10-Q
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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, 2023

OR

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

For the transition period from to

Commission File Number: 001-39971

 

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.)

P.O. Box 11239

Blacksburg, Virginia

24062

(Address of principal executive offices)

(Zip Code)

(540) 218-2232

Registrant’s telephone number, including area code

 

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 5, 2023, the registrant had 31,168,449 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

 

Condensed Consolidated Statements of Changes in 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

15

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

22

Item 4.

Controls and Procedures

22

 

 

 

PART II.

OTHER INFORMATION

23

 

 

 

Item 1.

Legal Proceedings

23

Item 1A.

Risk Factors

23

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

23

Item 6.

Exhibits

24

Signatures

25

 

 


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements. (Unaudited)

Landos Biopharma, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

 

 

 

March 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

45,244

 

 

$

36,640

 

Marketable securities, available-for-sale

 

 

4,762

 

 

 

7,762

 

Prepaid expenses and other current assets

 

 

1,178

 

 

 

851

 

Total current assets

 

 

51,184

 

 

 

45,253

 

Total assets

 

$

51,184

 

 

$

45,253

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

2,298

 

 

$

3,435

 

Accrued liabilities

 

 

1,862

 

 

 

2,687

 

Total current liabilities

 

 

4,160

 

 

 

6,122

 

Total liabilities

 

 

4,160

 

 

 

6,122

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.01 par value; 10,000,000 shares authorized, no shares issued and
  outstanding as of March 31, 2023 and December 31, 2022

 

 

 

 

 

 

Common stock, $0.01 par value; 200,000,000 shares authorized, 31,168,449 and
  
40,254,890 shares issued and outstanding as of March 31, 2023 and December 31,
  2022, respectively

 

 

312

 

 

 

403

 

Additional paid-in capital

 

 

186,094

 

 

 

172,212

 

Accumulated other comprehensive loss

 

 

79

 

 

 

(57

)

Accumulated deficit

 

 

(139,461

)

 

 

(133,427

)

Total stockholders’ equity

 

 

47,024

 

 

 

39,131

 

Total liabilities and stockholders’ equity

 

$

51,184

 

 

$

45,253

 

 

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

 

 

3


 

Landos Biopharma, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

$

3,326

 

 

$

10,800

 

General and administrative

 

 

3,153

 

 

 

4,153

 

Total operating expenses

 

 

6,479

 

 

 

14,953

 

Loss from operations

 

 

(6,479

)

 

 

(14,953

)

Other income:

 

 

 

 

 

 

(Loss) gain from foreign exchange

 

 

(4

)

 

 

1

 

Interest and other income, net

 

 

449

 

 

 

88

 

Other income, net

 

 

445

 

 

 

89

 

Net loss

 

$

(6,034

)

 

$

(14,864

)

Net loss per share, basic and diluted

 

$

(0.09

)

 

$

(0.37

)

Weighted-average shares used to compute net loss per share, basic and diluted

 

 

64,842,336

 

 

 

40,254,890

 

Comprehensive loss:

 

 

 

 

 

 

Net loss

 

$

(6,034

)

 

$

(14,864

)

Unrealized gain (loss) on available-for-sale securities

 

 

136

 

 

 

(242

)

Comprehensive loss

 

$

(5,898

)

 

$

(15,106

)

 

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

 

4


 

Landos Biopharma, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net loss

 

$

(6,034

)

 

$

(14,864

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation

 

 

 

 

 

353

 

Stock-based compensation expense

 

 

224

 

 

 

941

 

Amortization of premium on marketable securities

 

 

32

 

 

 

312

 

Non-cash loss on termination of lease

 

 

 

 

 

137

 

Gain on sale of equipment

 

 

 

 

 

(9

)

     Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

(327

)

 

 

(2,262

)

Accounts payable

 

 

(1,265

)

 

 

(3,084

)

Other liabilities

 

 

(800

)

 

 

1,974

 

Net cash used in operating activities

 

 

(8,170

)

 

 

(16,502

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Purchase of property and equipment

 

 

 

 

 

(7

)

Purchase of available-for-sale marketable securities

 

 

 

 

 

(1,027

)

Proceeds from sales and maturities of marketable securities

 

