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Item 8. Financial Statements and Supplementary Data

2021-03-25 compared with 2020-03-12 · 438 added, 672 removed, 184 unchanged (86% of the section changed)

2 unchanged sentences

Neoleukin Therapeutics, Inc.

Report of Independent Registered Public Accounting Firm

Report s of Independent Registered Public Accounting Firm

Consolidated balance sheets

Consolidated statements of operations and comprehensive

Consolidated statements of operations and comprehensive loss

Consolidated statements of cash flow

1 unchanged sentence

Notes to the consolidated financial statements

939 Granville Street

Vancouver BC V6Z 1L3

www.deloitte.ca

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Neoleukin Therapeutics, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Neoleukin Therapeutics, Inc.

(the "Company") as of December 31, 2020, the related consolidated statements of operations, stockholders' equity, and cash flows, for the year ended December 31, 2020, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis of Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

We determined that there are no critical audit matters.

/s/ Deloitte & Touche LLP

Seattle, Washington

March 25, 2021

We have served as the Company's auditor since 2020.

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of

Therapeutics, Inc.

Neoleukin Therapeutics, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Neoleukin Therapeutics, Inc.

and subsidiaries (the Company) as of December 31,

2019 and 2018, the related consolidated statements of operations and comprehensive loss, cash flows, and stockholders equity, for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred

to as the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its

cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheet of Neoleukin Therapeutics, Inc.

and subsidiaries (the “Company”) as of December 31, 2019, the related consolidated statements of operations, cash flows, and stockholders’ equity, for the period ended December 31, 2019, and the related notes (collectively referred to as the “2019 financial statements”).

In our opinion, the 2019 financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the

responsibility of the Companys management.

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight

Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable

assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting.

As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial

statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also

included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ Deloitte LLP

2 unchanged sentences

March 12, 2020

We have served as the Companys auditor since 2007.

We began serving as the Company’s auditor in 2007.

In 2020, we became the predecessor auditor.

NEOLEUKIN THERAPEUTICS, INC.

Consolidated Balance Sheets

(In thousands of U.S.

dollars, except share amounts)

(in thousands, except share and per share amounts)

Years Ended December 31,

Current assets

Cash and cash equivalents $ 192,556 $ 143,093

Receivables, prepayments and deposits

Other current assets 1,966 503

Total current assets 194,522 143,596

Property and equipment, net (Note 4)

Operating lease

right-of-use asset (Note 7(a))

Intangible asset, net (Note 5)

Long-term prepayments and deposits

Property and equipment, net 3,570 2,060

Operating lease right-of-use asset 10,154 770

Intangible asset, net 347 567

Other non-current assets 1,926 30

Total assets $ 210,519 $ 147,023

Current liabilities

Accounts payable and other liabilities (Note 6)

Operating lease liability (Note 7)

Finance lease liability (Note 7)

Accounts payable and other liabilities $ 7,181 $ 4,125

Operating lease liability 659 556

Finance lease liability 49 62

Total current liabilities 7,889 4,743

Non-current operating lease liability (Note 7)

Non-current finance lease liability (Note 7)

Deferred rent

Non-current operating lease liability 11,306 447

Non-current finance lease liability 108 146

Total liabilities 19,303 5,336

Commitments and contingencies (Note 15)

Stockholders’ equity

Share capital:

Common stock$0.000001 par valueauthorized, 100,000,000 as of December 31, 2019

(December 31, 201850,000,000);

issued and outstanding, 37,996,849 as of December 31, 2019 (December 31, 201823,537,368) (Note 8(a))

Preferred stock$0.000001 par valueauthorized, 5,000,000 as of December 31, 2019

nil issued and outstanding as of December 31, 2019 and 2018 (Note 8(b))

Common stock, $ 0.000001 par value per share;

100,000,000 shares authorized at December 31, 2020 and 2019;

42,196,296 and 37,996,849 issued and outstanding at December 31, 2020 and 2019, respectively

Preferred stock, $ 0.000001 par value per share;

5,000,000 authorized at December 31, 2020 and 2019;

0 issued and outstanding at December 31, 2020 and 2019

Additional paid-in capital 524,022 441,216

4 unchanged sentences

NEOLEUKIN THERAPEUTICS, INC.

Consolidated statements of operations and comprehensive loss

(In thousands of U.S.

dollars, except per share and share amounts)

Consolidated Statements of Operations

(in thousands, except share and per share amounts)

Years Ended December 31,

Revenue (Note 9)

Operating expenses

Research and development (Note 10)

Acquired in-process research and development (Note

General and administrative (Note 10)

Total operating expenses

Loss from operations

Operating loss

Research and development $ 24,344 $ 4,417

Acquired in-process research and development — 47,716

General and administrative 17,210 18,826

Gain on sale of Aquinox Canada ( 7,826 ) —

Total operating loss 33,728 70,959

Other income, net 451 1,517

Interest expense

Other income, net (Note 11)

Net loss per common stockbasic and diluted (Note 12)

Basic and diluted weighted average number of common stock outstanding (Note 12)

Comprehensive loss:

Other comprehensive incomeunrealized gain on available-for-sale securities

Comprehensive loss

Net loss $ ( 33,277 ) $ ( 69,442 )

Net loss per common stock - basic and diluted $ ( 0.64 ) $ ( 2.57 )

Basic and diluted weighted average number of common stock outstanding 51,825,022 27,030,355

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

1 unchanged sentence

Consolidated Statements of Cash Flows

(In thousands of U.S.

(in thousands)

Years Ended December 31,

Operating activities

Non-cash items and reclassifications:

Stock-based compensation (Note 8(g))

Acquired in-process research & development (Note

Net loss $ ( 33,277 ) $ ( 69,442 )

Adjustments to reconcile net loss used in operating activities:

Stock-based compensation 5,622 7,683

Acquired in-process research & development — 47,716

Depreciation and amortization 785 340

Loss on disposal of property and equipment 180 5

Amortization of right-of-use asset 1,036 188

Write-off of right-of-use asset upon lease termination 113 —

Unrealized foreign exchange loss and others — 70

Changes in operating assets and liabilities:

Receivable, prepayments and deposits

Accounts payable and other liabilities

Cash used in operating activities

Other current assets and non-current assets ( 2,481 ) 290

Accounts payable and accrued liabilities 3,018 ( 2,007 )

Operating lease right-of-use assets ( 169 ) —

Operating lease liabilities 598 ( 237 )

Net cash used in operating activities ( 24,575 ) ( 15,394 )

Investing activities

Acquisition of Neoleukin Therapeutics, Inc., net of cash acquired (Note 3)

Purchase of investments

Proceeds from maturity of investments

Acquisition of Neoleukin Therapeutics, Inc., net of cash acquired — 191

Purchase of property and equipment ( 2,219 ) ( 879 )

Cash (used in) provided by investing activities

Net cash used in investing activities ( 2,219 ) ( 688 )

Financing activities

Public offering of common stock (Note 8(e))

Public offering costs (Note 8(e))

Proceeds from public offering of common stock and pre-funded warrants, net of commissions of $ 4,575 and $ 5,173 in 2020 and 2019, respectively.

71,675 81,043

Payment of offering costs ( 355 ) ( 352 )

Proceeds from exercise of stock options 5,665 1,555

Proceeds from issuance of common stock under Employee Stock Purchase Plan 199 —

Payment on finance lease obligations ( 49 ) ( 9 )

Cash provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

Net change in cash and cash equivalents during the year

Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

Supplemental disclosure of cash flow information:

Interest paid

Interest received

Non-cash investing and financing

Receivables, prepayments and deposits acquired through the issuance of common stock

Net cash provided by financing activities 77,135 82,237

Effect of exchange rate changes on cash, cash equivalents, and restricted cash — 10

Net change in cash, cash equivalents, and restricted cash during the year 50,341 66,165

Cash, cash equivalents, and restricted cash at beginning of year 143,093 76,928

Cash, cash equivalents, and restricted cash at end of year $ 193,434 $ 143,093

Non-cash investing and financing activities:

Other current assets acquired through the issuance of common stock $ — $ 560

Property, equipment and intangibles acquired through the issuance of common stock $ — $ 1,693

Accounts payable, finance lease and other liabilities assumed through the issuance of common

Accrued purchase of property & equipment

Accrued offering costs

Accounts payable, finance lease and other liabilities assumed through the issuance of common stock $ — $ ( 1,673 )

Operating lease liabilities arising from obtaining right-of-use asset $ 10,364 $ 1,182

Purchase of property and equipment unpaid at period end $ 36 $ —

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

1 unchanged sentence

Consolidated Statements of Stockholders' Equity

(In thousands of U.S.

dollars, except share amounts)

PREFERRED STOCK

COMPREHENSIVE

(in thousands, except share amounts)

Common Stock Non-Voting

Preferred Stock Additional

Capital Accumulated

Deficit Accumulated Other Comprehensive Loss Total

Stockholders’

Balances, December 31, 2016

Cumulative effect of adoption of new accounting standard

Balances January 1, 2017

Options exercised

Stock-based compensation

Other comprehensive income

Number Amount Number Amount Amount Amount Amount Amount

Balances, December 31, 2018 23,537,368 $ — — $ — $ 302,759 $ ( 230,087 ) $ — $ 72,672

Issuance of common stock for Former Neoleukin common stock 4,589,771 — — — 15,055 — — 15,055

Issuance of convertible preferred stock for Former Neoleukin common stock — — 102 — 33,432 — — 33,432

Conversion of convertible preferred stock into common shares 10,192,700 — ( 102 ) — — — — —

Issuance of common stock, net of discounts, commissions and offering expenses of $ 5,525

10,263,750 — — — 80,691 — — 80,691

Issuance of common stock to University of Washington 12,647 — — — 41 — — 41

Conversion of common stock to pre-funded warrants ( 10,925,481 ) — — — — — — —

Options exercised 326,094 — — — 1,555 — — 1,555

Stock-based compensation — — — — 7,683 — — 7,683

Other comprehensive income

Net loss — — — — — ( 69,442 ) — ( 69,442 )

Balances, December 31, 2019 37,996,849 $ — — $ — $ 441,216 $ ( 299,529 ) $ — $ 141,687

Issuance of common stock for Former Neoleukin common stock (Note 3)

Issuance of convertible preferred stock for Former Neoleukin common stock (Note 3)

Conversion of convertible preferred stock into common shares

Issuance of common stock, net of share issuance costs of $5,525 (Note 8(e))

Issuance of shares to University of Washington

Conversion of common stock to pre-funded warrants

Issuance of common stock and pre-funded warrants, net of discounts, commissions and offering expenses of $ 4,930

3,262,471 — — — 71,320 — — 71,320

Options exercised 882,624 — — — 5,665 — — 5,665

Restricted stock units vested 36,000 — — — — — — —

Issuance of common stock under Employee Stock Purchase Plan 18,352 — — — 199 — — 199

Stock-based compensation — — — — 5,622 — — 5,622

Net loss — — — — — ( 33,277 ) — ( 33,277 )

Balances, December 31, 2020 42,196,296 $ — — $ — $ 524,022 $ ( 332,806 ) $ — $ 191,216

1 unchanged sentence

NEOLEUKIN THERAPEUTICS, INC.

