SEC Filing | Landos Biopharma

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10-Q

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 March 31, 2021


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

For the transition period from to

Commission File Number: 001-39971

Landos Biopharma, Inc.

(Exact Name of Registrant as Specified in its Charter)


Delaware	81-5085535
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1800 Kraft Drive, Suite 216 Blacksburg, Virginia	24060
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (540) 218-2232

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 $0.01 per share

LABP

The Nasdaq Stock Market LLC

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 (§232.405 of this chapter) 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, 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 May 17, 2021, the registrant had 40,117,598 shares of common stock, $0.01 par value per share, outstanding.

Table of Contents


		Page

PART I.	FINANCIAL INFORMATION	3

Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss	4
	Condensed Consolidated Statements of Cash Flows	5
	Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	23

PART II.	OTHER INFORMATION	24

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 6.	Exhibits	24
Signatures		26

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements. (Unaudited)

Landos Biopharma, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share amounts)


	March 31,			December 31,
	2021			2020
Assets
Current assets:
Cash and cash equivalents	$	8,572		$	2,416
Marketable securities, available for sale		97,786			25,718
Incentive and tax receivables		1			154
Prepaid expenses and other current assets		3,386			202
Deferred offering costs		—			1,398
Total current assets		109,745			29,888
Property, plant and equipment-net		465			444
Total assets	$	110,210		$	30,332
Liabilities, convertible preferred stock and stockholders’ equity (deficit)
Current liabilities:
Accounts payable	$	8,200		$	8,606
Accrued liabilities		364			1,939
Other current liabilities		255			489
Total current liabilities		8,819			11,034
Other liabilities		212			276
Total liabilities		9,031			11,310

Commitments and Contingencies		—			—
Convertible preferred stock, $0.01 par value; no shares authorized, issued or outstanding as of March 31, 2021; 11,260,608 shares authorized, issued and outstanding as of December 31, 2020: aggregate liquidation preference of $70,254 as of December 31, 2020		—			73,037

Stockholders’ equity (deficit):
Preferred stock, $0.01 par value; 10,000,000 shares authorized, no shares issued or outstanding as of March 31, 2021; no shares authorized, issued or outstanding as of December 31, 2020 Common stock, $0.01 par value; 200,000,000 shares authorized, 39,866,669 shares issued and outstanding as of March 31, 2021; 37,410,450 shares authorized, 12,767,909 shares issued and outstanding as of December 31, 2020		399			71
Additional paid-in-capital		166,429			1,633
Accumulated other comprehensive (loss) gain		(102	)		10
Accumulated deficit		(65,547	)		(55,729	)
Total stockholders' equity (deficit)		101,179			(54,015	)
Total liabilities, convertible preferred stock and stockholders’ equity	$	110,210		$	30,332

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

Landos Biopharma, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(in thousands, except share and per share amounts)


	Three Months Ended
	March 31,
	2021			2020
Operating expenses:
Research and development	$	7,254		$	4,690
General and administrative		2,646			1,080
Total operating expenses		9,900			5,770
Loss from operations		(9,900	)		(5,770	)
Other income (expenses):
Interest expense		—			(1	)
Gain/(loss) from foreign exchange		18			(222	)
Other income, net		64			197
Other income (expense), net		82			(26	)
Net loss		(9,818	)		(5,796	)
Net loss per share, basic and diluted		(0.38	)		(0.49	)
Weighted-average shares used to compute net loss per share, basic and diluted		26,070,455			11,874,723
Net loss		(9,818	)		(5,796	)
Unrealized gain/(loss) on available-for-sale securities		(112	)		(686	)
Comprehensive loss		(9,930	)		(6,482	)

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

Landos Biopharma, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)


	Three Months Ended
	March 31,
	2021			2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	9,818		$	5,796
Adjustments to reconcile net earnings to net cash used in operating activities:
Compensation expense related to vesting of common stock issued to Xontogeny		—			13
Depreciation of property and equipment		43			29
Accrued interest on marketable securities		426			12
Stock-based compensation expense		1,023			—
Net realized gain/(loss) on sale of marketable securities		—			28
Net (accretion of discount) amortization of premium on marketable securities		(196	)		36
Gain/(loss) from foreign exchange		18			(223	)
Changes in operating assets and liabilities:
Incentive and tax receivables		153			—
Prepaid expenses and other assets		(2,212	)		56
Accounts payable		(422	)		2,792
Other liabilities		(1,575	)		(315	)
Net cash (used in) operating activities		(12,560	)		(3,368	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(64	)		(20	)
Purchase of available-for-sale marketable securities		(81,379	)		(1,251	)
Proceeds from sales and maturities of marketable securities		9,395			2,978
Net cash provided by (used in) investing activities		(72,048	)		1,707
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from initial public offering		90,506
Proceeds from exercise of stock options		258			—
Net cash provided by (used in) financing activities		90,764			—
Net change in cash and cash equivalents		6,156			(1,661	)
Cash and cash equivalents at beginning of period		2,416			9,808
Cash and cash equivalents at end of period	$	8,572		$	8,147

Supplemental non-cash disclosure: NONCASH INVESTING AND FINANCING ACTIVITY:
Deferred offering costs included in accounts payable and accrued liabilities	$	—		$	59
Purchases of fixed assets in accounts payable		—			23
Reclassification of par to additional paid-in-capital		2			—
Reclassification of series A and B convertible preferred stock to common stock		72,925			—
Unrealized loss on available-for-sale marketable securities		112			686

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

Landos Biopharma, Inc.

