Table of Contents
(Mark One)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 10-K
_________________________
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to
Commission file number: 001-36327
_________________________
Neoleukin Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
_________________________
Delaware
(State or other jurisdiction of
incorporation or organization)
98-0542593
(I.R.S. Employer
Identification No.)
188 East Blaine Street, Suite 450
Seattle, Washington, 98102
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: (866) 245-0312
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.000001
Trading Symbol(s)
NLTX
Name of each exchange on which registered
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
_________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☒
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☒
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.> 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES
☐ NO ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $546.0 million as of the
last business day of the registrant’s most recently completed second fiscal quarter, based upon the closing sale price on The Nasdaq Global Market reported
for such date. This excludes an aggregate of 5,596,426 shares of the registrant’s common stock held as of such date by officers, directors and stockholders
that the registrant has concluded are or were affiliates of the registrant. Exclusion of such shares should not be construed to indicate that the holder of any
such shares possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the registrant or that such person is
controlled by or under common control with the registrant.
There were 42,326,033 shares of the registrant’s Common Stock issued and outstanding as of March 22, 2021.
_________________________
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A, not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, in connection with the
registrant’s 2021 Annual Meeting of Stockholders (the “2021 Proxy Statement”).
Table of Contents
NEOLEUKIN THERAPEUTICS, Inc.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2020
TABLE OF CONTENTS
PART I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
PART II
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Item 10.
Directors, Executive Officers and Corporate Governance
PART III
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART IV
Exhibits, Financial Statement Schedules
Form 10-K Summary
Signatures
Page
2
18
53
53
53
53
54
55
56
60
60
81
81
81
82
82
82
82
82
83
86
86
Except as otherwise indicated herein or as the context otherwise requires, references in this report to, “the Company,” “we,” “us,” “our” and similar
references refer to Neoleukin Therapeutics, Inc. (formerly Aquinox Pharmaceuticals, Inc.), a Delaware corporation. The name “Neoleukin” is a registered
trademark of the Company in the United States. This report also contains references to registered marks, trademarks and trade names of other companies
that are property of their respective holders. All other trademarks, registered marks and trade names appearing in this report are the property of their
respective holders.
1
Table of Contents
PART I
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are based on our management’s beliefs and
assumptions and on information currently available to our management. All statements other than statements of historical facts are “forward-looking
statements” for purposes of these provisions, including those relating to future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as “may,” “might,” “will,” “should,” “expect,” “plan,” “anticipate,” “project,” “believe,”
“estimate,” “predict,” “potential,” “intend” or “continue,” the negative of terms like these or other comparable terminology, and other words or terms
of similar meaning in connection with any discussion of future operating or financial performance. These statements are only predictions. All forward-
looking statements included in this Annual Report on Form 10-K are based on information available to us on the date hereof, and we assume no
obligation to update any such forward-looking statements. Any or all of our forward-looking statements in this document may turn out to be wrong.
Actual events or results may differ materially. Our forward-looking statements can be affected by inaccurate assumptions we might make or by known
or unknown risks, uncertainties and other factors. We discuss many of these risks, uncertainties and other factors in this Annual Report on Form 10-K
in greater detail under the heading “Item 1A—Risk Factors.” We caution investors that our business and financial performance are subject to
substantial risks and uncertainties.
Item 1. Business.
Overview
We are a biopharmaceutical company creating next generation immunotherapies for cancer, inflammation, and autoimmunity using de novo protein design
technology. We use sophisticated computational methods to design proteins that demonstrate specific pharmaceutical properties that provide potentially
superior therapeutic benefit over native proteins. Existing protein engineering treatments generally involve the modification of native proteins. With our
proprietary platform we design completely new protein structures from the ground up, capable of demonstrating specific biological properties. Through this
method we are able to produce proteins that, while resembling native proteins, may have novel molecular interfaces, differential activation of specific cell
types, increased stability, or improved biodistribution compared to native proteins in order to deliver greater therapeutic benefit. De novo proteins have the
capacity to be cytokine receptor agonists, antagonists, or result in conditional activation of specific cytokine receptors such that they may regulate
inflammation or the immune response to cancer. We are initially focused on key cytokine mimetics, which we refer to as Neoleukin de novo cytokine
mimetics. Neoleukin de novo cytokine mimetics can be modified to adjust affinity, thermodynamic stability, resistance to biochemical modification,
pharmacokinetic characteristics, and targeting to tumor or inflamed tissues.
Our lead product candidate, NL-201, is a de novo protein designed to mimic the therapeutic activity of the cytokines interleukin-2, or IL-2, and interleukin-
15, or IL-15, for the potential treatment of various types of cancer, including renal cell carcinoma, or RCC, and melanoma, while limiting the toxicity
caused by the preferential binding of native IL-2 and IL-15 to non-target cells. In preclinical studies, a closely-related precursor to NL-
201 demonstrated higher levels of activity and lower toxicity in multiple murine solid tumor syngeneic models as compared to recombinant, native IL-2.
Neoleukin/Aquinox Merger
On August 8, 2019, Neoleukin Therapeutics, Inc., or Former Neoleukin, completed its merger with Aquinox Pharmaceuticals, Inc., or Aquinox, in
accordance with the terms of the Agreement and Plan of Merger dated August 5, 2019, or the Merger Agreement by and among Aquinox, Former
Neoleukin and Apollo Sub, Inc., a wholly-owned subsidiary of Aquinox. Pursuant to the Merger Agreement, Apollo Sub, Inc. merged with and into Former
Neoleukin, with Former Neoleukin surviving the Merger as a wholly-owned subsidiary of Aquinox, referred to herein as the Merger. Upon completion of
the Merger, Aquinox was renamed Neoleukin Therapeutics, Inc. and Former Neoleukin was renamed Neoleukin Corporation.
De Novo Protein Design Technology
Our proprietary technology, which we refer to as our Neoleukin platform, uses a set of advanced computational algorithms and methods to design
functional de novo proteins. A protein is generally defined as one or more chains of covalently-linked amino acids – totaling at least 50 amino acids – that
assemble into a 3-dimensional structure. Human cells contain tens of thousands of different proteins; however, this is still only a small subset of all possible
amino acid sequences that can be assembled to form a protein. While protein engineering to date has largely been conducted through the modification of
native proteins, with our platform we are able to explore the full sequence space, guided by the physical principles that underlie protein folding, and design
functional proteins from the ground up. Our de novo proteins fit the above definition of a protein, but, unlike native proteins, are designed using our
proprietary computational algorithms and methods. Successful de novo protein design is a cutting-edge process that requires both the advanced
computational tools of our proprietary platform and deep insight into how a sequence of amino acids will fold into a stable 3-dimensional protein.
2
Table of Contents
To design a Neoleukin de novo cytokine mimetic using the Neoleukin platform, we begin with an accurate model of the biological target. This is typically a
high-resolution crystal structure but may instead be a computationally-modeled structure. Then, critical points of contact between molecular interfaces are
identified so that essential interactions can be maintained or strengthened, and undesirable interactions can be avoided. Next, we use a computational
algorithm to build idealized 3-dimensional topologies. Finally, we use a separate computational algorithm to select amino acids for each position within
the idealized 3-dimensional topologies that maximizes interactions at the desired interface and the thermodynamic stability of the resulting protein. The
resulting amino acid sequences are then expressed in bacteria, tested in the laboratory, and further modified to optimize the final sequence. The resulting
protein is unlike anything that exists in nature and can be fine-tuned to improve on the desired biological activity.
While we are currently focused on the design of Neoleukin de novo cytokine mimetics, we believe this approach could be used broadly to widen the
therapeutic window and improve drug-like characteristics of therapeutic proteins, including chemical stability, pharmacokinetic properties, or novel routes
of administration. Furthermore, we believe that the Neoleukin platform can also be used to generate de novo proteins that inhibit activation of specific
receptors, a property that could be valuable for treatment of inflammatory or autoimmune conditions. Computational design of therapeutic proteins is in a
very early stage. The potential is vast, and we are focused on continuing to improve the technology and realizing the tremendous potential of de
novo protein design to improve human health.
Our Strategy
Our business model is focused on three primary goals:
• Develop proprietary de novo protein immunotherapies for the treatment of cancer and inflammatory conditions;
•
•
Become the leader in de novo protein design for therapeutic applications by strengthening our intellectual property and know-how; and
Collaborate with leading biotechnology, pharmaceutical, and academic partners to expand the scope of our platform.
The key elements of our strategy are:
•
Rapidly advance NL-201 to clinical proof-of-concept. NL-201 is our lead product candidate and we believe it will be the first entirely de
novo therapeutic protein to be evaluated in a clinical setting. We submitted a Clinical Trial Notification in Australia and an Investigational New Drug
(or IND) Application to the FDA in the fourth quarter of 2020. On January 7, 2021, we received a clinical hold letter from the FDA related to the
IND. We are currently working to address the FDA's comments related to development of a new assay that more precisely measures the amount of
protein being administered and demonstration with this assay that dose and administration procedures will accurately deliver the intended dose, as
well as addressing the FDA's other requests not related to the clinical hold.
• Generate preclinical data for additional product candidates. Our research activities are currently focused on the development of novel de
novo interleukin receptor agonists and antagonists to expand our pipeline. We are currently optimizing and evaluating several early research projects
as potential clinical candidates. We initially intend to develop de novo protein therapeutics to address significant unmet medical needs in oncology,
inflammation, and autoimmune indications.
•
•
Expand the capabilities of the Neoleukin platform. De novo protein design is in the early stages of development and has the potential to generate
therapeutics to treat a wide range of human diseases. We believe that there will be a rapid evolution in the enabling technology, such that it will be
feasible to design more complex and dynamic proteins in the future. We intend to devote a significant amount of resources to building our
computational talent and infrastructure in order to position Neoleukin as a leader in the design and development of de novo protein therapeutics.
Build partnerships to leverage the Neoleukin platform. There is substantial interest in the field of de novo protein design for therapeutic applications.