Notes to the consolidated financial statements

Notes to Consolidated Financial Statements

Nature of operations

1 unchanged sentence

(“Neoleukin” or “the Company”) is a biopharmaceutical company creating next generation immunotherapies for cancer, inflammation and autoimmunity using de novo protein design technology.

Neoleukin uses sophisticated

computational methods to design proteins that demonstrate specific pharmaceutical properties that provide potentially superior therapeutic benefit over native proteins.

Neoleukin uses sophisticated computational methods to design proteins that demonstrate specific pharmaceutical properties that provide potentially superior therapeutic benefit over native proteins.

The Company’s lead product candidate, NL-201, is a combined IL-2 and IL-15 agonist designed to eliminate alpha receptor binding.

The Company commenced operations in Canada in December 2003.

Aquinox Pharmaceuticals (Canada) Inc., a corporation formed under the Canada Business

Corporations Act, is a wholly owned subsidiary of Aquinox Pharmaceuticals, Inc., a Delaware corporation formed in May 2007 (Aquinox).

On August 8, 2019, upon the merger of Aquinox with Neoleukin Therapeutics, Inc.

Neoleukin) pursuant to an Agreement and Plan of Merger dated August 5, 2019, Former Neoleukin merged with a wholly owned subsidiary of Aquinox.

Upon completion of the transaction, Aquinox was renamed Neoleukin Therapeutics, Inc.

The Companys head office is in Seattle, Washington.

Basis of presentation and summary of significant accounting policies

(a) Basis of presentation

The accompanying

consolidated financial statements are presented in United States (U.S.) dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S.

The financial

results are presented on a consolidated basis.

The accompanying consolidated financial statements are presented in United States (“U.S.”) dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

The financial results are presented on a consolidated basis.

All intercompany transactions are eliminated on consolidation.

(b) Capital requirements

The Company operates in a capital intensive business.

To finance its operations, the Company is likely to require additional capital.

The Company may seek to

raise funds through equity or debt financing.

There is no assurance that financing will be available to the Company or at terms acceptable to the Company.

Failure to obtain sufficient funds on acceptable terms can have a negative impact on the

Companys business, results of operations, financial condition, cash flows and future prospects.

The functional currency of the Company and its subsidiaries is the U.S.

Monetary assets and liabilities of the Companys

operations denominated in a currency other than the U.S.

dollar are re-measured into U.S.

dollars at the exchange rate prevailing as at the balance sheet date.

Non-monetary assets and liabilities acquired in a currency other than U.S.

dollars are translated at historical exchange rates prevailing at each transaction date.

Income and expenses are translated at the exchange rates prevailing at each transaction date, with the exception of amortization which is translated at

historical exchange rates.

Exchange gains and losses on translation are included in the consolidated statements of operations and comprehensive loss.

(d) Use of estimates and assumptions

preparation of consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at

the date of the consolidated financial statements and the reported amounts of expenses during the reporting period.

Significant areas requiring management estimates include valuation of stock options and restricted stock units, amortization and

depreciation, determination of the fair values of assets and liabilities acquired in the acquisition of net assets of Former Neoleukin, accrual of expenses, determination of research and development costs, valuation allowance for deferred income

taxes, and contingencies.

In July 2020, the Company sold all of the issued and outstanding capital stock of Aquinox Pharmaceuticals (Canada) (“Aquinox Canada”) to an unrelated third party, as further described in Note 16, Sale of Aquinox Canada .

On December 31, 2020, Neoleukin Corporation, the Company's wholly owned subsidiary, was merged into the Company.

As a result, the Company consists of a single operating company without any subsidiaries at December 31, 2020.

(b) Use of estimates and assumptions

The preparation of consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period.

Significant areas requiring estimates include valuation and recognition of stock-based compensation, the incremental borrowing rate utilized in the measurement of operating and finance lease liabilities, amortization and depreciation of property, plant and equipment and intangible assets, and pre-clinical, clinical, and other accruals.

Actual results could differ from those estimates.

(e) Cash and cash equivalents

The Company reclassified amounts related to prior year amortization of operating lease right-of-use assets, loss on disposal of property and equipment, changes in operating lease liabilities, and payment of offering costs in the consolidated statements of cash flows to conform to current year presentation.

This reclassification had no effect on cash used in operating activities or cash provided by financing activities.

At contract inception, the Company determines if the contract is or contains a lease.

Lease liabilities are recognized on the lease commencement date based on the estimated present value of lease payments over the lease term.

To determine the present value of the lease payments, the Company utilizes its estimated incremental borrowing rate based on information available at the lease commencement date as the interest rate implicit in the lease is typically not readily determinable.

The related right-of-use assets are recorded net of any lease incentives received.

Variable lease cost primarily includes building operating expenses as charged to the Company by its landlords.

We include options to extend the lease in our lease liability and right-of-use asset when it is reasonably certain that we will exercise that option.

None of our options to extend the rental term of any existing leases were considered reasonably certain as of December 31, 2020.

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

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

(e) Cash, cash equivalents, and restricted cash

All highly liquid investments with maturities of three months or less at the date of acquisition are considered to be cash equivalents.

Restricted cash, included in Other non-current assets in the consolidated balance sheets, includes cash deposits the Company maintains with its bank as collateral for the irrevocable letters of credits related to its lease obligations.

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

Cash and cash equivalents $ 192,556 $ 143,093

Restricted cash 878 —

Total cash, cash equivalents, and restricted cash $ 193,434 $ 143,093

(f) Property and equipment

Property and equipment

are recorded at cost and are amortized using the straight-line basis over a range of three to seven years.

Expenditures for improvements to the Companys office spaces are capitalized and expenditures for maintenance and repairs are expensed as

Property and equipment are recorded at cost and are amortized using the straight-line basis over a range of three to seven years .

Expenditures for improvements to the Company’s office spaces are capitalized and expenditures for maintenance and repairs are expensed as incurred.

Leasehold improvements are amortized over the lesser of useful life and term of the lease.

The Company reviews the carrying value of property

and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition.

In cases where

undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets.

The factors considered by management in performing this

assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition, and other economic factors.

Based on managements assessment there were no

indicators of impairment of property and equipment as at December 31, 2019 and 2018.

At contract inception, the Company determines if the contract is a lease or contains a lease.

Operating leases are recorded as operating lease right-of-use assets, operating lease liabilities and non-current operating lease liabilities.

Finance leases are recorded as finance

lease right-of-use assets, finance lease liabilities and non-current finance lease liabilities.

Right-of-use assets and lease liabilities are recognized on the lease

commencement date based on the estimated present value of lease payments over the lease term.

To determine the present value of the lease payments, the Company utilizes its estimated incremental borrowing rate based on information available at the

lease commencement date as the rate implicit in the lease is not readily determinable.

The right-of-use assets are recorded net of any lease incentives received.

Variable lease cost primarily includes building operating expenses as charged to the Company by its landlords.

For leases of office space with a lease

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

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

The Company reviews the carrying value of property and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition.

In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets.

The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition, and other economic factors.

Based on management’s assessment there were no indicators of impairment of property and equipment as at December 31, 2020 and 2019.

(g) Earnings (loss) per share

Basic net loss per share is calculated by dividing the net loss by the weighted average number of shares of common stock outstanding for the period, without consideration for common stock equivalents.

Common stock equivalents are included in the calculation of diluted earnings per share only in periods of net income.

Such common stock equivalents are excluded in the calculation of diluted net loss per share in periods of net loss as inclusion of such amounts would be anti-dilutive.

Outstanding pre-funded warrants as of December 31, 2020 of 12,663,010 are considered outstanding as of their issuance date and are included in the basic and diluted net loss per share calculation because they are fully vested and exercisable at any time for a nominal cash consideration.

(h) Asset acquisitions/Intangible assets

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

accounted for its transaction with Neoleukin as an asset acquisition as substantially all the value of the acquisition is concentrated in one identifiable intangible asset.

For an acquisition of assets, the cost of acquiring the asset group, including transaction costs, is allocated to the acquired assets and assumed liabilities

based on their relative fair values without giving rise to goodwill.

Acquired in-process research and development assets are expensed if management determines that the assets do not have an alternative future

Other long-lived intangible assets are recorded at the acquired cost and amortized using the straight-line method over an estimated useful life of three years.

The intangible asset is tested for impairment when events or changes in circumstances indicate that the carrying value of the asset may not be

For an acquisition of assets, the cost of acquiring the asset group, including transaction costs, is allocated to the acquired assets and assumed liabilities based on their relative fair values without giving rise to goodwill.

Acquired in-process research and development assets are expensed if management determines that the assets do not have an alternative future use.

Other long-lived intangible assets are recorded at the acquired cost and amortized using the straight-line method over their estimated useful life.

The intangible asset is tested for impairment when events or changes in circumstances indicate that the carrying value of the asset may not be recoverable.

The Company recognizes an impairment loss when carrying amount is not recoverable and the estimated fair value of the intangible asset is less than its carrying value.

(i) Clinical trial accruals

As part of the

process of preparing its consolidated financial statements, the Company is required to estimate expenses resulting from its obligations under contracts with vendors, consultants and clinical site agreements in connection with conducting clinical

The financial terms of these contracts are subject to negotiations which vary contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to the Company under such

The Company reflects the appropriate clinical trial expenses in the consolidated financial statements by matching those expenses with the period in which services and efforts are expended.

The Company accounts for these expenses according

to the progress of the trial as measured by patient progression and the timing of various aspects of the trial.

During the course of a clinical trial,

the Company adjusts the rate of clinical trial expense recognition if actual results differ from estimates.

The Company prepares estimates of accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and

circumstances known at that time.

Although the Company does not expect the estimates to be materially different from amounts actually incurred, the Companys understanding of the status and timing of services performed relative to the actual

status and timing of services performed may vary and may result in the Company reporting amounts that are too high or too low for any particular period.