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity

(Unaudited)

(in thousands, except share amounts)


	Convertible preferred stock						Convertible preferred stock				Common stock
	Shares			Amounts			Shares		Amounts		Shares		Amounts		Additional paid-in capital		Tranche right		Accumulated deficit			Accumulated other comprehensive loss			Total stockholders’ deficit
Balance at December 31, 2019		11,260,608			73,037			—		—		11,784,148	$	63	$	16		—	$	(25,585	)	$	(77	)	$	(25,583	)
Compensation expense related to vesting of common stock issued to Xontogeny		—			—			—		—		193,182		2		12		—		—			—			14
Unrealized gain / (loss) on available-for-sale securities		—			—			—		—		—		—		—		—		—			(686	)		(686	)
Net loss		—			—			—		—		—		—		—		—		(5,796	)		—			(5,796	)
Balance at March 31, 2020		11,260,608			73,037							11,977,330		65		28		—		(31,381	)		(763	)		(32,051	)

	Convertible preferred stock						Convertible preferred stock				Common stock
	Shares			Amounts			Shares		Amounts		Shares		Amounts		Additional paid-in capital		Tranche right		Accumulated deficit			Accumulated other comprehensive loss			Total stockholders’ deficit
Balance at December 31, 2020		11,260,608		$	73,037			—	$	—		12,767,909	$	71	$	1,633		—	$	(55,729	)	$	10		$	(54,015	)
Conversion of preferred stock to common stock upon closing of the initial public offering		(11,260,608	)		(73,037	)		—		—		20,549,478		262		72,775		—		—			—			73,037
Issuance of common stock, net of issuance costs		—			—			—		—		6,250,000		63		90,443		—		—			—			90,506
Stock compensation expense		—			—			—		—		—		—		1,023		—		—			—			1,023
Exercise of Stock Options		—			—			—		—		299,282		3		555		—		—			—			558
Unrealized gain / (loss) on available-for-sale securities																							(112	)		(112	)
Net loss		—			—			—		—		—		—		—		—		(9,818	)		—			(9,818	)
Balance at March 31, 2021		—		$	—							39,866,669	$	399	$	166,429			$	(65,547	)	$	(102	)	$	101,179

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

Landos Biopharma, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Organization and description of the business

Description of business

Landos Biopharma, Inc. (the “Company”) is a clinical-stage biopharmaceutical company discovering and developing novel treatments for autoimmune diseases. The Company has identified Lanthionine Synthetase C-Like 2 (“LANCL2”) as a novel therapeutic target for autoimmune diseases, including inflammatory bowel disease (“IBD”); Crohn’s disease (“CD”), and ulcerative colitis (“UC”). Landos’ wholly-owned lead clinical asset, BT-11, is the first therapeutic that targets LANCL2 and acts locally in the gastrointestinal tract for treatment of inflammatory bowel disease (IBD). The Company completed global Phase 2 clinical testing of BT-11 for UC in 2020. Landos is a platform company that continues to discover innovative therapeutic targets (one to two new therapeutic targets per year and their associated drug development programs). Landos also has a robust pipeline of seven product candidates for other autoimmune diseases (lupus, rheumatoid arthritis, multiple sclerosis, type 1 diabetes), several of which Landos anticipates will advance to Phase 1 clinical testing in 2021. Since inception, the Company has devoted substantially all of its resources to performing research and development activities in support of its product development efforts. The Company does not have any products or partnered products approved for sale and has not generated any revenue from commercial product sales. The Company was incorporated in Delaware in January 2017.

On February 3, 2021, the Company completed its initial public offering (“IPO”) in which it issued and sold 6,250,000 shares of its common stock and the Company received net proceeds of $90.5 million from the IPO, after deducting underwriters’ discounts and commissions. Offering costs were initially capitalized and consisted of fees and expenses incurred in connection with the sale of common stock in the IPO, including legal, accounting, printing and other IPO-related costs. Upon completion of the IPO, these offering costs were reclassified to stockholders’ equity and offset against the proceeds from the offering on the balance sheet. Immediately prior to the completion of the IPO, all shares of convertible preferred stock then outstanding were converted into 20,549,478 shares of common stock on a one-to-one basis, $72.9 million of convertible preferred stock was reclassified to additional paid-in-capital and $0.2 of convertible preferred stock was reclassified to common stock on the Company’s balance sheet.

Liquidity and capital resources

The Company has incurred net losses and negative cash flows from operations since inception and had an accumulated deficit of $65.5 million as of March 31, 2021. Since inception through March 31, 2021, the Company has funded operations primarily through the issuance of convertible preferred stock and convertible promissory notes, and through proceeds from the Company's initial public offering. The Company expects to incur substantial operating losses for at least the next several years and will need to obtain additional financing in order to initiate and complete clinical trials, discover, develop, seek regulatory approvals for and prepare for potential commercialization of its product candidates. There can be no assurance that such financing will be available or will be at terms acceptable to the Company.

As of March 31, 2021, the Company had cash, cash equivalents and marketable securities of $106.4 million, which it believes will be sufficient to fund its planned operations through 2023 from the date of the issuance of its consolidated financial statements.

2. Summary of significant accounting policies

Basis of presentation

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Landos Biopharma Australia Pty Ltd. (“Landos Australia”). All intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s audited financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2020. In the opinion of the Company’s management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of its financial position, operating results and cash flows for the periods presented have been included. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the full year, for any other interim period or for any future year.

Use of estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Significant estimates and assumptions made in the accompanying consolidated financial statements include but are not limited to accrued liabilities, fair value

of equity instruments, and uncertain tax positions. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could differ from those estimates.

COVID-19

In March 2020, the World Health Organization declared the outbreak of the novel coronavirus disease (“COVID-19”) as a pandemic, and the Company expects its operations in all locations to be affected as the virus continues to proliferate. The Company has adjusted certain aspects of its operations to protect employees and customers while still meeting customers’ needs for vital technology. The Company will continue to monitor the situation closely and it is possible that further measures will be implemented. In light of the uncertainty as to the severity and duration of the pandemic, the impact on the financial position is uncertain at this time.