We intend to seek potential partners that can provide additional resources and expertise to further advance our pipeline and broaden our potential
targets. We may also strategically pursue one or more collaborations to design, out-license, or co-develop de novo proteins.
NL-201
Our lead product candidate, NL-201, is an IL-2/IL-15 immunotherapy designed to eliminate binding to the alpha subunit of the IL-2 receptor (also known
as CD25) while maintaining high-affinity binding to the beta and gamma subunits. In multiple preclinical animal models, a precursor to NL-201
demonstrated substantial anti-tumor activity without detectable binding to CD25, as compared to native IL-2. Following these preclinical studies, we
further refined our precursor to extend its half-life, resulting in our NL-201 product candidate. We have since completed multi-dose, non-GLP and GLP
toxicology studies of NL-201 in rats and non-human primates. This included completion of GLP in-life dosing with no unexpected toxicities observed. NL-
201 is intended to be used as either a single-agent or in combination with complementary therapeutic modalities,
3
Table of Contents
including checkpoint inhibitors. In addition, we believe NL-201 holds promise in combination with allogenic cell therapy to expand and maintain
populations of transplanted CAR-T and natural killer, or NK, cells.
IL-2 is one of the few immuno-oncology drugs proven to work as a single agent. IL-2 has a demonstrated mechanism of action for treating tumors;
however, it has encountered issues as a therapeutic due to the biased activation of cells that contain CD25. CD25 induces conformational changes in IL-2
that enable high-affinity binding to the beta and gamma subunits of the IL-2 receptor. Preferential binding to endothelial cells expressing CD25 is believed
to exacerbate vascular leak syndrome, while preferential activation of CD25-expressing regulatory T cells can inhibit anti-cancer immune responses. Due
to IL-2’s potential for high toxicity, with vascular leak syndrome and cytokine storm being frequent side effects, and reduced efficacy over time, its use as a
therapeutic has been limited. Further, low-dose treatments have generally been insufficient to demonstrate activity.
While the problem posed by IL-2 is well understood, it has been difficult to modify native IL-2 to retain potent activation of IL-2 receptor signaling while
eliminating binding to CD25. Instead of modifying native IL-2, computational methods were used to design a new sequence with the proper intermolecular
interactions to efficiently bind the beta and gamma subunits while eliminating CD25 binding in preclinical models. As opposed to traditional recombinant
human, or humanized, protein therapeutics, de novo proteins are entirely novel sequences with limited homology to native proteins. While there is a
potential that patients may mount an anti-drug immune response against NL-201, we believe that this risk is mitigated by several factors, including the
stability of the protein and its resistance to proteolytic degradation.
Immunotherapy Market Overview
Over the past several decades, the potential of the immune system to control and/or eliminate cancer has been better understood and appreciated.
Immunotherapies, including allogenic stem cell transplantation, checkpoint inhibitors, and cellular therapies have led to impressive improvements in
patient outcomes. Immunotherapy is one of the fastest growing segments of the oncology market. Immune checkpoint inhibitors are one of the most widely
used classes of cancer immunotherapy. Checkpoint inhibitors promote an anti-cancer immune response by blocking inhibitory signals between cancer cells
and the immune microenvironment. Patients with metastatic cancers, who previously had uniformly poor prognoses, now have the opportunity to achieve
durable responses with checkpoint inhibitors. The initial drug in this class, ipilimumab, was approved in 2011. Since that time, many additional checkpoint
inhibitors have been approved. In addition to checkpoint inhibitors, other notable cancer immunotherapies expected to improve cancer outcomes over the
next decade include bi-specific T-cell engagers, immune agonists, and cellular therapies.
Limitations of Current Treatments
Despite achieving success in a subset of patients, checkpoint inhibitors often fail to control tumor growth. In addition, some patients do not tolerate
checkpoint inhibitors. While checkpoint inhibitors work to block the mechanisms by which malignant cells evade immunological surveillance by anti-
cancer T cells, they are less effective in patients who lack a favorable tumor microenvironment, expression of the inhibitory ligand, or sufficient tumor-
specific antigens. For these patients, novel approaches to immunotherapy are needed that complement and/or enhance checkpoint inhibition. What is
needed is a new class of agents that activate immune cells in the tumor microenvironment.
We believe that stimulation of the IL-2 and IL-15 pathways is an attractive approach to generate an anti-cancer immune response because it promotes the
proliferation and activation of both CD8+ effector T cells and NK cells. Recombinant human IL-2, or aldesleukin, is a proven therapy and is approved for
the treatment of adults with metastatic RCC or metastatic melanoma. However, significant toxicity has resulted in multiple boxed warnings in the labeling,
including a requirement that administration occur in the hospital under supervision of an experienced physician. As a result of these toxicities, aldesleukin
is not frequently used in the clinic. In addition, aldesleukin has a relatively modest rate of durable remissions, potentially because it preferentially
stimulates the proliferation of regulatory T cells, which can inhibit the antitumor response. We believe there is a clear clinical need for an agent that
stimulates an immunological response to cancer with greater selectivity and less toxicity than aldesleukin.
Initial Clinical Development Plan
We submitted our IND in December 2020. On January 7, 2021, we received a clinical hold letter from the U.S. Food and Drug Administration (FDA)
related to our Investigational New Drug (IND) Application to begin a Phase 1 clinical program for NL-201. The FDA has informed us that we need to
develop a new assay that more precisely measures the amount of protein being administered and demonstrate with this assay that dose and administration
procedures will accurately deliver the intended dose of NL-201. The FDA also had additional requests not related to the clinical hold to be addressed by
amendment of the IND. We are working diligently to address the FDA’s requests, and currently expect to resolve the clinical hold as well as to begin
enrollment of patients in the first half of 2021; however, we do not have a definitive timeline as to when we will have clearance to proceed with clinical
trials.
4
Table of Contents
UW License Agreement
On July 8, 2019, Former Neoleukin entered into 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. The foregoing licenses are able to sublicense by us without UW’s consent, subject to certain limited conditions. We assumed the benefits
and obligations of the Exclusive License Agreement in connection with the completion of the Merger. The Exclusive License Agreement was amended
effective as of July 24, 2020 to, among other things, (i) add a jointly owned patent application directed to de novo cytokine antagonists to the agreement,
(ii) specify royalties, milestone payments and sublicense consideration payments payable by Neoleukin for licensed products under certain patent rights
related to the jointly owned patent application, (iii) specify the term for achievement of performance milestones for licensed products under certain patents
rights related to the jointly owned patent application, and (iv) terminate UW’s right to participate in equity financings.
As consideration for the licensed rights, Former Neoleukin issued shares of common stock to UW, representing five percent of its fully-diluted
capitalization on the date on which the Exclusive License Agreement was executed. Additionally, we are required to pay UW: (i) an annual maintenance
fee starting in January 2022 (but excluding any year in which minimum annual royalties are paid); (ii) up to $875,000 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 product; (iv) a low single digit royalty on net sales of licensed
products sold by us and our 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) we receive from sublicensees, ranging
from 50% to low single digit percentages based on the stage of development at the time the sublicense is executed; and (vi) a certain percentage of
consideration we receive from an acquisition of us or our assets, ranging from 50% to zero based on the stage of development at the relevant time. We are
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. We may terminate the agreement upon prior written
notice to UW. UW may terminate the agreement by giving a specified number of days’ notice if we permanently cease operations, become insolvent or
similar, or if we challenge 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 we are proceeding diligently to cure the default.
Research Programs
Beyond our initial focus on NL-201, our research team is working on further applying de novo protein design principles to develop therapeutics to address
significant unmet medical needs in immuno-oncology, inflammation, and autoimmunity. Our research is powered by the Neoleukin platform, our
computational framework for developing highly selective, hyper-stable de novo immunomodulatory proteins. Beyond NL-201, we are developing targeted
and conditionally active IL-2/IL-15 mimetics, as well as cytokine mimetic programs for other oncology targets. Our research team is also actively applying
the Neoleukin platform to generate de novo receptor agonist and antagonist candidates against multiple targets of interest for inflammatory and
autoimmune indications. As we validate additional candidates, they will enter our preclinical pipeline.
Due to the COVID-19 public health emergency, we have been investigating the application of our de novo protein technology to prevent or treat SARS-
CoV2 infection. In November 2020, we announced the publication of our scientific work in the journal Science detailing the creation of CTC-445.2d, or
NL-CVX1, a de novo protein decoy that is specifically designed to block infection of SARS-CoV-2, the virus causing the ongoing COVID-19 pandemic.
Our findings demonstrated that NL-CVX1 blocks infection of human cells in vitro, even when a high viral burden is used. Furthermore, intranasal
administration of NL-CVX1 protected Syrian hamsters from a lethal dose of SARS-CoV-2. We are currently planning a first-in-human trial of NL-CVX1,
and will continue to evaluate the program as the SARS-CoV-2 landscape evolves.
Intellectual Property
Our intellectual property strategy is centered around robust protection of our pipeline molecules and enabling technologies. We have licensed rights to
patents and patent applications stemming from provisional patent applications that our scientific co-founders authored while they were employees at the
University of Washington, or UW. We have also licensed rights to a provisional patent application that we jointly own with UW. These patents and patent
applications, as applicable, include disclosure and claims encompassing our NL-201 product candidate, the composition of matter of key molecule families,
as well as methods of using the computational algorithms that form the basis of the Neoleukin platform. We have secured an exclusive license from UW to
develop and commercialize products covered by these patents and patent applications. For NL-201 and related technology, two U.S. patents have issued
and will expire in 2039, absent any patent term adjustments or extensions. Additional patent applications are pending in the United States and world-wide.
Any patents that may issue from these patent applications in-licensed from UW are expected to expire in 2039, absent any patent term adjustments or
extensions. As our
5
Table of Contents
product candidate advances through research and development, we expect to seek to identify and protect new inventions, and have filed applications on
new inventions such as methods of administration and combination therapies.