The Companys clinical trial accruals are dependent upon the timely and accurate reporting

of contract research organizations and other third-party vendors.

(j) Income taxes

The Company accounts for income taxes using ASC 740, Income Taxes which is an asset and liability approach that requires the recognition of deferred tax assets

and liabilities for the expected future tax consequences of events that have been recognized in the Companys consolidated financial statements or tax returns.

In estimating future tax consequences, ASC 740 generally considers all expected

future events other than enactments of and changes in the tax law or rates.

(i) Income taxes

The Company accounts for income taxes using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the differences between events that have been recognized in the Company’s consolidated financial statements and the tax bases of assets and liabilities recognized at enacted tax rates.

In estimating future tax consequences, Accounting Standards Codification ("ASC") 740 generally considers all expected future events other than enactments of and changes in the tax law or rates.

The measurement of deferred tax assets is reduced, if necessary, by the extent of the valuation allowance.

ASC 740 clarifies the criteria that must be met prior to

recognition of the financial statement benefit of a position taken in a tax return.

ASC 740 provides a benefit recognition model with a two-step approach consisting of a

more-likely-than-not recognition criteria, and a measurement attribute that measures a given tax position as the largest amount of tax benefits that are more than 50% likely of being realized upon

ultimate settlement.

ASC 740 also requires the recognition of liabilities created by differences between tax positions taken in a tax return and amounts recognized in the consolidated financial statements.

Investment tax credits relating to scientific research and experimental development are accounted for as a

reduction in operating expenses.

We will establish a valuation allowance for deferred tax assets if it is more likely than not that these items will expire before we are able to realize their benefits or that future deductibility is uncertain.

Investment tax credits relating to scientific research and experimental development are accounted for as a reduction in operating expenses.

They are recorded in the period when there is reasonable assurance the credits will be realized.

If investment tax credit amounts subsequently received are less or more than originally recorded, the difference is

treated as a change in estimate.

(k) Revenue recognition

The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity

expects to receive in exchange for those goods or services.

To determine revenue recognition for arrangements subject to the scope of Topic 606, the Company performs the following five steps:

(i) identify the contract(s) with a customer;

(ii) identify the performance obligations in the contract;

(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize revenue when (or as) the

entity satisfies a performance obligation.

At contract inception, once the contract is determined to be within the scope of Topic 606, the Company

assesses the goods or services promised within each contract and identifies performance obligations that are distinct.

The Company then recognizes as revenue the amount of the transaction price that is allocated to each performance obligation when

(or as) the performance obligation is satisfied.

The Companys only source of revenue was amounts earned under a license and collaboration agreement

entered into and subsequently terminated in 2018.

(l) Research and development costs

If investment tax credit amounts subsequently received are less or more than originally recorded, the difference is treated as a change in estimate.

(j) Research and development costs

Research and development costs are charged to expense as incurred and include items such as:

employee related expenses, including salaries and benefits,

expenses incurred under agreements with contract research organizations and investigative sites that conduct clinical trials and preclinical studies, the cost of acquiring, developing and manufacturing clinical trial materials, facilities, and other

expenses, which include direct and allocated expenses for rent and maintenance of facilities, and other supplies and costs associated with clinical trials, preclinical activities, and regulatory operations.

Restructuring costs associated with the

termination of research and development programs and related employees are included in research and development costs.

Development costs are expensed in

the period incurred unless management believes a development project meets generally accepted accounting criteria for deferral and amortization.

employee related expenses, including salaries and benefits, expenses incurred under agreements with contract research organizations that conduct clinical trials and preclinical studies, the cost of acquiring, developing and manufacturing clinical trial materials, facilities, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, and other supplies and costs associated with clinical trials, preclinical activities, and regulatory operations.

Restructuring costs associated with the termination of research and development programs and related employees are included in research and development costs.

Development costs are expensed in the period incurred unless management believes a development project meets generally accepted accounting criteria for deferral and amortization.

No product development expenditures have been deferred to date.

The Company records costs for certain

development activities, such as clinical trials, based on managements evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, or information provided to the Company by

vendors on their actual costs incurred.

Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the consolidated financial statements as prepaid

or accrued expense.

(m) Accounting for stock-based compensation

The Company records costs for certain development activities based on management’s evaluation of the progress to completion of specific tasks or information provided to the Company by vendors on their actual costs incurred.

(k) Accounting for stock-based compensation

The Company has issued stock options and restricted stock units (“RSUs”).

The Company measures the cost of services received in exchange for an award

of equity instruments based on the grant-date fair value of the award.

The cost of such award will be recognized over the period during which services are provided in exchange for the award, generally the vesting period.

The Company accounts for

forfeitures as they occur.

All share-based payments to employees are recognized in the consolidated financial statements based upon their respective grant date fair values.

The Company initially measures the compensation expense of stock-based awards granted to consultants using the grant date fair value of the award.

Compensation expense is recognized over the period during which services are rendered by such consultants.

At the end of each financial reporting period prior to completion of services being rendered, the compensation expense related to these awards

is remeasured using the then current fair value of the Companys common stock for RSUs, or based upon updated assumptions in the Black-Scholes option pricing model for stock option awards.

The Company estimates the fair value of options granted using the Black-Scholes option pricing model.

This approximation uses assumptions regarding a number

of inputs that requires management to make significant estimates and judgments.

The expected volatility assumption is based on industry peer information and the Company expects to continue to do so until it has adequate historical volatility of its

common stock.

Additionally, because the Company has no significant history to calculate the expected term, the simplified method calculation is used.

fair value of each RSU is measured using the closing price of the Companys common stock on the date of grant.

(n) Restructuring costs

The Company accounts for restructuring costs in accordance with ASC 420, Exit or Disposal Cost

order to receive termination benefits and will be retained to render service beyond the minimum retention period.

A liability for such one-time termination benefits shall be measured initially at the

communication date based on the fair value of the liability as of the termination date and recognized ratably over the future service period.

that the Company expects to incur in connection with the restructuring are subject to a number of assumptions, and actual results may differ materially.

The Company may also incur additional costs not currently contemplated due to events that may

occur as a result of, or that are associated with, the restructuring plan.

(o) Segment reporting

The Company operates in one segment, the research and development of de novo protein therapeutics using sophisticated computational algorithms and

methods to address unmet medical needs in oncology, inflammation, and autoimmunity.

The Companys operations and its assets are mostly held in the United States with an immaterial amount of long-lived assets in Canada.

(p) Net loss per common stock

Basic net loss per

common stock is computed by dividing net loss by the weighted-average number of common stock and pre-funded warrants outstanding during the period.

The pre-funded

warrants are included in the computation of basic and diluted net loss per common stock as the warrants are fully vested and exercisable at any time and for a nominal cash consideration.

Diluted net loss per common stock is determined using the

weighted-average number of common stock outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be issued upon exercise of common stock options and restricted stock units.

periods where losses are reported, the weighted-average number of common stock outstanding excludes common stock equivalents because their inclusion would be anti-dilutive.

(q) Fair value of financial instruments

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

The Company has no financial instruments that are measured at fair value as of December 31, 2019 and December 31, 2018.

(r) Concentration of credit risk

instruments, which potentially subject the Company to significant concentrations of credit risk, consist primarily of cash and cash equivalents.

The Company measures the cost of services received in exchange for an award of equity instruments based on the grant-date fair value of the award.

The cost of such award is recognized on a straight-line basis over the requisite service period, which is generally the vesting period.

The Company accounts for forfeitures as they occur.

We utilize newly issued shares to satisfy option exercises.

The Company estimates the fair value of options using the Black-Scholes option pricing model on the grant date.

This approximation uses assumptions regarding a number of inputs that requires management to make significant estimates and judgments.

The expected term represents the period that the Company’s stock-based awards are expected to be outstanding.

As the Company does not have sufficient historical experience for determining the expected term of the stock option awards granted, the Company has based its expected term for awards issued to employees on the simplified method, which represents the average period from vesting to the expiration of the stock option.

In addition, the Company does not have sufficient trading history for the Company’s common stock, and therefore, the expected stock price volatility for the Company’s common stock was estimated by taking the average historical price volatility for industry peers.

The Company has never declared or paid any cash dividends to common stockholders and does not presently plan to pay cash dividends in the foreseeable future.

Consequently, the Company used an expected dividend yield of zero.

The risk-free interest rate was based on the yields of treasury securities with maturities similar to the expected term of the options for each option group.

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

(l) Restructuring costs

The Company accounts for restructuring costs in accordance with ASC 420, Exit or Disposal Cost Obligations.

ASC 420 specifies that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, except for a liability where employees are required to render service until they are terminated in order to receive termination benefits and will be retained to render service beyond the minimum retention period.

A liability for such one-time termination benefits shall be measured initially at the communication date based on the fair value of the liability as of the termination date and recognized ratably over the future service period.

The charges that the Company expects to incur in connection with the restructuring are subject to a number of assumptions, and actual results may differ materially.

The Company may also incur additional costs not currently contemplated due to events that may occur as a result of, or that are associated with, the restructuring plan.

(m) Segment reporting

The Company operates in one segment, the research and development of de novo protein therapeutics using sophisticated computational algorithms and methods to address unmet medical needs.

Our primary areas of focus are in oncology, inflammation, and autoimmunity.

The Company’s operations and its assets are held in the United States.

(n) Fair value of financial instruments

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

At December 31, 2020, and December 31, 2019, the Company had $ 108.3 million and $ 40.0 million in money market funds, respectively.

Money market funds are level one financial instruments as their pricing can be obtained from an actively traded exchange.

(o) Concentration of credit risk

Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist primarily of cash and cash equivalents.

Cash and cash equivalents are invested in accordance with the Company’s investment policy.

primary objective for the Companys investment portfolio is the preservation of capital and maintenance of liquidity and includes guidelines on the quality of financial instruments and defines allowable investments that the Company believes

minimizes the exposure to concentration of credit risk.

(s) Recently issued and recently adopted accounting standards

The Company adopted ASU 2016-02 Leases (Topic 842) effective January 1, 2019.

ASU 2016-02 requires lessees to recognize right-of-use assets and lease liabilities for those leases with a lease term of greater than 12

The Company used a modified retrospective approach and elected to use the optional transition method to recognize a cumulative-effect adjustment to the opening balance of retained deficit on January 1, 2019.

Consequently, comparative

periods will continue to be accounted for in accordance with the current lease standard (Topic 840) and the disclosures will be in accordance with ASC 840.

The Company elected to apply the package of practical expedients, which permits

it not to reassess under ASU 2016-02 its previous conclusions about lease identification, lease classification and initial direct costs and the practical expedient to not separate non-lease components from the associated lease component for the lease of office space.

