SEC Filing | Neoleukin Therapeutics, Inc.

View:

nltx-20220930

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, 2022


☐			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

__________________________________________________

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.)

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 11, 2022, there were 42,594,602 shares of the registrant’s common stock outstanding.

Table of Contents

NEOLEUKIN THERAPEUTICS, INC.

Quarterly Report on Form 10-Q

For the Quarter Ended September 30, 2022

INDEX



			Page
		PART I. FINANCIAL INFORMATION (Unaudited)

Item 1.		Condensed Balance Sheets	2

		Condensed Statements of Operations and Comprehensive Income (Loss)	3

		Condensed Statements of Cash Flows	4

		Condensed Statements of Stockholders’ Equity	5

		Notes to Condensed 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	20

Item 4.		Controls and Procedures	20

		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	71

Item 3.		Defaults Upon Senior Securities	71

Item 4.		Mine Safety Disclosures	71

Item 5.		Other Information	71

Item 6.		Exhibits	72

	SIGNATURES		72

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 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.

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Condensed Financial Statements

NEOLEUKIN THERAPEUTICS, INC.

Condensed Balance Sheets

(Unaudited)

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


	September 30, 2022		December 31, 2021
Assets
Current assets
Cash and cash equivalents	$	40,335	$	142,467
Short-term investments	66,543		—
Other current assets	1,979		1,522
Total current assets	108,857		143,989

Property and equipment, net	5,817		6,452
Operating lease right-of-use assets	9,990		10,766
Intangible asset, net	—		128
Other non-current assets	1,912		1,928
Total assets	$	126,576	$	163,263

Liabilities
Current liabilities
Accounts payable and accrued liabilities	$	8,858	$	7,415
Operating lease liabilities	1,320		1,166
Finance lease liabilities	59		55
Total current liabilities	10,237		8,636

Non-current operating lease liabilities	10,683		11,696
Non-current finance lease liabilities	9		67
Total liabilities	20,929		20,399

Stockholders’ equity
Common stock - $0.000001 par value - authorized, 100,000,000 as of September 30, 2022 and December 31, 2021; issued and outstanding, 42,594,602 as of September 30, 2022 and 42,457,471 as of December 31, 2021	—		—
Preferred stock - $0.000001 par value - authorized, 5,000,000 as of September 30, 2022 and December 31, 2021; issued and outstanding, 0 as of September 30, 2022 and December 31, 2021	—		—
Additional paid-in capital	543,348		536,362
Accumulated other comprehensive income (loss)	(92)		—
Accumulated deficit	(437,609)		(393,498)
Total stockholders’ equity	105,647		142,864
Total liabilities and stockholders’ equity	$	126,576	$	163,263

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

Table of Contents

NEOLEUKIN THERAPEUTICS, INC.

Condensed Statements of Operations and Comprehensive Income (Loss)

(Unaudited)

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Operating expenses
Research and development	$	9,471	$	9,896	$	31,128	$	29,402
General and administrative	4,138		5,556		13,718		16,122
Total operating expenses	13,609		15,452		44,846		45,524
Loss from operations	(13,609)		(15,452)		(44,846)		(45,524)
Interest income	559		6		766		14
Other income (loss), net	(22)		—		(32)		(15)
Net loss	$	(13,072)	$	(15,446)	$	(44,112)	$	(45,525)
Comprehensive income (loss):
Unrealized loss on available-for-sale securities	(20)		—		(92)		—
Comprehensive loss	$	(13,092)	$	(15,446)	$	(44,204)	$	(45,525)

Net loss per share – basic and diluted	$	(0.24)	$	(0.28)	$	(0.80)	$	(0.83)
Basic and diluted weighted average common shares outstanding	55,251,039		55,087,777		55,199,822		55,020,059

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

Table of Contents

NEOLEUKIN THERAPEUTICS, INC.

Condensed Statements of Cash Flows

(Unaudited)

(In thousands of U.S. dollars)


	Nine Months Ended September 30,
	2022		2021
Operating activities
Net loss	$	(44,112)	$	(45,525)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation	6,789		8,548
Depreciation and amortization	1,193		916
Amortization of operating lease right-of-use assets	776		730
Amortization and accretion of premiums/discounts on available-for-sale securities	(105)		—
Loss on disposal of property and equipment	108		—
Changes in operating assets and liabilities:
Other current assets and other non-current assets	(287)		36
Accounts payable and accrued liabilities	1,823		332
Operating lease liabilities	(859)		(427)
Net cash used in operating activities	(34,674)		(35,390)

Investing activities
Purchases of property and equipment	(1,006)		(2,867)
Purchases of available-for-sale securities	(81,595)		—
Proceeds from maturities of available-for-sale securities	15,000		—
Net cash used in investing activities	(67,601)		(2,867)

Financing activities
Proceeds from exercise of stock options	134		408
Payment on finance lease obligations	(54)		(2)
Proceeds from the issuance of common stock under Employee Stock Purchase Plan	63		219
Net cash provided by financing activities	143		625

Net change in cash, cash equivalents, and restricted cash during the period	(102,132)		(37,632)
Cash, cash equivalents, and restricted cash, beginning of period	143,345		193,434

Cash, cash equivalents, and restricted cash, end of period	$	41,213	$	155,802

Supplemental disclosure of non-cash investing and financing activities:
Operating lease liabilities arising from obtaining ROU asset	$	—	$	1,584
Purchases of property and equipment unpaid at period-end	$	28	$	297

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

Table of Contents

NEOLEUKIN THERAPEUTICS, INC.

Condensed Statements of Stockholders’ Equity

(Unaudited)

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


	Common Stock			Additional Paid-In		Accumulated Other Comprehensive		Accumulated		Total Stockholders'
	Number	Amount		Capital		Income (Loss)		Deficit		Equity
Balances, December 31, 2021	42,457,471	$	—	$	536,362	$	—	$	(393,498)	$	142,864
Shares issued upon exercises of stock options	36,500	—		134		—		—		134
Stock-based compensation	—	—		2,446		—		—		2,446
Net loss	—	—		—		—		(15,351)		(15,351)
Balances, March 31, 2022	42,493,971	$	—	$	538,942	$	—	$	(408,849)	$	130,093
Issuance of shares under Employee Stock Purchase Plan	75,881	—		63		—		—		63
Shares issued upon vesting of restricted stock units	10,000	—		—		—		—		—
Stock-based compensation	—	—		2,312		—		—		2,312
Unrealized loss on available-for-sale securities	—	—		—		(72)		—		(72)
Net loss	—	—		—		—		(15,688)		(15,688)
Balances, June 30, 2022	42,579,852	$	—	$	541,317	$	(72)	$	(424,537)	$	116,708
Shares issued upon vesting of restricted stock units	14,750	—		—		—		—		—
Stock-based compensation	—	—		2,031		—		—		2,031
Unrealized loss on available-for-sale securities	—	—		—		(20)		—		(20)
Net loss	—	—		—		—		(13,072)		(13,072)
Balances, September 30, 2022	42,594,602	$	—	$	543,348	$	(92)	$	(437,609)	$	105,647

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

Table of Contents

NEOLEUKIN THERAPEUTICS, INC.

Condensed Statements of Stockholders’ Equity

(Unaudited)

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


	Common Stock			Additional Paid-In		Accumulated other comprehensive		Accumulated		Total Stockholders'
	Number	Amount		Capital		income (loss)		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)
Balances, September 30, 2021	42,428,134	$	—	$	533,197	$	—	$	(378,331)	$	154,866

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

Table of Contents

NEOLEUKIN THERAPEUTICS, INC.

Notes to the Condensed 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 financial statements 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 financial statements do not include all of the information and footnotes required by U.S. GAAP for complete 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, 2021, filed with the Securities and Exchange Commission on March 1, 2022.

In management’s opinion, the unaudited condensed financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position of the Company as of September 30, 2022, 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 the full year ending December 31, 2022.The Company reclassified prior year interest income in the condensed statements of operations and comprehensive income (loss) to conform to current year presentation. This reclassification had no effect on net loss or comprehensive loss.

(b)Use of estimates and assumptions

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the 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 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, 2022.

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.

Table of Contents

(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 accrued liabilities, approximate their fair values because of their nature and/or short maturities.

Certain of the Company’s financial instruments are measured at fair value on a recurring basis. The Company determines the fair value of those financial instruments based upon the fair value hierarchy, which prioritizes valuation inputs based on the observable nature of those inputs. The three levels of the fair value hierarchy are as follows:

Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities that can be accessed on the measurement date

Level 2 - quoted prices (in non-active markets or in active markets for similar assets or liabilities), observable inputs other than quoted prices and inputs that are not directly observable but are corroborated by observable market data

Level 3 - unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities

At September 30, 2022 and December 31, 2021, the Company had $39.7 million and $140.9 million in money market funds, respectively. Money market funds and short-term investments, consisting entirely of investments in U.S. treasury securities, are Level 1 financial instruments as they are valued at the closing price reported by the fund sponsor from an actively traded exchange.

The following table presents information about the Company's financial instruments that are measured at fair value on a recurring basis:


	September 30, 2022
(in thousands)	Total		Level 1		Level 2		Level 3
Financial assets
Cash equivalents	$	39,684	$	39,684	$	—	$	—
Short-term investments	66,543		66,543		—		—
Total financial assets	$	106,227	$	106,227	$	—	$	—


	December 31, 2021
(in thousands)	Total		Level 1		Level 2		Level 3
Financial assets
Cash equivalents	$	140,856	$	140,856	$	—	$	—
Short-term investments	—		—		—		—
Total financial assets	$	140,856	$	140,856	$	—	$	—

(e)Investments

The Company’s short-term investments consist entirely of investments in U.S. treasury securities. These investments are classified as available-for-sale debt securities and are therefore reported at fair value in the condensed balance sheets. Unrealized gains and losses are included in accumulated other comprehensive income (loss). There were no realized gains or losses on investments for the three and nine months ended September 30, 2022 and 2021.

The Company assesses investments for impairment at each reporting period. An investment is considered impaired when the amortized cost basis exceeds the fair value. When this is the case, the Company assesses whether the impairment is credit-related or noncredit-related based on various factors. When an impairment, or a portion of an impairment, is considered credit-related, an allowance for credit losses is recorded. For the nine months ended September 30, 2022, the Company recognized no year-to-date credit losses and no allowance for credit losses is

Table of Contents

recorded as of September 30, 2022. The aggregate fair value of investments with unrealized losses as of September 30, 2022 is $66.5 million.

(f)Net 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 are included in the calculation of diluted earnings per share only in periods of net income and are excluded in the calculation of diluted net loss per share in periods of net loss as their inclusion would be anti-dilutive. Outstanding pre-funded warrants as of September 30, 2022 and September 30, 2021 are 12,663,010 and are considered outstanding as of their issuance date and are included in basic and diluted net loss per share because they are fully vested and exercisable for nominal cash consideration.

(g)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. The Company accounts for forfeitures as they occur. The Company utilizes newly issued shares to satisfy option exercises, the vesting of RSUs, and 2020 Employee Stock Purchase Plan ("2020 ESPP") purchases.

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 of 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.

(h)Recently issued and recently adopted accounting standards

In June 2016, the FASB issued Accounting Standard Update ("ASU") No. 2016-13, Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which replaces the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. In November 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives (Topic 815), and Leases (Topic 842). This ASU delayed the required adoption for SEC filers that are smaller reporting companies as of their determination on November 15, 2019, until annual and interim periods beginning after December 15, 2022, with early adoption permitted. The Company adopted this standard in conjunction with the investment in debt securities during the quarter ended June 30, 2022.