Also, through our research efforts, we anticipate generating intellectual property covering novel compounds and significant improvements on existing
molecules. We expect that patents that result from this new research will remain Neoleukin’s exclusive property, except to the extent jointly developed with
third parties. In addition, our research team is extending and enhancing our computational technology and capabilities. We intend to protect improvements
to the Neoleukin platform through a combination of new patent filings as well as the maintenance of trade secrets. We file U.S. non-provisional
applications and PCT applications that claim the benefit of the priority date of earlier filed provisional applications, when appropriate. The PCT system
allows a single application to be filed within 12 months of the original priority date of the patent application, and to designate all of the 153 PCT member
states in which national patent applications can later be pursued based on the international patent application filed under the PCT. The PCT searching
authority performs a patentability search and issues a non-binding patentability opinion which can be used to evaluate the chances of success for the
national applications in foreign countries prior to having to incur the filing fees. Although a PCT application does not issue as a patent, it allows the
applicant to seek protection in any of the member states through national-phase applications. At the end of the period of 2 1/2 years from the first priority
date of the patent application, separate patent applications can be pursued in any of the PCT member states either by direct national filing or, in some cases
by filing through a regional patent organization, such as the European Patent Organization. The PCT system delays expenses, allows a limited evaluation of
the chances of success for national/regional patent applications and enables substantial savings where applications are abandoned within the first 2 1/2
years of filing.
We intend to pursue patent issuance and protection in key commercial markets where we expect significant product sales may occur.
Competition
The biotechnology and pharmaceutical industries are characterized by rapid evolution of technologies, fierce competition, and strong defense of intellectual
property. While we believe that our Neoleukin platform and our knowledge, experience, and scientific resources provide us with competitive advantages
going forward, we face competition from major pharmaceutical and biotechnology companies, academic institutions, governmental agencies, and public
and private research institutions, among others.
The development of next-generation IL-2 or IL-15 agonists for cancer immunotherapy is an area of intense interest within the biotechnology industry. We
are aware of several IL-2 or IL-15 agonists in various stages of clinical development, including engineered variants of IL-2 that attempt to improve on
aldesleukin’s narrow therapeutic window by inhibiting IL-2’s natural high-affinity interaction with CD25 using traditional protein engineering approaches
including steric inhibition and mutagenesis.
Many of our competitors, either alone or with strategic partners, have substantially greater financial, technical, and human resources than we do.
Accordingly, our competitors may be more successful than us in obtaining approval for treatments and achieving widespread market acceptance, rendering
our treatments obsolete or non-competitive. Accelerated merger and acquisition activity in the biotechnology and biopharmaceutical industries may result
in even more resources being concentrated among a smaller number of our competitors. These companies also compete with us in recruiting and retaining
qualified scientific and management personnel, establishing clinical trial sites, and patient registration for clinical trials and acquiring technologies
complementary to, or necessary for, our programs. Smaller or early-stage companies may also prove to be significant competitors, particularly through
collaborative arrangements with large and established companies. Our commercial opportunity could be substantially limited in the event that our
competitors develop and commercialize products that are more effective, safer, less toxic, more convenient, or less expensive than our comparable
products. In geographies that are critical to our commercial success, competitors may also obtain regulatory approvals before us, resulting in our
competitors building a strong market position in advance of the entry of our products. We believe the factors determining the success of our programs will
be the efficacy, safety, and convenience of our product candidates.
Manufacturing
We conduct manufacturing activities for the clinical development of our product candidates under individual purchase orders with third-party contract
manufacturing organizations as we do not have a manufacturing facility and currently do not intend to develop one.
The FDA and other health authorities worldwide regulate and inspect equipment, facilities and processes used in manufacturing pharmaceutical products
prior to approval. If we or our partners fail to comply with applicable requirements and conditions of product approval, the FDA and/or other global health
authorities may seek sanctions, including fines, civil penalties, injunctions, suspension of manufacturing operations, operating restrictions, withdrawal of
FDA and/or other global health authorities’ approval, seizure or recall of products and criminal prosecution.
6
Table of Contents
Commercial Operations
We do not currently have an organization for the sales, marketing and distribution of pharmaceutical products. We may rely on licensing and co-promotion
agreements with strategic partners for the commercialization of our products in the United States and other territories. If we choose to build a commercial
infrastructure to support marketing in the United States, such commercial infrastructure could be expected to include a targeted sales force supported by
sales management, internal sales support, an internal marketing group and distribution support. To develop the appropriate commercial infrastructure
internally, we would have to invest financial and management resources, some of which would have to be deployed prior to any confirmation that NL-201
will be approved.
Government Regulation
As a biopharmaceutical company that operates and anticipates seeking approval for pharmaceutical product candidates in the United States, we are subject
to extensive regulation by the U.S. Food and Drug Administration, or FDA, and other federal, state, and local regulatory agencies. The Federal Food, Drug,
and Cosmetic Act, or the FDC Act, and its implementing regulations set forth, among other things, requirements for the research, testing, development,
manufacture, quality control, safety, effectiveness, approval, labeling, storage, record keeping, reporting, distribution, import, export, advertising and
promotion of our products. Our pharmaceutical product candidates must be approved by the FDA before we can commence clinical trials or market those
products in the United States.
Although the discussion below focuses on regulation in the United States, we conduct research activities and anticipate seeking approval for, and marketing
of, our products in other countries and regions, such as Europe. Generally, our activities in other countries will be subject to regulation that is similar in
nature and scope as that imposed in the United States, although there can be important differences. Additionally, some significant aspects of regulation in
Europe are addressed in a centralized way through the EMA, but country-specific regulation remains essential in many respects. The process of obtaining
regulatory marketing approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the
expenditure of substantial time and financial resources.
FDA Approval Process
The FDA is the main regulatory body that controls pharmaceuticals in the United States, and its regulatory authority is based in the FDC Act.
Pharmaceutical products are also subject to other federal and state statutes and regulations. Biological products used for the prevention, treatment, or cure
of a disease or condition of a human being are subject to regulation under the FDC Act, except the section of the FDC Act which governs the approval of
New Drug Applications, or NDAs. Biological products are approved for marketing under provisions of the Public Health Service Act, or PHSA, via a
Biologics License Application, or BLA. However, the application process and requirements for approval of BLAs are very similar to those for NDAs. A
failure to comply with any requirements during the product development, approval, or post-approval periods, may lead to administrative or judicial
sanctions. These sanctions could include the imposition by the FDA or an institutional review board, or IRB, of a hold on clinical trials, refusal to approve
pending marketing applications or supplements, withdrawal of approval, warning or untitled letters, product recalls, product seizures, total or partial
suspension of production or distribution, injunctions, fines, civil penalties or criminal prosecution.
The steps required before a new biological product may be marketed in the United States generally include:
•
•
•
•
•
•
•
completion of preclinical laboratory tests, animal studies and formulation studies in compliance with the FDA’s Good Laboratory Practices
regulations;
submission to the FDA of an IND, which must become effective before human clinical trials may begin;
approval by an IRB at each clinical site before each trial may be initiated;
performance of adequate and well-controlled clinical trials in accordance with federal regulations and with current good clinical practices, or
GCPs, to establish the safety and efficacy of the investigational drug product for each targeted indication;
submission of BLA to the FDA;
satisfactory completion of an FDA inspection of the manufacturing facilities at which the investigational product is produced to assess
compliance with cGMP, and to assure that the facilities, methods and controls are adequate; and
FDA review and approval of the BLA.
With the enactment of the Biologics Price Competition and Innovation Act of 2009, or BPCIA, an abbreviated pathway for the approval of biosimilar and
interchangeable biological products was created. The abbreviated regulatory pathway establishes legal authority for the FDA to review and approve
biosimilar biologics, including the possible designation of a biosimilar as
7
Table of Contents
interchangeable based on its similarity to an existing reference product. Under the BPCIA, an application for a biosimilar product cannot be approved by
the FDA until 12 years after licensure date of the reference product licensed under a BLA.
Preclinical tests include laboratory evaluation of product chemistry, formulation, and toxicity, as well as animal trials to access the characteristics and
potential safety and efficacy of the product. The conduct of the preclinical tests must comply with federal regulations and requirements, including Good
Laboratory Practices. The results of preclinical testing are submitted to the FDA as part of an IND along with other information, including information
about product chemistry, manufacturing and controls, and a proposed clinical trial protocol. Long-term preclinical tests, such as tests of reproductive
toxicity and carcinogenicity in animals, may continue after the IND is submitted. A 30-day waiting period after the submission of each IND is required
prior to the commencement of clinical testing in humans. If the FDA has neither commented on nor questioned the IND within this 30-day period, the
clinical trial proposed in the IND may begin. Clinical trials involve the administration of the investigational drug to patients under the supervision of
qualified investigators following GCPs, an international standard meant to protect the rights and health of patients and to define the roles of clinical trial
sponsors, administrators and monitors. Clinical trials must be conducted: (i) in compliance with federal regulations; (ii) in compliance with GCPs, an
international standard meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators, and monitors; as
well as (iii) under protocols that detail the parameters to be used in monitoring safety, and the efficacy criteria to be evaluated. Each protocol involving
testing on U.S. patients and subsequent protocol amendments must be submitted to the FDA as part of the IND.
The FDA may order the temporary or permanent discontinuation of a clinical trial at any time, or impose other sanctions, if it believes that the clinical trial
either is not being conducted in accordance with FDA regulations or presents an unacceptable risk to the clinical trial patients. The trial protocol and
informed consent information for patients in clinical trials must also be submitted to an IRB for approval. An IRB may also require the clinical trial at the
site to be halted, either temporarily or permanently, for failure to comply with the IRB’s requirements, or may impose other conditions if it believes that the
patients are subject to unacceptable risk. In some cases, clinical trials are overseen by an independent group of qualified experts organized by the trial
sponsor, for example, the data safety monitoring board, or DSMB. The suspension or termination of development can occur during any phase of clinical
trials if it is determined that the participants or patients are being exposed to an unacceptable health risk.