The adoption of ASU 2016-02 resulted in the recognition of right-of-use assets of $0.2 million and lease liabilities of $0.5 million and derecognition of the deferred rent liability of $0.3 million for the

Companys operating leases in the consolidated balance sheets and did not have a material impact to the Companys consolidated statements of operations or cash flows.

In December 2019, the FASB issued ASU 2019-12 Simplifying the Accounting for Income Taxes. The objective

of the standard is to improve areas of GAAP by removing certain exceptions permitted by ASC Topic 740-- Income Taxes and clarifying existing guidance to facilitate consistent application.

The primary objective for the Company’s investment portfolio is the preservation of capital and maintenance of liquidity and includes guidelines on the quality of financial instruments and defines allowable investments that the Company believes minimizes the exposure to concentration of credit risk.

(p) Recently issued and recently adopted accounting standards

In December 2019, the FASB issued ASU 2019-12 “Simplifying the Accounting for Income Taxes.” The objective of the standard is to improve areas of GAAP by removing certain exceptions permitted by ASC Topic 740-- Income Taxes and clarifying existing guidance to facilitate consistent application.

ASU 2019-12 is effective for fiscal years and interim periods beginning after December 15, 2020.

The Company is currently assessing the impact of ASU 2019-12 on its financial

(t) Risks and uncertainties

Company is subject to numerous risks and uncertainties.

These risks, among others, included the following:

the Company has no source of recurring revenue, has an accumulated deficit of $299.5 million as of

December 31, 2019, may never become profitable and may incur substantial and increasing net losses for the foreseeable future as it continues its research and development programs;

the Company is likely to require additional capital to finance its operations which may not be available to it on

acceptable terms, or at all;

the Companys success is primarily dependent on the successful development, regulatory approval and

commercialization of its drug product candidates;

the Company is subject to regulatory approval processes that are lengthy, time consuming and inherently

unpredictable;

the Company may not be able to obtain approval for any drug product candidates from the U.S.

Food and Drug Administration, or FDA, or foreign regulatory authorities;

the Companys intellectual property rights may be subject to claims by third parties and can be difficult

and costly to protect;

the Company may not be able to recruit or retain key employees, including its senior management team;

the Company depends on the performance of third parties, including contract research organizations and

third-party manufacturers;

the Company faces competition from other pharmaceutical and biotechnology companies, academic institutions,

governmental agencies, and public and private research institutions, among others.

The Company has incurred net losses since its inception and maintains a full valuation allowance on the net deferred tax assets.

As such, the Company does not expect the adoption of this standard to have a material impact on the financial condition, results of operations and cash flows, or financial statement disclosures.

In August 2018, the FASB issued “ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” The objective of the standard is to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

The Company adopted this standard on January 1, 2020 on a prospective basis.

The adoption of this ASU did not have a material impact on the Company’s financial condition, results of operations, cash flows, and financial statement disclosures.

Merger of Neoleukin Therapeutics, Inc.

Aquinox Pharmaceuticals, Inc.

On August 8, 2019, Former Neoleukin and Aquinox completed a transaction pursuant to the Agreement and Plan of

Merger dated August 5, 2019.

and Aquinox Pharmaceuticals, Inc.

On August 8, 2019, Neoleukin Therapeutics, Inc., or Former Neoleukin, and Aquinox Pharmaceuticals, Inc., or Aquinox, completed a transaction pursuant to the Agreement and Plan of Merger dated August 5, 2019.

Former Neoleukin became a wholly owned subsidiary of Aquinox and Aquinox subsequently changed its name to Neoleukin Therapeutics, Inc.

All of the outstanding shares of common stock of the Former Neoleukin were

exchanged for 4,589,771 shares of common stock of the Company and 101,927 shares of non-voting convertible preferred stock of the Company.

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

(in thousands, except share data)

All of the outstanding shares of common stock of the Former Neoleukin were exchanged for 4,589,771 shares of common stock of the Company and 101,927 shares of non-voting convertible preferred stock of the Company.

The total consideration paid was $ 51.6 million and consisted of (in thousands, except share amounts):

Fair value of 4,589,771 Aquinox common stock

3 unchanged sentences

Total consideration $ 51,578

The fair value of the Aquinox securities issued to stockholders of Former Neoleukin was based on the closing stock price on

August 7, 2019, the last day of trading prior to the completion of the transaction.

The transaction was accounted for as an asset acquisition as

Former Neoleukin did not meet the definition of a business as substantially all of the value was in the In-Process Research & Development (IPR&D) asset.

The estimated fair value of the

IPR&D asset of $47.7 million was expensed as the Company determined that the asset has no alternative future.

The following table summarizes the

assets acquired and liabilities assumed:

(in thousands)

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

The transaction was accounted for as an asset acquisition as Former Neoleukin did not meet the definition of a business as substantially all of the value was in the In-Process Research & Development (“IPR&D”) asset.

The estimated fair value of the IPR&D asset of $ 47.7 million was expensed as the Company determined that the asset has no alternative future use.

The following table summarizes the assets acquired and liabilities assumed (in thousands):

Assets acquired:

11 unchanged sentences

Property and equipment, net

Property and equipment, net consist of the following (in thousands):

December 31, 2020

(in thousands)

Leasehold improvements

Cost Accumulated Amortization Net Book Value

Laboratory equipment $ 3,402 $ 426 $ 2,976

Office furniture, equipment and systems

Furniture, fixtures, and IT equipment 753 159 594

$ 4,155 $ 585 $ 3,570

December 31, 2019

(in thousands)

Cost Accumulated Amortization Net Book Value

Leasehold improvements $ 490 $ 333 $ 157

Office furniture, equipment and systems

Depreciation expense on property and equipment totaled $0.2 million, $0.3 million and $0.4 million for the

years ended December 31, 2019, 2018 and 2017, respectively.

Laboratory equipment 1,515 62 1,453

Furniture, fixtures, and IT equipment 743 293 450

$ 2,748 $ 688 $ 2,060

Depreciation expense on property and equipment totaled $ 0.6 million and $ 0.2 million for the years ended December 31, 2020 and 2019, respectively.

Intangible asset, net

(in thousands)

The following table summarizes intangible asset (in thousands):

Cost $ 659 $ 659

Accumulated amortization ( 312 ) ( 92 )

Net intangible asset $ 347 $ 567

As part of the Merger as discussed in Note 3, Merger of Neoleukin Therapeutics, Inc.

and Aquinox Pharmaceuticals, Inc.

, an assembled workforce was acquired.

In an asset acquisition, an assembled workforce meets the asset recognition criteria and is separately recognized as an intangible asset and amortized over its expected life.

The amortization period has been established as 3 years based on management's judgement.

The Company will recognize $ 0.2 million and $ 0.1 million of amortization expense in fiscal years 2021 and 2022, respectively.

Accounts payable and other liabilities

(in thousands)

Accrued liabilities consist of the following (in thousands):

Trade accounts payable $ 1,323 $ 1,604

Accrued clinical/preclinical expenses

Accrued clinical and preclinical expenses 1,687 944

Accrued compensation and vacation 3,244 1,238

Other accrued liabilities 927 339

Lease liabilities

(a) ASU 2016-02 Leases disclosures

The Company has a lease agreement for approximately 6,272 square feet of office space in Seattle, Washington, for the Companys principal executive

offices, a laboratory for research and development and related uses.

The lease was effective on September 23, 2019, commenced on October 1, 2019 and expires on October 31, 2021, unless terminated earlier.

The Company is also

responsible for the payment of additional rent to cover the Companys share of the annual operating and tax expenses and utilities costs for the building.

The Company has a lease agreement for approximately 10,946 square feet of office space in Canada, which commenced on November 1, 2016 and expires

October 31, 2021, with the option to extend the lease to October 31, 2026.

On December 22, 2016, the Company signed a lease agreement for an additional 2,500 square feet of office space in Canada.

The lease for the additional 2,500

square feet expired on June 30, 2019.

In addition to the basic rent, the Company is obligated to pay for taxes, operating costs, utilities, additional services and other amounts.

As part of the transaction with Former Neoleukin, the Company assumed a finance lease liability for laboratory equipment.

The Company is obligated to make

five annual payments for an aggregate purchase price of $0.3 million.

All rights and title will transfer to the Company upon receipt of the final payment.

As of December 31, 2019, the Companys operating lease right of use asset was $0.8 million and its finance lease right of use asset was

$0.3 million.

The components of the lease expense were as follows:

(in thousands)

DECEMBER 31, 2019

$ 7,181 $ 4,125

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

The Company has a lease agreement for approximately 33,300 square feet of office space in Seattle, Washington for the Company’s principal executive offices, a laboratory for research and development and related uses (the "Blaine lease").

In January 2020, the Company issued an irrevocable letter of credit in the amount of $ 0.5 million for the security deposit in accordance with the terms of the lease.

The lease commenced on January 15, 2020 and rent obligations were scheduled to commence on December 1, 2020.

The Company will also be responsible for the payment of additional rent to cover the Company’s share of the annual operating and tax expenses and utilities costs for the building.

The lease was originally scheduled to expire on December 1, 2028, with the option to extend the lease for two five-year terms.

The lease provides for a tenant improvement allowance of $ 8.0 million, which is included in the base rent, and an optional additional tenant improvement allowance with a maximum amount of $ 1.5 million, which will result, if elected, in additional rent expense recognized over the term of the lease.

In September 2020, the Company elected to utilize this additional tenant improvement allowance.

This resulted in a remeasurement of the lease liability due to an increase in lease payments over the term of the lease.

The Company recorded an increase to the lease liability and related right-of-use asset of $ 1.0 million.

In November 2020, the Company executed an amendment to this lease that extends the scheduled rent commencement date to February 1, 2021 and the base term expiration to February 1, 2029.

This amendment was accounted for as a modification to the lease and resulted in an immaterial reduction of the lease liability and related right-of-use asset.

As of December 31,2020, there was a tenant improvement allowance receivable of $ 0.9 million recorded in other current assets on the consolidated balance sheets related to reimbursable build-out costs incurred by the Company.

The Company has a lease agreement for approximately 6,272 square feet of office space in Seattle, Washington, for the Company’s former principal executive offices, a laboratory for research and development and related uses.

In June 2020, the Company executed an amendment to this lease pursuant to which the Company has the option to terminate the lease, without penalty, at any point subsequent to November 1, 2020 with 45 days advance written notice.

At December 31, 2020, the Company determined that it is reasonably certain to not exercise this termination option.