Cash and cash equivalents

The Company considers all highly liquid investments purchased with original maturities of three months or less from the purchase date to be cash equivalents. Cash equivalents consist primarily of amounts invested in money market funds and commercial paper and are stated at fair value.

Marketable securities

The Company’s investments in marketable securities are maintained by investment managers and consist of corporate debt securities with original maturities of over 90 days, all of which are considered available-for-sale debt securities. The Company classifies its available-for-sale securities as short-term marketable securities on the consolidated balance sheets, even though the stated maturity date may be one year or more beyond the current consolidated balance sheet date, as the Company views those securities as available for use in current operations, if needed.

Available-for-sale securities are carried at fair value with their unrealized gains and losses included in accumulated other comprehensive loss within stockholders’ (deficit) equity, until such gains and losses are realized in other income (expense), net, within the consolidated statements of operations and comprehensive loss or until an unrealized loss is considered other-than-temporary. Realized gains and losses are determined using the specific identification method.

The Company evaluates its investments with unrealized losses for other-than-temporary impairment. When assessing investments for other-than-temporary declines in value, the Company considers such factors as, among other things, how significant the decline in value is as a percentage of the original cost, how long the market value of the investment has been less than its original cost, the Company’s ability and intent to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value and market conditions. If the Company determines from this analysis that it does not expect to receive cash flows sufficient to recover the entire amortized cost of the security, a credit loss exists, the impairment is considered other-than-temporary and is recognized in the consolidated statements of operations and comprehensive loss.

Research and development expenses

Research and development expenses consist primarily of costs incurred for the development of the Company’s lead clinical product candidates BT-11, NX-13 and other pipeline therapeutic assets. Research and development costs consist primarily of external costs related to clinical development, contract manufacturing and discovery as well as personnel costs. Personnel costs consist of salaries and employee benefits. The Company estimates preclinical and clinical study and research expenses based on the services performed, pursuant to contracts with research institutions that conduct and manage preclinical and clinical studies and research services on its behalf. The Company records the costs of research and development activities based upon the estimated amount of services provided but not yet invoiced and includes these costs in accrued liabilities in the consolidated balance sheets. These costs are a component of the Company’s research and development expenses. The Company accrues for these costs based on factors such as estimates of the work completed and in accordance with agreements established with its third-party service providers under the service agreements. The Company makes significant judgments and estimates in determining the accrued liabilities balance in each reporting period. As actual costs become known, the Company adjusts its accrued liabilities. The Company has not experienced any material differences between accrued costs and actual costs incurred.

Basic and diluted net loss per share

Basic loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock together with the number of additional shares of common stock that would have been outstanding if all potentially dilutive shares of common stock had been issued. Since the Company was in a loss position for the periods presented, basic net loss per share is the same as diluted net loss per share since the effects of potentially dilutive securities are antidilutive.

Emerging growth company status

The Company is an emerging growth company (“EGC”), as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an EGC or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these combined and consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

Recently issued accounting pronouncements not yet adopted

In February 2016, the FASB issued ASU 2016-02—Leases (Topic 842), requiring the recognition of lease assets and liabilities on the balance sheet. The standard: (a) clarifies the definition of a lease; (b) requires a dual approach to lease classification similar to current lease classifications; and (c) causes lessees to recognize leases on the balance sheet as a lease liability with a corresponding right-of-use asset for leases with a lease-term of more than twelve months. The standard is effective for public entities for fiscal years beginning after December 15, 2018 and was initially effective for nonpublic entities for fiscal years beginning after December 15, 2019. In October 2019, the FASB approved a one-year delay in the effective date for non-public companies and, in June 2020, approved an additional one-year delay in the effective date for non-public companies. As a result, the standard is now effective for fiscal years beginning after December 15, 2021. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13—Financial Instruments (Topic 326) Measurement of Credit Losses on Financial Instrument (“CECL”), which requires an allowance for expected credit losses on financial assets be recognized as early as day one of the instrument. This ASU departs from the incurred loss model which means the probability threshold is removed. It considers more forward-looking information and requires the entity to estimate its credit losses as far as it can reasonably estimate. The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, for public business entities that are U.S. Securities and Exchange Commission (SEC) filers, excluding entities eligible to be smaller reporting companies (SRC). For all other public business entities, including SRC, the ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018. The Company elected to adopt the new standard in the annual reporting period beginning after December 15, 2022 and does not expect the adoption of this ASU to have a material impact on the consolidated financial statements.

3. Fair value measurement

Financial assets and liabilities are recorded at fair value on a recurring basis in the consolidated balance sheet. The carrying values of the Company’s financial assets and liabilities, including cash and cash equivalents, prepaids and other current assets, accounts payable, and accrued expenses approximate their fair value due to the short-term maturity of these instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. Assets and liabilities recorded at fair value in the consolidated financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels are directly related to the amount of subjectivity with the inputs to the valuation of these assets or liabilities as follows:

Level 1—Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2—Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable inputs for similar assets or liabilities. These include quoted prices for identical or similar assets or liabilities in active markets and quoted prices for identical or similar assets of liabilities in markets that are not active;

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

Financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used in such measurements are as follows (in thousands):


	March 31, 2021
	Level 1		Level 2		Level 3		Aggregate fair value
Assets:
Money market funds	$	7,233	$	—	$	—	$	7,233
Fixed income securities		—		71,512		—		71,512
Asset backed securities		—		26,274		—		26,274
Total assets	$	7,233	$	97,786	$	—	$	105,019