The clinical investigation of an investigational drug is generally divided into three phases. Although the phases are usually conducted sequentially, they
may overlap or be combined. The three phases of an investigation are generally described as follows:
•
•
•
Phase 1 — Phase 1 includes the initial introduction of an investigational drug into humans. Phase 1 clinical trials may be conducted in
patients with the target disease or condition or healthy volunteers. These trials are designed to evaluate the safety, metabolism,
pharmacokinetics and pharmacologic actions of the investigational drug in humans, the side effects associated with increasing doses, and if
possible, to gain early evidence on effectiveness. During Phase 1 clinical trials, sufficient information about the investigational product’s
pharmacokinetics and pharmacological effects may be obtained to permit the design of Phase 2 clinical trials.
Phase 2 — Phase 2 includes controlled clinical trials conducted to evaluate the effectiveness of the investigational product for a particular
indication(s) in patients with the disease or condition under study, to determine dosage tolerance and optimal dosage, and to identify possible
adverse side effects and safety risks associated with the drug. Phase 2 clinical trials are typically well-controlled, closely monitored, and
conducted in a limited patient population.
Phase 3 — Phase 3 clinical trials are controlled clinical trials conducted in an expanded patient population at geographically dispersed clinical
trial sites. They are performed after preliminary evidence suggesting effectiveness of the investigational product has been obtained, and are
intended to further evaluate dosage, clinical effectiveness and safety, to establish the overall benefit-risk relationship of the product, and to
provide an adequate basis for product approval. In most cases, the FDA requires two adequate and well-controlled Phase 3 clinical trials to
demonstrate the efficacy of the drug. A single Phase 3 trial may be sufficient in rare instances including (1) where the study is a large
multicenter trial demonstrating internal consistency and a statistically very persuasive finding of a clinically meaningful effect on mortality,
irreversible morbidity or prevention of a disease with a potentially serious outcome and confirmation of the result in a second trial would be
practically or ethically impossible or (2) when in conjunction with other confirmatory evidence.
Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and
physical characteristics of the product and finalize a process for manufacturing the product in commercial quantities in accordance with cGMP
requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, the
manufacturer must develop methods for testing the identity, strength, quality, purity and potency of the final product. Additionally, appropriate packaging
must be selected and
8
Table of Contents
tested, and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.
Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, a BLA is submitted to the FDA to
request market approval for the product in specified indications. The BLA must include the results of all preclinical, clinical, and other testing and a
compilation of data relating to the product’s pharmacology, chemistry, manufacturing, and controls. To support marketing approval, the data submitted
must be sufficient in quality and quantity to establish the safety and effectiveness of the investigational drug product to the satisfaction of the FDA. The
cost of preparing and submitting a BLA is substantial. The submission of most BLAs is additionally subject to a substantial user fee; there may be some
instances in which the user fee is waived.
The FDA will initially review the BLA for completeness before it accepts the BLA for filing. The FDA has 60 days from its receipt of a BLA to determine
whether the application will be accepted for filing based on the Agency’s threshold determination that it is sufficiently complete to permit substantive
review. After the BLA submission is accepted for filing, the FDA begins an in-depth review. The FDA has agreed to certain performance goals in the
review of BLAs. For a new molecular entity, or NME, that is classified as a standard review product, FDA’s goal is to review the BLA within ten months of
the date the FDA files the BLA; an application for an NME that is classified as a priority review product has a goal for review of six months from the date
the FDA files the BLA. A BLA can be classified for priority review when the FDA determines the biologic product has the potential to treat a serious or
life-threatening condition and, if approved, would be a significant improvement in safety or effectiveness compared to available therapies. The FDA can
extend the review process by three or more additional months to consider certain late-submitted information or information intended to clarify information
already provided in the submission.
The FDA does not always achieve its performance goal and its review of BLAs can take significantly longer. The FDA reviews the BLA to determine,
among other things, whether the proposed product is safe and effective for its intended use, and whether the product is being manufactured in accordance
with cGMP. The FDA may refer applications for novel biological products which present difficult questions of safety or efficacy to an advisory committee,
typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved
and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully
when making decisions.
Before approving a BLA, the FDA will inspect the facilities at which the product is manufactured. The FDA will not approve the product unless it
determines that the manufacturing processes and facilities are in compliance with cGMP requirements and are adequate to assure consistent production of
the product within required specifications. Additionally, before approving a BLA, the FDA will typically inspect the sponsor and one or more clinical sites
to assure compliance with GCPs. After the FDA evaluates the BLA and the manufacturing facilities, it issues either an approval letter or a complete
response letter. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing, time or
information in order for the FDA to reconsider the application. If, or when, those deficiencies have been addressed to the FDA’s satisfaction in a
resubmission of the BLA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending
on the type of information included. The approval process is lengthy and difficult and notwithstanding the submission of any requested additional
information, the FDA ultimately may refuse to approve an BLA if applicable regulatory criteria are not satisfied or if the FDA believes additional clinical
data or other data and information are required. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than
a company interprets the same data.
An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. FDA’s approval of a product
may be significantly limited to specific disease and dosages or the indications for use may otherwise be limited, which could restrict the commercial value
of the product. Further, the FDA may require that certain contraindications, warnings, or precautions be included in the product labeling. In addition, as a
condition of BLA approval, the FDA may require a risk evaluation and mitigation strategy, or REMS, to help ensure that the benefits of the drug outweigh
the potential risks. REMS can include medication guides, communication plans for healthcare professionals, special training or certification for prescribing
or dispensing, dispensing only under certain circumstances, restricted distribution, special monitoring, and the use of patient registries. The requirement for
REMS can materially affect the potential market and profitability of the drug. Moreover, product approval may require substantial post-approval testing and
surveillance to monitor the drug’s safety or efficacy. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not
maintained or problems are identified following initial marketing.
Changes to some of the conditions established in an approved application, including changes in indications, labeling, manufacturing processes or facilities,
or modification to a REMS, require submission and FDA approval of a new BLA or BLA supplement before the change can be implemented. A BLA
supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions
in reviewing BLA supplements as it does in reviewing BLAs.
9
Table of Contents
Advertising and Promotion
The FDA and other federal regulatory agencies closely regulate the marketing and promotion of drugs through, among other things, standards and
regulations for direct-to-consumer advertising, communications regarding unapproved uses, industry-sponsored scientific and educational activities, and
promotional activities involving the Internet. A product cannot be commercially promoted before it is approved. After approval, product promotion can
include only those claims relating to safety and effectiveness that are consistent with the labeling approved by the FDA. Healthcare providers are permitted
to prescribe drugs for “off-label” uses—that is, uses not approved by the FDA and therefore not described in the drug’s labeling—because the FDA does
not regulate the practice of medicine. However, FDA regulations impose stringent restrictions on manufacturers’ communications regarding off-label uses.
Broadly speaking, a manufacturer may not promote a drug for off-label use, but may engage in non-promotional, balanced communication regarding off-
label use under specified conditions. Failure to comply with applicable FDA requirements and restrictions in this area may subject a company to adverse
publicity and enforcement action by the FDA, the U.S. Department of Justice (DOJ), or the Office of the Inspector General of HHS, as well as state
authorities. This could subject a company to a range of penalties that could have a significant commercial impact, including civil and criminal fines and
agreements that materially restrict the manner in which a company promotes or distributes drug products.
Disclosure of Clinical Trial Information
Sponsors of clinical trials of FDA-regulated products, including biological products, are required to register and disclose certain clinical trial information
on the website www.clinicaltrials.gov. Information related to the product, patient population, phase of investigation, trial sites and investigators, and other
aspects of a clinical trial are then made public as part of the registration. Sponsors are also obligated to disclose the results of their clinical trials after
completion. Disclosure of the results of clinical trials can be delayed in certain circumstances for up to two years after the date of completion of the trial.
Competitors may use this publicly available information to gain knowledge regarding the progress of clinical development programs as well as clinical trial
design.
Pediatric Information
Under the Pediatric Research Equity Act, or PREA, NDAs or BLAs or supplements to NDAs or BLAs must contain data to assess the safety and
effectiveness of the biological product for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each
pediatric subpopulation for which the biological product is safe and effective. The FDA may grant full or partial waivers, or deferrals, for submission of
data. Unless otherwise required by regulation, PREA does not apply to any biological product with orphan product designation except a product with a new
active ingredient that is a molecularly targeted cancer product intended for the treatment of an adult cancer and directed at a molecular target determined by
FDA to be substantially relevant to the growth or progression of a pediatric cancer that is subject to an NDA or BLA submitted on or after August 18,
2020.
Additional Controls for Biologics
To help reduce the increased risk of the introduction of adventitious agents, the PHSA emphasizes the importance of manufacturing controls for products
whose attributes cannot be precisely defined. The PHSA also provides authority to the FDA to immediately suspend biologics licenses in situations where
there exists a danger to public health, to prepare or procure products in the event of shortages and critical public health needs, and to authorize the creation
and enforcement of regulations to prevent the introduction or spread of communicable diseases within the United States.
After a BLA is approved, the product may also be subject to official lot release as a condition of approval. As part of the manufacturing process, the
manufacturer is required to perform certain tests on each lot of the product before it is released for distribution. If the product is subject to official release
by the FDA, the manufacturer submits samples of each lot of product to the FDA together with a release protocol showing a summary of the lot
manufacturing history and the results of all of the manufacturer’s tests performed on the lot. The FDA may also perform certain confirmatory tests on lots
of some products, such as viral vaccines, before allowing the manufacturer to release the lots for distribution. In addition, the FDA conducts laboratory
research related to the regulatory standards on the safety, purity, potency, and effectiveness of biological products. As with drugs, after approval of a BLA,
biologics manufacturers must address any safety issues that arise, are subject to recalls or a halt in manufacturing, and are subject to periodic inspection
after approval.