On March 24, 2021, the Company executed a second amendment to this lease, pursuant to which the term of the lease is extended through September 30, 2026.

This will result in an increase in fixed rental payments over the updated term.

On June 30, 2020, the Company terminated its lease agreement for 10,946 square feet of office space in Vancouver, Canada.

The lease termination resulted in an extinguishment of the lease liability and the write-off of the related right-of-use asset.

After incurring additional expenses included in the termination fee of $ 0.5 million, the Company recognized a loss of $ 0.3 million on the termination of the lease, which was recorded in general and administrative expenses in June 2020.

In addition, the Company wrote-off leasehold improvements and other property and equipment associated with the lease and incurred a loss on disposal of $ 0.2 million in June 2020.

As of December 31, 2020, and December 31, 2019, the Company’s operating lease right-of-use assets were $ 10.2 million and $ 0.8 million, respectively.

As of December 31, 2020, and December 31, 2019, the Company's finance lease right-of use-assets, included within property and equipment on the consolidated balance sheet, were $ 0.3 million and $ 0.3 million, respectively.

The components of the lease expense were as follows (in thousands):

Finance lease cost

Amortization of

right-of-use asset

Amortization of right-of-use asset $ 46 $ 19

Interest on lease liabilities 14 —

4 unchanged sentences

Supplemental balance sheet information related to leases is as follows:

DECEMBER 31, 2019

Weighted average remaining lease termfinance leases

Weighted average remaining lease termoperating leases

Weighted average remaining lease term—finance leases 2.45 years 3.33 years

Weighted average remaining lease term—operating leases 7.97 years 1.83 years

Weighted average discount rate—finance leases 7.11 % 7.11 %

Weighted average discount rate—operating leases 12.88 % 5.37 %

Supplemental cash flow information related to leases was as follows:

(in thousands)

DECEMBER 31, 2019

Supplemental cash flow information related to leases was as follows (in thousands):

Cash paid for amounts included in the measurement of operating lease liabilities $ 460 $ 236

Cash paid for amounts included in the measurement of finance lease liabilities 60 9

Operating lease liabilities arising from obtaining right-of-use assets

The calculation of the present value of the operating lease payments for the Vancouver lease did not include the option to

extend the lease to October 31, 2026.

At December 31, 2019, the future payments under the Companys operating and finance lease

liabilities were as follows:

(in thousands)

The calculation of the present value of the operating lease payments for the Blaine lease did not include the option to extend the lease for two five year terms.

At December 31, 2020, the future payments under the Company’s operating and finance lease liabilities were as follows (in thousands):

Finance Lease Operating Lease

December 31, 2021 $ 60 $ 2,161

2 unchanged sentences

December 31, 2024 — 2,394

December 31, 2025 — 2,448

Thereafter — 7,904

Total undiscounted lease payments 180 19,537

3 unchanged sentences

Non-current lease liabilities—December 31, 2020 $ 108 $ 11,306

On December 23, 2019, the Company entered into a lease agreement for the lease of approximately 33,300 square feet

of office space in Seattle, Washington, for the Companys future principal executive offices, a laboratory for research and development and related uses.

The lease was effective on December 23, 2019, rent obligations commence on

December 1, 2020 and the lease expires on December 1, 2028, unless terminated earlier.

The Company will be obligated to pay approximately $2.0 million per annum in annual basic rent for the first year of the lease and will increase by

2.5% per annum over the term of the lease.

The Company will also be responsible for the payment of additional rent to cover the Companys share of the annual operating and tax expenses and utilities costs for the building.

(b) Disclosures related to periods prior to adoption of ASC 842 Leases

Prior to the adoption of ASC 842, and pursuant to the legacy guidance within ASC 840, the Company recorded rent expense on a straight-line basis through the

end of the lease term.

Scheduled rent increases, rent holidays and tenant improvement allowance were included in deferred rent and recognized as a reduction in deferred rent over the term of the lease.

As at December 31, 2018, the Company

recorded a deferred rent liability of $0.3 million.

The minimum lease payments under the non-cancelable

operating leases as at December 31, 2018 are payable in the following amounts over the following years.

Operating lease obligations

During the years ended December 31, 2018 and 2017, the Company incurred operating lease costs of

$0.7 million and $0.7 million, respectively.

Stockholders’ equity

(a) Common stock

The Company is authorized to

issue 100,000,000 shares of common stock with a par value of $0.000001 per share (December 31, 201850,000,000).

On November 12, 2019, the Companys stockholders approved the increase in the number of authorized shares of common stock

from 50,000,000 to 100,000,000.

As of December 31, 2019, total number of shares of common stock issued and outstanding was 37,996,849 (December 31, 201823,537,368).

The Company is authorized to issue 100,000,000 shares of common stock with a par value of $ 0.000001 per share as of December 31, 2020.

As of December 31, 2020, and 2019, the total number of shares of common stock issued and outstanding was 42,196,296 , and 37,996,849 , respectively.

On July 7, 2020, the Company completed an underwritten public offering of 3,262,471 shares of its common stock at a price of $ 15.25 per share and pre-funded warrants to purchase 1,737,529 shares of its common stock at a price of $ 15.249999 per prefunded warrant.

The pre-funded warrants can be exercised at any time after issuance for an exercise price of $ 0.000001 per share.

The aggregate net proceeds received by the Company from the offering were $ 71.3 million, net of underwriting discounts, commissions, and offering costs of approximately $ 4.9 million.

On December 20, 2019, the Company completed an underwritten public offering of 10,263,750 shares of its common stock at a price to the public of $ 8.40 per share.

The aggregate net proceeds received by the Company from the offering, net of underwriting discounts, commissions, and offering costs of approximately $ 5.5 million, were $ 80.7 million.

(b) Preferred stock

The Company is authorized to

issue 5,000,000 shares of preferred stock with a par value of $0.000001 per share (December 31, 20185,000,000).

As of December 31, 2019 and December 31, 2018, no shares of preferred stock were issued or outstanding.

The Company is authorized to issue 5,000,000 shares of preferred stock with a par value of $ 0.000001 per share.

As of December 31, 2020 and December 31, 2019, 0 shares of preferred stock were issued or outstanding.

August 8, 2019, the Company issued 4,589,771 shares of common stock and 101,927 shares of non-voting convertible preferred stock as consideration in the Merger among Aquinox, Former Neoleukin and Apollo

(see Note 3).

Each share of non-voting convertible preferred stock was convertible into 100 shares of common stock and was entitled to receive dividends, on an

as-is converted to common stock basis, when dividends are paid to common stockholders.

On August 8, 2019, the Company issued 4,589,771 shares of common stock and 101,927 shares of non-voting convertible preferred stock as consideration in the Merger among Aquinox, Former Neoleukin and Apollo Merger Inc.

(see Note 3, Merger of Neoleukin Therapeutics, Inc.

and Aquinox Pharmaceuticals, Inc.

Each share of non-voting convertible preferred stock was convertible into 100 shares of common stock and was entitled to receive dividends, on an as-is converted to common stock basis, when dividends are paid to common stockholders.

The holders of preferred stock were only entitled to vote when it impacts the rights of the preferred stockholder.

On November 12, 2019, the Companys stockholders approved the conversion of 101,927 shares of non-voting

convertible preferred stock into 10,192,700 shares of the Companys common stock.

As of December 31, 2019, the Company did not have any outstanding non-voting convertible preferred stock.

(d) Pre-funded common stock warrants

On December 17, 2019, Neoleukin entered into an exchange agreement (the Exchange Agreement) with certain stockholders, pursuant to which the

Company exchanged an aggregate of 10,925,481 shares of common stock held by the stockholders for pre-funded warrants (the Exchange Warrants) to purchase an aggregate of

10,925,481 shares of common stock (subject to adjustment in the event of stock splits, recapitalizations and other similar events affecting common stock), with an exercise price of $0.000001 per share.

The Exchange Warrants may be exercised at any

time after the date of issuance, except that the Exchange Warrants cannot be exercised by the stockholders if, after giving effect thereto, the stockholders would beneficially own more than 9.99% of the outstanding common stock, subject to certain

On November 12, 2019, the Company’s stockholders approved the conversion of 101,927 shares of non-voting convertible preferred stock into 10,192,700 shares of the Company’s common stock.

As of December 31, 2020, the Company did no t have any outstanding non-voting convertible preferred stock.

(d) December 2019 pre-funded common stock warrants

On December 17, 2019, Neoleukin entered into an exchange agreement (the “Exchange Agreement”) with certain stockholders, pursuant to which the Company exchanged an aggregate of 10,925,481 shares of common stock held by the stockholders for pre-funded warrants (the “Exchange Warrants”) to purchase an aggregate of 10,925,481 shares of common stock (subject to adjustment in the event of stock splits, recapitalizations and other similar events affecting common stock), with an exercise price of $ 0.000001 per share.

The Exchange Warrants may be exercised at any time after the date of issuance, except that the Exchange Warrants cannot be exercised by the stockholders if, after giving effect thereto, the stockholders would beneficially own more than 9.99 % of the outstanding common stock, subject to certain exceptions.

The holders of the Exchange Warrants will not have the right to vote on any matter except to the extent required by Delaware law.

Exchange Warrants meet the conditions for equity classification, the proceeds previously received for the shares of common stock will remain in additional paid-in capital.

Upon the exercise of the warrants the

proceeds received along with the exercise price will be recorded in common stock.

(e) Public offerings

On December 20, 2019, the Company completed an underwritten public offering of 10,263,750 shares of its common stock at a price to the public of $8.40 per

The aggregate net proceeds received by the Company from the offering, net of underwriting discounts and commissions and offering costs of approximately $5.5 million, were $80.7 million.

(f) Stock option plan

In January 2014, the

Companys stockholders approved the 2014 Equity Incentive Plan (2014 Plan) which became effective in March 2014.

As the Exchange Warrants meet the conditions for equity classification, the proceeds previously received for the shares of common stock will remain in additional paid-in capital.

Upon the exercise of the warrants the proceeds received along with the exercise price will be recorded in common stock.

(e) Stock option plan

In January 2014, the Company’s stockholders approved the 2014 Equity Incentive Plan (“2014 Plan”) which became effective in March 2014.

The 2014 Plan is the successor to and continuation of the Joint Canadian Stock Option Plan (the “2006 Plan”).

No further grants will be made under the 2006 Plan.

The 2014 Plan provides for the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, performance cash awards, and other

forms of equity awards to employees, directors, and consultants.

As of December 31, 2019, the maximum number of shares of common stock that may be

issued under the 2014 Plan was 9,080,445.