 

3,104

 

 

 

20,540

 

Net cash provided by investing activities

 

 

3,104

 

 

 

19,506

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Proceeds from issuance of pre-funded warrants for the purchase of common stock, net of issuance costs

 

 

16,666

 

 

 

 

Repurchase and retirement of common stock

 

 

(3,000

)

 

 

 

Net cash provided by financing activities

 

 

13,666

 

 

 

 

Net change in cash and cash equivalents

 

 

8,600

 

 

 

3,004

 

Cash and cash equivalents at beginning of period

 

 

36,640

 

 

 

8,305

 

Effect of exchange rates on cash

 

 

4

 

 

 

(21

)

Cash and cash equivalents at end of period

 

$

45,244

 

 

$

11,288

 

 

 

 

 

 

 

 

Supplemental non-cash disclosure:
NONCASH INVESTING AND FINANCING ACTIVITY:

 

 

 

 

 

 

Deferred financing costs in accounts payable

 

$

99

 

 

$

 

Operating right-of-use asset obtained in exchange for operating lease liability

 

$

 

 

$

824

 

Derecognition of operating right-of-use asset and operating lease liability
   upon termination of lease

 

$

 

 

$

714

 

Unrealized gain (loss) on available-for-sale marketable securities

 

$

136

 

 

$

(242

)

 

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

 

5


 

Landos Biopharma, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(in thousands, except share amounts)

(Unaudited)

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amounts

 

 

Additional
Paid-in
Capital

 

 

Accumulated
Other
Comprehensive
Loss

 

 

Accumulated
Deficit

 

 

Total
Stockholders’
Equity

 

Balance at December 31, 2022

 

 

40,254,890

 

 

$

403

 

 

$

172,212

 

 

$

(57

)

 

$

(133,427

)

 

$

39,131

 

Repurchase and retirement of common stock

 

 

(9,086,441

)

 

 

(91

)

 

 

(2,909

)

 

 

 

 

 

 

 

 

(3,000

)

Issuance of pre-funded warrants for the purchase of common stock, net of issuance costs

 

 

 

 

 

 

 

 

16,567

 

 

 

 

 

 

 

 

 

16,567

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

224

 

 

 

 

 

 

 

 

 

224

 

Unrealized gain on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

136

 

 

 

 

 

 

136

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,034

)

 

 

(6,034

)

Balance at March 31, 2023

 

 

31,168,449

 

 

$

312

 

 

$

186,094

 

 

$

79

 

 

$

(139,461

)

 

$

47,024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amounts

 

 

Additional
Paid-in
Capital

 

 

Accumulated
Other
Comprehensive
Loss

 

 

Accumulated
Deficit

 

 

Total
Stockholders’
Equity

 

Balance at December 31, 2021

 

 

40,254,890

 

 

$

403

 

 

$

170,241

 

 

$

(225

)

 

$

(94,151

)

 

$

76,268

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

941

 

 

 

 

 

 

 

 

 

941

 

Unrealized loss on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

(242

)

 

 

 

 

 

(242

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,864

)

 

 

(14,864

)

Balance at March 31, 2022

 

 

40,254,890

 

 

$

403

 

 

$

171,182

 

 

$

(467

)

 

$

(109,015

)

 

$

62,103

 

 

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

 

6


 

Landos Biopharma, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

1. Organization and Description of the Business

Landos Biopharma, Inc. (“Landos” or the “Company”) was incorporated in the state of Delaware in January 2017 and is a clinical-stage biopharmaceutical company focused on the discovery and development of oral therapeutics for patients with autoimmune diseases. The Company has several active development programs, each discovered internally, targeting novel pathways at the interface of immunity and metabolism.

Nasdaq Listing Rule Compliance

In June 2022, the Company received a notice from the Listing Qualifications Department of The Nasdaq Stock Market (“Nasdaq”) notifying the Company that its listed securities did not maintain the minimum bid price requirement of $1.00 per share of common stock for continued listing on the Nasdaq Global Market. In December 2022, Nasdaq approved the Company's application to transfer to The Nasdaq Capital Market and notified the Company that it has been granted an additional 180-calendar day compliance period to regain compliance with the minimum bid price requirement. As part of the transfer, the Company provided notice to Nasdaq that it intended to cure the bid price deficiency by effecting a reverse stock split, if necessary, prior to the end of the compliance period. The Company intends to actively monitor the bid price of its common stock and will consider available options, including a reverse stock split, to regain compliance with the listing requirements.

