideration

 

$

51,578

 

 

The fair value of the Aquinox securities issued to stockholders of Former Neoleukin was based on the closing stock price on August 7, 2019, the last day of trading prior to the completion of the transaction.

The transaction was accounted for as an asset acquisition as Former Neoleukin did not meet the definition of a business under Accounting Standard Codification Topic 805, Business Combinations (“ASC 805”) as substantially all of the value was in the In Process Research & Development (“IPR&D”) asset. The estimated fair value of the IPR&D asset was expensed as the Company determined that the asset has no alternative future use in accordance with ASC 730 “Research and Development”.

The following table summarizes the assets acquired and liabilities assumed:

 

(in thousands)

 

 

 

 

Assets acquired:

 

 

 

 

Cash and cash equivalents

 

$

3,282

 

Receivables, prepayments and deposits

 

 

560

 

Property and equipment, net

 

 

1,034

 

In process research and development asset

 

 

47,716

 

Intangible asset

 

 

659

 

Total assets acquired

 

 

53,251

 

Liabilities assumed:

 

 

 

 

Accounts payable and other liabilities

 

 

1,472

 

Financing lease liability

 

 

201

 

Total liabilities assumed

 

 

1,673

 

Total consideration

 

$

51,578

 

 

4. Cash, cash equivalents and restricted cash

Restricted cash, included in other 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 credits 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):

 

(in thousands)

 

September 30,

2020

 

 

December 31,

2019

 

Cash and cash equivalents

 

$

201,150

 

 

$

143,093

 

Restricted cash

 

 

878

 

 

 

 

Total cash, cash equivalents, and restricted cash

 

$

202,028

 

 

$

143,093

 

 

 

9


5. 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 for approximately 33,300 square feet of office space in Seattle, Washington, for the Company’s future principal executive offices, a laboratory for research and development and related uses. In January 2020, the Company issued an irrevocable letter of credit in the amount of $0.5 million for the security deposit in accordance with the terms of the lease. The lease commenced on January 15, 2020 and rent obligations are scheduled to commence on December 1, 2020. The Company will also be responsible for the payment of additional rent to cover the Company’s share of the annual operating and tax expenses and utilities costs for the building. The lease expires on December 1, 2028, with the option to extend the lease for two five-year terms.  The lease provides for a tenant improvement allowance of $8.0 million, which is included in the base rent, and an optional additional tenant improvement allowance with a maximum amount of $1.5 million, which will result, if elected, in additional rent expense recognized over the term of the lease. In September 2020, the Company elected to utilize this additional tenant improvement allowance. This resulted in a remeasurement of the lease liability due to an increase in lease payments over the term of the lease. The Company recorded an increase to the lease liability and related right-of-use asset of $1.0 million. As of September 30, 2020, there was a tenant improvement allowance receivable of $4.2 million recorded in other current assets related to reimbursable build-out costs incurred by the Company, of which $3.9 million were unpaid and recorded in accounts payable and accrued liabilities in the condensed consolidated balance sheet. In November 2020, the Company executed an amendment to this lease that extends the scheduled rent commencement date to February 1, 2021 and the base term expiration to February 1, 2029. The amendment will not have an impact on total fixed lease payments over the base term. In addition, the amendment did not impact the associated operating lease liability or right-of-use asset as of September 30, 2020, as the event did not exist at, and arose subsequent to, September 30, 2020. 

 

The Company has a lease agreement for approximately 6,272 square feet of office space in Seattle, Washington, for the Company’s principal executive offices, a laboratory for research and development and related uses. In June 2020, the Company executed an amendment to this lease pursuant to which the Company has the option to terminate the lease, without penalty, at any point subsequent to November 1, 2020 with 45 days advance written notice. The Company determined that it is not reasonably certain to not exercise this termination option after December 15, 2020.

On June 30, 2020, the Company terminated its lease agreement for 10,946 square feet of office space in Vancouver, Canada. The lease termination 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 of $0.5 million, the Company recognized a loss of $0.3 million on the termination of the lease, which was recorded in general and administrative expenses in June 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 June 2020.        

As of September 30, 2020, and December 31, 2019, the Company’s operating lease right-of-use assets were $10.4 million and $0.8 million, respectively.  As of September 30, 2020, and December 31, 2019, the Company’s finance lease right-of-use assets were $0.2 million and $0.3 million, respectively.

6. Equity

 

(a) Offering of common stock and pre-funded warrants

On July 7, 2020, the Company completed an underwritten public offering of 3,262,471 shares of its common stock at a price of $15.25 per share and pre-funded warrants to purchase 1,737,529 shares of its common stock at a price of $15.249999 per pre-funded warrant.  The pre-funded warrants can be exercised at any time after issuance for an exercise price of $0.000001 per share. The aggregate net proceeds received by the Company from the offering, net of underwriting discounts and commissions and offering costs of approximately $4.9 million, were $71.3 million.

 

10


(b) Stock-based compensation expense

Stock-based compensation expense is classified in the condensed consolidated statement of operations as follows:

 

 

(in thousands)

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Research and development expenses

 

$

571

 

 

$

98

 

 

$

1,200

 

 

$

178

 

General and administrative expenses

 

 

1,117

 

 

 

5,053

 

 

 

2,193

 

 

 

6,839

 

Total stock-based compensation expense

 

$

1,688

 

 

$

5,151

 

 

$

3,393

 

 

$

7,017

 

 

Total unrecognized compensation cost for all stock-based compensation plans was $23.6 million as of September 30, 2020. This cost is expected to be recognized over a weighted average remaining vesting period of 3.31 years.