3. Cash, cash equivalents, and restricted cash

The Company considers all highly liquid investments with an original contractual maturity or a remaining maturity of three months or less at the date of purchase to be cash equivalents. Cash equivalents as of September 30, 2022 and December 31, 2021 consisted of money market funds.

Table of Contents

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


(in thousands)	September 30, 2022		December 31, 2021
Cash and cash equivalents	$	40,335	$	142,467
Restricted cash	878		878
Total cash, cash equivalents, and restricted cash	$	41,213	$	143,345

Restricted cash, included in other non-current assets in the condensed 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.

4. Investments

The Company's investments consist of the following:


	September 30, 2022
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. treasury securities - due within 1 year	$	66,635	$	—	$	(92)	$	66,543
Money market funds	39,684		—		—		39,684
Total	$	106,319	$	—	$	(92)	$	106,227


	December 31, 2021
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. treasury securities - due within 1 year	$	—	$	—	$	—	$	—
Money market funds	140,856		—		—		140,856
Total	$	140,856	$	—	$	—	$	140,856

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 an operating 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 has been fully utilized.

The Company has an operating 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.

Table of Contents

As of September 30, 2022, and December 31, 2021, the Company’s operating lease right-of-use assets were $10.0 million and $10.8 million, respectively. As of September 30, 2022, and December 31, 2021, the Company’s finance lease right-of-use assets, included within property and equipment on the condensed balance sheets, were $0.2 million and $0.2 million, respectively.

6. Equity

(a)Common stock and pre-funded warrants

The Company is authorized to issue 100,000,000 shares of common stock with a par value of $0.000001 as of September 30, 2022 and December 31, 2021. As of September 30, 2022 and December 31, 2021, the total number of shares of common stock issued and outstanding was 42,594,602 and 42,457,471, respectively.

As of September 30, 2022, the Company had pre-funded warrants outstanding to purchase an aggregate of 12,663,010 shares of common stock. The pre-funded warrants are exercisable at any time for an exercise price of $0.000001, except that the pre-funded warrants cannot be exercised by the holders if, after giving effect thereto, the holders would beneficially own more than 9.99% of the outstanding common stock, subject to certain exceptions. However, any holder may increase or decrease such percentage to any other percentage (not in excess of 19.99%) upon at least 61 days’ prior notice from the holder to the Company. The holders of the pre-funded warrants will not have the right to vote on any matter except to the extent required by Delaware law.

On November 4, 2021, the Company entered into an ATM or “at-the-market” Equity Offering Sales Agreement (the “Sales Agreement”) with BofA Securities, Inc., as agent (“BofA”), pursuant to which the Company may offer and sell, from time to time through BofA, shares of the Company’s common stock, having an aggregate offering price of up to $40.0 million. The offer and sale of the shares will be made pursuant to a shelf registration statement on Form S-3 and the related prospectus filed on December 11, 2020, and declared effective by the SEC on December 21, 2020, as supplemented by a prospectus supplement dated November 4, 2021. The Company has no obligation to sell any such shares under the Sales Agreement. Through September 30, 2022, no sales of common stock have been made pursuant to the Sales Agreement.

(b)Stock-based compensation expense

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


(in thousands)	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Research and development expenses	$	973	$	1,423	$	3,288	$	3,850
General and administrative expenses	1,058		1,787		3,501		4,698
Total stock-based compensation expense	$	2,031	$	3,210	$	6,789	$	8,548

Total unrecognized compensation expense for all stock-based compensation plans was $17.8 million as of September 30, 2022. This expense is expected to be recognized over a weighted average remaining vesting period of 2.33 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,
	2022		2021		2022		2021
Expected volatility	84.18	%	89.17	%	83.80	%	89.18	%
Expected dividends	0	%	0	%	0	%	0	%
Expected terms (years)	6.08		6.07		6.04		6.03
Risk free rate	2.83	%	0.83	%	2.63	%	0.89	%

Table of Contents

(c)Stock options

A summary of the Company’s stock option activity and related information for the nine months ended September 30, 2022 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, 2021	8,963,945	$	7.20	8.32	$	6,912
Options granted	3,360,450	$	1.34
Options exercised	(36,500)	$	3.67
Options cancelled/forfeited	(2,871,996)	$	7.86
Outstanding at September 30, 2022	9,415,899	$	4.92	8.30	$	—
Exercisable as of September 30, 2022	3,729,902	$	6.04	7.16	$	—

During the nine months ended September 30, 2022, 36,500 shares of common stock were issued upon exercise of options with an aggregate intrinsic value of $0.1 million. During the nine months ended September 30, 2021, 124,366 shares of common stock were issued upon exercise of options with an aggregate intrinsic value of $1.3 million. The weighted-average grant date fair value of options granted during the nine months ended September 30, 2022 and September 30, 2021 was $0.96 and $6.49 per share, respectively.

(d)Restricted stock units

A summary of the Company’s RSU activity and related information for the nine months ended September 30, 2022 is as follows:


	Number of Shares	Weighted Average Grant Date Fair Value
Non-vested at December 31, 2021	132,000	$	9.97
Restricted stock units granted	700,000	$	3.69
Restricted stock units vested	(24,750)	$	12.20
Restricted stock units forfeited	(353,000)	$	4.86
Non-vested at September 30, 2022	454,250	$	4.14

(e)Employee stock purchase plan

The Company’s 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 shares of the Company’s 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.

For the nine months ended September 30, 2022, the Company issued 75,881 shares of common stock at a purchase price of $0.83 per share under the 2020 ESPP. Cash received from the purchases under the 2020 ESPP for the nine months ended September 30, 2022 was $0.1 million. As of September 30, 2022, $0.1 million of employee contributions are included in accounts payable and accrued liabilities in the accompanying condensed balance sheet.

Table of Contents

7. Net 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,
	2022	2021	2022	2021
Outstanding stock options	9,415,899	9,619,138	9,415,899	9,619,138
Restricted stock units	454,250	170,500	454,250	170,500
Shares issuable under 2020 ESPP	61,922	24,965	61,922	24,965
	9,932,071	9,814,603	9,932,071	9,814,603

8. Subsequent events

Effective November 12, 2022, the Company's Board of Directors approved a strategic decision to discontinue further development of NL-201, and to move forward focusing the Company's investment in early stage pre-clinical development of the next generation of de novo proteins. The Board of Directors also approved a restructuring plan, including a reduction in force of approximately 40%. The Company's current best estimate of costs it will incur total between $6.3 million and $8.3 million, consisting of severance, benefits, costs associated with the discontinuation of further development of NL-201, and other costs. The majority of these costs are expected to be incurred during the fourth calendar quarter of 2022 and the first half of 2023, and the Company expects the execution of the restructuring plan will be substantially complete by the second calendar quarter of 2023.

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

You should read the following discussion of our financial condition and results of operations in conjunction with the unaudited interim condensed financial statements and notes thereto included elsewhere in this report and our audited consolidated financial statements and notes included as part of our Annual Report on Form 10-K for the year ended December 31, 2021.

Forward-Looking Statements

The following discussion of our financial condition and results of operations contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. All statements other than statements of historical facts are “forward-looking statements” for purposes of these provisions, including those relating to future events or our future financial performance and financial guidance. In some cases, you can identify forward-looking statements by terminology such as “may,” “might,” “will,” “should,” “expect,” “plan,” “anticipate,” “project,” “believe,” “estimate,” “predict,” “potential,” “intend” or “continue,” the negative of terms like these or other comparable terminology, and other words or terms of similar meaning in connection with any discussion of future operating or financial performance. These statements are only predictions. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Any or all of our forward-looking statements in this document may turn out to be wrong. Actual events or results may differ materially. Our forward-looking statements can be affected by inaccurate assumptions we might make or by known or unknown risks, uncertainties and other factors. In evaluating these statements, you should specifically consider various factors, including the risks outlined under the caption “Risk Factors” set forth in Item 1A of Part II of this quarterly report on Form 10-Q, as well as those contained from time to time in our other filings with the SEC. We caution investors that our business and financial performance are subject to substantial risks and uncertainties.

Table of Contents

Overview

We are a biopharmaceutical company creating next generation immunotherapies for cancer, inflammation, and autoimmunity using de novo protein design technology. We use sophisticated computational methods to design proteins that demonstrate specific pharmaceutical properties that provide potentially superior therapeutic benefit over native proteins. Protein engineering methods generally involve the modification of native proteins. With our de novo protein design process we design new protein scaffolds from the ground up, capable of demonstrating specific biological properties. Through this method we are able to produce proteins that, while resembling native proteins, may have novel molecular interfaces, differential activation of specific cell types, increased stability, or improved biodistribution compared to native proteins in order to deliver greater therapeutic benefit. With the introduction of machine learning to this process in recent months, we have been able to accelerate our timeline for adding potential candidates in our pipeline. De novo proteins have the capacity to be cytokine receptor agonists, antagonists, or result in conditional activation of specific cytokine receptors such that they may regulate inflammation or the immune response to cancer and inflammatory conditions. To date, we have been focused on key cytokine mimetics, which we refer to as Neoleukin de novo cytokine mimetics. Neoleukin de novo cytokine mimetics can be modified to adjust affinity, thermodynamic stability, resistance to biochemical modification, pharmacokinetic characteristics, potency and targeting to tumor or inflamed tissues.

On August 8, 2019, Neoleukin Therapeutics, Inc. ("Former Neoleukin"), completed its merger with Aquinox, in accordance with the terms of the Agreement and Plan of Merger dated August 5, 2019 ("Merger Agreement"), by and among Aquinox, Former Neoleukin and Apollo Sub, Inc., a wholly-owned subsidiary of Aquinox. Pursuant to the Merger Agreement, Apollo Sub, Inc. merged with and into Former Neoleukin, with Former Neoleukin surviving the merger as a wholly-owned subsidiary of Aquinox (the "Merger"). Upon completion of the Merger, Aquinox was renamed Neoleukin Therapeutics, Inc. and Former Neoleukin was renamed Neoleukin Corporation. On July 31, 2020, we sold all issued and outstanding capital stock of our Canadian subsidiary, Aquinox Pharmaceuticals (Canada) Inc. to an unrelated third party. On December 31, 2020, Neoleukin Corporation was merged into Neoleukin Therapeutics, Inc.

Recent Developments

On November 12, 2022, we made a strategic decision to focus our resources on the next generation of immunotherapies using de novo protein design, advanced machine learning, and the lessons we have learned from our development of de novo cytokine mimetics, including NL-201. Moving forward, we expect to focus on technology that widens the therapeutic window, such as the development of targeted and conditionally activated molecules to create potent immune agonists. We believe we are well positioned to do this work based on our expertise in de novo protein design combined with our experience in advanced machine learning and neural networks, which allows us to predict and create structures for de novo proteins with more sophisticated and dynamic structural elements than was previously possible.

This shift in focus coincides with our strategic decision to discontinue development for our lead product candidate, NL-201. We believe NL-201 was the first fully de novo protein to be evaluated in clinical trials, and during the monotherapy arm of the trial, we were able to demonstrate engagement of the target receptor and expected pharmacodynamic changes for a potent IL-2/IL-15 agonist. Furthermore, our preliminary monotherapy data does not demonstrate significant immunogenicity even after multiple cycles of therapy, which is an important de-risking of the potential for de novo proteins. However, based on a review of the preliminary data, the expected benefit to risk ratio for patients, and recent developments in the field of IL-2 therapeutics, we determined that the resources required to continue development would be better applied to advancing the next generation of de novo protein therapeutics.