Liquidity

As of March 31, 2023, the Company had cash, cash equivalents and marketable securities of $50.0 million, which it believes will be sufficient to fund its planned operations for at least one year from the issuance of these condensed consolidated financial statements. Since the Company’s inception in 2017, it has funded its operations through the issuance of convertible preferred stock and convertible promissory notes, the proceeds from its IPO, the upfront payment from the license and collaboration agreement and the sale of pre-funded warrants in a private placement. As of March 31, 2023, the Company had an accumulated deficit of $139.5 million and expects to incur substantial operating losses for at least the next several years. As such, the Company will need to raise additional capital to initiate and complete its planned clinical trials, to continue and expand its research and development operations that support its planned discovery, development and clinical and regulatory activities and to adequately prepare for commercialization of its product candidates that may achieve regulatory approval in the future.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Landos Biopharma Australia Pty Ltd. All intercompany balances and transactions have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“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, 2022. 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, 2023 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 GAAP requires management to make certain estimates and assumptions that affect the reported amounts in the Company's consolidated financial statements and the disclosures made in the accompanying notes. Significant estimates and assumptions made in the accompanying condensed 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. Despite management’s intention to establish accurate estimates and use reasonable assumptions, actual results may differ from the Company's estimates.

Significant Accounting Policies

The significant accounting policies used in preparation of these unaudited condensed consolidated financial statements for the three months ended March 31, 2023 are consistent with, and should be read in conjunction with, those discussed in Note 1 of the consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

 

7


 

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and highly liquid investments with original maturities of three months or less at the date of purchase. The carrying amounts approximate fair value due to the short maturities of these investments. Cash equivalents consist primarily of amounts invested in money market funds and U.S. government treasury securities 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 and asset backed 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 Condensed Consolidated Balance Sheets, even though the stated maturity date may be one year or more beyond the current Condensed Consolidated Balance Sheets 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’ equity, until such gains and losses are realized in other income, net, within the Condensed Consolidated Statements of Operations and Comprehensive Loss, except for the changes in allowance for expected credit losses, which are recorded in other income, net, within the Condensed Consolidated Statements of Operations and Comprehensive Loss. Realized gains and losses are determined using the specific identification method.

The Company conducts periodic reviews to identify and evaluate each investment in its portfolio that has an unrealized loss to determine whether a credit loss exists. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis.

A credit loss is estimated by considering available information relevant to the collectability of the security and information about past events, current conditions and reasonable and supportable forecasts. Any credit loss is recorded as a charge to other income, net, not to exceed the amount of the unrealized loss. Unrealized losses other than the credit loss are recognized in accumulated other comprehensive loss. When determining whether a credit loss exists, the Company considers several factors, including whether the Company has the intent to sell the security or whether it is more likely than not that the Company will be required to sell the security prior to recovery of its amortized cost basis. If the Company has an intent to sell, or if it is more likely than not that the Company will be required to sell a debt security in an unrealized loss position before recovery of its amortized cost basis, the Company will write down the security to its fair value and record the corresponding charge as a component of other income, net. No declines in value were deemed to be credit losses as of January 1, 2023, the adoption date of Accounting Standards Update (“ASU”) 2016-13—Financial Instruments (Topic 326) Measurement of Credit Losses on Financial Instrument (“ASU 2016-23”), or during the three months ended March 31, 2023.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash, cash equivalents and marketable securities. Bank deposits are held by accredited financial institutions, and these deposits are often in excess of insured limits. The Company limits its credit risk associated with cash and cash equivalents by placing them with financial institutions it believes are of high quality. While the Company has not experienced any losses on its deposits of cash or cash equivalents as of March 31, 2023, in March 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation as receiver. At the time of the closure, the Company held a cash balance with SVB. In March 2023, the Company successfully transferred all funds from this SVB account to one of its other banks not affiliated with SVB without incurring any loss.