The fair values of stock options granted are estimated using the Black-Scholes option pricing model with the following weighted average assumptions:

 

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Expected volatility

 

 

94.84

%

 

 

90.00

%

 

 

93.86

%

 

 

90.00

%

Expected dividends

 

 

0

%

 

 

0

%

 

 

0

%

 

 

0

%

Expected terms (years)

 

 

6.07

 

 

 

6.00

 

 

 

6.02

 

 

 

6.00

 

Risk free rate

 

 

0.34

%

 

 

1.44

%

 

 

0.42

%

 

 

1.44

%

 

 

(c) Stock options

A summary of the Company’s stock option activity and related information for the nine months ended September 30, 2020 is as follows:

 

 

 

 

Number of Shares

 

 

Weighted Average Exercise Price

 

 

Weighted Average Remaining Contractual Life (in Years)

 

 

Aggregate Intrinsic Value (in Thousands)

 

Outstanding at December 31, 2019

 

 

5,840,538

 

 

$

5.11

 

 

 

7.72

 

 

$

45,037

 

Options granted

 

 

2,006,000

 

 

 

11.52

 

 

 

 

 

 

 

 

 

Options exercised

 

 

(581,270

)

 

 

7.88

 

 

 

 

 

 

 

 

 

Options cancelled/forfeited

 

 

(497,338

)

 

 

15.65

 

 

 

 

 

 

 

 

 

Outstanding at September 30, 2020

 

 

6,767,930

 

 

$

5.99

 

 

 

8.70

 

 

$

42,143

 

Exercisable as of September 30, 2020

 

 

1,840,302

 

 

$

5.11

 

 

 

7.20

 

 

$

13,694

 

 

 

During the nine months ended September 30, 2020, the Company granted stock options to purchase 1,781,000 shares of common stock to employees and 225,000 shares to non-employee directors. The stock options granted to employees have an exercise price per share ranging from $6.44 to $17.01. The stock options granted to non-employee directors during the nine months ended September 30, 2020 have an exercise price per share ranging from $12.25 and $13.58.

11


(d) Restricted stock units

A summary of the Company’s restricted stock unit activity and related information for the nine months ended September 30, 2020 is as follows:

 

 

 

 

Number of Shares

 

 

Weighted Average Grant Date Fair Value

 

Non-vested at December 31, 2019

 

 

72,000

 

 

$

3.47

 

Restricted stock units granted

 

 

152,000

 

 

 

9.26

 

Restricted stock units vested

 

 

(36,000

)

 

 

3.47

 

Restricted stock units forfeited

 

 

(1,500

)

 

 

3.47

 

Non-vested at September 30, 2020

 

 

186,500

 

 

$

8.19

 

 

 

  

(e) Employee stock purchase plan

The Company’s 2020 Employee Stock Purchase Plan (“2020 ESPP”) was adopted by the Company’s Board of Directors in March 2020 and approved by the Company’s stockholders in May 2020. A total of 759,936 shares of common stock have been reserved for issuance under the 2020 ESPP.

Subject to share and dollar limits as described in the plan, the 2020 ESPP allows eligible employees to contribute, through payroll deductions, up to 15% of their earnings for the purchase of the Company’s shares of common stock at the lower of 85% of the closing price of the Company’s common stock on the first trading day of the offering period or 85% of the closing price of the Company’s common stock on the last trading day of the offering period. There are two six-month offering periods during each fiscal year, ending on May 15 and November 15.  The first offering period commenced on May 16, 2020.

7. Restructuring

In July 2018, the Company’s Board of Directors approved a restructuring plan to reduce operating costs and better align the Company’s workforce with the needs of its business following the June 27, 2018 announcement that its Phase 3 Leadership 301 clinical trial evaluating once-daily, oral rosiptor for the treatment of IC/BPS failed to meet its primary endpoint. The Company has halted all further development activities with rosiptor. In 2018 and 2019, the Company incurred and paid aggregate restructuring charges of $7.4 million related to clinical trial closing costs, contract cancellations, closing of its office in San Bruno, California, severance payments and other employee-related costs. During the second quarter of 2019, the Company revised its original estimate of aggregate restructuring charges lower by $2.0 million based upon updated information from its vendors related to a completed project. There were no amounts accrued as of September 30, 2020 or December 31, 2019.

On November 6, 2018, the Company’s Board of Directors approved an additional restructuring plan to further reduce operating costs. The Company incurred and paid aggregate restructuring charges of $1.6 million related to severance payments and other employee-related costs.  There were no amounts accrued as of September 30, 2020.  

For the nine months ended September 30, 2020, the Company incurred and paid an immaterial amount of restructuring charges. For the nine months ended September 30, 2019, restructuring recoveries of $1.9 million were recorded in research and development expenses and restructuring costs of $0.6 million in general and administrative expenses.    

12


8. Earnings (loss) per share

The Company excluded the following potentially dilutive shares from diluted net loss per share as the effect would have been anti-dilutive for all periods presented:

 

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Outstanding stock options

 

 

6,767,930

 

 

 

6,203,993

 

 

 

6,767,930