	December 31, 2020
	Level 1		Level 2		Level 3		Aggregate fair value
Assets:
Money market funds	$	265	$	—	$	—	$	265
Fixed income securities		—		23,343		—		23,343
Asset backed securities		—		2,375		—		2,375
Total assets	$	265	$	25,718	$	—	$	25,983

The contractual maturities of available for sale securities of March 31, 2021 are as follows:


	As of March 31,
	2021
	(in thousands)
Within one year	$	44,963
Within one to five years		52,823
Total contractual maturities	$	97,786

The Company’s financial instruments consist of Level 1 and Level 2 assets. The Company values its Level 1 assets based on quoted prices in active markets for identical instruments. Level 1 assets consist primarily of highly liquid money market funds that are included in cash equivalents. The Company values its Level 2 assets consisting of certificates of deposits, fixed income securities, and asset backed securities with the help of a third-party pricing service using quoted market prices for similar instruments or nonbinding market prices that are corroborated by observable market data. The Company uses such pricing data as the primary input, to which no material adjustments have been made during the periods presented, to make its determination and assessments as to the ultimate valuation of these assets. The fair values of these instruments approximate amortized cost.

4. Share-based compensation

2019 Equity Incentive Plan

In December 2019, the board of directors of the Company (the “Board”) adopted the 2019 Equity Incentive Plan (the “2019 Plan”). The 2019 Plan provides for the grant of share-based awards, including stock options and restricted stock units, to employees, directors, and non-employee service providers of the Company. In December 2019, the Board authorized 3,657,019 shares for future issuance under the 2019 Plan. All such shares authorized for issuance under the 2019 Plan have been reserved.

On January 27, 2021, the Company’s Board of Directors approved a 1.8249-for-1 stock split of the Company’s outstanding common shares. On January 29, 2021, the Company amended its Amended and Restated Certificate of Incorporation to affect the stock split. The stock split resulted in an adjustment to the preferred share conversion price to reflect a proportional increase in the number of common shares to be issued upon conversion. The accompanying financial statements and notes to financial statements give retroactive effect to the stock split for all periods presented.

A summary of the Company’s stock option activity is as follows:


	Number of Shares			Number of Options Outstanding			Weighted Average Exercise Price		Weighted Remaining Contract Term (in years)		Aggregate Intrinsic Value (in thousands)
Balances as of December 31, 2020		2,003,587			1,249,218		$	—		—	$	-
Authorized		—			—		$	—		—
Granted		(349,650	)		349,650		$	16.00		—
Exercised		—			(299,282	)	$	1.86		—
Forfeited		—			—		$	-		—
Balances as of March 31, 2021		1,653,937			1,299,586		$	5.67		9.67	$	5,151
Options exercisable at March 31, 2021					256,478		$	6.68		9.66	$	756
Options vested and expected to vest at March 31, 2021					1,299,586		$	5.67		9.67	$	5,151

The total intrinsic value of options exercised was $2.3 million for the three-months ended March 31, 2021.

The weighted average fair value of options to purchase common stock granted was $9.38 in the three months ended March 31, 2021.

The fair value of each stock option award is estimated on the grant-date using the Black-Scholes option pricing model. The inputs used below are subjective and require significant judgment to determine.


	Three Months Ended March 31, 2021
Expected term (in years)		5.9
Risk-free interest rate		0.46	%
Expected volatility		66.55	%
Dividend rate		—	%

The following table summarizes stock-based compensation expense for employees, which was included in the statements of operations and comprehensive loss as follows (in thousands):


	Three Months Ended March 31, 2021
Research and development	$	778
General and administrative		245
Total stock-based compensation expense	$	1,023

At March 31, 2021, the total compensation cost related to unvested stock-based awards granted to employees under the 2019 Plan but not yet recognized was approximately $3.1 million. This cost will be amortized on a straight-line basis over the remaining vesting period. The weighted-average remaining recognition period is approximately 1.6 years.

Early Exercise of Employee Options

The terms of the 2019 Plan permit certain option holders to exercise options before their options are vested. The shares of common stock granted upon early exercise that have not vested are subject to repurchase by the Company in the event of termination of the purchaser’s employment, at the price paid by the purchaser. While such shares have been issued, they are not considered outstanding for accounting purposes until they vest and are therefore excluded from shares used in determining loss per share until the repurchase right lapses and the shares are no longer subject to the repurchase feature. The liability is reclassified into common stock and additional paid-in capital as the shares vest and the repurchase right lapses. Accordingly, the Company has recorded the unvested portion of the early exercise proceeds of $467 thousand as a liability in the accompanying balance sheets as of March 31, 2021. As of March 31, 2021, the Company recorded $255 thousand in other current liabilities and $212 thousand in other long term liabilities related to shares that were subject to repurchase.

5. Commitments and contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. The Company believes there is no litigation pending or loss contingencies that could have, either individually or in the aggregate, a material impact on the Company’s financial statements.

6. Income taxes

The Company estimates an annual effective tax rate of 0% for the year ending December 31, 2021 as the Company incurred losses for the three month period ended March 31, 2021, and is forecasting an estimated net loss for both financial statement and tax purposes for the year ending December 31, 2021. Therefore, no federal or state income taxes are expected and none have been recorded at this time. Income taxes have been accounted for using the liability method in accordance with FASB ASC 740.

Due to the Company's history of losses since inception, there is not enough evidence at this time to support that the Company will generate future income of a sufficient amount and nature to utilize the benefits of its net deferred tax assets. Accordingly, the deferred tax assets have been reduced by a full valuation allowance, since the Company cannot currently support that realization of its deferred tax assets is more likely than not. However, the Company feels its deferred tax assets may be used upon the Company becoming profitable.