Post-Approval Regulations
After regulatory approval of a drug is obtained, a company is required to comply with a number of post-approval requirements. For example, as a condition
of approval of a BLA, the FDA may require post-marketing testing, including Phase 4 clinical trials, and surveillance to further assess and monitor the
product’s safety and effectiveness after commercialization. In addition, as a holder of an approved BLA, a company would be required to report adverse
reactions and production problems to the FDA, to provide updated safety and efficacy information, and to comply with requirements concerning
advertising and promotional labeling for any of its products. Also, quality control and manufacturing procedures must continue to conform to cGMP after
10
Table of Contents
approval to assure and preserve the long-term stability of the drug or biological product. The cGMP requirements apply to all stages of the manufacturing
process, including the production, processing, sterilization, packaging, labeling, storage and shipment of the drug product. The FDA periodically inspects
manufacturing facilities to assess compliance with cGMP, which imposes extensive procedural and substantive record keeping requirements. In addition,
changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being
implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation
requirements upon a company and any third-party manufacturers that a company may decide to use. Accordingly, manufacturers must continue to expend
time, money and effort in the area of production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance.
We rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of our product candidates. Future FDA and
state inspections may identify compliance issues at our facilities or at the facilities of our contract manufacturers that may disrupt production or
distribution, or require substantial resources to correct.
The FDA may withdraw a product approval if compliance with regulatory standards is not maintained or if problems occur after the product reaches the
market. Later discovery of previously unknown problems with a product or the failure to comply with applicable requirements may result in restrictions on
a product, manufacturer or holder of an approved BLA, including withdrawal or recall of the product from the market or other voluntary, FDA-initiated or
judicial action that could delay or prohibit further marketing. Further, the failure to maintain compliance with regulatory requirements may result in
administrative or judicial actions, such as fines, warning or untitled letters, holds on clinical trials, product recalls or seizures, product detention or refusal
to permit the import or export of products, refusal to approve pending applications or supplements, restrictions on marketing or manufacturing, injunctions
or civil or criminal penalties.
Newly discovered or developed safety or effectiveness data may require changes to a product’s approved labeling, including the addition of new warnings
and contraindications, and may require the implementation of other risk management measures. Also, new government requirements, including those
resulting from new legislation, may be established, or the FDA’s policies may change, which could delay or prevent regulatory approval of our products
under development.
Enforcement
During all phases of development (pre- and post-marketing), failure to comply with applicable regulatory requirements may result in administrative or
judicial sanctions. These sanctions could include the FDA’s imposition of a clinical hold on trials, refusal to approve pending applications, withdrawal of an
approval, warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, product detention or refusal
to permit the import or export of products, injunctions, fines, civil penalties or criminal prosecution. Any agency or judicial enforcement action could have
a material adverse effect on us.
Comparable European and Other International Government Regulation
In addition to FDA regulations in the United States, we will be subject to a variety of comparable regulations in other jurisdictions governing, among other
things, clinical trials and any commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain the
requisite approvals from regulatory authorities in foreign countries prior to the commencement of clinical trials or marketing of the product in those
countries.
Some countries outside of the United States have a similar process that requires the submission of a clinical trial application, or CTA, much like the IND
prior to the commencement of human clinical trials. In Europe, for example, a CTA must be submitted to each country’s national health authority and an
independent ethics committee, much like the FDA and IRB, respectively. Once the CTA is approved in accordance with a country’s requirements, clinical
trial development may proceed. To obtain regulatory approval to commercialize a new drug under European Union regulatory systems, we must submit a
marketing authorization application, or MAA. The MAA is similar to the NDA, with the exception of, among other things, country-specific document
requirements and environmental impact assessments.
For other countries outside of the European Union, such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of
clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, again, the clinical trials are conducted in accordance
with GCPs and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.
Australia
Conducting clinical trials for therapeutic drug candidates in Australia is subject to regulation by Australian governmental entities. Approval for inclusion in
the Australian Register of Therapeutic Goods, or the ARTG, is required before a pharmaceutical drug product may be marketed in Australia.
Typically, the process of obtaining approval of a new therapeutic drug product for inclusion in the ARTG requires compilation of clinical trial data. Clinical
trials conducted using “unapproved therapeutic goods” in Australia, being those which have not
11
Table of Contents
yet been evaluated by the Therapeutic Goods Administration, or TGA, for quality, safety and efficacy must occur pursuant to either the Clinical Trial
Notification, or CTN, or Clinical Trial Exemption, or CTX, process.
The CTN process broadly involves:
•
•
•
•
completion of pre-clinical laboratory and animal testing;
submission to a Human Research Ethics Committee, or the HREC, of all material relating to the proposed clinical trial, including the trial
protocol. The TGA does not review any data relating to the clinical trial;
the institution or organisation at which the trial will be conducted, referred to as the “Approving Authority” gives the final approval for the
conduct of the trial at the site, having due regard to the advice from the HREC; and
CTN trials cannot commence until the trial has been notified to the TGA.
Under the CTX process:
•
•
a sponsor submits an application to conduct a clinical trial to the TGA for evaluation and comment; and
a sponsor cannot commence a CTX trial until written advice has been received from the TGA regarding the application and approval for the
conduct of the trial has been obtained from an ethics committee and the institution at which the trial will be conducted.
In each case, it is required that:
•
•
•
•
adequate and well-controlled clinical trials demonstrate the quality, safety and efficacy of the therapeutic product;
evidence is compiled which demonstrates that the manufacture of the therapeutic drug product complies with the principles of cGMP;
manufacturing and clinical data is derived to submit to the Australian Committee on Prescription Medicines, which makes recommendations
to the TGA as to whether or not to grant approval to include the therapeutic drug product in the ARTG; and
an ultimate decision is made by the TGA whether to include the therapeutic drug product in the ARTG.
Pre-clinical studies include laboratory evaluation of the therapeutic drug product as well as animal studies to assess the potential safety and efficacy of the
drug. The results of the pre-clinical studies form part of the materials submitted to the investigators HREC in the case of a CTN trial and part of the
application to the TGA in the case of a CTX trial.
Clinical trials involve administering the investigational product to healthy volunteers or patients under the supervision of a qualified principal investigator.
The TGA has developed guidelines for a CTN. Under the CTN process, all material relating to the proposed trial is submitted directly to the HREC of each
institution at which the trial is to be conducted. An HREC is an independent review committee set up under guidelines of the Australian National Health
and Medical Research Council. The role of an HREC is to ensure the protection of rights, safety and wellbeing of human subjects involved in a clinical trial
by, among other things, reviewing, approving and providing continuing review of trial protocols and amendments, and of the methods and material to be
used in obtaining and documenting informed consent of the trial subjects. The TGA is formally notified by submission of a CTN application but does not
review the safety of the drug or any aspect of the proposed trial. The approving authority of each institution gives the final approval for the conduct of the
clinical trial, having due regard to advice from the HREC. Following approval, responsibility for all aspects of the trial conducted under a CTN application
remains with the HREC of each investigator’s institution.
The standards for clinical research in Australia are set by the TGA and the National Health and Medical Research Council, and compliance with GCPs is
mandatory. Guidelines, such as those promulgated by the International Conference on Harmonization of Technical Requirements for Registration of
Pharmaceuticals for Human Use, or ICH, are required across all fields, including those related to pharmaceutical quality, nonclinical and clinical data
requirements and study designs. The basic requirements for preclinical data to support a first-in- human study under ICH guidelines are applicable in
Australia. Requirements related to adverse event reporting in Australia are similar to those required in other major jurisdictions.
Other Healthcare Laws and Compliance Requirements
In the United States, our activities are potentially subject to additional regulation and oversight under other healthcare laws by various federal, state and
local authorities in addition to the FDA, including the Centers for Medicare & Medicaid Services, or CMS, other divisions of the United States Department
of Health and Human Services (e.g., the Office of Inspector General), the DOJ, and individual U.S. Attorney offices within the DOJ, and state and local
governments. These laws include the federal
12
Table of Contents
Anti-Kickback Statute, which prohibits, among other things, any person or entity, from knowingly and willfully offering, paying, soliciting or receiving any
remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or in return for either the referral of an individual, or purchasing,
leasing, ordering or arranging for the purchase, lease or order of any good, facility, item or service reimbursable, in whole or part, under Medicare,
Medicaid or another federal healthcare program. The term remuneration has been interpreted broadly to include anything of value. The federal Anti-
Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers, and
formulary managers on the other. There are a number of statutory exceptions and regulatory safe harbors protecting some common activities from
prosecution. The exceptions and safe harbors are drawn narrowly and practices that involve remuneration that may be alleged to be intended to induce
prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exception or safe harbor. Our practices may not in all
cases meet all of the criteria for protection under a statutory exception or regulatory safe harbor from federal Anti-Kickback Statute liability. Failure to
meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor, however, does not make the conduct per se illegal under
the Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all of its facts
and circumstances. In addition, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or
collectively, the Affordable Care Act, further strengthened these laws by amending the intent standard under the federal Anti-Kickback Statute and the
criminal health care fraud statutes (discussed below), such that a person or entity no longer needs to have actual knowledge of the statute or specific intent
to violate it in order to have committed a violation. In addition, the Affordable Care Act codified case law that a claim including items or services resulting
from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act (discussed below).
Federal civil and criminal false claims laws, including the False Claims Act, and civil monetary penalties laws prohibit, among other things, any person or
entity from knowingly presenting, or causing to be presented, a false claim for payment to, or approval by, the federal government, including the Medicare
and Medicaid programs, or knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the
federal government, including the Medicare and Medicaid programs. As a result of a modification made by the Fraud Enforcement and Recovery Act of
2009, a claim includes “any request or demand” for money or property presented to the U.S. government. Recently, several pharmaceutical and other
healthcare companies have been prosecuted under these laws for allegedly providing free product to customers with the expectation that the customers
would bill federal programs for the product. Other companies have been prosecuted for causing false claims to be submitted because of the companies’
marketing of the product for off-label, and thus, non-covered, uses.
The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, created additional federal criminal statutes that prohibit knowingly
and willfully executing, or attempting to execute, a scheme to defraud or to obtain, by means of false or fraudulent pretenses, representations or promises,
any money or property owned by, or under the control or custody of, any healthcare benefit program, including private third-party payors and knowingly
and willfully falsifying, concealing or covering up by trick, scheme or device, a material fact or making any materially false, fictitious or fraudulent
statement in connection with the delivery of or payment for healthcare benefits, items or services. Also, many states have similar fraud and abuse statutes
or regulations that apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.