The Company’s available-for-sale investments primarily consist of high-grade corporate debt securities and potentially subject the Company to concentrations of credit risk. The Company has adopted investment guidelines that limit the amounts the Company may invest in any one type of investment and requires all investments held by the Company to be highly rated, thereby reducing credit risk exposure.

Research and Development Expenses

Research and development costs consist primarily of external costs related to clinical development, contract manufacturing and discovery as well as personnel costs. 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 nonclinical 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 Condensed 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.

 

8


 

Net Loss per Share

Basic net 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 net 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. The Company included the weighted-average of the pre-funded warrants issued in its private placement in the number of outstanding shares for calculating basic and diluted net loss per share because the shares issuable upon exercise of the pre-funded warrants will be issued for little to no consideration. 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,

 

 

 

2023

 

 

2022

 

Numerator:

 

 

 

 

 

 

Net Loss

 

$

(6,034

)

 

$

(14,864

)

Denominator:

 

 

 

 

 

 

Weighted-average shares of common stock issued and outstanding

 

 

37,024,155

 

 

 

40,254,890

 

Weighted-average pre-funded warrants outstanding

 

 

27,818,181

 

 

 

 

Weighted-average shares used to calculate net loss per common share, basic and diluted

 

 

64,842,336

 

 

 

40,254,890

 

Net loss per common stock, basic and diluted

 

$

(0.09

)

 

$

(0.37

)

 

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,

 

 

 

2023

 

 

2022

 

Stock options to purchase common stock

 

 

4,821,236

 

 

 

1,676,389

 

Restricted stock units

 

 

998,070

 

 

 

 

Total

 

 

5,819,306

 

 

 

1,676,389

 

 

Comprehensive Loss

The Company’s comprehensive loss is currently comprised of changes in unrealized loss on available-for-sale securities.

Segment Reporting

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business in one operating segment.

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 condensed 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 Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-23, 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 was effective for fiscal years beginning after December 15, 2019 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. The Company's adoption of ASU 2016-13 as of January 1, 2023 did not have a material impact on the condensed consolidated financial statements and accompanying notes.

 

9


 

3. Fair Value Measurement

Financial assets and liabilities are recorded at fair value on a recurring basis in the Condensed Consolidated Balance Sheets. 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 condensed 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) that 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.

The following table presents information about the Company’s financial assets measured at fair value on a recurring basis and indicates the level of the fair value hierarchy utilized to determine such fair values as of March 31, 2023 (in thousands):

 

 

 

March 31, 2023

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Aggregate
fair value

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund

 

$

18,092

 

 

 

 

 

 

 

 

$

18,092

 

U.S. government treasury securities

 

 

22,187

 

 

 

 

 

 

 

 

 

22,187

 

Fixed income securities

 

 

 

 

 

4,179

 

 

 

 

 

 

4,179

 

Asset backed securities

 

 

 

 

 

583

 

 

 

 

 

 

583

 

Total assets

 

$

40,279

 

 

$

4,762

 

 

$

 

 

$

45,041

 

The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicates the level of the fair value hierarchy utilized to determine such fair values as of December 31, 2022 (in thousands):

 

 

 

December 31, 2022

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Aggregate
Fair Value

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government treasury securities

 

$

25,442

 

 

$

 

 

$

 

 

$

25,442

 

Fixed income securities

 

 

 

 

 

6,639

 

 

 

 

 

 

6,639

 

Asset backed securities

 

 

 

 

 

1,123

 

 

 

 

 

 

1,123

 

Total assets

 

$

25,442

 

 

$

7,762

 

 

$

 

 

$

33,204

 

The contractual maturities of available-for-sale securities as of March 31, 2023 are as follows (in thousands):

 

Within one year

 

$

4,179

 

Within one to five years

 

 

583

 

Total contractual maturities

 

$

4,762

 

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 and U.S. government treasury securities that are included in cash equivalents. The Company values its Level 2 assets consisting of 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.

There were no transfers into or out of Level 3 securities during the three months ended March 31, 2023.

