What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-01 compared with 2021-03-25 · 27 added, 35 removed, 111 unchanged (36% of the section changed)

15 unchanged sentences

Research and development $ 39,162 $ 24,344 $ 14,818 61 %

Acquired in-process research and development — 47,716 (47,716) (100) %

General and administrative 21,536 17,210 4,326 25 %

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Research and development expenses for the year ended December 31, 2021 were $39.2 million compared to $24.3 million for the year ended December 31, 2020.

The increase in research and development expenses during the year ended December 31, 2020 was due to increased expenses incurred from IND-enabling activities related to our lead product candidate, NL-201, and in connection with the advancement of other Neoleukin technologies.

Lower research and development costs during the year ended December 31, 2019 reflect the fact that prior to the merger between Aquinox and Former Neoleukin in August 2019, all research and development activities with rosiptor had been suspended since June 2018.

Acquired in-process Research and Development

The acquired in-process research and development expense arose from the merger between Aquinox and Former Neoleukin in August 2019 and was expensed immediately as management determined that the asset has no alternative future use.

The increase in research and development expenses during the year ended December 31, 2021 was primarily due to increased expenses incurred from clinical trial activities related to our lead product candidate, NL-201, personnel-related costs, and in connection with the advancement of other Neoleukin technologies.

The increase was also due to facility-related costs associated with the build-out of our new headquarters and laboratory in Seattle, Washington.

General and Administrative Expenses

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

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

For the year ended December 31, 2021, general and administrative expenses were $21.5 million compared to $17.2 million for the year ended December 31, 2020.

The higher general and administrative expenses the year ended December 31, 2019 as compared to the year ended December 31, 2020 were primarily due to severance costs and the recognition of stock-based compensation expense for certain options that vested as a result of the merger between Aquinox and Former Neoleukin in August 2019.

The general and administrative expenses for the year ended December 31, 2020 reflect an increase in personnel related costs, facility-related costs, and professional service fees.

The increase in general and administrative expenses during the year ended December 31, 2021 as compared to the year ended December 31, 2020 was primarily due to increases in personnel-related costs.

Gain on sale of Aquinox Canada

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Total other income, net $ 6 $ 451 $ (445) (99) %

Interest income during the year ended December 31, 2020 decreased compared to the year ended December 31, 2019 due to a decrease in interest rates, partially offset by higher cash and money market fund balances for the year ended December 31, 2020.

Interest income during the year ended December 31, 2021 decreased compared to the year ended December 31, 2020 due to a decrease in interest rates, partially offset by higher money market fund balances for the year ended December 31, 2021.

Liquidity and Capital Resources

Since our inception, we have incurred net losses and negative cash flows from our operations and relied upon sales of common and preferred stock to fund our operations.

Our operating activities used $24.6 million and $15.4 million of cash flows during the years ended December 31, 2020 and 2019, respectively.

Our operating activities used $47.6 million and $24.6 million of cash during the years ended December 31, 2021 and 2020, respectively.

As of December 31, 2021, we had an accumulated deficit of $393.5 million, working capital of $135.4 million, and cash and cash equivalents of $142.5 million.

We believe that our existing capital resources will be sufficient to fund our operations into 2023.

We believe that our existing capital resources will be sufficient to fund our operations into the second half of 2023.

On November 4, 2021, we entered into an ATM “at-the-market” Equity Offering Sales Agreement, or the Sales Agreement, with BofA Securities, Inc.,or BofA, pursuant to which we may, but are not obligated to, offer and sell, from time to time, shares of our common stock with an aggregate offering price up to $40.0 million through BofA, as sales agent.

No sales of common stock have been made pursuant to this Sales Agreement to date.

The following table summarizes our cash flows for the years ended December 31, 2021 and 2020 (in thousands):

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Financing activities 732 77,135

50,341 66,155

Effect of exchange rate changes — 10

Net change in cash and cash equivalents $ 50,341 $ 66,165

Net change in cash, cash equivalents and restricted cash $ (50,089) $ 50,341

Net cash used in operating activities

Net cash used in operating activities was $24.6 million for the year ended December 31, 2020 compared to $15.4 for the year ended December 31, 2019.

Net cash used in operating activities for the year ended December 31, 2020 increased compared to the year ended December 31, 2019 due to an increase in operating expenses resulting primarily from expenses incurred in developing our lead product candidate, NL-201, and partially offset by cash received from the sale of Aquinox Canada, as compared to a reduction in costs in the year ended December 31, 2019 due to the restructuring in the second half of 2018 and the halting of all development activities relating to rosiptor.

Net cash used in operating activities was $47.6 million for the year ended December 31, 2021 compared to $24.6 million for the year ended December 31, 2020.

Net cash used in operating activities for the year ended December 31, 2021 increased compared to the year ended December 31, 2020 due to an increase in operating expenses resulting primarily from expenses incurred in developing our lead product candidate, NL-201, and in connection with the advancement of other Neoleukin technologies.

The increase is also due to personnel-related costs and facility-related costs associated with the build-out of our new headquarters in Seattle, Washington.