As a result of the decision to discontinue development of NL-201, on November 12, 2022, our Board of Directors approved a restructuring plan, including a reduction in force of approximately 40%. Cost savings as a result of this reduction in force as well as the discontinuation of development of NL-201 are expected to extend our existing cash runway into the second half of 2025.

Table of Contents

NL-201

NL-201 is an IL-2/IL-15 agonist designed to eliminate binding to the alpha subunit of the IL-2 receptor (also known as CD25) while enhancing binding to the beta and gamma subunits, We elected to take NL-201 into clinical trial initially because of the potential for differentiation from IL-2 demonstrated in initial research. In multiple preclinical animal models, a precursor to NL-201 demonstrated substantial anti-tumor activity without detectable binding to CD25, as compared to native IL-2. Following these preclinical studies, we further refined our precursor to extend its half-life, resulting in the NL-201 product candidate. We then completed multi-dose, non-GLP and GLP toxicology studies of NL-201 in rats and non-human primates, and initiated our first in-human clinical trial. This included completion of GLP in-life dosing with no unexpected toxicities observed. NL-201 was intended to be used as either a single-agent or in combination with complementary therapeutic modalities, including checkpoint inhibitors, and may also hold promise as a therapeutic to be used in combination with allogeneic cellular therapies to expand and maintain populations of transplanted CAR-T and natural killer ("NK") cells.

Recombinant human IL-2 (rhIL-2) is one of the few immuno-oncology drugs with demonstrated activity as a single agent. IL-2 has a confirmed mechanism of action for treating tumors; however, it has encountered issues as a therapeutic due to the preferential binding and activation of cells that contain CD25, the alpha subunit of the heterotrimeric IL-2 receptor. CD25 induces conformational changes in IL-2 that enable high-affinity binding to the beta and gamma subunits of the IL-2 receptor. At high doses, preferential binding to endothelial cells expressing CD25 is believed to exacerbate vascular leak syndrome, whereas at low doses, preferential activation of CD25-expressing regulatory T cells (Tregs) can inhibit anticancer immune responses. Due to IL-2’s potential for severe toxicity, with vascular leak syndrome and cytokine storm being frequent side effects, and reduced efficacy over time, its use as a therapeutic has been limited. Further, low-dose treatment with IL-2 has generally been insufficient to demonstrate antitumor activity.

While the problem posed by IL-2 is well understood, it has been difficult to modify native IL-2 to retain potent activation of IL-2 receptor while eliminating binding to CD25. Instead of modifying native IL-2, NL-201 was developed using computational methods to design a new sequence with the proper intermolecular interactions to efficiently bind the beta and gamma subunits while eliminating CD25 binding. As opposed to traditional recombinant protein therapeutics, de novo proteins are entirely novel sequences with limited homology to native proteins. While there is a potential that patients may mount an anti-drug immune response against NL-201, we believe that this risk may be mitigated by several factors, including the stability of the protein and its resistance to proteolytic degradation.

In May 2021, we enrolled the first patient in a Phase 1 clinical trial of NL-201 for advanced solid tumors. On May 16, 2022, we announced that we had begun dosing patients in a new arm of the clinical trial study with a combination of NL-201 and Merck's checkpoint inhibitor KEYTRUDA® (pembrolizumab). On November 12, 2022, we made the decision to discontinue development of NL-201 for strategic reasons and focus our resources on advancing the next generation of de novo protein therapeutics, using the lessons we have learned from our development of NL-201. We have also discontinued plans for any future trials, including a Phase 1 clinical trial in hematological malignancies.

Other Research Programs

Beyond our initial focus on NL-201, our research team is using de novo protein design to develop additional molecules as therapeutic candidates. In 2020, we reported development of NL-CVX1, a fully de novo decoy protein that was designed to block infection of human cells by the SARS-CoV-2 virus. In June 2021, we suspended plans to develop this molecule as effective vaccines became widely available; however, we believe this is a powerful example of the capability of our technology to develop potential de novo therapies in a short time frame. In 2021, we reported preclinical data for an inhibitor of IL-2 and IL-15 activity, Neo-5171, which demonstrated in vivo anti-inflammatory activity. In 2022, we announced that we are exploring a targeted activator of T-regulatory cells for the treatment of inflammation and autoimmune diseases.

Table of Contents

Recently, our scientists have been incorporating machine learning and neural networks to our existing de novo protein design methods to more quickly develop potential therapeutics that we believe will be able to address significant unmet medical needs in areas including oncology, inflammation, and autoimmunity. Advances in machine learning, combined with the expertise and experience of our protein design and research team, expands the scope of our de novo protein design process to include complex structures.

Following the decision to discontinue development of NL-201, we are focused on research into the next generation of de novo cytokine mimetics that widen the therapeutic window, such as the development of targeted and conditionally activated molecules to create potent immune agonists. We expect to combine our expertise in de novo protein design, including data gathered from the development of NL-201 and research into other novel cytokine mimetics, with advances in machine learning and neural networks to create more sophisticated and dynamic structural elements than was previously possible. Additional candidates will enter our preclinical pipeline as they become validated.

Finances

We will need to raise substantial additional capital to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we plan to finance our operations through the sale of equity, debt financings, or other capital sources, which may include collaborations with other companies or other strategic transactions. There are no assurances that we will be successful in obtaining an adequate level of financing as and when needed to finance our operations on terms acceptable to us or at all. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. If we are unable to secure adequate additional funding, we may have to significantly delay, scale back, or discontinue the development and commercialization of one or more product candidates, reduce our early stage research projects, reduce the size of our team, or delay our pursuit of potential in‑licenses or acquisitions.

Based upon our current operating plan, we believe our cash-on-hand will be sufficient to fund operations into the second half of 2025.

COVID-19 Impact

The COVID-19 pandemic has impacted worldwide economic activity during a time of extremely elevated health risks that necessitated a move away from business as usual. During this unprecedented time, protecting the health and well-being of our employees and community was a top priority, which we had to balance against trying to maintain continuity of our research, development, and business activities. Our industry, along with many others, has also experienced supply chain disruptions related to the COVID-19 pandemic that impacted our ability to do business as usual and increased certain costs of doing business.

In March 2020, we transitioned to a work from home policy for our employees and discontinued all work-related travel. Beginning in the first quarter of 2021, our offices reopened, with some employees returning to working in person in accordance with guidance from Washington State and the U.S. Centers for Disease Control and Prevention ("CDC") and applicable regulations. As of the end of the third quarter of 2022, we have returned essentially all of our employees to in-office work with hybrid schedules, and have resumed travel to in-person conferences and events, although we continue to assess the ongoing impacts of the COVID-19 pandemic on our workforce, supply chain, and availability of critical vendors. We have been able to continue our business-critical research and development work throughout the pandemic, adhering to employee safety guidelines. As we move forward, we will continue to assess our work policies and monitor federal, state, and local guidance and regulations to determine any changes to work practices that may be necessary in the event of any resurgence of the COVID-19 pandemic.

Table of Contents

Results of Operations

Operating Expenses

The following table summarizes our operating expenses for the three and nine months ended September 30, 2022 and 2021:


	Three Months Ended September 30,				Change				Nine Months Ended September 30,				Change
(in thousands)	2022		2021		$		%		2022		2021		$		%
Research and development	$	9,471	$	9,896	$	(425)	(4)	%	$	31,128	$	29,402	$	1,726	6	%
General and administrative	4,138		5,556		(1,418)		(26)	%	13,718		16,122		(2,404)		(15)	%
Total operating expenses	$	13,609	$	15,452	$	(1,843)	(12)	%	$	44,846	$	45,524	$	(678)	(1)	%

Research and Development Expenses

Research and development expenses consist primarily of costs incurred under arrangements with third parties, such as contract research organizations ("CROs"), manufacturing organizations, and consultants, personnel-related costs (including stock-based compensation and travel expenses), facility-related costs, and lab supplies.

For the three months ended September 30, 2022, research and development expenses were $9.5 million, compared to $9.9 million for the three months ended September 30, 2021. The decrease in research and development expenses during the three months ended September 30, 2022 is primarily due to a decrease in personnel-related costs, offset partially by increases in costs related to our Phase 1 clinical trial of NL-201.

For the nine months ended September 30, 2022, research and development expenses were $31.1 million, compared to $29.4 million for the nine months ended September 30, 2021. The increase in research and development expenses during the nine months ended September 30, 2022 is due to increases in costs related to our Phase 1 clinical trial of NL-201, offset partially by a decrease in personnel-related costs and a decrease in NL-CVX1 costs due to the suspension of this program in June 2021.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel-related costs (including stock-based compensation and travel expenses), facility-related costs, insurance, and professional fees for consulting, legal, and accounting services.

For the three months ended September 30, 2022, general and administrative expenses were $4.1 million, compared to $5.6 million for the three months ended September 30, 2021. The decrease in general and administrative expenses during the three months ended September 30, 2022 was primarily due to a decrease in personnel-related costs.

For the nine months ended September 30, 2022, general and administrative expenses were $13.7 million, compared to $16.1 million for the nine months ended September 30, 2021. The decrease in general and administrative expenses during the nine months ended September 30, 2022 was primarily due to decreases in personnel-related and facility-related costs.

Table of Contents

Other income (loss), net


	Three Months Ended September 30,				Change			Nine Months Ended September 30,				Change
(in thousands)	2022		2021		$		%	2022		2021		$		%
Interest income	$	559	$	6	$	553	*	$	766	$	14	$	752	*
Foreign exchange gains/(losses)	1		—		1		*	8		(3)		11		*
Other expenses	(23)		—		(23)		*	(40)		(12)		(28)		*
Total other income (loss), net	$	537	$	6	$	531	*	$	734	$	(1)	$	735	*

*Not meaningful

The increase in interest income during the three and nine months ended September 30, 2022, as compared to the three and nine months ended September 30, 2021, was due to broad increases in the interest rate environment resulting in higher interest earned on our money market fund investments. Additionally, the increase is due to purchases of U.S. treasury securities during 2022 which yield a higher rate of interest than investments in money market funds.

Liquidity and Capital Resources

Since our inception, we have incurred net losses and negative cash flows from our operations. Our operating activities used $34.7 million and $35.4 million of cash flows during the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, we had an accumulated deficit of $437.6 million, working capital of $98.6 million, and cash, cash equivalents, and short-term investments of $106.9 million.

On November 4, 2021, we entered into an ATM "at-the-market" Equity Offering Sales Agreement, or the Sales Agreement, with BofA Securities, Inc., or BofA, pursuant to which we may, but are not obligated to, offer and sell, from time to time, shares of our common stock with an aggregate offering price up to $40.0 million through BofA, as sales agent. No sales of our common stock have been made pursuant to this Sales Agreement to date.

Cash Flows

The following table summarizes our cash flows for the nine months ended September 30, 2022 and 2021:


	Nine Months Ended September 30,
(in thousands)	2022		2021
Net cash (used in) provided by:
Operating activities	$	(34,674)	$	(35,390)
Investing activities	(67,601)		(2,867)
Financing activities	143		625
Net change in cash, cash equivalents, and restricted cash	$	(102,132)	$	(37,632)

Net cash used in operating activities

Net cash used in operating activities for the nine months ended September 30, 2022 and September 30, 2021 consisted of net loss for the period adjusted for non-cash items and changes in components of operating assets and liabilities. For the nine months ended September 30, 2022, a net loss of $44.1 million was adjusted for non-cash items including stock-based compensation expense of $8.8 million and a net decrease of $0.7 million due to changes in operating assets and liabilities. For the nine months ended September 30, 2021, a net loss of $45.5 million was adjusted for non-cash items including stock-based compensation expense of $8.5 million and a net decrease of $0.1 million due to changes in operating assets and liabilities.