 

 

10


 

4. Asset Purchase and Redemption Agreement

In February 2023, the Company entered into an Asset Purchase and Redemption Agreement (“Purchase Agreement”), with Dr. Bassaganya-Riera, a related party who is the former chief executive officer of the Company and a greater than 5% owner of the Company's stock at the time of the transaction, Raquel Hontecillas and certain other stockholders (the “Purchasers”), whereby the Purchasers acquired (i) all of the Company's right, title and interest in omilancor, LABP-104 and LABP-111 and any such derivatives and analogs that target LANCL proteins (together the “Acquired Compounds”), (ii) a worldwide, perpetual, irrevocable, fully-paid up, royalty-free, exclusive, sublicensable and transferable license grant under the intellectual property rights retained by the Company and necessary or useful for the development, manufacture and commercialization of the Acquired Compounds, (iii) a royalty agreement providing, among other things, for the payment by the Company to the Purchasers of a royalty of 2% of all net sales by the Company of any products containing certain compounds that the Company retained following the closing under the Purchase Agreement and (iv) $3,000,000 in cash in exchange for (x) 9,086,441 shares of common stock of the Company held by the Purchasers (the “Purchaser Shares”) and (y) a royalty agreement providing, among other things, for the payment by the Purchasers to the Company a royalty of 6% of all net sales by the Purchasers of any products containing any of the Acquired Compounds in consideration for the acquired intellectual property rights.

The impact of this transaction resulted in a $3.0 million reduction of equity for the repurchase and retirement of the Purchaser Shares. There was no value assigned or recorded to the potential royalty consideration to be received or paid as such values were determined to be insignificant.

5. Balance Sheet Components

Accrued Liabilities

Accrued liabilities consist of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Accrued research and development

 

$

1,237

 

 

$

1,222

 

Accrued general and administrative

 

 

195

 

 

 

271

 

Accrued payroll and employee benefits

 

 

430

 

 

 

1,194

 

Total accrued liabilities

 

$

1,862

 

 

$

2,687

 

 

6. Equity and Stock-Based Compensation

Securities Purchase Agreement

In January 2023, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with the institutional accredited investors named therein (the “Investors”), pursuant to which the Company issued and sold to the Investors in a private placement (the “Private Placement”) pre-funded warrants (the “Pre-Funded Warrants”) to purchase an aggregate of 30,909,090 shares (the “Warrant Shares”) of the Company’s common stock. Each Pre-Funded Warrant has an exercise price of $0.01 per Warrant Share. The purchase price per Pre-Funded Warrant was $0.54. The Company received net proceeds of $16.6 million in the Private Placement, after deducting $0.1 million of offering expenses payable by the Company.

The Pre-Funded Warrants issued in the Private Placement provide that the holder of the Pre-Funded Warrants will not have the right to exercise any portion of its Pre-Funded Warrants if such holder, together with its affiliates and any other persons whose beneficial ownership of common stock would be aggregated with the holder for purposes of Section 13(d) or Section 16 of the Securities Exchange Act of 1934, as amended, would beneficially own in excess of 35% of the number of shares of common stock outstanding immediately after giving effect to such exercise. The Warrant Shares will also be subject to certain registration rights under the Company’s Amended and Restated Investors’ Rights Agreement. As of March 31, 2023, none of the Pre-Funded Warrants have been exercised.

Treasury Stock

In February 2023, in connection with entering into the Purchase Agreement with its founder, a related party who is the former chief executive officer of the Company and a greater than 5% owner of the Company's common stock at the time of the transaction, and other stockholders, the Company repurchased 9,086,441 shares of common stock for an aggregate price of $3.0 million. The repurchased common stock was subsequently retired in March 2023. The Company recorded the shares repurchased using the cost method.

 

11


 

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. The number of shares of common stock reserved for issuance under the 2019 Plan automatically increases on January 1 of each calendar year, starting on January 1, 2020 and continuing through January 1, 2029, in an amount equal to the least of (i) 5% of the total number of shares of the Company’s capital stock issued and outstanding on the last day of the calendar month before the date of each automatic increase; (ii) 1,000,000 shares; or (iii) a lesser number of shares determined by the Company’s board of directors. Subject to this provision, the Company added 1,824,900 shares available for grant to the 2019 Plan effective January 1, 2023. As of March 31, 2023, there were approximately 6,235,479 shares available for future grants.