We may also be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA, as
amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and its implementing regulations, imposes
requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes certain
HIPAA standards directly applicable to business associates—independent contractors or agents of covered entities that receive or obtain protected health
information in connection with providing a service on behalf of a covered entity. HITECH also created four new tiers of civil monetary penalties, amended
HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for
damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions.
In addition, state laws govern the privacy and security of health information in specified circumstances, many of which differ from each other in significant
ways and may not have the same effect, thus complicating compliance efforts.
Additionally, the federal Physician Payments Sunshine Act within the Affordable Care Act, and its implementing regulations, require that certain
manufacturers of drugs, devices, biological and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health
Insurance Program (with certain exceptions) report annually to CMS information related to certain payments or other transfers of value made or distributed
to physicians and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, the physicians and teaching hospitals, and
applicable manufacturers and group purchasing organizations to report annually certain ownership and investment interests held by physicians and their
immediate family members and payments or other “transfers of value” to such physician owners and their immediate family members.
13
Table of Contents
In order to distribute products commercially, we must comply with state laws that require the registration of manufacturers and wholesale distributors of
pharmaceutical products in a state, including, in some states, manufacturers and distributors who ship products into the state even if such manufacturers or
distributors have no place of business within the state. Some states also impose requirements on manufacturers and distributors to establish the pedigree of
product in the chain of distribution, including some states that require manufacturers and others to adopt new technology capable of tracking and tracing
product as it moves through the distribution chain. Several local, state and foreign governments have enacted legislation requiring pharmaceutical
companies to, among other things, establish compliance programs, file periodic reports with the state or foreign government, make periodic public
disclosures on sales, marketing, pricing, clinical trials and other activities, and/ or register their sales representatives, as well as to prohibit pharmacies and
other healthcare entities from providing specified physician prescribing data to pharmaceutical companies for use in sales and marketing, and to prohibit
other specified sales and marketing practices. In addition, our future commercial activities may also be subject to federal and state consumer protection and
unfair competition laws.
If our operations are found to be in violation of any of the federal and state healthcare laws described above or any other governmental regulations that
apply to us, we may be subject to penalties, including without limitation, civil, criminal and administrative penalties, damages, fines, disgorgement,
individual imprisonment, exclusion from participation in government programs, such as Medicaid and Medicare, integrity obligations, injunctions, as well
as reputational harm, administrative burdens, diminished profits and future earnings and the curtailment or restructuring of our operations, any of which
could adversely affect our ability to operate our business and our results of operations. To the extent that any of our products are sold in a foreign country,
we may be subject to similar foreign laws and regulations, which may include, for instance, anti-fraud and abuse laws, and implementation of corporate
compliance programs and reporting of payments or transfers of value to healthcare professionals.
Coverage, Reimbursement and Pricing
Significant uncertainty exists as to the coverage and reimbursement status of any drug products for which we obtain regulatory approval. In the United
States and markets in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend, in part, on the extent
that third-party payors provide coverage, and establish adequate reimbursement levels for such drug products. In the United States, third-party payors
include federal healthcare programs, state healthcare programs, managed care providers, private health insurers and other organizations. The process for
determining whether a third-party payor will provide coverage for a drug product may be separate from the process for setting the price of a drug product or
for establishing the reimbursement rate that such a payor will pay for the drug product. Third-party payors may limit coverage to specific drug products on
an approved list, also known as a formulary, which might not include all of the FDA-approved drugs for a particular indication. Third-party payors are
increasingly challenging the price, examining the medical necessity and reviewing the cost-effectiveness of drug products and medical services, in addition
to questioning their safety and efficacy. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and
cost-effectiveness of our products, in addition to the costs required to obtain FDA approvals. NL-201 or our future product candidates may not be
considered medically necessary or cost-effective. A payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement
rate will be approved. Further, one payor’s determination to provide coverage for a drug product does not assure that other payors will also provide
coverage for the drug product. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an
appropriate return on our investment in product development. If a drug product is reimbursed under a governmental healthcare program, such as Medicare,
Medicaid or TRICARE, additional laws and program requirements will apply.
Different pricing and reimbursement schemes exist in other countries. In the European Union, governments influence the price of pharmaceutical products
through their pricing and reimbursement rules and control of national healthcare systems that fund a large part of the cost of those products to consumers.
Some jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price has been agreed
upon. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost-
effectiveness of a particular product candidate to currently available therapies. Other member states allow companies to fix their own prices for drugs, but
monitor and control company profits. The downward pressure on healthcare costs in general, particularly prescription drugs, has become more intense. As a
result, increasingly high barriers are being erected to the entry of new products. The European Union provides options for its member states to restrict the
range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for
human use. A member state may approve a specific price for the medicinal product, or it may instead adopt a system of direct or indirect controls on the
profitability of the company placing the medicinal product on the market. We may face competition for our product candidates from lower-priced products
in foreign countries that have placed price controls on pharmaceutical products. In addition, in some countries, cross-border imports from low-priced
markets exert a commercial pressure on pricing within a country.
The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and third-party payors fail to
provide adequate coverage and reimbursement. In addition, an increasing emphasis on managed
14
Table of Contents
care in the United States has increased and will continue to increase the pressure on pharmaceutical pricing. Coverage policies and third-party
reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we
receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
Healthcare Reform
In March 2010, President Obama signed the Affordable Care Act, which substantially changed healthcare financing and the delivery by both governmental
and private insurers, and significantly impacted the pharmaceutical industry. The Affordable Care Act impacts existing government healthcare programs
and requires the development of new programs. For example, the Affordable Care Act provides for Medicare payment for performance initiatives and
improvements to the physician quality reporting system and feedback program.
Among the Affordable Care Act’s provisions of importance to the pharmaceutical industry are the following:
•
•
•
•
•
•
•
•
•
•
an annual, nondeductible fee on any entity that manufactures or imports certain specified branded prescription drugs and biological products
apportioned among these entities according to their market share in some government healthcare programs, that began in 2011;
an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program, retroactive to January 1,
2010, to 23.1% and 13% of the average manufacturer price for most branded and generic drugs, respectively and capped the total rebate
amount for innovator drugs at 100% of AMP;
expansion of healthcare fraud and abuse laws, including the False Claims Act and the Anti-Kickback Statute, new government investigative
powers, and enhanced penalties for noncompliance;
a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer point-of-sale discounts, now 7% off
negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturers’
outpatient drugs to be covered under Medicare Part D;
extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care
organizations;
expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to additional
individuals and by adding new mandatory eligibility categories for individuals with income at or below 133% of the Federal Poverty Level,
thereby potentially increasing manufacturers’ Medicaid rebate liability;
expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;
a requirement to report annually specified financial arrangements with physicians and teaching hospitals, as defined in the Affordable Care
Act and its implementing regulations, including reporting information related to “payments or other transfers of value” made to physicians
(defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, and applicable manufacturers and
applicable group purchasing organizations to report annually to CMS ownership and investment interests held by physicians (as defined
above) and their immediate family members and payments or other “transfers of value” to such physician owners and their immediate family
members;
a requirement to annually report drug samples that manufacturers and distributors provide to licensed practitioners, pharmacies of hospitals
and other healthcare entities; and
a Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research,
along with funding for such research.
In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. On August 2, 2011, the President signed
into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend proposals in
spending reductions to Congress. The Joint Select Committee did not achieve its targeted deficit reduction of at least $1.2 trillion for the years 2013
through 2021, triggering the legislation’s automatic reductions to several government programs. These reductions include aggregate reductions to Medicare
payments to providers of up to 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislative amendments, will stay in
effect through 2029 unless additional Congressional action is taken. On January 2, 2013, President Obama signed into law the American Taxpayer Relief
Act of 2012, which, among other things, further reduced Medicare payments to several providers and increased the statute of limitations period for the
government to recover overpayments to providers from three to five years. Furthermore, there has been heightened governmental scrutiny recently over the
manner in which manufacturers set prices for their marketed products. For example, there have been several recent Congressional inquiries and proposed
bills designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and
15
Table of Contents
manufacturer patient programs, and reform government program reimbursement methodologies for drug products. These new laws and initiatives may
result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on our future customers and
accordingly, our financial operations.
Since its enactment, there have been judicial and Congressional challenges to certain aspects of Affordable Care Act, as well as efforts by the Trump
administration to repeal or replace certain aspects of the Affordable Care Act, or ACA. Since January 2017, President Trump signed two executive orders
and other directives designed to delay, circumvent, or loosen certain requirements mandated by the Affordable Care Act. Concurrently, Congress has
considered legislation that would repeal or repeal and replace all or part of the ACA. While Congress has not passed repeal legislation, the Tax Cuts and
Jobs Act of 2017 includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the ACA on certain
individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate”. In November
2020, the United States Supreme Court held oral arguments on the Fifth Circuit U.S. Court of Appeals decision that held that the individual mandate is
unconstitutional. It is uncertain how the United States Supreme Court will rule on this case or how healthcare measures of the Biden administration will
impact the ACA and our business. Congress may consider other legislation to repeal or replace elements of the ACA.
We cannot predict what healthcare reform initiatives may be adopted in the future. However, we anticipate that Congress, state legislatures, and third-party
payors may continue to review and assess alternative healthcare delivery and payment systems and may in the future propose and adopt legislation or
policy changes or implementations effecting additional fundamental changes in the healthcare delivery system. We also expect ongoing initiatives to
increase pressure on drug pricing. Any reduction in reimbursement from Medicare and other government programs may result in a similar reduction in
payments from private payors.
Anti-Corruption Legislation
The Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from paying, offering, or authorizing payment or offering of
anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign
entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the
United States to comply with accounting provisions requiring us to maintain books and records that accurately and fairly reflect all transactions of the
corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations.