Table of Contents

Net cash used in investing activities

For the nine months ended September 30, 2022, cash used in investing activities consisted primarily of purchases of available-for-sale securities and laboratory equipment. For the nine months ended September 30, 2021, cash used in investing activities consisted primarily of purchases of laboratory equipment and office furnishings.

Net cash provided by financing activities

For the nine months ended September 30, 2022 and September 30, 2021, net cash provided by financing activities consisted primarily of proceeds from stock option exercises and purchases of common stock under our 2020 Employee Stock Purchase Plan.

Operating and Capital Expenditure Requirements

We have not generated product revenue or achieved profitability since our inception and we expect to continue to incur net losses for the foreseeable future. As of September 30, 2022, we had approximately $106.9 million in cash, cash equivalents, and short-term investments. Based on our current business plans, we believe that our existing cash, cash equivalents, and short-term investments will be sufficient to fund our planned operations into the second half of 2025. However, our future capital requirements and the period for which we expect our existing resources to support our operations, fund expansion, develop new or enhanced products, or otherwise respond to competitive pressures, may vary significantly from our expectation and we may need to seek additional funds sooner than planned. Unless and until we generate sufficient revenue to be profitable, we will seek to fund our operations through public or private equity or debt financings or other sources. If we raise additional funds through the issuance of convertible debt securities, these securities could have rights senior to those of our common stock and could contain covenants that restrict our operations. There can be no assurance that we will be able to obtain additional equity or debt financing on terms acceptable to us, if at all. Our failure to obtain sufficient funds on acceptable terms when needed could have a negative impact on our business, results of operations, financial condition, cash flows, and future prospects. Our future capital requirements will depend on many factors, including:

•the number and characteristics of any future product candidates we develop or may acquire;

•the scope, progress, results, and costs of researching and developing our product candidates or any future product candidates, and conducting preclinical studies and clinical trials;

•the timing of, and the costs involved in, obtaining regulatory approvals for any future product candidates;

•the cost of manufacturing our future product candidates and any products that may achieve regulatory approval;

•the cost of commercialization activities if any product candidates or future product candidates are approved for sale, including marketing, sales and distribution costs;

•the timing, receipt and amount of sales of, or royalties on, future approved products, if any;

•our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements;

•any product liability or other lawsuits related to our products;

•the potential delays in our preclinical studies, our development programs and our planned clinical trials due to the continued impacts of the COVID-19 pandemic and related economic pressures, including supply chain disruptions, and other disruptions that may occur with any resurgence of acute cases of SARS-CoV-2, including resurgences relating to new variants;

•the expenses needed to attract and retain skilled personnel; and

•the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of such litigation.

Please see Item 1A of Part II of this Quarterly Report titled “Risk Factors” for additional risks associated with our substantial capital requirements.

Table of Contents

Critical Accounting Policies and Significant Judgments and Estimates

The preparation of these financial statements in accordance with U.S. GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses and the disclosure of contingent assets and liabilities in our financial statements. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience, known trends and events, and various other factors that we believe 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 may differ from these estimates under different assumptions or conditions. A summary of our significant accounting policies is presented in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2021. There have been no material changes to our significant accounting policies during the three and nine months ended September 30, 2022 other than those discussed in Note 2(g) in the Notes to Condensed Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Recent Accounting Pronouncements

See Note 2(g), Recently issued and recently adopted accounting standards in the Notes to Condensed Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a “smaller reporting company,” as defined by Rule 12b-2 of the Exchange Act, and pursuant to Item 305 of Regulation S-K, we are not required to provide quantitative and qualitative disclosures about market risk.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures. Under the supervision and with the participation of our principal executive and financial officer, our management conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report.

In designing and evaluating our disclosure controls and procedures, management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Based on management’s evaluation, our principal executive and financial officer concluded that our disclosure controls and procedures are designed to, and are effective to, provide assurance at a reasonable level that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and financial officer, as appropriate, to allow timely decisions regarding required disclosures.

Changes in internal control over financial reporting. There have not been any changes in our internal control over financial reporting during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

Part II. Other Information

Item 1. Legal Proceedings

We may from time to time be named as a party to legal claims, actions and complaints, including matters involving employment, intellectual property or others. We are not presently a party to any legal proceedings that, in the opinion of our management, would reasonably be expected to have a material adverse effect on our business, financial condition, operating results or cash flows if determined adversely to us. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.

Item 1A. Risk Factors

Summary of Risk Factors

An investment in our common stock involves various risks, and prospective investors are urged to carefully consider the matters discussed in the section titled “Risk Factors” prior to making an investment in our common stock. These risks include, but are not limited to, the following:

•We will require substantial additional capital to finance our operations which may not be available to us on acceptable terms, or at all. If we fail to obtain necessary financing, we may be unable to complete the development and potential commercialization of our product candidates.

•Our current stock price does not meet the listing requirements for the Nasdaq market on which our common stock is traded, and failure to meet listing requirements may result in a delisting of our stock from that exchange, which would adversely impact our ability to raise capital through future equity financings and decrease the value and liquidity of our common stock.

•We have incurred significant losses in every quarter since our inception and anticipate that we will continue to incur significant losses in the future.

•We have a limited operating history, which may make it difficult for you to evaluate the success of our business to date and to assess our future viability.

•We currently have no source of product revenue and may never become profitable.

•Our product candidates are in early stages of development and may fail in development or suffer delays that materially and adversely affect their commercial viability. If we are unable to complete development of, or commercialize our product candidates, or experience significant delays in doing so, our business will be materially harmed.

•Our business is heavily dependent on the success of our Neoleukin de novo protein design technology. Existing and future preclinical studies and clinical trials of our product candidates may not be successful, and if we are unable to commercialize these product candidates or experience significant delays in doing so, our business will be materially harmed.

•Future clinical trials or additional preclinical studies may reveal significant adverse events not seen in our earlier preclinical studies and may result in a safety profile that could inhibit regulatory approval or market acceptance of any of our product candidates.

•If we do not achieve our projected development goals in the timeframes we announce and expect, the commercialization of our products may be delayed and, as a result, our stock price may decline.

•Our approach to the discovery and development of our therapeutic treatments is based on de novo protein design technology which is unproven and may not result in marketable products.

•We rely on and expect to continue to rely on third parties to conduct certain of our preclinical studies and clinical trials. If those third parties do not perform as contractually required, fail to satisfy legal or regulatory requirements, miss expected deadlines, or terminate the relationship, our development program could be delayed with potentially material and adverse effects on our business, financial condition, results of operations, and prospects.

Table of Contents

•We rely on and expect to continue to rely on third-party manufacturers and suppliers to supply components of our product candidates. The loss of our third-party manufacturers or suppliers, or our or their failure to comply with applicable regulatory requirements or to supply sufficient quantities at acceptable quality levels or prices, or at all, would materially and adversely affect our business.

•Unfavorable global economic conditions or other geopolitical developments could adversely affect our business, financial condition, stock price, and results of operations.

•If we are not able to obtain, maintain, and enforce patent protection and other intellectual property rights for our product candidates, our Neoleukin design process, or other proprietary technologies we may develop, and the development and commercialization of our product candidates may be adversely affected.

Risk Factors

You should carefully consider the following risk factors, in addition to the other information contained in this Quarterly Report on Form 10-Q, including our condensed financial statements and related notes. If any of the events described in the following risk factors occurs, our business, operating results, and financial condition could be adversely affected. This Quarterly Report on Form 10-Q also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors that are described below and elsewhere in this Quarterly Report on Form 10-Q.

Risks Related to Our Financial Position and Capital Needs

We will require substantial additional capital to finance our operations which may not be available to us on acceptable terms, or at all. If we fail to obtain necessary financing, we may be unable to complete the development and potential commercialization of our product candidates.

The development of biopharmaceutical product candidates is capital-intensive. If our product candidates enter and advance through preclinical studies and clinical trials, we will need substantial additional funds to expand or create our development, regulatory, manufacturing, marketing, and sales capabilities. We have used substantial funds to develop our technology and product candidates and will require significant funds to conduct further research and development and preclinical testing and clinical trials of our product candidates, to seek regulatory approvals for our product candidates, and to manufacture and market products, if any, which are approved for commercial sale. In addition, we expect to continue incurring costs associated with operating as a public company.

Preclinical studies and clinical trials for our product candidates will require substantial funds to complete. As of September 30, 2022, we had approximately $106.9 million in cash, cash equivalents, and short-term investments. We expect to incur substantial expenditures in the foreseeable future as we seek to advance future product candidates through preclinical and clinical development, the regulatory approval process and, if approved, commercial launch activities. In addition, we will incur costs related to the discontinued development of NL-201 in the near term. Based on our current operating plan, we believe that our available cash, cash equivalents, and short-term investments will be sufficient to fund our operating expenses and capital expenditure requirements into the second half of 2025. However, our future capital requirements and the period for which we expect our existing resources to support our operations, fund expansion, develop new or enhanced products, or otherwise respond to competitive pressures, may vary significantly from what we expect, and we may need to seek additional funds sooner than planned. Our monthly spending levels vary based on new and ongoing research and development and other corporate activities, and may also be impacted by inflationary pressures in the current economic environment. Because the length of time and activities associated with successful research and development of our product candidates is highly uncertain, we are unable to estimate the actual funds we will require for development and any marketing and commercialization activities for approved products. Our future funding requirements, both near and long-term, will depend on many factors, including, but not limited to:

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

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

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

Table of Contents

•the timing and amount of milestone and other payments we may receive or make under our collaboration agreements;

•our ability to maintain our current licenses and to establish new collaboration arrangements;

•the costs involved in prosecuting and enforcing patent and other intellectual property claims;

•the costs of manufacturing our product candidates by third parties;

•the cost of regulatory requirements, regulatory submissions and timing of regulatory approvals;

•the potential delays in our preclinical studies, our development programs and our ongoing and planned clinical trial activities due to the effects of global events, including macroeconomic conditions and continued supply chain disruptions;

•the impact of inflationary pressures on salaries and wages, and costs of goods and transportation expenses, among other things;

•the cost of commercialization activities if our product candidates or any future product candidates are approved for sale, including marketing, sales and distribution costs; and

•our efforts to enhance operational systems and hire additional personnel, including personnel to support development of our product candidates.

If we are unable to obtain funding on a timely basis or on acceptable terms, we may have to delay, reduce, or terminate our research and development programs and preclinical studies or future clinical trials, limit strategic opportunities, or undergo reductions in our workforce or other corporate restructuring activities. We do not expect to realize revenue from sales of commercial products or royalties from licensed products in the foreseeable future, if at all, and, in no event would we recognize such revenues, before our product candidates are clinically tested, approved for commercialization and successfully marketed.