2021 Employee Stock Purchase Plan

In January 2021, the Board adopted the 2021 Employee Stock Purchase Plan (the “2021 ESPP”). The purpose of the 2021 ESPP is to secure the services of new employees, to retain the services of existing employees and to provide incentives for such individuals to exert maximum efforts toward the Company’s success. The ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Code for U.S. employees. The number of shares of common stock reserved for issuance under the 2021 ESPP automatically increases on January 1 of each calendar year, starting on January 1, 2022 and continuing through January 1, 2031, in an amount equal to the lesser of (i) 1% of the total number of shares of the Company’s capital stock issued and outstanding on the last day of the calendar month before the date of each automatic increase; or (ii) a lesser number of shares determined by the Board. Subject to this provision, the Company added 402,548 shares available for grant to the 2021 ESPP effective January 1, 2023. As of March 31, 2023, there were approximately 1,193,799 shares available for future grants under the 2021 ESPP. As of March 31, 2023, no shares of common stock had been purchased under the 2021 ESPP.

2022 Inducement Plan

In March 2022, the Board adopted the 2022 Inducement Plan. The 2022 Inducement Plan is a non-stockholder approved stock plan under which the Company may grant equity awards to induce highly-qualified prospective officers and employees who are not currently employed by the Company to accept employment and provide them with a proprietary interest in the Company. The Company intends that the 2022 Inducement Plan be reserved for persons to whom the Company may issue securities without stockholder approval as an inducement pursuant to Nasdaq Marketplace Rule 5635(c)(4). The number of shares of common stock reserved for issuance under the 2022 Inducement Plan was initially determined to be 1,000,000 shares. As of March 31, 2023, there were 1,000,000 shares available for future grants under the 2022 Inducement Plan.

Stock Option Awards

The weighted average fair value per share of options to purchase common stock granted was $0.39 and $1.47 for the three months ended March 31, 2023 and 2022, respectively.

At March 31, 2023, the total compensation cost related to unvested stock-based awards granted under the 2019 Plan but not yet recognized was approximately $2.2 million, which is expected to be recognized over a weighted-average period of approximately 3.3 years.

Restricted Stock Units

At March 31, 2023, the total compensation cost related to unvested restricted stock units granted under the 2019 Plan but not yet recognized was approximately $0.4 million, which is expected to be recognized over a weighted-average period of approximately 2.9 years.

The following table summarizes stock-based compensation expense, which was included in the Condensed Consolidated Statements of Operations and Comprehensive Loss as follows (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Research and development

 

$

67

 

 

$

430

 

General and administrative

 

 

157

 

 

 

511

 

Total stock-based compensation expense

 

$

224

 

 

$

941

 

 

7. 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.

 

12


 

The Company enters into contracts in the normal course of business with third-party contract organizations for clinical trials, preclinical studies, manufacturing and other services and products for operating purposes. These contracts generally provide for termination following a certain period after notice and therefore the Company believes that its non-cancelable obligations under these agreements are not material.

Leases

The Company adopted ASC 842 on January 1, 2022 and accordingly, recognized operating lease right-of-use (“ROU”) assets and operating lease liabilities based on the present value of the future minimum lease payments over the lease terms at the adoption date, using the Company’s assumed incremental borrowing rate of 8%. The Company amortized the operating lease ROU assets and operating lease liabilities over the applicable lease term.

The Company leased office space for its corporate headquarters located in Blacksburg, Virginia, under a non-cancelable operating lease which expired in May 2022. In August 2021, the Company entered into a three-year lease for an additional facility in Blacksburg, Virginia that was terminated in March 2022.

In connection with the termination of the lease in March 2022, the Company made a one-time cash payment of $0.2 million and included assets with a net book value of $0.1 million, resulting in a loss on the termination of the lease of $0.3 million, which is included in general and administrative costs in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss. In addition, upon termination of the lease in March 2022, operating lease ROU assets and operating lease liabilities were reduced by approximately $0.7 million.

Rent expense was $0 and $0.1 million for the three months ended March 31, 2023 and 2022, respectively.