The Corruption of Foreign Public Officials Act, or CFPOA, prohibits Canadian businesses and individuals from giving or offering to give a benefit of any
kind to a foreign public official, or any other person for the benefit of the foreign public official, where the ultimate purpose is to obtain or retain a business
advantage. Under the CFPOA, companies may be liable for the actions of their employees or third-party agents, even if such persons operate outside of
Canada.
Human Capital Resources
Employees
As of December 31, 2020, we had 70 employees, of whom 23 hold Ph.D. degrees or M.D. degrees and all of which are full time employees. We have no
collective bargaining agreements with our employees and have not experienced any work stoppages. We believe that relations with our employees are
good.
Diversity & Inclusion
We are committed to creating and maintaining a workplace free from discrimination or harassment on the basis of color, race, sex, national origin, ethnicity,
religion, age, disability, sexual orientation, gender identification or expression or any other status protected by applicable law. Our management team and
employees are expected to exhibit and promote honest, ethical and respectful conduct in the workplace. All of our employees must adhere to a code of
conduct that sets standards for appropriate behavior and are required annual training to preventing, identify, report and stop any type of discrimination and
harassment. Recruitment, hiring, development, training, compensation and advancement at the Company is based on qualifications, performance, skills and
experience without regard to gender, race and ethnicity.
Competitive Pay & Benefits
We strive to provide pay, comprehensive benefits, and services that help meet the varying needs of our employees. Our total rewards package includes
competitive pay; comprehensive healthcare benefits package for employees, with family member healthcare benefits; paid leave and paid holidays; family
medical leave and flexible work schedules. In addition, we offer every full-time employee the benefit of equity ownership in the company through stock
option grants and our employee stock purchase plan. We also sponsor a 401(k) plan that allows full-time employees to contribute a portion of their salary,
subject to
16
Table of Contents
statutory limits. We make matching cash contributions up to a pre-defined annual maximum contribution per employee per year.
Employee Development & Training
We focus on attracting, retaining, and cultivating talented individuals. We emphasize employee development and training by providing access to in house
development and training sessions. Employees are encouraged to attend scientific, clinical, and technological meetings and conferences and have access to
broad resources they need to be successful.
Safety
The safety, health and wellness of our employees is a top priority. In response to COVID-19, we have implemented safety protocols including shift work
scheduling to reduce number of people in the facility, requirements for the wearing of masks and for social distancing, increased cleaning procedures and
readily available hand sanitizer. These protocols comply with health and safety standards as required by federal, state and local government agencies,
taking into consideration guidelines of the Centers for Disease Control and Prevention and other public health authorities. In addition, the Company has
provided work-at-home arrangements for employees who are able to do so.
Corporate Information
On August 8, 2019, Neoleukin Therapeutics, Inc., or Former Neoleukin, completed its merger with Aquinox Pharmaceuticals, Inc., or Aquinox, in
accordance with the terms of the Agreement and Plan of Merger dated August 5, 2019, or the Merger Agreement by and among Aquinox, Former
Neoleukin and Apollo Sub, Inc., a wholly-owned subsidiary of Aquinox. Pursuant to the Merger Agreement, Apollo Sub, Inc. merged with and into Former
Neoleukin, with Former Neoleukin surviving the Merger as a wholly-owned subsidiary of Aquinox, referred to herein as the Merger. Upon completion of
the Merger, Aquinox was renamed Neoleukin Therapeutics, Inc. and Former Neoleukin was renamed Neoleukin Corporation.
On July 31, 2020, we sold all issued and outstanding capital stock of our Canadian subsidiary, Aquinox Pharmaceuticals (Canada) Inc., to an unrelated third
party. On December 31, 2020, Neoleukin Corporation was merged into Neoleukin Therapeutics, Inc. As a result of these transactions, as of December 31,
2020, we have no subsidiaries.
We make available free of charge on our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports as soon as reasonably practicable after we electronically file or furnish such materials to the Securities and Exchange
Commission, or SEC. The reports are also available at www.sec.gov. Our website address is www.neoleukin.com. The information contained on, or that
can be accessed through, our website is not part of, and is not incorporated by reference into, this report.
Neoleukin and our other registered or common law trademarks, service marks, or trade names appearing in this Annual Report on Form 10-K are the
property of Neoleukin Therapeutics, Inc. Other trademarks, service marks, or trade names appearing in this Annual Report on Form 10-K are the property
of their respective owners.
17
Table of Contents
Item 1A. Risk Factors.
Summary of Risk Factors
An investment in our common stock involves various risks, and prospective investors are urged to carefully consider the matters discussed in the section
titled “Risk Factors” prior to making an investment in our common stock. These risks include, but are not limited to, the following:
• We will require substantial additional capital to finance our operations which may not be available to us on acceptable terms, or at all. If we fail to
obtain necessary financing, we may be unable to complete the development and potential commercialization of our product candidates.
• We have incurred significant losses in every quarter since our inception and anticipate that we will continue to incur significant losses in the
future.
• We have a limited operating history, which may make it difficult for you to evaluate the success of our business to date and to assess our future
viability.
• We currently have no source of product revenue and may never become profitable.
• Our product candidates are in early stages of development and may fail in development or suffer delays that materially and adversely affect their
commercial viability. If we are unable to complete development of, or commercialize our product candidates, or experience significant delays in
doing so, our business will be materially harmed.
• Our business is heavily dependent on the success of our Neoleukin platform and of our most advanced product candidate, NL-201. Existing and
future preclinical studies and clinical trials of these product candidates may not be successful, and if we are unable to commercialize these product
candidates or experience significant delays in doing so, our business will be materially harmed. NL-201 is currently the subject of a clinical hold
from the FDA, which prevents us from initiating clinical trials of this candidate in the U.S. We are working to respond to the FDA's requests, but
do not have a definitive timeline as to when or if we will be able to obtain clearance to proceed.
• Our future clinical trials or those of any future collaborators may reveal significant adverse events not seen in our preclinical studies and may
result in a safety profile that could inhibit regulatory approval or market acceptance of any of our product candidates.
•
If we do not achieve our projected development goals in the timeframes we announce and expect, the commercialization of our products may be
delayed and, as a result, our stock price may decline.
• Our approach to the discovery and development of our therapeutic treatments is based on de novo protein design technology which is unproven
and may not result in marketable products.
• We expect to rely on third parties to conduct certain of our preclinical studies or clinical trials. If those third parties do not perform as contractually
required, fail to satisfy legal or regulatory requirements, miss expected deadlines or terminate the relationship, our development program could be
delayed with potentially material and adverse effects on our business, financial condition, results of operations, and prospects.
• We rely on third-party manufacturers and suppliers to supply components of our product candidates. The loss of our third-party manufacturers or
suppliers, or our or their failure to comply with applicable regulatory requirements or to supply sufficient quantities at acceptable quality levels or
prices, or at all, would materially and adversely affect our business.
•
•
The outbreak of the novel strain of coronavirus, SARS-CoV-2, which causes COVID-19, could adversely impact our business, including our
preclinical development activities and planned clinical trials.
If we are not able to obtain, maintain, and enforce patent protection for our product candidates, our Neoleukin platform technology, or other
proprietary technologies we may develop, development and commercialization of our product candidates may be adversely affected.
18
Table of Contents
Risk Factors
You should carefully consider the following risk factors, in addition to the other information contained in this Annual Report on Form 10-K and the
information incorporated by reference herein. If any of the events described in the following risk factors occurs, our business, operating results and
financial condition could be seriously harmed.
This Annual Report on Form 10-K also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially
from those anticipated in the forward-looking statements as a result of factors that are described below and elsewhere in this Annual Report on Form 10-K.
Risks Related to Our Financial Position and Capital Needs
We will require substantial additional capital to finance our operations which may not be available to us on acceptable terms, or at all. If we fail to
obtain necessary financing, we may be unable to complete the development and potential commercialization of our product candidates.
The development of biopharmaceutical product candidates is capital-intensive. If our product candidates enter and advance through preclinical studies and
clinical trials, we will need substantial additional funds to expand or create our development, regulatory, manufacturing, marketing, and sales capabilities.
We have used substantial funds to develop our technology and product candidates and will require significant funds to conduct further research and
development and preclinical testing and clinical trials of our product candidates, to seek regulatory approvals for our product candidates and to manufacture
and market products, if any, which are approved for commercial sale. In addition, we expect to continue incurring costs associated with operating as a
public company.
Preclinical studies and clinical trials for our product candidates will require substantial funds to complete. As of December 31, 2020, we had approximately
$192.6 million in cash and cash equivalents. We expect to incur substantial expenditures in the foreseeable future as we seek to advance NL-201 and any
future product candidates through preclinical and clinical development, the regulatory approval process and, if approved, commercial launch activities.
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. However, our future capital requirements and the period for which we expect our existing resources to support our
operations, fund expansion, develop new or enhanced products, or otherwise respond to competitive pressures, may vary significantly from what we expect
and we may need to seek additional funds sooner than planned. Our monthly spending levels vary based on new and ongoing research and development
and other corporate activities. Because the length of time and activities associated with successful research and development of our product candidates is
highly uncertain, we are unable to estimate the actual funds we will require for development and any marketing and commercialization activities for
approved products. Our future funding requirements, both near and long-term, will depend on many factors, including, but not limited to:
•
•
•
•
•
•
•
•
•
•
•
the timing, cost and progress of preclinical and clinical development activities;
the number and scope of preclinical and clinical programs we decide to pursue;
the progress of the development efforts of parties with whom we have entered or may in the future enter into collaborations and/or research and
development agreements;
the timing and amount of milestone and other payments we may receive or make under our collaboration agreements;
our ability to maintain our current licenses and to establish new collaboration arrangements;
the costs involved in prosecuting and enforcing patent and other intellectual property claims;
the costs of manufacturing our product candidates by third parties;
the cost of regulatory submissions and timing of regulatory approvals;
the potential delays in our preclinical studies, our development programs and our planned clinical trials due to the effects of the COVID-19
pandemic;
the cost of commercialization activities if our product candidates or any future product candidates are approved for sale, including marketing, sales
and distribution costs; and
our efforts to enhance operational systems and hire additional personnel, including personnel to support development of our product candidates.