At March 31, 2021, the Company had no unrecognized tax benefits that would reduce the Company’s effective tax rate if recognized.

7. Net loss per share common share

The following table sets forth the computation of basic and diluted net loss per share during the periods presented (in thousands, except share and per share amounts):


	Three Months Ended March 31,			Three Months Ended March 31,
	2021			2020
Numerator:
Net loss	$	(9,818	)	$	(5,796	)
Denominator:
Weighted-average shares of common stock issued and outstanding		26,332,784			12,363,695
Less: weighted-average unvested common stock subject to repurchase		(262,329	)		(488,972	)
Weighted-average common stock outstanding used to calculate net loss per common share, basic and diluted		26,070,455			11,874,723
Net loss per share of common stock, basic and diluted	$	(0.38	)	$	(0.49	)

The following outstanding shares of potentially dilutive securities have been excluded from diluted net loss per common share for the periods presented, because their inclusion would be anti-dilutive:


	Three Months Ended March 31,		Three Months Ended March 31,
	2021		2020
Convertible preferred stock on an as-converted basis		—		20,549,478
Stock options to purchase common stock		1,299,586		—
Common stock subject to repurchase		250,924		386,366
Total		1,550,510		20,935,844

8. Subsequent events

On May 14, 2021, the Company entered into an exclusive license and collaboration agreement (the "LianBio Agreement") with Lian Respiratory Limited, a Hong Kong entity, for the development, manufacture and commercialization of the Company’s proprietary compounds, omilancor and NX-13 (the "Licensed Products"), within The People’s Republic of China, Macau, Hong Kong, Thailand, Taiwan, South Korea, Myanmar, Vietnam, Cambodia, Indonesia, Philippines, and Singapore (the “Territory”). Under the terms of the LianBio Agreement, the Company will receive an upfront payment of $18.0 million in connection with the execution of the LianBio Agreement, the Company will be eligible to receive up to $95.0 million and sales milestone payments of up to $105.0 million. The Company is also eligible to receive tiered low-to mid-double-digit royalties based on net sales of Licensed Products in the Territory, subject to reduction in specified circumstances.

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto as of December 31, 2020 and 2019 and for each of the two years in the period ended December 31, 2020 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on March 30, 2021. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “we,” “us,” and “our” refer to Landos Biopharma, Inc. together with its subsidiaries.

Forward-Looking Statements

The information in this discussion contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are subject to the “safe harbor” created by those sections. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K and in our other filings with the SEC. Such risks and uncertainties may be amplified by the COVID-19 pandemic and its potential impact on our business and the global economy. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements.

Overview

We are a clinical-stage biopharmaceutical company focused on the discovery and development of oral therapeutics for patients with autoimmune diseases that are the first to target novel mechanisms of action, including the LANCL2, NLRX1 and PLXDC2 immunometabolic pathways. Our core expertise is in the development of therapeutic candidates that target novel pathways at the interface of immunity and metabolism. Based on our understanding of the role that cellular metabolic pathways have on modulating inflammatory responses, we aim to inhibit these inflammatory responses by changing the metabolic processes in target cells. We leverage our proprietary AI-based precision medicine platform and growing reference datasets, which we refer to as our LANCE platform, to identify novel therapeutic targets and biomarkers based on predictions of immunometabolic function and create therapeutic candidates for autoimmune disease to engage those targets in areas of unmet medical need. Through our LANCE platform, we have identified seven novel immunometabolic targets and product candidates to date across 14 indications, including ulcerative colitis, or UC, Crohn’s disease, or CD, lupus, rheumatoid arthritis, nonalcoholic steatohepatitis, multiple sclerosis, Alzheimer’s disease, asthma, psoriasis, atopic dermatitis, eosinophilic esophagitis, chronic obstructive pulmonary disease, diabetic neuropathy and type 1 diabetes.

Our lead product candidates are:

· Omilancor (BT-11), a small molecule targeting the LANCL2 pathway that is in clinical development for the treatment of ulcerative colitis and Crohn’s disease.

We recently completed the Phase 2 clinical trial in mild to moderate ulcerative colitis patients, which demonstrated that once a day oral dosing with omilancor was gut-restricted and well tolerated, with no treatment-related significant adverse events and a similar adverse event profile across placebo and omilancor groups. Once a day oral dosing with omilancor induced clinical remission and histological remission plus statistically significant changes in biomarkers.

We generated positive translational data in the Phase 2 clinical trial in ulcerative colitis patients highlighting that omilancor induced increased levels of regulatory CD4+ T cells and myeloid cells and increased IL-10 expression in remitters (p = 0.036) while decreasing TNF-a expressing myeloid cells (p = 0.037) in the colonic mucosa of patients with ulcerative colitis. These results are consistent with normalization of fecal calprotectin occurring in 43.8% of patients receiving omilancor 1000 mg and 40.6% of patients receiving omilancor 500 mg relative to 21.4% of patients receiving placebo after 2 weeks of treatment (p = 0.048) observed in the trial.

We expect to hold an end-of-Phase 2 meeting with the U.S. Food and Drug Administration, or the FDA, in the second quarter of 2021.

After we receive guidance from the FDA, we will incorporate the agency’s feedback in the clinical trial design and will plan to commence a Phase 3 trial of omilancor in UC patients in the United States, Russia, Asia and Europe.

We have commenced a Phase 2 trial in moderate to severe Crohn’s disease in the second quarter of 2021 (please refer to press release dated May 6 and Form 8-K filed on May 7 for further details). We expect to announce topline data from the induction phase of this trial in the first half of 2022.

We have developed an orodispersable formulation of omilancor that is designed to enable exposure to omilancor in the upper gastrointestinal tract while retaining the local action without systemic exposure. This new omilancor formulation is designed for the oral treatment of eosinophilic esophagitis.