We will be required to seek additional funding in the future and currently intend to do so through additional collaborations and/or licensing agreements, public or private equity offerings or debt financings, credit or loan facilities, or a combination of one or more of these funding sources. If we raise additional funds by issuing equity securities, our stockholders will suffer dilution and the terms of any financing may adversely affect the rights of our stockholders. In addition, as a condition to providing additional funds to us, future investors may demand, and may be granted, rights superior to those of existing stockholders. Any future debt financings we may do, if available to us, are likely to involve restrictive covenants limiting our flexibility in conducting future business activities, and, in the event of insolvency, debt holders would be repaid before holders of our equity securities received any distribution of our corporate assets. If we raise additional funds through licensing or collaboration arrangements with third parties, we may have to relinquish valuable rights to our product candidates or grant licenses on terms that are not favorable to us. We also could be required to seek collaborators for product candidates at an earlier stage than otherwise would be desirable or relinquish some or all of our rights to certain product candidates or technologies that we otherwise would seek to develop or commercialize ourselves. Failure to obtain capital when needed on acceptable terms may force us to delay, limit or terminate our product development and commercialization of our current or future product candidates, which could have a material and adverse effect on our business, financial condition, results of operations, and prospects.

Table of Contents

We have incurred significant losses in every quarter since our inception and anticipate that we will continue to incur significant losses in the future.

We are a biotechnology company with a limited operating history of developing next generation immunotherapies for cancer, inflammation, and autoimmunity using de novo protein design technology. Investment in biotechnology is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatory approval, or become commercially viable. We do not have any products approved by regulatory authorities for marketing or commercial sale, we have not generated any revenue from product sales to date, and all of our product candidates are in early clinical or preclinical development. We continue to incur significant expenses related to our ongoing operations. As a result, we are not profitable and have incurred losses in every reporting period since our inception as Aquinox in 2003. For the nine months ended September 30, 2022 and September 30, 2021, we reported net losses of $44.1 million and $45.5 million, respectively. For the years ended December 31, 2021 and 2020, we reported net losses of $60.7 million and $33.3 million, respectively. As of September 30, 2022, we had an accumulated deficit since our inception as Aquinox of $437.6 million.

We expect to continue to incur significant expenses and operating losses for the foreseeable future as we seek to identify, acquire, and conduct research and development of future product candidates, and potentially begin to commercialize any future products that may achieve regulatory approval. We may encounter unforeseen expenses, difficulties, complications, delays, and other unknown factors that may adversely affect our financial condition. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenues. Our prior losses and expected future losses have had, and will continue to have, an adverse effect on our financial condition. If we are unable to bring any of our product candidates or future product candidates through full clinical trials for any reason, or if such product candidates or future product candidates do not gain regulatory approval, or if approved, fail to achieve market acceptance, we may never become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods.

The price of our common stock does not meet the requirements for continued listing on Nasdaq. If we fail to regain compliance with the minimum listing requirements, our common stock will be subject to delisting. Our ability to publicly or privately sell equity securities and the liquidity of our common stock could be adversely affected if our common stock is delisted.

The continued listing standards of the Nasdaq Stock Market, or Nasdaq, require, among other things, that the minimum bid price of a listed company’s stock be at or above $1.00. If the closing minimum bid price is below $1.00 for a period of more than 30 consecutive trading days, the listed company will fail to be in compliance with Nasdaq’s listing rules and, if it does not regain compliance within the grace period, will be subject to delisting. On October 26, 2022, we received a notice from the Nasdaq Listing Qualifications Department notifying us that for 30 consecutive trading days, the bid price of our common stock had closed below the minimum $1.00 per share requirement. In accordance with Nasdaq’s listing rules, we were afforded a grace period of 180 calendar days, or until April 24, 2023, to regain compliance with the bid price requirement. In order to regain compliance, the bid price of our common stock must close at a price of at least $1.00 per share for a minimum of 10 consecutive trading days.

If we fail to regain compliance by April 24, 2023, we may be eligible for a second 180 day compliance period, provided that, on such date, we meet the continued listing requirement for market value of publicly held shares and all other applicable Nasdaq listing requirements (other than the minimum closing bid price requirement) and we provide written notice to Nasdaq of our intention to cure the deficiency during the second compliance period, by effecting a reverse stock split, if necessary. Such extension of the grace period would be subject to Nasdaq’s discretion, and there can be no guarantee that we would be granted an extension.

We cannot provide any guarantee that we will regain compliance during the grace period or be able to maintain compliance with Nasdaq’s listing requirements in the future. If we are not able to regain compliance during the grace period, or any extension of the grace period for which we may be eligible, our common stock will be subject to delisting. Delisting from Nasdaq could adversely affect our ability to raise additional financing through the public or private sale of equity securities, would significantly affect the ability of investors to trade our securities and

Table of Contents

would negatively affect the value and liquidity of our common stock. Delisting could also have other negative results, including the potential loss of confidence by employees, the loss of institutional investor interest and fewer business development opportunities.

We have a limited operating history as a company developing therapies using de novo protein design technology, which may make it difficult for you to evaluate the success of our business to date and to assess our future viability.

Since we became Neoleukin Therapeutics, Inc., our operations have been primarily limited to organizing and staffing our company, acquiring product and technology rights, discovering and developing novel de novo proteins, and undertaking preclinical studies and early clinical development activities. We have not yet obtained regulatory approval for any product candidate. Consequently, evaluating our performance, viability or possibility of future success will be more difficult than if we had a longer operating history or approved products on the market.

We currently have no source of product revenue and may never become profitable.

To date, we have not generated any revenues from commercial product sales, or otherwise. Our ability to generate revenue from product sales and achieve profitability will depend upon our ability, alone or with any future collaborators, to successfully commercialize any products that we may develop, in-license, or acquire in the future. Even if we can successfully achieve regulatory approval for any product candidates or future product candidates, we do not know when any of these products will generate revenue from product sales for us, if at all. Our ability to generate revenue from any of our product candidates or future product candidates also depends on several additional factors, including our or any future collaborators’ ability to:

•complete development activities, including the necessary clinical trials;

•complete and submit Biologics License Applications, or BLAs, to the U.S. Food and Drug Administration, or FDA, and obtain regulatory approval for indications for which there is a commercial market;

•complete and submit applications to, and obtain regulatory approval from, foreign regulatory authorities;

•set a commercially viable price for our products;

•establish and maintain supply and manufacturing relationships with third parties, and ensure adequate and legally compliant manufacturing of bulk drug substances and drug products to maintain that supply;

•develop a commercial organization capable of sales, marketing, and distribution for any products for which we obtain marketing approval and intend to sell ourselves in the markets in which we choose to commercialize on our own;

•find suitable distribution partners to help us market, sell, and distribute our approved products in other markets;

•obtain coverage and adequate reimbursement from third-party payors, including government and private payors;

•achieve market acceptance for our products, if any;

•establish, maintain, and protect our intellectual property rights; and

•attract, hire, and retain qualified personnel.

In addition, because of the numerous risks and uncertainties associated with biological product development, any future product candidates may not advance through development or achieve the endpoints of applicable clinical trials. Therefore, we are unable to predict the timing or amount of increased expenses, or when or if we will be able to achieve or maintain profitability. In addition, our expenses could increase beyond expectations if we decide, or are required by the FDA or foreign regulatory authorities, to perform studies or trials in addition to those that we initially anticipate for any future product candidate. Even if we can complete the development and regulatory process for any product candidates or future product candidates, we anticipate incurring significant costs associated with commercializing these products.

Table of Contents

Even if we can generate revenues from the sale of any product candidates or future product candidates that may be approved, we may not become profitable and may need to obtain additional funding to continue operations. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and may be forced to reduce our operations.

We will require additional capital to finance our operations which may not be available to us on acceptable terms, or at all. If we fail to obtain necessary financing, we may be unable to complete the development and potential commercialization of future product candidates.

Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is expensive. Our operations have consumed substantial amounts of cash since inception. If we identify and advance any current or future product candidates into clinical trials and launch and commercialize any product candidates for which we receive regulatory approval, we expect research and clinical development expenses, and our selling, general and administrative expenses to increase substantially. In connection with our ongoing activities, we believe that our existing cash, cash equivalents, and short-term investments will be sufficient to fund our operating requirements for at least the next 12 months. However, circumstances may cause us to consume capital more rapidly than we anticipate. We will likely require additional capital for the further development and potential commercialization of future product candidates and may also need to raise additional funds sooner to pursue a more accelerated development of future product candidates.

If we need to secure additional financing, fundraising efforts may divert our management from our day-to-day activities, which may adversely affect our ability to develop and commercialize future product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. If we do not raise additional capital when required or on acceptable terms, we may need to:

•seek strategic alliances for research and development programs at an earlier stage than we would otherwise desire or on terms less favorable than might otherwise be available;

•relinquish, or license on unfavorable terms, our rights to any future product candidates that we otherwise would seek to develop or commercialize ourselves; or

•significantly delay, scale back, or discontinue future clinical trials related to the development or commercialization of any of our future product candidates or cease operations altogether.

If we need to conduct additional fundraising activities and we do not raise additional capital in sufficient amounts or on terms acceptable to us, we may be prevented from pursuing development and commercialization efforts, which will have a material adverse effect on our business, operating results, and prospects.

Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed elsewhere in this “Risk Factors” section. We have based this estimate on assumptions that may prove to be wrong, and we could spend our available capital resources sooner than we currently expect. Our future funding requirements, both near and long-term, will depend on many factors, including, but not limited to:

•our ability to identify additional product candidates for development;

•the initiation, progress, timing, costs, and results of clinical trials for any future product candidates;

•the estimated costs for discontinuing development of NL-201;

•the clinical development plans we establish for any future product candidates;

•if we in-license or acquire product candidates from third parties, the cost of in-licensing or acquisition;

•the achievement of milestones and our obligation to make milestone payments under our present or any future in-licensing agreements;

•the number and characteristics of product candidates that we discover, or in-license and develop;

Table of Contents

•the outcome, timing, and cost of regulatory review by the FDA and comparable foreign regulatory authorities, including the potential for the FDA or comparable foreign regulatory authorities to require that we perform more studies than those that we currently expect;

•the cost to establish, maintain, expand, and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with licensing, preparing, filing, prosecuting, defending, and enforcing any patent claims and maintaining and enforcing other intellectual property rights;

•the effects of the global macroeconomic trends, including supply chain disruptions, inflationary pressures, unemployment rates and impacts of a potential market recession, on our business and financial results;

•the effect of competing technological and market developments;

•the costs and timing of the implementation of commercial-scale outsourced manufacturing activities; and

•the costs and timing of establishing sales, marketing, distribution, and pharmacovigilance capabilities for any product candidates for which we may receive regulatory approval in territories where we choose to commercialize products on our own.

If we are unable to expand our operations or otherwise capitalize on our business opportunities due to a lack of capital, our business, results of operations, financial condition and cash flows, and future prospects could be materially adversely affected.

Risks Related to Discovery, Development, and Commercialization

Our product candidates are in early stages of development and may fail in development or suffer delays that materially and adversely affect their commercial viability. If we are unable to complete development of, or commercialize our product candidates, or experience significant delays in doing so, our business will be materially harmed.

We are in the early stages of our development efforts. We have no products on the market, we have elected to discontinue development of NL-201, all of our remaining product candidates are still in [preclinical or] drug discovery stages, and we may not ever obtain regulatory approval for any of our product candidates. We have limited experience in conducting and managing the clinical trials necessary to obtain regulatory approvals, including approval by the FDA. Before obtaining regulatory approval for the commercial distribution of any future product candidates, we must conduct extensive preclinical tests and clinical trials to demonstrate the safety and efficacy in humans of our product candidates. Moreover, our development portfolio consists of targets and programs that are in earlier stages of discovery and preclinical development and may never advance to clinical-stage development. If we do not receive regulatory approvals for clinical testing and commercialization of our product candidates, we may not be able to continue our operations.