The number of shares of common stock reserved for issuance under the 2014 Plan will be increased by the number of shares subject to stock options granted under the 2006 Plan that would have otherwise

returned to the 2006 Plan, such as upon the expiration or termination of a stock award prior to vesting.

The 2014 Plan provides for the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, performance cash awards, and other forms of equity awards to employees, directors, and consultants.

As of December 31, 2020, the maximum number of shares of common stock that may be issued under the 2014 Plan was 9,786,363 .

The number of shares of common stock reserved for issuance under the 2014 Plan will be increased by the number of shares subject to stock options granted under the 2006 Plan that would have otherwise returned to the 2006 Plan, such as upon the expiration or termination of a stock award prior to vesting.

As of December 31, 2020, there were 23,958 shares subject to stock options granted under the 2006 Plan.

Additionally, the number of shares

of common stock reserved for issuance under the 2014 Plan will automatically increase on January 1 of each year for a period of up to 10 years, beginning on January 1, 2015 and ending on and including January 1, 2024, by 4% of the

total number of shares of capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by the board of directors.

On November 12, 2019, the Companys stockholders approved the

increase in the number of shares reserved from issuance under the 2014 Plan by 4,500,000 shares.

At December 31, 2019, the number of shares available to be granted under the 2014 Plan was 6,556,534

(December 31, 20181,156,378).

Stock option transactions and the number of stock options outstanding are summarized below:

EXERCISE PRICE

Additionally, the number of shares of common stock reserved for issuance under the 2014 Plan will automatically increase on January 1 of each year for a period of up to 10 years, beginning on January 1, 2015 and ending on and including January 1, 2024, by 4.00 % of the total number of shares of capital stock

outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by the board of directors.

On November 12, 2019, the Company’s stockholders approved the increase in the number of shares reserved from issuance under the 2014 Plan by 4,500,000 shares.

All awards granted pursuant to the 2014 Plan have a contractual term of ten years .

All awards granted to date are equity classified and subject to service based vesting, typically over a period of one to four years .

The number of shares available to be granted under the 2014 Plan was 6,037,532 and 6,556,534 as of December 31, 2020 and 2019 respectively.

Stock options

A summary of the Company's stock option activity and related information for the year ended December 31, 2020 is as follows:

Number of Shares Weighted Average

Exercise Price Weighted

(In Years) Aggregate

(In Thousands)

Outstanding at December 31, 2019 5,840,538 $ 5.11 7.7 $ 45,037

1 unchanged sentence

Options exercised ( 882,624 ) 6.42

Options forfeited

Options cancelled/forfeited ( 515,925 ) 15.69

Outstanding at December 31, 2020 6,846,289 $ 6.42 8.7 $ 53,127

Exercisable as of December 31, 2020 1,878,082 $ 5.02 7.7 $ 17,547

During the year ended December 31, 2019, the Company granted 3,830,000 stock options to employees, 76,500 stock options

to consultants and 110,000 stock options to non-employee directors.

The stock options granted to employees during the year ended December 31, 2019 have exercise prices per share ranging from $2.71 to

$5.30 and vest 25% one year after the beginning of the vesting period and thereafter ratably each month over the following thirty-six months.

The stock options granted to consultants during the year ended

December 31, 2019 have exercise prices per share ranging from $2.82 to $3.76 and have a vesting period of one year in equal monthly installments from the beginning of the vesting period for certain grants and a vesting period of 25% one year

after the beginning of the vesting period and thereafter ratably each month over the following thirty-six months for other grants.

In the event of a change in control, the unvested options of the August and

November 2018 grants will vest immediately if the employee has been terminated without cause within twelve months prior to the change in control or if within twelve months of the change in control the employee is terminated without cause.

change in control does not occur within the twelve months prior to an employee being terminated without cause, the options will continue to vest until the earlier of the change in control or one year from the date of being terminated without cause.

The stock options granted to non-employee directors during the year ended December 31, 2019 have an exercise price per share of $2.82 and have a vesting period of three years in equal annual installments

from the beginning of the vesting period.

All stock options under the 2014 Plan are subject to a 10-year expiration period.

During the year ended December 31, 2019, 326,094 shares of common stock were issued upon exercise of options with an aggregate intrinsic value of

$1.3 million.

During the year ended December 31, 2020, 882,624 shares of common stock were issued upon exercise of options with an aggregate intrinsic value of $ 6.0 million.

Restricted stock units

During the year ended

December 31, 2019, the Company granted 72,000 restricted stock units to employees and consultants with a weighted average grant date fair value per share of $3.47.

The restricted stock units vest 50% on the first anniversary of the grant and

50% on the second anniversary of the grant.

All restricted stock units under the 2014 Plan are subject to a 10-year expiration period.

(g) Stock-based compensation

The fair value of

stock options granted is estimated using the Black-Scholes option pricing model with the following weighted average assumptions:

YEARS ENDED DECEMBER 31,

During the year ended December 31, 2019, 326,094 shares of common stock were issued upon exercise of options with an aggregate intrinsic value of $ 1.3 million.

The weighted-average grant date fair value of options granted during the years ended December 31, 2020 and December 31, 2019 was $ 8.70 and $ 2.17 per share, respectively.

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

Expected volatility 93 % 90 %

2 unchanged sentences

Risk free rate 0.42 % 1.43 %

Weighted average grant-date fair value of stock options

Stock options are granted with exercise prices as determined by the Board of Directors at the date of grant.

The expected term

represents the period that the Companys stock-based awards are expected to be outstanding.

As the Company does not have sufficient historical experience for determining the expected term of the stock option awards granted the Company has based

its expected term for awards issued to employees on the simplified method, which represents the average period from vesting to the expiration of the stock option.

In addition, the Company does not have sufficient trading history for the

Companys common stock, and therefore, the expected stock price volatility for the Companys common stock was estimated by taking the average historical price volatility for industry peers.

The Company has never declared or paid any cash

dividends to common stockholders and does not presently plan to pay cash dividends in the foreseeable future.

Consequently, the Company used an expected dividend yield of zero.

The risk-free interest rate was based on the yields of treasury

securities with maturities similar to the expected term of the options for each option group.

The Company recognizes as an expense the fair value of the

stock options on a straight-line basis over the applicable requisite service periods of the awards, which is generally the vesting period.

Stock-based compensation expense charged to research and development expenses was $0.5 million,

$0.8 million and $1.1 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Stock-based compensation expense charged to general and administration expenses was $7.2 million, $3.9 million and

$2.7 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Total unrecognized compensation cost for all stock-based compensation plans was $8.4 million and $7.8 million as of December 31, 2019 and

December 31, 2018, respectively, which is expected to be recognized over a weighted-average period of 3.53 years (December 31, 20182.79 years).

Previous license and collaboration agreement

Company had previously entered into an exclusive license and collaboration agreement with Astellas US LLC, a subsidiary of Astellas Pharma Inc.

(Astellas) in May 2018.

The Company granted Astellas an exclusive, royalty-bearing license to

use, research, develop, manufacture and commercialize the Companys drug candidate, rosiptor, and related compounds for all human diseases and conditions in Japan and certain other countries in the Asia-Pacific region.

The license and

collaboration agreement also included an upfront payment of $25.0 million and contractual milestones.

The Company determined that its performance

obligations under the agreement are the license and transfer of data, ongoing information sharing with Astellas and the material right granted to Astellas to acquire rosiptor at the Companys cost.

The upfront payment of $25.0 million was

allocated between each of the performance obligations.

On November 8, 2018, the Company entered into an Early Termination Agreement with Astellas to

terminate the exclusive license and collaboration agreement between the Company and Astellas effective immediately.

The $25.0 million upfront payment from Astellas is non-refundable and the full amount

was recorded as revenue.

Restricted stock units

A summary of the Company's restricted stock unit activity and related information for the year ended December 31, 2020 is as follows:

Shares Weighted

Grant Date Fair Value

Non-vested at December 31, 2019 72,000 $ 3.47

Restricted stock units granted 152,000 9.26

Restricted stock units vested ( 36,000 ) 3.47

Restricted stock units forfeited ( 1,500 ) 3.47

Non-vested at December 31, 2020 186,500 $ 8.19

(f) Stock-based compensation

Stock-based compensation expense is classified in the consolidated statements of operations as follows (in thousands):

Research and development expenses $ 1,999 $ 486

General and administrative expenses $ 3,623 $ 7,197

Total stock-based compensation expense $ 5,622 $ 7,683

Total unrecognized compensation for all stock-based compensation was $ 24.9 million as of December 31, 2020, which is expected to be recognized over a weighted-average period of 3.15 years.

(g) Employee stock purchase plan

The Company’s 2020 Employee Stock Purchase Plan (“2020 ESPP”) was adopted by the Company’s Board of Directors in March 2020 and approved by the Company’s stockholders in May 2020.

A total of 759,936 shares of common stock have been reserved for issuance under the 2020 ESPP.

Subject to share and dollar limits as described in the plan, the 2020 ESPP allows eligible employees to contribute, through payroll deductions, up to 15 % of their earnings for the purchase of the Company’s shares of common stock at the lower of 85 % of the closing price of the Company’s common stock on the first trading day of the offering period or 85 % of the closing price of the Company’s common stock on the last trading day of the offering period.

There are two six-month offering periods during each fiscal year, ending on May 15 and November 15.

During the year ended December 31, 2020, the Company issued 18,352 shares of common stock at a price per share of $ 10.84 under the 2020 ESPP.

Cash received from the purchases under the 2020 ESPP for the year ended December 31, 2020 was $ 0.2 million.

Restructuring

2018, the Companys Board of Directors approved a restructuring plan to reduce operating costs and better align the Companys workforce with the needs of its business following the June 27, 2018 announcement that its Phase 3

Leadership 301 clinical trial evaluating once-daily, oral rosiptor for the treatment of IC/BPS failed to meet its primary endpoint.

In July 2018, the Company’s Board of Directors approved a restructuring plan to reduce operating costs and better align the Company’s workforce with the needs of its business following the June 27, 2018 announcement that its Phase 3 Leadership 301 clinical trial evaluating once-daily, oral rosiptor for the treatment of IC/BPS failed to meet its primary endpoint.

The Company has halted all further development activities with rosiptor.

Under the restructuring plan, the Company reduced its workforce by 30 employees (approximately 53% of total employees) and closed its office in San Bruno,

Affected employees were eligible to receive severance payments and outplacement services.

The Company incurred aggregate restructuring charges of $7.4 million related to clinical trial closing costs, contract cancellations, closing

of its office in San Bruno, severance payments and other employee-related costs.