We received clearance from the FDA for an investigational new drug application, or IND, for omilancor for the treatment of eosinophilic esophagitis, an orphan drug indication (please refer to press release dated April 6, 2021 for more details regarding the IND clearance).

We expect to commence Phase 1b trials in eosinophilic esophagitis and psoriasis in 2022.

We have developed a topical formulation of omilancor for skin indications and demonstrated its preclinical efficacy in mouse models of psoriasis (please refer to press release dated April 26, 2021 for more details on the data).

We expect to submit two INDs for omilancor for the treatment of plaque psoriasis and atopic dermatitis in the third quarter of 2021. Following FDA clearance, we plan to initiate a Phase 1b study in patients.



NX-13, a small molecule targeting and activating the NLRX1 pathway that is in clinical development for the treatment of UC and CD.

We have completed a Phase 1a trial of NX-13 in normal healthy volunteers in March of 2021. In the trial, NX-13 demonstrated a well-tolerated profile, gut-restricted pharmacokinetics and dose-dependent changes in fecal calprotectin (please refer to press release dated March 4, 2021 for further details on the topline results).

We have commenced a Phase 1b trial in ulcerative colitis with the first patient randomized on April 29th, 2021 (please refer to Form 8-K filing and press release dated April 29, 2021 which more fully describe the design and initiation of the Phase 1b trial in UC patients).

We expect to have the data readout in the second half of 2021 and we expect to announce topline clinical data from this trial in the first quarter of 2022.



BT-104, a small molecule targeting and activating the LANCL2 pathway that is in IND-enabling studies. BT-104 has a different pharmacokinetic (PK) profile than BT-11 and we have observed in preclinical studies that it is highly systemically distributed.

We have demonstrated in a NZB/W F1 mouse model of lupus that BT-104 reduced serum anti-dsDNA antibodies and prevented worsening of proteinuria grade from baseline. Mice were treated with BT-104 daily for 12 weeks between the ages of 24 and 36 weeks. Ninety percent of mice treated with BT-104 experienced an improvement or no change in proteinuria grade from baseline, in comparison to 90% of vehicle treated controls that experienced a worsening in grade. Grade 2 or lower proteinuria was well correlated with the prevention of ESRD clinically.

We expect to complete RNA sequencing studies with samples from healthy mice and mice with lupus treated with vehicle versus BT-104 orally to identify immunological signatures and biomarkers connected to the mechanism of action of BT-104 and help design inclusion/exclusion criteria in Phase 1b clinical trials.

On April 15, we filed a PIND meeting request with the FDA and expect to complete IND-enabling studies and submit two IND to the FDA in the third quarter of 2021.

We expect to advance BT-104 into a Phase 1a clinical trial in the fourth quarter of 2021 for systemic lupus erythematosus and rheumatoid arthritis.

We expect to establish a Clinical Advisory Board for lupus in the second half of 2021.

We have continued to efficiently develop our pipeline, including four additional preclinical product candidates:



PX-69, a small molecule designed to target and activate the PLXDC2 pathway that is in preclinical testing for diabetic nephropathy and rheumatoid arthritis.

We have generated preclinical data demonstrating efficacy of PX-69 in mouse and rat models of rheumatoid arthritis. Please refer to the press release dated April 26, 2021 for further details on preclinical findings demonstrating the ability of PX-69 to provide protection against rheumatoid arthritis in rats and mice through immunometabolic mechanisms.

We are currently performing scale up manufacturing for PX-69.

We expect to commence IND-enabling studies in the second half of 2021

We expect to file an IND for PX-69 in rheumatoid arthritis in the first half of 2022.



BT-111, a small molecule designed to target and activate LANCL2 for the treatment of non-alcoholic steatohepatitis and type 1 diabetes. We have generated preclinical data demonstrating efficacy of BT-111 in mouse models of NASH and type 1 diabetes.

o We have demonstrated that therapeutic dosing of BT-111 (10 mg/kg) for six weeks between weeks six and 12 of CDAA diet, reduced lipid accumulation and liver fibrosis (n = 10, P ≤ 0.05). Liver fibrosis, assessed by percent positive area in liver histology by Masson’s trichrome staining, was approximately normalized to standard diet controls.

o We have demonstrated that BT-111 maintained ß cell mass in a NOD mouse model and reduced apoptosis of human islet cells in response to oxidative and inflammatory stress in vitro.



NX-66, a small molecule designed to target NLRX1 currently in preclinical testing in mouse models of multiple sclerosis and Alzheimer’s disease. NX-66 is highly systemically distributed and penetrates the blood brain barrier.

o We have demonstrated that therapeutic dosing of oral NX-66 (20 mg/kg), between days 14 and 23 post-challenge, ameliorated disease severity in a MOG-induced model of EAE. NX-66 provided a greater than 50% reduction in disease activity four days after the initiation of treatment (n = 10, P ≤ 0.05). NX-66 treatment decreased Tnf and IL1b expression in the spinal cords of EAE mice.

o Testing of the preclinical efficacy of NX-66 in mouse models of Alzheimer’s disease is also underway.



NX-73, a small molecule designed to target NLRX1 currently in preclinical testing in mouse models of asthma and chronic obstructive pulmonary disease.

We have identified and implemented 4 models of allergic asthma using 4 of the most clinically relevant and ubiquitous allergens. These models indicate enhanced eosinophilia, neutrophilia, Th2 and Th17 mediated immune signaling in the absence of Nlrx1.

We are using four validated models of allergy and asthma using Aspergillus fumigatus, Alternaria alternata, ragweed pollen, and house dust mite extract to assess efficacy of NX-73 in suppressing Th2-mediated responses post-sensitization and providing protection from asthma and allergy in mice.