We may not have the financial resources to continue development of, or to enter into collaborations for, a product candidate if we experience any issues that cause or require us to delay or abandon preclinical or clinical trials or delay and/or prevent regulatory approval of or our ability to commercialize product candidates, including:

•preclinical study results showing the product candidate to be less effective than desired or to have harmful or problematic side effects;

•a failure to demonstrate that the dose for the product candidate has been optimized;

•negative or inconclusive results from our clinical trials or the clinical trials of others for product candidates similar to ours;

•product-related side effects experienced by patients in our clinical trials or by individuals using drugs or therapeutic biologics similar to our product candidates;

•our third-party manufacturers’ inability to successfully manufacture our products or to meet regulatory specifications;

•inability of any third-party contract manufacturer to scale up manufacturing of our product candidates and those of our collaborators to supply the needs of clinical trials or commercial sales;

Table of Contents

•delays in submitting Investigational New Drug, or INDs, or comparable foreign applications, or delays or failures in obtaining the necessary approvals from regulators to commence a clinical trial, or a suspension or termination of a clinical trial once commenced;

•conditions imposed by the FDA, the European Medicines Agency, or EMA, or other applicable regulatory authorities regarding the scope or design of our clinical trials;

•delays in enrolling patients in our clinical trials;

•high drop-out rates of our clinical trial patients;

•inadequate supply or quality of product candidate components or materials or other supplies necessary for the conduct of our clinical trials;

•inability to obtain alternative sources of supply for which we have a single source for product candidate components or materials;

•supply chain disruptions that may impact our ability to obtain materials for preclinical testing or supply materials to clinical testing sites or significantly increase our costs;

•greater than anticipated costs of our clinical trials;

•manufacturing costs, formulation issues, pricing or reimbursement issues or other factors that no longer make a product candidate economically feasible;

•harmful side effects or inability of our product candidates to meet efficacy endpoints during clinical trials;

•failure to demonstrate a benefit-risk profile acceptable to the FDA, EMA, or other applicable regulatory authorities;

•unfavorable inspection and review by the FDA, EMA, or other applicable regulatory authorities of one or more clinical trial sites or manufacturing facilities used in the testing and manufacture of any of our product candidates;

•failure of our third-party contractors or investigators to comply with regulatory requirements or otherwise meet their contractual obligations in a timely manner, or at all;

•delays and changes in regulatory requirements, policy, and guidelines, including the imposition of additional regulatory oversight around clinical testing generally or with respect to our technology in particular; or

•varying interpretations of our data by the FDA, EMA, or other applicable regulatory authorities.

Our inability to complete development of, or commercialize our product candidates, or significant delays in doing so due to one or more of these factors, could have a material and adverse effect on our business, financial condition, results of operations, and prospects.

Further, cancer therapies are sometimes characterized as first-line, second-line, or third-line, and the FDA often approves new therapies initially only for advanced cancers, i.e. third-line or beyond. When cancer is detected early enough, first-line therapy, usually chemotherapy, surgery, radiation therapy, immunotherapy, hormone therapy, or a combination of these, is sometimes adequate to cure the cancer or prolong life without a cure. Second- and third-line therapies are administered to patients when prior therapy is not effective. We expect that our product candidates will initially be targeted to second- or third-line patients, and that if those product candidates prove to be sufficiently beneficial in those initial trials, we would expect to seek subsequent approval in earlier lines of therapy. Any product candidates we develop, even if approved, may not be successfully approved for earlier lines of therapy, and, prior to any such approvals, we will likely have to conduct additional clinical trials, which are often very lengthy, expensive, and have a significant risk of failure.

Table of Contents

Our business is heavily dependent on the success of our Neoleukin design process. Preclinical studies and clinical trials of our product candidates may not be successful, and if we are unable to commercialize these product candidates or experience significant delays in doing so, our business will be materially harmed.

Our business is heavily dependent on our ability to obtain regulatory approval of, and then successfully launch and commercialize, our product candidates. We have invested a significant portion of our efforts and financial resources in the development of advanced computational algorithms and other methods, including machine learning for the design of functional de novo proteins with an initial focus on key cytokine mimetics, which we refer to as Neoleukin de novo cytokine mimetics. We recently made a strategic decision to discontinue development for our lead product candidate, NL-201, and intend to focus our investment on early stage research of Neoleukin de novo proteins based, in part, on lessons learned from the clinical trial and preclinical studies of NL-201, which means we will continue for the near term to develop early stage product candidates. Our ability to generate commercial product revenues, which we do not expect will occur for many years, if ever, will depend heavily on the successful development and eventual commercialization of our product candidates. Our product candidates may not be successful in clinical trials or receive regulatory approval. Even if they are successful in clinical trials, regulatory authorities may not complete their review in a timely manner, or additional delays may result if an FDA Advisory Committee or other regulatory authority recommends non-approval or restrictions on approval. In addition, we may experience delays or rejections based upon additional government regulation from future legislation or administrative action, or changes in regulatory authority policy during the period of product development, clinical trials, and the review process. For example, the Oncology Center of Excellence within the FDA has recently advanced Project Optimus, which is an initiative to reform the dose optimization and dose selection paradigm in oncology drug development to emphasize selection of an optimal dose, which is a dose or doses that maximizes not only the efficacy of a drug but the safety and tolerability as well. This shift from the prior approach, which generally determined the maximum tolerated dose, may require sponsors to spend additional time and resources to further explore a product candidate’s dose-response relationship to facilitate optimum dose selection in a target population. Other recent Oncology Center of Excellence initiatives have included Project FrontRunner, a new initiative with a goal of developing a framework for identifying candidate drugs for initial clinical development in the earlier advanced setting rather than for treatment of patients who have received numerous prior lines of therapies or have exhausted available treatment options. We are considering these policy changes as they relate to our programs.

Regulatory authorities may approve a product candidate for targets, disease indications, or patient populations that are not as broad as we intended or desired, approve more limited indications than requested, or require distribution restrictions or strong safety language, such as contraindications or boxed warnings. Regulatory authorities may also require Risk Evaluation and Mitigation Strategies, or REMS, or the performance of costly post-marketing clinical trials. Even if we successfully obtain regulatory approvals to market our product candidates, our revenues will be dependent, in part, upon the size of the markets in the territories for which we gain regulatory approval and have commercial rights. If the markets for patient subsets that we are targeting are not as significant as we estimate, we may not generate significant revenues from sales of such products, if approved.

We plan to seek regulatory approval to commercialize our product candidates both in the United States and in selected foreign countries. In order to market and sell our product candidates in the European Union and many other jurisdictions, we must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. The approval procedure varies among countries and can involve additional testing. In addition, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries. The time required to obtain approval may differ substantially from that required to obtain FDA approval. The regulatory approval process outside the United States generally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the United States, it is required that the product be approved for reimbursement before the product can be approved for sale in that country. We may be required to expend significant resources to obtain regulatory approval, which may not be on a timely basis or successful at all, and to comply with ongoing regulations in these jurisdictions.

The success of our Neoleukin design process and our future product candidates will depend on many factors, including the following:

•successful completion of necessary preclinical studies to enable the initiation of clinical trials;

•successful enrollment of patients in, and the completion of, our clinical trials;

Table of Contents

•obtaining adequate financing to perform the expensive clinical development programs anticipated for approval;

•receiving required regulatory authorizations for the development and approvals for the commercialization of our product candidates;

•establishing and maintaining arrangements with third-party manufacturers;

•obtaining and maintaining patent and trade secret protection and non-patent exclusivity for our product candidates and their components;

•enforcing and defending our intellectual property rights and claims;

•achieving desirable therapeutic properties for our product candidates’ intended indications;

•launching commercial sales of our product candidates, if and when approved, whether alone or in collaboration with third parties;

•acceptance of our product candidates, if and when approved, by patients, the medical community, and third-party payors;

•achieving appropriate reimbursement, pricing, and payment coverage for our product candidates;

•effectively competing with other therapies, including those that are currently in development; and

•maintaining an acceptable safety profile of our product candidates through clinical trials and following regulatory approval.

If we do not achieve any one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize our product candidates, which would materially harm our business.

Clinical trials for our product candidates may reveal significant adverse events not seen in our preclinical studies and may result in a safety profile that could inhibit regulatory approval or market acceptance of those product candidates.

If significant adverse events or other side effects are observed in any of our future clinical trials, we may have difficulty recruiting patients to our clinical trials, patients may drop out of our trials, we may be required to revise, pause, delay, or abandon the trials or our development efforts of one or more product candidates altogether, we may be required to have more restrictive labeling, or we may experience the delay or denial of regulatory approval by applicable regulatory authorities. We, applicable regulatory authorities, or institutional review boards, or IRBs, may suspend clinical trials of a product candidate at any time for various reasons, including a belief that subjects or patients in such trials are being exposed to unacceptable health risks or adverse side effects. Some potential therapeutics developed in the biotechnology industry that initially showed therapeutic promise in early-stage trials have later been found to cause side effects that prevented their further development. Even if the side effects do not preclude the product candidate from obtaining or maintaining marketing approval, undesirable side effects may inhibit market acceptance of the approved product due to its tolerability versus other therapies. Therapies involving cytokines have been known to cause side effects such as neurotoxicity and cytokine release syndrome, and there is no guarantee that these side effects can be avoided through de novo protein design.

Further, de novo proteins are a new class of therapeutics that have not been tested in humans prior to our initial Phase 1 clinical trial of NL-201. De novo proteins can be substantially different from all known proteins and as a result it is unknown to what extent, if any, de novo proteins may produce immunologic reactions in patients. Immunologic reactions could substantially limit the effectiveness of the treatment, the duration of treatment, or represent safety risks.

Additionally, if any of our product candidates receives marketing approval, the FDA could require us to adopt a REMS to ensure that the benefits of the product outweigh its risks, which may include, among other things, a Medication Guide outlining the risks of the product for distribution to patients and a communication plan to health care practitioners. Furthermore, if we or others later identify undesirable side effects caused by any of our products, several potentially significant negative consequences could result, including:

Table of Contents

•regulatory authorities may suspend or withdraw approvals of such product;

•regulatory authorities may require additional warnings on the label of such product;

•we may be required to change the way such a product is administered or conduct additional clinical trials;

•we could be sued and held liable for harm caused to patients; and

•our reputation may suffer.

Any of these developments could materially harm our business, financial condition, and prospects.

If we do not achieve our projected development goals in the timeframes we announce and expect, the commercialization of our products may be delayed and, as a result, our stock price may decline.

From time to time, we estimate the timing of the anticipated accomplishment of various scientific, clinical, regulatory, and other product development goals, which we sometimes refer to as milestones. These milestones may include the commencement or completion of scientific studies and clinical trials and the submission of regulatory filings. From time to time, we may publicly announce the expected timing of some of these milestones. All of these milestones are and will be based on numerous assumptions. The actual timing of these milestones can vary dramatically compared to our estimates, in some cases for reasons beyond our control. If we do not meet these milestones as publicly announced, or at all, the commercialization of our products may be delayed or never achieved and, as a result, our stock price may decline.

Our approach to the discovery and development of our therapeutic treatments is based on novel de novo protein design technology that are unproven and may not result in marketable products.

The success of our business depends primarily upon our ability to discover, develop, and commercialize a pipeline of product candidates using our Neoleukin de novo protein design process. Unlike traditional protein-based therapeutics that modify native proteins, our Neoleukin design process allows us to create new proteins from the ground up. Our design process uses advanced computational algorithms and methods to design functional de novo proteins that are hyper-stable, modifiable, and are designed to optimize desired intermolecular interactions and eliminate undesirable interactions. While we believe this approach will enable us to develop product candidates that may offer unique therapeutic benefits, the scientific basis of our efforts to develop product candidates using our Neoleukin design process is ongoing and may not result in viable product candidates.