Substantially all of these charges were paid as at June 30, 2019.

During the second quarter of 2019, the Company revised its original estimate of aggregate restructuring charges lower by $2.0 million based upon updated

information from its vendors related to a completed project.

The following table shows the total amount expected to be incurred and the liability related to the July

2018 restructuring as at December 31, 2019:

(in thousands)

Amounts accrued as at January 1, 2018

ChargesJuly 2018

Revised estimates during 2018

Total restructuring costs expected to be incurred

Amounts paid during 2018

Amounts accrued at December 31, 2018

Revised estimates during 2019

Amounts paid during 2019

Amounts accrued at December 31, 2019

On November 6, 2018, the Companys Board of Directors approved an additional restructuring plan to further reduce

operating costs.

Under the restructuring plan, the Company reduced its workforce by 16 employees effective December 31, 2018.

Further reduction of staff occurred in 2019.

Affected employees were eligible to receive severance payments and

outplacement services.

The Company incurred restructuring charges of $1.0 million in 2018 related to one-time termination severance payments and other employee-related costs.

Substantially all of these

charges were paid as at December 31, 2018.

Additional restructuring charges of $0.7 million were incurred in 2019.

The following table shows

the total amount expected to be incurred and the liability related to the November 2018 restructuring as at December 31, 2019:

(in thousands)

Total restructuring costs expected to be incurred

Amount paid in 2018

Amount accrued at December 31, 2018

Restructuring costs incurred during 2019

Amount paid during the period ended December 31, 2019

Amount accrued at December 31, 2019

Restructuring charges expected to be incurred

Cumulative restructuring costs incurred as at December 31, 2019

Restructuring charges expected to be incurred in future periods

For the year ended December 31, 2019, restructuring recoveries of $1.9 million were recorded in

research and development expenses and restructuring costs of $0.7 million in general and administrative expenses.

For the year ended December 31, 2018, restructuring costs of $9.0 million were recorded in research and development

expenses, $1.1 million in general and administrative expenses and $0.3 million in miscellaneous expenses (Note 11).

Substantially all restructuring costs were paid by September 30, 2019.

In 2018 and 2019, the Company incurred and paid aggregate restructuring charges of $ 7.4 million related to clinical trial closing costs, contract cancellations, closing of its office in San Bruno, California, severance payments and other employee-related costs.

During the second quarter of 2019, the Company revised its original estimate of aggregate restructuring charges lower by $ 2.0 million based upon updated information from its vendors related to a completed project.

There were no amounts accrued as of December 31, 2020 or December 31, 2019.

On November 6, 2018, the Company’s Board of Directors approved an additional restructuring plan to further reduce operating costs.

The Company incurred and paid aggregate restructuring charges of $ 1.6 million related to severance payments and other employee-related costs.

There were no amounts accrued as of December 31, 2020.

For the year ended December 31, 2020, the Company incurred and paid an immaterial amount of restructuring charges.

For the year ended December 31, 2019, restructuring recoveries of $ 1.9 million were recorded in research and development expenses and restructuring costs of $ 0.7 million were recorded in general and administrative expenses.

Other income, net

YEARS ENDED DECEMBER 31,

(in thousands)

Other income is presented for all periods (in thousands):

Interest income $ 490 $ 1,542

Foreign exchange losses

Miscellaneous expenses (Note 10)

Foreign exchange gains (losses) 5 ( 16 )

Other expenses ( 44 ) ( 9 )

$ 451 $ 1,517

Net loss per common stock

Basic and diluted net loss per common stock is computed by dividing net loss by the weighted average number of common stock outstanding.

The Company excluded

the following outstanding stock options and restricted stock units from the computation of basic and diluted net loss per common stock as the effect would have been antidilutive for all periods presented.

YEARS ENDED DECEMBER 31,

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

December 31, YEARS ENDED

Outstanding stock options 6,848,289 5,840,538

Restricted stock units 186,500 72,000

tax recovery varies from the amounts that would be computed by applying the expected U.S.

Shares issuable under 2020 ESPP 22,521 —

7,057,310 5,912,538

Income tax recovery varies from the amounts that would be computed by applying the expected U.S.

federal income tax rate (21%) as shown in the following table:

YEARS ENDED DECEMBER 31,

Statutory federal income tax rate ( 21.0 ) % ( 21.0 ) %

4 unchanged sentences

Stock compensation 1.8 2.6

Disposal of Aquinox Canada ( 5.2 ) —

Change in valuation allowance 26.5 ( 0.6 )

Expiration of NOLs (section 382) 0.5 5.4

Effect of the U.S.

Tax Cuts and Jobs Act

Tax Credits ( 2.5 ) ( 0.9 )

Income tax recovery — % — %

On December 22, 2017, the U.S.

passed into law the Tax Cuts and Jobs Act, or the Act, which

significantly overhaul the U.S.

Significant changes to the Internal Revenue Code included a reduction in the U.S.

federal corporate tax rate from 35% to 21%.

The Companys accounting for the provisions of the Act, based on the

Companys understanding of the Act and the latest guidance available, resulted in a $2.3 million reduction in its net deferred income tax assets as of December 31, 2017 to reflect the new statutory tax rate.

This reduction to the net

deferred income tax assets was fully offset by a corresponding reduction in the valuation allowance.

(in thousands)

Years Ended December 31,

Net loss before taxes:

Deferred income tax assets and liabilities result from the temporary differences between the amount of assets and liabilities

recognized for financial statement and income tax purposes.

The significant components of the deferred income tax assets are as follows:

(in thousands)

Net loss before taxes (in thousands):

Canada $ ( 522 ) $ ( 2,129 )

( 32,755 ) ( 67,313 )

Total $ ( 33,277 ) $ ( 69,442 )

Deferred income tax assets and liabilities result from the temporary differences between the amount of assets and liabilities recognized for financial statement and income tax purposes.

The significant components of the deferred income tax assets are as follows (in thousands):

Deferred tax assets:

Canadian net operating losses $ — $ 39,574

1 unchanged sentence

Research and development deductions and credits 1,040 11,062

valuation allowance

Intangibles 422 1,189

Lease Liability 2,513 233

Stock Compensation 717 309

Other 162 330

Total deferred tax assets:

17,182 58,044

Deferred income tax liabilities

ROU Assets 2,132 169

Total deferred tax liabilities 2,289 229

Net deferred income tax assets 14,893 57,815

At December 31, 2019, the Company had Canadian net operating losses carried forward for tax purposes which were available

to reduce taxable income of future years of approximately $146.6 million (December 31, 2018approximately $149.1 million) expiring commencing in 2025 through 2039.

At December 31, 2019, the Company had U.S.

net operating losses carried forward for tax purposes which were available to reduce taxable income of future

years of approximately $25.5 million (December 31, 2018approximately $21.8 million), of which approximately $nil million (December 31, 2018approximately $14.6 million) arose in California.

Of the $25.5 million of U.S.

net operating

loss carryforwards, $2.3 million will expire between the years 2028 and 2037 and the remaining $23.2 million are indefinite.

The Company completed a formal study under IRC Section 382 to determine the U.S.

valuation allowance ( 14,893 ) ( 57,815 )

Deferred tax assets, net of valuation allowance $ — $ —

On July 31, 2020, the Company sold all issued and outstanding capital stock of its Canadian subsidiary, Aquinox Canada, to an unrelated third party for cash consideration.

As of the date of sale, Aquinox Canada’s remaining assets included intellectual property and other assets developed through past research and development activities, all of which had no book value.

The transaction resulted in a net gain on sale of $ 7.8 million.

The sale of Aquinox Canada triggered a significant capital loss carryforward for tax purposes.

However, most of the capital loss carryforward is limited by the prior ownership change under Section 382.

The remaining unlimited portion of the capital loss carryforward will be subject to a full valuation allowance as the Company has determined that it is more likely than not that the benefit of the loss will not be realized.

After the sale, Aquinox Canada's tax attributes of $ 51.7 million including the net operating losses, scientific research and experimental development expenditures and investment tax credits are no longer reflected in the deferred tax assets and valuation allowance.

At December 31, 2020 and December 31, 2019, the Company had U.S.

federal net operating losses ("NOL") carryforwards for tax purposes of approximately $ 58.1 million and $ 25.5 million, respectively, which were available to reduce taxable income.

Of the $ 58.1 million of federal NOL carryforwards, $ 1.7 million will expire between the years 2028 and 2037 and the remaining $ 56.4 million are indefinite.

The Company also has U.S.

federal research & development tax credits of $ 1.0 million and $ 0.2 million as of December 31, 2020 and December 31, 2019, respectively, that begin to expire in 2039.

The Company completed a formal study under IRC Section 382 through 2019 to determine the U.S.

tax attributes available for use.

results of the study indicated significant restriction on the Companys ability to utilize the U.S.

net operating losses carried forward.

tax attributes disclosed reflected the conclusion of that study.

However, future ownership

changes may further affect the limitation in future years.

The Company also had unclaimed Canadian tax deductions with no expiry for scientific research

and experimental development expenditures of approximately $22.5 million at December 31, 2019 (December 31, 2018approximately $19.7 million).

In addition, at December 31, 2019, the Company had approximately $5.8 million

(December 31, 2018approximately $5.2 million) of investment tax credits available to offset Canadian federal and provincial taxes payable expiring commencing in 2020 through 2038.

Under ASC 740, the benefit of an uncertain tax position that is more likely than not of being sustained upon audit by the relevant taxing authority must be

recognized at the largest amount that is more likely than not to be sustained.

No portion of the benefit of an uncertain tax position may be recognized if the position has less than a 50% likelihood of being sustained.

The Company currently does not

have any unrecognized tax benefits of uncertain tax positions.

The Company does not expect any significant increases to its unrecognized tax benefits within twelve months of the reporting date.

The Company currently files income tax returns in the United States and Canada, the jurisdictions in which the Company believes that it is subject to tax.

Further, while the statute of limitations in each jurisdiction where an income tax return has been filed generally limits the examination period, as a result of loss carry-forwards, the limitation period for examination generally does not expire

until several years after the loss carry-forwards are utilized.

Other than routine audits by tax authorities for tax credits and tax refunds that the Company has claimed, the Company is not aware of any other material income tax examination

currently in progress by any taxing jurisdiction.

attributes disclosed reflect the conclusion of that study.

However, subsequent ownership changes may further affect the limitation in future years.

The Company maintains a full valuation allowance on its net U.S.

deferred tax assets.

The assessment regarding whether a valuation allowance is required considers both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable.

In making this assessment, significant weight is given to evidence that can be objectively verified.