Retained Compounds Royalty Agreement

Pursuant to the terms of the Purchase Agreement entered into by the Company and the Purchasers in February 2023, the Company entered into a royalty agreement whereby the Purchasers are eligible to receive a 2% royalty of all net sales by the Company of any products containing certain compounds that the Company retained following the closing under the Purchase Agreement (“Retained Compounds Royalty Agreement”). The Company recognizes such royalty payment obligations when such payments are probable and reasonably estimable. Due to the uncertainty related to the ongoing research and development activities, obtaining regulatory approval and achieving successful commercialization to which net sales could be derived, the Company has not recognized a royalty obligation as of and for the three months ended March 31, 2023.

8. License and Collaboration Agreement

In May 2021, the Company entered into an exclusive license and collaboration agreement (the “LianBio Agreement”) with LianBio Respiratory Limited (“Lian”). Lian is a related party to the Company as a result of an affiliation of a member of the Company’s board of directors at the time the LianBio Agreement was executed. Pursuant to the LianBio Agreement, the Company delivered to Lian an exclusive license and the know-how (the “License”) to develop, manufacture and commercialize omilancor and NX-13 (the “Products”) in the territory comprising the People’s Republic of China (“PRC”), Hong Kong, Macau, Taiwan, Cambodia, Indonesia, Myanmar, Philippines, Singapore, South Korea, Thailand and Vietnam (the “Territory”). Lian will bear (i) all costs and expenses for any development or commercialization of the Products in the Territory and (ii) all costs and fees associated with applying for regulatory approval of the Products in the Territory. The Company received a non-refundable payment of $18.0 million upon execution of the LianBio Agreement. In February 2023, the Company amended the LianBio Agreement to no longer cover omilancor. Subsequent to the amendment, the Company is eligible to receive development milestone payments of up to $40.0 million as well as sales milestone payments of up to $105.0 million relating to the development of NX-13. The Company is also eligible to receive tiered low-double-digit royalties based on future net sales of NX-13 in the Territory, subject to reductions in specified circumstances.


 

In accordance with the LianBio Agreement, the Company agreed to supply to Lian all clinical and commercial requirements of Products. The terms of the agreement do not provide for either (i) an option to Lian to purchase Products from the Company at a discount from the standalone selling price or (ii) minimum purchase quantities. In addition, the Company and Lian formed a Joint Steering Committee (“JSC”) to provide oversight to the activities performed under the LianBio Agreement; however, the substance of the Company’s participation in the JSC does not represent an additional promised service, but rather, a right of the Company to protect its own interests in the arrangement.

 

13


 

The Company concluded that Lian meets the definition of a customer because the Company is delivering intellectual property and other services in which the parties are not jointly sharing the risks and rewards. Therefore, the Company concluded that the promises summarized above represent transactions with a customer within the scope of ASC 606. Given that Lian is not obligated to purchase any minimum amount or quantities of Products, the supply of Products for clinical and commercial purposes was determined to be an option for Lian, rather than a performance obligation of the Company at contract inception and will be accounted for if and when exercised. The Company also determined that Lian’s option to purchase Products does not create a material right as the expected pricing is not at a discount. At contract inception and through March 31, 2023, the Company determined that the contract contains a single performance obligation to deliver the License, which represents functional intellectually property given the functionality of the License is not expected to change substantially as a result of the Company’s ongoing activities.

The Company determined that the upfront fixed payment of $18.0 million is the initial transaction price. The potential development milestone payments that the Company is eligible to receive upon the successful achievement of certain regulatory approvals or activities were excluded from the transaction price, as the milestone amounts were fully constrained based on the probability of achievement. The royalties and sales milestone payments are excluded from the transaction price under the sales- or usage-based royalty exception of ASC 606. The Company will reevaluate the transaction price, including all constrained amounts, at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur, and the Company will adjust its estimate of the transaction price as necessary. The Company will recognize the royalties and sales milestone payments as revenue when the associated sales occur, and relevant sales-based thresholds are met. The Company assessed the arrangement with Lian and concluded that a significant financing component does not exist. As of June 30, 2021, the Company had completed the transfer of the License and know-how necessary and, as such, recognized the full $18.0 million upfront payment as revenue.

 

 

14