While we had favorable preclinical study results related to NL-201, and monotherapy data that demonstrated engagement of the target receptor, expected pharmacodynamic changes for a potent IL-2/IL-15 agonist, and preliminary data that did not demonstrate significant immunogenicity even after multiple cycles of therapy, we determined that the resources required to continue clinical development would be better applied to advancing the next generation of de novo immunotherapies. We may not be successful in moving any of our future product candidates into clinical development, and any product candidates that we are able to bring into clinical trials may subsequently be shown to have harmful side effects or may have other characteristics that may necessitate additional clinical testing or make the product candidates unmarketable or unlikely to receive marketing approval. If any of these events occur, we may be forced to abandon our development efforts for one or more programs, which would have a material adverse effect on our business and could potentially cause us to cease operations.

Following our decision to discontinue development of NL-201 in November 2022, we will not have any product candidate currently being tested in a clinical trial. We have not tested any of our other product candidates in any clinical trials. We may ultimately discover that our Neoleukin design process and any product candidates resulting therefrom do not possess certain properties required for therapeutic effectiveness. Our product candidates may also be unable to remain stable in the human body for the period of time required for the drug to reach the target tissue, or they may trigger immune responses that inhibit the activity of the product candidate or that cause adverse side effects in humans. We may spend substantial funds attempting to mitigate these properties and may never succeed in doing so. In addition, product candidates based on our Neoleukin design process may demonstrate different chemical and pharmacological properties in patients than they do in laboratory studies. Our Neoleukin design process and any product candidates resulting therefrom may not demonstrate the same chemical and pharmacological properties in humans and may interact with human biological systems in unforeseen, ineffective, or harmful ways.

Table of Contents

The regulatory approval process for novel product candidates such as ours can be more expensive and take longer than for other, better known, or extensively studied product candidates. Because the FDA has no prior experience with de novo proteins as therapeutics, we anticipate that this may increase the complexity, uncertainty, and length of the regulatory approval process for our product candidates. We or any future partners may be required to perform additional or unanticipated clinical trials to obtain approval or be subject to post-marketing testing requirements to maintain regulatory approval. If the products resulting from our Neoleukin design process and research programs prove to be ineffective, unsafe, or commercially unviable, our Neoleukin design process and pipeline would have little, if any, value, which would have a material and adverse effect on our business, financial condition, results of operations, and prospects.

Preclinical and clinical development involve a lengthy and expensive process, with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our current product candidates or any future product candidates.

Following the decision in November 2022 to discontinue development of NL-201, all of our product candidates will be in preclinical or earlier development and their risk of failure is high. It is impossible to predict when or if any of our product candidates will receive regulatory approval. To obtain the requisite regulatory approvals to commercialize any product candidates, we must demonstrate through extensive preclinical studies and lengthy, complex, and expensive clinical trials that our product candidates are safe and effective in humans. Clinical testing can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process, or we may decide, as we did with NL-201, to stop development for strategic reasons at any time. The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the success of later-stage clinical trials. The design of a clinical trial can determine whether its results will support approval of a product, and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. We may be unable to establish clinical endpoints that applicable regulatory authorities would consider clinically meaningful, and a clinical trial can fail at any stage of testing. We have limited experience in designing clinical trials and may be unable to design and execute a clinical trial to support marketing approval. Differences in trial design between early-stage clinical trials and later-stage clinical trials make it difficult to extrapolate the results of earlier clinical trials to later clinical trials. Moreover, clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in clinical trials have nonetheless failed to obtain marketing approval of their products. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or to unfavorable safety profiles, notwithstanding promising results in earlier trials, and we could face similar setbacks. There is typically a high rate of failure of product candidates proceeding through clinical trials. Most product candidates that commence clinical trials are never approved as products, and there can be no assurance that any of our clinical trials will ultimately be successful or support clinical development of our product candidates.

Commencement of any future clinical trials for our product candidates is subject to finalizing the trial design and receiving approval from the FDA to proceed with clinical testing or similar approval from the EMA or other comparable foreign regulatory authorities. Even after we submit our IND or comparable submissions in other jurisdictions, the FDA, EMA, or comparable foreign regulatory authorities could disagree that we have satisfied their requirements to commence our clinical trials or disagree with our study design, which may require us to complete additional preclinical studies or amend our protocols or impose stricter conditions on the commencement of clinical trials.

We may encounter substantial delays in the commencement or completion of our clinical trials, or may be required to terminate or suspend such trials, which could result in increased costs to us or delay or limit our ability to generate revenue, adversely affecting our commercial prospects.

We may experience delays in initiating or completing clinical trials or may experience numerous unforeseen events during, or as a result of, any future clinical trials that we may conduct that could delay or prevent our ability to receive marketing approval or commercialize any future product candidates, including:

•we may be unable to generate sufficient preclinical, toxicology, or other in vivo or in vitro data to obtain regulatory authorizations to commence a clinical trial;

Table of Contents

•we may experience issues in reaching a consensus with regulatory authorities on trial design;

•regulators or institutional review boards, ethics committees, FDA, EMA, or other applicable regulatory authorities, may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;

•we may experience delays in reaching, or fail to reach, agreement on acceptable terms with prospective trial sites and prospective contract research organizations, or CROs, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

•clinical trial sites may deviate from trial protocol or drop out of a trial;

•clinical trials of any product candidates may fail to show safety or efficacy, or may produce negative or inconclusive results, which in turn may cause us to decide, or regulators to require us, to conduct additional preclinical studies or clinical trials, or we may decide to abandon product development programs;

•the number of subjects required for clinical trials of any product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate, or subjects may drop out of these clinical trials or fail to return for post-treatment follow-up at a higher rate than we anticipate;

•our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all, or may deviate from the clinical trial protocol or drop out of the trial, which may require that we add new clinical trial sites or investigators;

•we may elect to, or regulators, IRBs, or ethics committees may require that we or our investigators, suspend or terminate clinical research or trials for various reasons, including noncompliance with regulatory requirements or a finding that the participants in our trials are being exposed to unacceptable health risks;

•the cost of clinical trials of any of our product candidates may be greater than we anticipate;

•the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate to initiate or complete a given clinical trial, or may be adversely impacted by global supply chain issues;

•we may be unable to obtain or manufacture sufficient quantities of our product candidates for use in clinical trials;

•reports from clinical testing of other therapies may raise safety or efficacy concerns about our product candidates; and

•we may fail to establish an appropriate safety profile for a product candidate based on clinical or preclinical data for such product candidate as well as data emerging from other molecules in the same class as our product candidate.

Table of Contents

We could also encounter delays if a clinical trial is suspended or terminated by us, the IRBs of the institutions in which such trials are being conducted, or the FDA, EMA or other regulatory authorities, or if a clinical trial is recommended for suspension or termination by the Data Safety Monitoring Board, or the DSMB, for such trial. A suspension or termination may be imposed due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA, EMA, or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a product or treatment, failure to establish or achieve clinically meaningful trial endpoints, changes in governmental regulations or administrative actions, lack of adequate funding to continue the clinical trial or other reasons related to our overall business strategy. For example, our IND for NL-201 was initially placed on clinical hold, and while the FDA removed that clinical hold, there is no guarantee that any future clinical trials we pursue may not experience a similar hold. In addition, we elected in November 2022 to discontinue development of NL-201 for strategic reasons, to allow us to focus our resources on the next generation of de novo protein design. Clinical studies may also be delayed or terminated as a result of ambiguous or negative interim results. Many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates. Further, the FDA, EMA, or other regulatory authorities may disagree with our clinical trial design and our interpretation of data from clinical trials, or may change the requirements for approval even after they have reviewed and commented on the design for our clinical trials.

Our product development costs will increase if we experience delays in clinical testing or obtaining marketing approvals. We do not know whether any of our clinical trials will begin as planned, will need to be restructured, or will be completed on schedule, or at all. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates and may allow our competitors to bring products to market before we do, potentially impairing our ability to successfully commercialize our product candidates and harming our business and results of operations. Any delays in our clinical development programs may harm our business, financial condition, and results of operations significantly.

If we experience delays or difficulties in the enrollment of patients in clinical trials, our future clinical development activities could be delayed or otherwise adversely affected.

Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors including the size and nature of the patient population, the number and location of clinical sites we enroll, the proximity of patients to clinical sites, the eligibility and exclusion criteria for the trial, the design of the clinical trial, the inability to obtain and maintain patient consents, the risk that enrolled participants will drop out before completion, competing clinical trials, and clinicians’ and patients’ perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any new drugs or therapeutic biologics that may be approved for the indications being investigated by us. Furthermore, we expect to rely on our collaborators, CROs, and clinical trial sites to ensure the proper and timely conduct of our future clinical trials, including the patient enrollment process, and we have limited influence over their performance. Additionally, we could encounter delays if treating physicians encounter unresolved ethical issues associated with enrolling patients in future clinical trials of our product candidates in lieu of prescribing existing treatments that have established safety and efficacy profiles.

If we are unable to enroll a sufficient number of patients for our future clinical trials, it would result in significant delays or might require us to abandon one or more clinical trials altogether. Enrollment delays in our clinical trials may result in increased development costs for our product candidates, slow down or halt our product candidate development and approval process and jeopardize our ability to seek and obtain the marketing approval required to commence product sales and generate revenue, which would cause the value of our company to decline and limit our ability to obtain additional financing if needed.

Table of Contents

Preliminary, topline, and interim data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures, and such changes in the final data may be material.

From time to time, we may publish preliminary or topline data from our recently terminated or future clinical trials, which is based on a preliminary analysis of then-available data. Those results and any related findings and conclusions are subject to change following a more comprehensive review of the more complete data related to the particular study or trial. We also make assumptions, estimations, calculations, and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the preliminary or topline results that we report may differ from future results of the same studies or clinical trials, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Preliminary or topline data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary or topline data we previously published. Results from prespecified interim analyses that we may conduct are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. As a result, preliminary and topline data and prespecified interim analyses should be viewed with caution until the final data are available. Adverse differences between preliminary, topline, or interim data and final data could significantly harm our reputation and business prospects.

Failure to obtain regulatory approval would prevent any future product candidates from being marketed.

In order to market and sell our products, we must obtain marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval differs substantially from jurisdiction to jurisdiction. In many countries outside the United States, it is required that the product be approved for reimbursement before the product can be approved for sale in that country. Approval by a single regulatory authority does not ensure approval by other regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities. A failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory approval process in others. We may not be able to file for marketing approvals and may not receive necessary approvals to commercialize our products in any market. If we are unable to obtain approval of any of our future product candidates by regulatory authorities, the commercial prospects of that product candidate may be significantly diminished and our business prospects could decline.

Recently enacted and future legislation, including potentially unfavorable pricing regulations or other healthcare reform initiatives, may increase the difficulty and cost for us to obtain marketing approval of, and commercialization of, our future product candidates and affect the prices we may obtain.

The regulations that govern, among other things, marketing approvals, coverage, pricing, and reimbursement for new drug products vary from country to country. In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of our future product candidates, restrict or regulate post-approval activities, and affect our ability to successfully sell any product candidates for which we obtain marketing approval.