LANCE Platform

We leverage our proprietary AI-based precision medicine platform, our LANCE platform, to identify novel therapeutic targets based on predictions of immunometabolic function and create therapeutic candidates to engage those targets in areas of unmet medical need. We expect that recent augmentations in Artificial Intelligence (A.I.) coupled with growth of our Shadowfax High Performance Computing (HPC) environment at Landos will continue to catalyze the LANCE platform for precision autoimmune disease drug development. We have continued to develop our HPC-driven, A.I.- and modeling-based advanced computational platform for precision autoimmune disease drug development. Several enhancements to the LANCE platform encompassing natural language processing, NLP, and graph-based analytics are designed to allow for the processing of millions of articles and billions of data points. We believe these critical enhancements to the LANCE platform will facilitate a higher degree of data processing and integration to quickly identify the next generation of therapeutic targets and biomarkers plus scout for new indications. Some of the recent enhancements to the LANCE platform include:



Developing a new sensitivity analysis framework to capture many features of our computational models of the immune response.



Incorporating NLP of primary biomedical literature to augment novel candidate discovery and characterization. This proprietary NLP framework allows Landos researchers to rapidly assess the quality of primary literature associated with initial candidates derived from system-wide analysis of large-scale clinical datasets.



Improved the multiscale modeling capabilities of our HPC-based agent-based modeling tool ENISI (Enteric Immunity Simulator) by incorporating cellular metabolic networks at the single-cell level.



Utilizing a variety of graph-based techniques centered on information propagation via homology modeling to utilize data from well-studied model systems, and biochemical pathway analysis to identify novel sites of convergence between immune and metabolic pathways.



Incorporating advanced machine learning strategies to further enhance scalability and efficiency, including extending our library of algorithms and models while supporting increased model complexity in the intersection of immunity and metabolism.



Establishing large-scale parallel computing systems for implementing parallel simulation frameworks for massively and dynamically interacting large-scale models.



Developing a user-friendly web-based environment to support and HPC-driven infrastructure for drug development.



Developing and calibrating unique, detailed immunometabolic models of the immune system.



Increasing the number of relevant autoimmune disease genomic, metabolomic and biomarker datasets (ulcerative colitis, Crohn’s disease, rheumatoid arthritis, lupus, multiple sclerosis, type 1 diabetes, psoriasis, atopic dermatitis, asthma, allergy, COPD).



Further enhancing integration across A.I., agent-based modeling (ABM), partial differential equations (PDE) and ordinary differential equation (ODE) based modeling within the LANCE platform.



Identifying and validating novel therapeutic targets and biomarkers of response based on the iterative systems biology approach in LANCE.



Elucidating novel mechanistic insights for the newly identified therapeutic targets.



Establishing robust verification and validation methods for confirming model predictions based on clustering analytics, improved big data management through digital libraries and experimental validation.



Utilizing the clinical, translational and immunological data from our clinical trials to enhance our model calibration databases and increase the predictive power of our computational and mathematical models.



Increasing our computational and HPC capabilities by establishing a data room with a new Shadowfax HPC system containing 1,536 cores in 64 compute nodes (12 CPUs and 2 cores per CPU), two high memory nodes with 10 cores each, 2 login nodes, 1 head node, on a private VPN plus 500 TB of storage. This on-premise computing environment can seamlessly scale to cloud compute environments when needed.

Since our inception in 2017, our operations have focused on developing our clinical and preclinical product candidates and our LANCE platform, organizing and staffing our company, business planning, raising capital, establishing our intellectual property portfolio and conducting clinical trials and preclinical studies. We do not have any product candidates approved for sale and have not generated any revenue from product sales. We have funded our operations primarily through the sale of equity securities. Since inception, we have raised an aggregate of $170.0 million of gross proceeds from our initial public offering, or IPO, and the sale of shares of our preferred stock and convertible promissory notes.

Since inception, we have incurred significant operating losses. Our net loss was $9.8 million and $5.8 million for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, we had an accumulated deficit of $65.5 million. We expect to continue to incur significant expenses and operating losses for the foreseeable future. We anticipate that our expenses will increase significantly in connection with our ongoing activities, as we:



conduct our ongoing and planned clinical trials of omilancor and NX-13, as well as initiate and complete additional clinical trials, as needed;



pursue regulatory approval of omilancor and NX-13 for the treatment of UC and CD;



leverage our LANCE platform to discover and develop additional product candidates for the treatment of autoimmune diseases;



scale up our clinical and regulatory capabilities;



establish a commercialization infrastructure and scale up external manufacturing and distribution capabilities to commercialize any product candidates for which we may obtain regulatory approval, including omilancor and NX-13;



adapt our regulatory compliance efforts to incorporate requirements applicable to marketed products;



maintain, expand and protect our intellectual property portfolio;



hire additional clinical, manufacturing and scientific personnel;



add operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts; and



incur additional legal, accounting and other expenses in operating as a public company.

Recent Developments: LianBio Agreement

On May 14, 2021, the Company entered into an exclusive license and collaboration agreement, or the LianBio Agreement, with Lian Respiratory Limited, a Hong Kong entity, for the development, manufacture and commercialization of the Company’s proprietary compounds, omilancor and NX-13, or the Licensed Products, within The People’s Republic of China, Macau, Hong Kong, Thailand, Taiwan, South Korea, Myanmar, Vietnam, Cambodia, Indonesia, Philippines, and Singapore, or the Territory. Under the terms of the LianBio Agreement, the Company will receive an upfront payment of $18.0 million in connection with the execution of the LianBio Agreement and will be eligible to receive development milestone payments of up to $95.0 million and sales milestone payments of up to $105.0 million. The Company is also eligible to receive tiered low- to mid-double-digit royalties based on net sales of Licensed Products in the Territory, subject to reduction in specified circumstances.