In its evaluation, the Company considered its cumulative losses and its forecasted losses in the near-term as significant negative evidence.

Therefore, the Company determined that the negative evidence outweighed the positive evidence and a full valuation allowance on its assets will be maintained.

The Company will continue to assess the realizability of its assets going forward and will adjust the valuation allowance as needed.

The valuation allowance decreased by $ 42.9 million for the year ended December 31, 2020.

The decrease is primarily due to the sale of Aquinox Canada and the write-off of the related tax attributes, and partially offset by an increase in US net operating losses and research and development tax credits.

The valuation allowance increased by $ 0.6 million for the year ended December 31, 2019.

The increase is primarily related to an increase in deferred tax assets.

The Company applies judgment in the determination of the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return.

As of December 31, 2020, the Company had no uncertain tax positions.

The Company currently files income tax returns in the United States, the jurisdictions in which the Company believes that it is subject to tax.

Further, while the statute of limitations in each jurisdiction where an income tax return has been filed generally limits the examination period, as a result of loss carryforwards, the limitation period for examination generally does not expire until several years after the loss carryforwards are utilized.

Other than routine audits by tax authorities for tax credits and tax refunds that the Company has claimed, the Company is not aware of any other material income tax examination currently in progress by any taxing jurisdiction.

License and patent agreements

The Company has an exclusive license agreement with the University of Washington, or UW, under which UW (on behalf of itself and Stanford University) granted

the Company an exclusive worldwide license under certain patent rights, to make, have made, use, offer to sell, sell, offer to lease or lease, import, export or otherwise offer to dispose of licensed products in all fields of use, and a nonexclusive

worldwide license to use certain know-how.

The Company has an exclusive license agreement with the University of Washington, or UW, under which UW (on behalf of itself and Stanford University) granted the Company an exclusive worldwide license under certain patent rights, to make, have made, use, offer to sell, sell, offer to lease or lease, import, export or otherwise offer to dispose of licensed products in all fields of use, and a nonexclusive worldwide license to use certain know-how.

The foregoing licenses are sublicensable by the Company without UW’s consent, subject to certain limited conditions.

As consideration for the licensed rights, the Former Neoleukin issued 536,813 shares of common stock to UW.

These shares were exchanged for 188,974 shares of

common stock of the Company and 4,197 shares of non-voting convertible preferred stock on the completion of the Merger.

Pursuant to the agreement, the Company also granted to UW an assignable right to

participate in any future sale of equity securities by the Company, subject to certain exclusions.

The Exclusive License Agreement was amended effective as of July 24, 2020 to, among other things, (i) add a jointly owned de novo cytokine antagonist to the agreement, (ii) specify royalties, milestone payments and sublicense consideration payments payable by Neoleukin for certain jointly licensed products, (iii) specify the term for achievement of performance milestones for certainly jointly licensed products, and (iv) terminate UW’s right to participate in equity financings.

As consideration for the licensed rights, the Company issued 536,813 shares of common stock to UW.

These shares were exchanged for 188,974 shares of common stock of the Company and 4,197 shares of non-voting convertible preferred stock on the completion of the Merger.

Furthermore, the Company is required to pay;

(i) an annual maintenance fee starting in January 2022 (but excluding any year in which minimum annual royalties are paid);

(ii) up to $0.9 million in combined development and regulatory milestone payments with respect to each distinct

class of licensed product;

class of licensed products equals or exceeds $100.0 million, with the majority payable when cumulative net sales of the class of licensed products equals or exceeds $1.0 billion;

(iv) a low single-digit royalty on net sales of

licensed products sold by the Company and its sublicensees, which may be subject to reductions, and subject to minimum annual royalty payments following the first commercial sale of a licensed product;

(v) a certain percentage of any sublicense

consideration (other than royalties) the Company receives from sublicensees, based on the stage of development at the time the sublicense is executed;

and (vi) a certain percentage of consideration the Company receives from an acquisition of

the Company or its assets based on the stage of development at the relevant time.

The Company is obligated to pay royalties on a country-by-country basis until the

expiration of the last valid claim within the licensed patent rights in such country.

The agreement will expire upon the expiration of the last valid

claim within the licensed patent rights.

(ii) up to $ 0.9 million in combined development and regulatory milestone payments with respect to each distinct class of licensed product;

(iii) up to $ 10.0 million in combined commercial milestone payments based on cumulative net sales of licensed products within each distinct class of licensed products, beginning when cumulative net sales of the class of licensed products equals or exceeds $ 100.0 million, with the majority payable when cumulative net sales of the class of licensed products equals or exceeds $ 1.0 billion;

(iv) a low single-digit royalty on net sales of licensed products sold by the Company and its sublicensees, which may be subject to reductions, and subject to minimum annual royalty payments following the first commercial sale of a licensed product;

(v) a certain percentage of any sublicense consideration (other than royalties) the Company receives from sublicensees, based on the stage of development at the time the sublicense is executed;

and (vi) a certain percentage of consideration the Company receives from an acquisition of the Company or its assets based on the stage of development at the relevant time.

The Company is obligated to pay royalties on a country-by-country basis until the expiration of the last valid claim within the licensed patent rights in such country.

The agreement will expire upon the expiration of the last valid claim within the licensed patent rights.

The Company may terminate the agreement upon prior written notice to UW.

UW may terminate the agreement by a specified number of days notice if the Company permanently ceases operations, becomes

insolvent or similar, or if the Company challenges the validity of the licensed patent rights.

In addition, UW may terminate the agreement for material breach that is not cured within a specified number of days, which cure period is to be at least

doubled if the Company is proceeding diligently to cure the default.

The Company has an agreement with Biolipox AB of Sweden for patent rights relating

exclusively or principally to a specific class of compounds, which include rosiptor.

The terms of the agreement required the Company to pay CAD $50,000 immediately, CAD $250,000 in shares of common stock upon the first submission to the FDA of an

Investigational New Drug (IND) for a compound from the acquired class of compounds, and CAD $3.0 million upon the advancement of one of the compounds from the acquired class of compounds into a Phase 3 clinical trial.

Certain other milestone

payments, totaling CAD $1.5 million are payable upon the first commercial sale following regulatory approval of the first compound in each of the United States, Europe and Japan.

There are no royalty payments due under this agreement.

2014, the Company issued 19,762 shares of common stock to Biolipox AB as payment for achievement of the milestone related to the first submission to the FDA of an IND for rosiptor.

A CAD $3.0 million milestone payment was paid in November 2016

as a result of the advancement of rosiptor into a Phase 3 clinical trial.

As all research and development activities related to rosiptor have been suspended, the Company does not currently have any product candidates under development that are

covered by this agreement.

The Company has an exclusive license agreement with the University of British Columbia (UBC) for a worldwide

license to certain small molecule compounds and pharmaceutical compositions that are modulators of SHIP1 activity.

The agreement expires at the earlier of the last expiry of any patent obtained related to the technology or through enactment of one

of the termination clauses stipulated in the agreement.

The Company paid annual maintenance fees of CAD $1,000 related to this agreement for the year ended December 31, 2019 (December 31, 2018CAD $1,000) and have contingent payments

totaling up to CAD $2.2 million for the first drug product and CAD $1.5 million for each subsequent drug product plus low single-digit royalties.

The Company does not currently have any product candidates under development that are covered

by the UBC license agreement.

On February 14, 2020, the Company and UBC entered into an agreement to terminate this license agreement.

Upon the termination of this license agreement, the Company has no further obligations under this license

The Company has an agreement with the British Columbia Cancer Agency and StemCell Technologies, Inc.

for the assignment to the Company of

certain patents to technology relating to SHIP1 in return for low single-digit royalty payment on product sales or low double-digit percentage of sublicense revenue.

The agreement is to expire at the later of 20 years from the effective date of the

agreement or upon the expiration of the last patent covered by the license.

The Company incurred maintenance fees of CAD $5,000 related to this agreement during the years ended December 31, 2019, 2018 and 2017.

The Company does not currently

have any product candidates under development that are covered by this agreement.

UW may terminate the agreement by a specified number of days’ notice if the Company permanently ceases operations, becomes insolvent or similar, or if the Company challenges the validity of the licensed patent rights.

In addition, UW may terminate the agreement for material breach that is not cured within a specified number of days, which cure period is to be at least doubled if the Company is proceeding diligently to cure the default.

Commitments and contingencies

In 2019, the Company entered into a non-cancelable contract to purchase laboratory equipment for $0.8 million.

equipment is expected to be delivered in the first half of 2020.

In the ordinary course of business, the Company may be subject from time to time to

various proceedings, lawsuits, disputes, or claims.

Although the Company cannot predict with assurance the outcome of any litigation, it does not believe there are currently any such actions that, if resolved unfavorable, would have a material

impact on the Companys financial condition, results of operations or cash flows.

Changes in and Disagreements with Accountants on Accounting and

Financial Disclosure.

In December 2020, the Company entered into a non-cancelable contract to purchase laboratory equipment for $ 0.8 million.

The equipment is expected to be delivered in the first half of 2021.

In the ordinary course of business, the Company may be subject from time to time to various proceedings, lawsuits, disputes, or claims.

Although the Company cannot predict with assurance the outcome of any litigation, it does not believe there are currently any such actions that, if resolved unfavorable, would have a material impact on the Company’s financial condition, results of operations or cash flows.

In May 2020, the Company established a 401(k) plan that allows full-time employees to contribute a portion of their salary, subject to statutory limits.

The Company makes matching cash contributions up to a pre-defined annual maximum contribution per employee per year.

During the year ended December 31, 2020, the Company’s total expense for the matching contributions was immaterial.

Sale of Aquinox Canada

On July 31, 2020, the Company sold all issued and outstanding capital stock of its Canadian subsidiary, Aquinox Canada, to an unrelated third party for cash consideration of $ 8.2 million.

The Company concluded that the sale did not meet the criteria for discontinued operations reporting as it did not represent a strategic shift that had a major effect on the Company’s operations and financial results.

As of the date of sale, Aquinox Canada’s remaining assets included intellectual property and other assets developed through past research and development activities, all of which had no book value.

The transaction resulted in a net gain on sale of $ 7.8 million, after deducting $ 0.4 million in transaction costs, which is recorded as a reduction of operating loss in the Company’s consolidated statement of operations.

The sale of Aquinox Canada triggered a significant capital loss carryforward for tax purposes.

However, the deferred tax asset related to the capital loss carryforward will be subject to a full valuation allowance as the Company has determined that it is more likely than not that the benefit of the loss will not be realized.

Refer to Note 12, Income taxes for further information.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data