In the United States in recent years, Congress has considered reductions in Medicare reimbursement for drugs administered by physicians. The Centers for Medicare and Medicaid Services, or CMS, the agency that administers the Medicare program, also has the authority to revise reimbursement rates and to implement coverage restrictions for drugs. Cost reduction initiatives and changes in coverage implemented through legislation or regulation could decrease utilization of, and reimbursement for, any approved products, which in turn could affect the price we can receive for those products. For example, on September 9, 2021, the Biden administration published a wide-ranging list of policy proposals to lower prescription drug prices, including by allowing Medicare to negotiate prices and disincentivizing price increases, and to support market changes that strengthen supply chains, promote biosimilars and generic drugs, and increase price transparency. These initiatives recently culminated in the enactment of the Inflation Reduction Act, or IRA, in August 2022, which will, among other things, allow the U.S. Department of Health and Human Services, or HHS, to negotiate the selling price of certain drugs and biologics that CMS reimburses under Medicare Part B and Part D, although only high-expenditure single-source drugs that have been approved for at least 7 years (11 years for biologics) can be selected by CMS for negotiation, with the negotiated price taking effect two years after the selection year. The negotiated prices, which will first become effective in 2026, will be capped at a statutory ceiling price beginning in October 2023, penalize drug manufacturers that increase prices of Medicare Part B and Part D drugs at a rate greater than the rate of inflation.

Table of Contents

In addition, the law eliminates the “donut hole” under Medicare Part D beginning in 2025 by significantly lowering the beneficiary maximum out-of-pocket cost and requiring manufacturers to subsidize, through a newly established manufacturer discount program, 10% of Part D enrollees’ prescription costs for brand drugs below the out-of-pocket maximum, and 20% once the out-of-pocket maximum has been reached. The IRA permits the Secretary of HHS to implement many of these provisions through guidance, as opposed to regulation, for the initial years. Manufacturers that fail to comply with the IRA may be subject to various penalties, including civil monetary penalties. The IRA also extends enhanced subsidies for individuals purchasing health insurance coverage in ACA marketplaces through plan year 2025. These provisions will take effect progressively starting in 2023, although they may be subject to legal challenges. While Medicare regulations apply only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in establishing their own coverage polices and reimbursement rates. Therefore, any reduction in reimbursement that results from federal legislation or regulation may result in a similar reduction in payments from private payors.

In March 2010, President Obama signed into law the Affordable Care Act in an effort to, among other things, broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on pharmaceutical and medical device manufacturers and impose additional health policy reforms. The Affordable Care Act, among other things, also expanded manufacturers’ rebate liability under the Medicaid Drug Rebate Program, imposed a significant annual, nondeductible fee on companies that manufacture or import certain branded prescription drug products, and enacted substantial provisions affecting compliance, which may affect our business practices with healthcare practitioners. Certain provisions of the Affordable Care Act have been subject to judicial and Congressional challenges to repeal or replace certain aspects of the Affordable Care Act. On June 17, 2021, the U.S. Supreme Court dismissed a challenge on procedural grounds that argued that the Affordable Care Act is unconstitutional in its entirety because the “individual mandate” was repealed by Congress. Thus, the Affordable Care Act will remain in effect in its current form. It is possible that the Affordable Care Act will be subject to judicial or Congressional challenges in the future. It is uncertain how any such challenges and the healthcare measures of the Biden administration will impact the Affordable Care Act and in turn our business, prospects, financial condition, or results of operations.

Other legislative measures impacting federal expenditures on health care may also have an adverse impact on our business. For example, on August 2, 2011, President Obama signed into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select Committee did not achieve a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to providers of up to 2% per fiscal year that went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2030, with the exception of a temporary suspension from May 1, 2020 through March 31, 2022 due to the COVID-19 pandemic, unless additional Congressional action is taken. The Medicare reductions phase back in starting with a 1% reduction in effect from April 1, 2022 to June 30, 2022 before increasing to the full 2% reduction. In addition, on January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These laws may result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on our customers and accordingly, our financial operations. Legislative and regulatory proposals have also been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. Furthermore, in the past few years there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, including Congressional inquiries and proposed bills designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer’s patient programs, and reform government program reimbursement methodologies for drug products. We cannot be sure whether additional legislative changes will be enacted, or whether existing regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our future product candidates, if any, may be.

In the United States, the European Union and other potentially significant markets for our future product candidates, government authorities and third-party payors are increasingly attempting to limit or regulate the price of medical products and services, particularly for new and innovative products and therapies, which has resulted in lower

Table of Contents

average selling prices. Furthermore, the increased emphasis on managed healthcare in the United States and on country and regional coverage, pricing, and reimbursement controls in the European Union will put additional pressure on product coverage, pricing, reimbursement, and utilization, which may adversely affect our business, results of operations, financial condition, cash flows, and future prospects. These pressures can arise from various sources, including but not limited to, rules and practices of managed care groups, judicial decisions and governmental laws and regulations related to Medicare, Medicaid and healthcare reform, pharmaceutical reimbursement policies, and pricing in general.

Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product candidate in a particular country, but then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time periods, which could negatively impact the revenues we are able to generate from the sale of the product in that particular country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates even if our product candidates obtain marketing approval.

Laws and regulations governing international operations may preclude us from developing, manufacturing, and selling certain product candidates outside of the United States and require us to develop and implement costly compliance programs.

As we expand our operations outside of the United States, we must comply with numerous laws and regulations in each jurisdiction in which we plan to operate. We must also comply with U.S. laws applicable to the foreign operations of U.S. businesses and individuals, such as the Foreign Corrupt Practices Act, or FCPA. The creation and implementation of international business practices compliance programs is costly and such programs are difficult to enforce, particularly where reliance on third parties is required.

The FCPA prohibits any U.S. individual or business from paying, offering, authorizing payment, or offering anything of value, directly or indirectly, to any foreign official, political party, or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with certain accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations. The anti-bribery provisions of the FCPA are enforced primarily by the U.S. Department of Justice. The SEC is involved with enforcement of the books and records provisions of the FCPA.

Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the FCPA presents particular challenges in the pharmaceutical industry because in many countries hospitals are operated by the government, and therefore doctors and other hospital employees are considered foreign officials. Certain payments to hospitals in connection with clinical trials and other work have been deemed to be improper payments to government officials and have led to FCPA enforcement actions.

Various laws, regulations, and executive orders also restrict the use and dissemination outside the United States, or the sharing with certain non-U.S. nationals, of information classified for national security purposes, as well as certain products and technical data relating to those products. Our expanding presence outside the United States will require us to dedicate additional resources to comply with these laws, and these laws may preclude us from developing, manufacturing, or selling certain products and product candidates outside the United States, which could limit our growth potential and increase our development costs.

The failure to comply with laws governing international business practices may result in substantial penalties, including suspension or debarment from government contracting. Violation of the FCPA can result in significant civil and criminal penalties. Indictment alone under the FCPA can lead to suspension of the right to do business with the U.S. government until the pending claims are resolved. Conviction of a violation of the FCPA can result in long-term disqualification as a government contractor. The termination of a government contract or relationship as a result of our failure to satisfy any of our obligations under laws governing international business practices would have a negative impact on our operations and harm our reputation and ability to procure government contracts. The

Table of Contents

SEC also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting provisions.

Even if we are able to commercialize our future product candidates, the products may not receive coverage and adequate reimbursement from third-party payors, which could harm our business.

Our ability to commercialize any products successfully will depend, in part, on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government authorities, private health insurers, health maintenance organizations, and third-party payors. Patients who are prescribed medications for the treatment of their conditions generally rely on third-party payors to reimburse all or part of the costs associated with their prescription drugs. Coverage and adequate reimbursement from government healthcare programs, such as Medicare and Medicaid, and private health insurers are critical to new product acceptance. Patients are unlikely to use our future product candidates unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our product candidates. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. As a result, government authorities and other third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. Third-party payors may also seek additional clinical evidence, beyond the data required to obtain marketing approval, demonstrating clinical benefits and value in specific patient populations before covering our products for those patients. We cannot be sure that coverage and adequate reimbursement will be available for any product that we commercialize and, if reimbursement is available, what that level of reimbursement will be. Coverage and reimbursement may impact the demand for, or the price of, any product candidate for which we obtain marketing approval. If coverage and reimbursement are not available or are available only at limited levels, we may not be able to successfully commercialize any product candidate for which we obtain marketing approval.

There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the FDA or comparable foreign regulatory authorities. Moreover, obtaining coverage does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sales, and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may only be temporary. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used. Reimbursement rates may also be based in part on existing reimbursement amounts for lower cost drugs or may be bundled into the payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Coverage and reimbursement for drug products can differ significantly from payor to payor. As a result, the coverage and reimbursement determination process is often a time-consuming and costly process with no assurance that coverage and adequate reimbursement will be obtained or applied consistently. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own coverage and reimbursement policies. Our inability to promptly obtain coverage and profitable reimbursement rates from both government-funded and private payors for any approved products that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products, and our overall financial condition.

Table of Contents

We have never marketed a drug before. If we are able to identify and develop or acquire a product candidate that is ultimately approved for sale but are unable to establish an effective sales force and marketing infrastructure or enter into acceptable third-party sales and marketing or licensing arrangements, we may be unable to generate any revenue.

We do not currently have an infrastructure for the sales, marketing, and distribution of pharmaceutical drug products, and the cost of establishing and maintaining such an infrastructure may exceed the cost-effectiveness of doing so. In addition, following the decision to discontinue development of NL-201 in November 2022, we do not have any product candidates in clinical development. If we are able to successfully advance any of our future product candidates through clinical development to approval by the FDA and comparable foreign regulatory authorities, we will need to either build our sales, marketing and distribution operations, including managerial and other non-technical capabilities, or make arrangements with third parties to perform these services. If we are unable to establish adequate sales, marketing, and distribution capabilities, whether independently or with third parties, we may not be able to generate product revenue and may not become profitable. We will be competing with many companies that have extensive and well-funded sales and marketing operations. Without an internal commercial organization or the support of a third party to perform sales and marketing functions, we may be unable to compete successfully against these more established companies.

Even if we are able to effectively hire a sales force and develop a marketing and sales infrastructure, our sales force and marketing team may not be successful in commercializing our product candidates, which would negatively affect our ability to generate revenue.

We may not be successful in our efforts to use our Neoleukin design process to expand our pipeline of product candidates and develop marketable products.

The success of our business depends in part upon our ability to discover, develop, and commercialize products based on our Neoleukin design process, which may fail to identify other potential product candidates for clinical development for a number of reasons. Our research methodology may be unsuccessful in identifying potential product candidates or our potential product candidates may be shown to have harmful side effects or may have other characteristics that may make the products unmarketable or unlikely to receive marketing approval. If any of these events occur, we may be forced to abandon our development efforts for a program or for multiple programs, which would materially harm our business and could potentially cause us to cease operations. Research programs to identify new product candidates require substantial technical, financial, and human resources.

We may expend our limited resources to pursue a particular product candidate and fail to capitalize on product candidates that may be more profitable or for which there is a greater likelihood of success.

Because we have limited financial and managerial resources, we must choose the product candidates on which we focus our research and development efforts, which may require us to forgo or delay pursuit of opportunities with other product candidates that may ultimately have greater commercial potential. For instance, prior to November 2022, we were primarily focused on developing our lead product candidate, NL-201, and invested significant resources in the preclinical and Phase 1 clinical trial for that product candidate, but ultimately decided that our limited resources would be better spent on early stage research of the next generation de novo protein design and so elected to discontinue development of NL-201 even though that product candidate had demonstrated on target activity in reviews of preliminary data. Our resource allocation decisions may require us to make strategic decisions, which in turn may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable product candidates. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing, or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.