Consistent with our strategy, we intend to continue to pursue territory deals that enable partnering on commercialization of lead therapeutic assets outside of the U.S. and European markets. Moreover, we will consider partnering with strategics to develop some of the follow on therapeutic assets as a means of monetizing some of our pipeline assets.

Liquidity and Capital Resources

On February 3, 2021, we completed our IPO in which we issued and sold 6,250,000 shares of our common stock at a public offering and received net proceeds of $90.5 million, after deducting underwriters’ discounts and commissions and expenses payable by us.

We have further strengthened our capital position and operating runway through our IPO and business development activities. Based on our current expectation for operations, research, development, and clinical trials plans - we believe that the $106.4 million in cash and marketable securities (not including the 18.0 million upfront payment due to us under the LianBio Agreement) will be sufficient to support our operating costs through 2023.

Components of our results of operations

Research and development expenses

Research and development expenses consist primarily of costs incurred in connection with our research activities, including our discovery efforts, and the development of our product candidates, and include:



salaries, benefits, stock-based compensation and other related costs for personnel engaged in research and development functions;



expenses incurred under agreements with third parties, including CROs and other third parties that conduct research, preclinical activities and clinical trials on our behalf, as well as CMOs that manufacture drug material for use in our clinical trials and preclinical studies;



costs of outside consultants, including their fees, and related travel expenses;



the costs of laboratory supplies and acquiring, developing and manufacturing preclinical and clinical trial supply; and



allocated expenses for rent and maintenance of facilities and other operating costs.

We expense research and development costs as incurred. We track external development costs by product candidate or development program, but we do not allocate personnel costs, or other internal costs to specific development programs or product candidates.

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have a higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will continue to increase substantially for the foreseeable future and will comprise a larger percentage of our total expenses as we complete our ongoing clinical trials, initiate new clinical trials, continue to discover and develop additional product candidates and prepare regulatory filings for any product candidates that successfully complete clinical development.

The successful development of our product candidates is highly uncertain. At this time, we cannot determine with certainty the duration and costs of our existing and future clinical trials of our product candidates or any other product candidate we may develop or

if, when, or to what extent we will generate revenue from the commercialization and sale of any product candidate for which we obtain marketing approval. We may never succeed in obtaining marketing approval for any product candidate. The duration, costs and timing of clinical trials and development of our product candidates and any other product candidate we may develop in the future will depend on a variety of factors, including:



per patient trial costs;



the number of patients who enroll in each trial;



the number of trials required for approval;



the number of sites included in the trials;



the countries in which the trials are conducted;



the length of time required to enroll eligible patients;



the drop-out or discontinuation rates of patients;



potential additional safety monitoring requested by regulatory agencies;



the duration of patient participation in the trials and follow-up;



the phase of development of the product candidate; and



the efficacy and safety profile of the product candidate.

Our expenditures are subject to additional uncertainties, including the terms and timing of regulatory approvals, and the expense of filing, prosecuting, defending and enforcing any patent claims or other intellectual property rights. We may never succeed in achieving regulatory approval for our product candidates. We may obtain unexpected results from our clinical trials. We may elect to discontinue, delay or modify clinical trials of our product candidates. A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in our clinical trials due to patient enrollment or other reasons, we would be required to expend significant additional financial resources and time on the completion of clinical development.

General and administrative expenses

General and administrative expenses consist primarily of salaries and other related costs for personnel in our executive, finance, business development and administrative functions. General and administrative expenses also include legal fees relating to intellectual property and corporate matters, professional fees for accounting, auditing, tax and consulting services; insurance costs, travel expenses and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.

We expect that our general and administrative expenses will increase in the future as we increase our personnel headcount to support our expanded infrastructure, including the development of a commercialization infrastructure for any product candidates for which we may obtain regulatory approval. We also expect to incur increased expenses associated with being a public company, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with stock exchange and SEC requirements, director and officer insurance costs and investor and public relations costs. We anticipate the additional costs for these services will increase our general and administrative expenses by between $1.0 million and $2.0 million on an annual basis.

Interest expense

Interest expense consists of interest due on our convertible promissory notes that were outstanding during the period prior to the conversion of the notes into Series B convertible preferred stock in August 2019.

Income taxes

Since our inception in January 2017, we have generated cumulative federal and state net operating loss for which we have not recorded any net tax benefit due to uncertainty around utilizing these tax attributes within their respective carryforward periods.

As of March 31, 2021, we had federal net operating loss carryforwards, or NOLs, of $43.9 million and state NOLs of $43.9 million that may be available to offset future taxable income. The federal NOLs include $2.1 million available to reduce 100% of future taxable income, which will begin to expire in 2037, if not utilized, and $41.8 million, which can be carried forward indefinitely. The state NOLs will begin to expire in 2037, if not utilized.

Utilization of the net operating losses and credits may be subject to a substantial annual limitation due to ownership change limitations provided by the Internal Revenue Code of 1986, as amended. The annual limitation may result in the expiration of our net operating losses and credits before we can use them. We have recorded a valuation allowance on our net deferred tax assets, including our deferred tax assets related to our net operating loss and research and development tax credit carryforwards.

Other income, net

Other income, net consists of interest income received from marketable securities.

Results of operations

Comparison of the three months ended March 31, 2021 and 2020

The following table summarizes our results of operations for the years ended March 31, 2021 and 2020:


	Three Months Ended March 31,
	2021		2020
	(in thousands)
Operating expenses
Research and development	$	7,254	$	4,690
General and administrative	$	2,646	$	1,080
Total operating expenses