Net cash used in investing activities

Net cash used in investing activities was $2.2 million for the year ended December 31, 2020 and consisted primarily of purchases laboratory and IT equipment.

Net cash used in investing activities of $0.7 in the year ended December 31, 2019 consisted of purchases of property and equipment, offset partially by cash received in the merger between Aquinox and Former Neoleukin.

Net cash used in investing activities was $3.3 million for the year ended December 31, 2021 and consisted primarily of acquiring laboratory equipment and office furnishings.

Net cash used in investing activities of $2.2 million in the year ended December 31, 2020 consisted primarily of purchases of laboratory and IT equipment.

Net cash provided by financing activities

Net cash provided by financing activities was $77.1 for the year ended December 31, 2020 compared to $82.2 in the year ended December 31, 2019.

For the year ended December 31, 2020, net cash provided by financing activities consisted primarily of the

proceeds received in our offering of common stock and pre-funded warrants in July 2020 of $71.3 million, net of underwriting discounts, commissions, and offering costs, as well as proceeds from the exercise of stock options of $5.7 million.

For the year December 31, 2019, cash provided by financing activities was the result of proceeds received in our offering of common stock and pre-funded warrants in December 31, 2019 of $80.7 million, net of underwriting discounts and commissions and offering costs.

Net cash provided by financing activities was $0.7 million for the year ended December 31, 2021 compared to $77.1 million in the year ended December 31, 2020.

For the year ended December 31, 2021, net cash provided by financing activities consisted primarily of proceeds from stock option exercises and our Employee Stock Purchase Plan.

For the year December 31, 2020, net cash provided by financing activities consisted primarily of net proceeds received in our offering of common stock and pre-funded warrants of $71.3 million, net of underwriting discounts and commissions and offering costs.

Operating and Capital Expenditure Requirements

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As of December 31, 2021, we had approximately $142.5 million in cash and cash equivalents.

Based on our current operating plan, we believe that our available cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements into 2023.

Based on our current business plans, we believe that our existing cash and cash equivalents will be sufficient to fund our planned operations into the second half of 2023.

However, our future capital requirements and the period for which we expect our existing resources to support our operations, fund expansion, develop new or enhanced products, or otherwise respond to competitive pressures, may vary significantly from our expectation and we may need to seek additional funds sooner than planned.

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

• the potential delays in our preclinical studies, our development programs and our existing and planned clinical trials due to the effects of the COVID-19 pandemic, including the resurgence of cases relating to the spread of the Delta and Omicron variants;

• the expenses needed to attract and retain skilled personnel;

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

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

Please see Item 1A of this Annual Report on Form 10-K titled “Risk Factors” for additional risks associated with our substantial capital requirements.

Contractual Obligations and Commitments

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Finance lease obligations 137 64 64 4 4 1 —

Laboratory equipment (2) 792 792 — — — — —

$ 19,335 $ 2,721 $ 2,782 $ 2,785 $ 2,849 $ 2,807 $ 5,391

1 unchanged sentence

Please see Note 6, Leases in the Notes to Consolidated Financial Statements included in Part II Item 8 of this Annual Report on Form 10-K for additional information pertaining to operating lease commitments.

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 and will be paid for out of existing cash reserves.

We enter into contracts in the normal course of business with CROs for clinical and preclinical research studies, external manufacturers for product for use in our clinical trials, and other research supplies and other services as part of our operations.

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Milestone, Royalty-Based, and Other Commitments

We have an exclusive license agreement with the University of Washington, or UW, under which UW (on behalf of itself and Stanford University) granted us 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.

We have an exclusive license agreement with UW, under which UW (on behalf of itself and Stanford University) granted us 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 without UW’s consent, subject to certain limited conditions.

As consideration for the licensed rights, we issued shares of common stock to UW, which upon the Merger were exchanged for 188,974 shares of our common stock and 4,197 shares of our non-voting convertible preferred stock.

Such convertible preferred shares were subsequently converted into 419,700 shares of our common stock in November 2019.

Furthermore, we are required to pay;

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Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in the notes to our consolidated financial statements appearing elsewhere in this Annual Report, we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

While our significant accounting policies are described in the notes to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Research and Development Expenses

Research and development costs are charged to expense as incurred and include, but are not limited to, employee-related expenses, including salaries, benefits, and stock-based compensation, expenses incurred under agreements with CROs that conduct clinical trials and preclinical studies, the cost of acquiring, developing and manufacturing clinical trial materials, costs incurred in relation to purchase of technology licenses and patent rights, 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 we believe a development project meets generally accepted accounting criteria for deferral and amortization.

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

Share-based payments vest either upon service or performance conditions.

We account for forfeitures as they occur.

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Recent Accounting Pronouncements

See Note 2(p), Recently issued and recently adopted accounting standards in the Notes to Consolidated Financial Statements included in Part II Item 8 of this Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as of December 31, 2020.

See Note 2(n), Recently issued and recently adopted accounting standards in the Notes to Consolidated Financial Statements included in Part II Item 8 of this Annual Report on Form 10-K.

Quantitative and Qualitative Disclosures About Market Risk.

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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 7. Management’s Discussion and Analysis