19
Table of Contents
If we are unable to obtain funding on a timely basis or on acceptable terms, we may have to delay, reduce or terminate our research and development
programs and preclinical studies or clinical trials, limit strategic opportunities or undergo reductions in our workforce or other corporate restructuring
activities. We do not expect to realize revenue from sales of commercial products or royalties from licensed products in the foreseeable future, if at all, and,
in no event, before our product candidates are clinically tested, approved for commercialization and successfully marketed.
We will be required to seek additional funding in the future and currently intend to do so through additional collaborations and/or licensing agreements,
public or private equity offerings or debt financings, credit or loan facilities, or a combination of one or more of these funding sources. If we raise
additional funds by issuing equity securities, our stockholders will suffer dilution and the terms of any financing may adversely affect the rights of our
stockholders. In addition, as a condition to providing additional funds to us, future investors may demand, and may be granted, rights superior to those of
existing stockholders. Our future debt financings, if available, are likely to involve restrictive covenants limiting our flexibility in conducting future
business activities, and, in the event of insolvency, debt holders would be repaid before holders of our equity securities received any distribution of our
corporate assets. If we raise additional funds through licensing or collaboration arrangements with third parties, we may have to relinquish valuable rights
to our product candidates or grant licenses on terms that are not favorable to us. We also could be required to seek collaborators for product candidates at an
earlier stage than otherwise would be desirable or relinquish our rights to product candidates or technologies that we otherwise would seek to develop or
commercialize ourselves. Failure to obtain capital when needed on acceptable terms may force us to delay, limit or terminate our product development and
commercialization of our current or future product candidates, which could have a material and adverse effect on our business, financial condition, results
of operations, and prospects.
We have incurred significant losses in every quarter since our inception and anticipate that we will continue to incur significant losses in the future.
We are a biotechnology company with a limited operating history. Investment in biotechnology is highly speculative because it entails substantial upfront
capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain
regulatory approval or become commercially viable. We do not have any products approved by regulatory authorities for marketing or commercial sale, we
have not generated any revenue from product sales to date, and all of our product candidates are in preclinical development. We continue to incur
significant expenses related to our ongoing operations. As a result, we are not profitable and have incurred losses in every reporting period since our
inception in 2003. For the years ended December 31, 2020 and 2019, we reported a net loss of $33.3 million and $69.4 million, respectively. As of
December 31, 2020, we had an accumulated deficit since inception of $332.8 million.
We expect to continue to incur significant expenses and operating losses for the foreseeable future as we seek to identify, acquire and conduct research and
development of future product candidates, and potentially begin to commercialize any future products that may achieve regulatory approval. We may
encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our financial condition. The size of
our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenues. Our prior losses and expected
future losses have had, and will continue to have, an adverse effect on our financial condition. If any of our future product candidates fail in clinical trials or
do not gain regulatory approval, or if approved, fails to achieve market acceptance, we may never become profitable. Even if we achieve profitability in the
future, we may not be able to sustain profitability in subsequent periods.
We have a limited operating history, which may make it difficult for you to evaluate the success of our business to date and to assess our future viability.
Our operations to date have been primarily limited to organizing and staffing our company, acquiring product and technology rights, discovering and
developing novel de novo proteins, undertaking preclinical studies, and, prior to the merger, developing small molecule drug candidates and conducting
clinical trials of rosiptor. We have not yet obtained regulatory approval for any product candidate. Consequently, evaluating our performance, viability or
possibility of future success will be more difficult than if we had a longer operating history or approved products on the market.
We currently have no source of product revenue and may never become profitable.
To date, we have not generated any revenues from commercial product sales, or otherwise. Our ability to generate revenue from product sales and achieve
profitability will depend upon our ability, alone or with any future collaborators, to successfully commercialize any products that we may develop, in-
license, or acquire in the future. Even if we can successfully achieve regulatory approval for any future product candidates, we do not know when any of
these products will generate revenue from product sales for us, if at all. Our ability to generate revenue from any of our future product candidates also
depends on several additional factors, including our or any future collaborators’ ability to:
•
complete development activities, including the necessary clinical trials;
20
Table of Contents
•
•
•
•
•
•
•
•
•
•
complete and submit Biologics License Applications, or BLAs, to the U.S. Food and Drug Administration, or FDA, and obtain regulatory
approval for indications for which there is a commercial market;
complete and submit applications to, and obtain regulatory approval from, foreign regulatory authorities;
set a commercially viable price for our products;
establish and maintain supply and manufacturing relationships with third parties, and ensure adequate and legally compliant manufacturing of bulk
drug substances and drug products to maintain that supply;
develop a commercial organization capable of sales, marketing and distribution for any products for which we obtain marketing approval and
intend to sell ourselves in the markets in which we choose to commercialize on our own;
find suitable distribution partners to help us market, sell, and distribute our approved products in other markets;
obtain coverage and adequate reimbursement from third-party payors, including government and private payors;
achieve market acceptance for our products, if any;
establish, maintain and protect our intellectual property rights; and
attract, hire, and retain qualified personnel.
In addition, because of the numerous risks and uncertainties associated with biological product development, any future product candidates may not
advance through development or achieve the endpoints of applicable clinical trials. Therefore, we are unable to predict the timing or amount of increased
expenses, or when or if we will be able to achieve or maintain profitability. In addition, our expenses could increase beyond expectations if we decide, or
are required by the FDA or foreign regulatory authorities, to perform studies or trials in addition to those that we currently anticipate. Even if we can
complete the development and regulatory process for any future product candidates, we anticipate incurring significant costs associated with
commercializing these products.
Even if we can generate revenues from the sale of any future product candidates that may be approved, we may not become profitable and may need to
obtain additional funding to continue operations. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be
unable to continue our operations at planned levels and be forced to reduce our operations.
We will require additional capital to finance our operations which may not be available to us on acceptable terms, or at all. If we fail to obtain
necessary financing, we may be unable to complete the development and potential commercialization of future product candidates.
Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is expensive. Our operations have consumed substantial
amounts of cash since inception. If we identify and advance any current or future product candidates into clinical trials and launch and commercialize any
product candidates for which we receive regulatory approval, we expect research and clinical development expenses, and our selling, general and
administrative expenses to increase substantially. In connection with our ongoing activities, we believe that our existing cash and cash equivalents will be
sufficient to fund our operating requirements for at least the next 12 months. However, circumstances may cause us to consume capital more rapidly than
we anticipate. We will likely require additional capital for the further development and potential commercialization of future product candidates and may
also need to raise additional funds sooner to pursue a more accelerated development of future product candidates.
If we need to secure additional financing, fundraising efforts may divert our management from our day-to-day activities, which may adversely affect our
ability to develop and commercialize future product candidates. In addition, we cannot guarantee that future financing will be available in sufficient
amounts or on terms acceptable to us, if at all. If we do not raise additional capital when required or on acceptable terms, we may need to:
•
•
•
significantly delay, scale back or discontinue clinical trials related to the development or commercialization of any of our future product
candidates or cease operations altogether;
seek strategic alliances for research and development programs at an earlier stage than we would otherwise desire or on terms less favorable than
might otherwise be available; or
relinquish, or license on unfavorable terms, our rights to any future product candidates that we otherwise would seek to develop or commercialize
ourselves.
21
Table of Contents
If we need to conduct additional fundraising activities and we do not raise additional capital in sufficient amounts or on terms acceptable to us, we may be
prevented from pursuing development and commercialization efforts, which will have a material adverse effect on our business, operating results and
prospects.
Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and
involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed elsewhere in this “Risk
Factors” section. We have based this estimate on assumptions that may prove to be wrong, and we could spend our available capital resources sooner than
we currently expect. Our future funding requirements, both near and long-term, will depend on many factors, including, but not limited to:
•
•
•
•
•
•
•
•
•
•
•
•
our ability to identify additional product candidates for development;
if we in-license or acquire product candidates from third parties, the cost of in-licensing or acquisition;
the initiation, progress, timing, costs and results of clinical trials for any future product candidates;
the clinical development plans we establish for any future product candidates;
the achievement of milestones and our obligation to make milestone payments under our present or any future in-licensing agreements;
the number and characteristics of product candidates that we discover, or in-license and develop;
the outcome, timing and cost of regulatory review by the FDA and comparable foreign regulatory authorities, including the potential for the FDA
or comparable foreign regulatory authorities to require that we perform more studies than those that we currently expect;
the cost to establish, maintain, expand, and defend the scope of our intellectual property portfolio, including the amount and timing of any
payments we may be required to make, or that we may receive, in connection with licensing, preparing, filing, prosecuting, defending, and
enforcing any patent claims and maintaining and enforcing other intellectual property rights;
the effects of COVID-19 on our business and financial results;
the effect of competing technological and market developments;
the costs and timing of the implementation of commercial-scale outsourced manufacturing activities; and
the costs and timing of establishing sales, marketing, distribution, and pharmacovigilance capabilities for any product candidates for which we
may receive regulatory approval in territories where we choose to commercialize products on our own.
If we are unable to expand our operations or otherwise capitalize on our business opportunities due to a lack of capital, our business, results of operations,
financial condition and cash flows, and future prospects could be materially adversely affected.
Risks Related to Discovery, Development and Commercialization
Our product candidates are in early stages of development and may fail in development or suffer delays that materially and adversely affect their
commercial viability. If we are unable to complete development of, or commercialize our product candidates, or experience significant delays in doing
so, our business will be materially harmed.
We are in the early stages of our development efforts. We have no products on the market and all of our product candidates, including NL-201, are still in
the preclinical or drug discovery stages, and we may not ever obtain regulatory approval for any of our product candidates. We have limited experience in
conducting and managing the clinical trials necessary to obtain regulatory approvals, including approval by the FDA. Before obtaining regulatory approval
for the commercial distribution of our product candidates, we or an existing or future collaborator must conduct extensive preclinical tests and clinical trials
to demonstrate the safety and efficacy in humans of our product candidates. We submitted an Investigational New Drug application, or IND, with respect to
NL-201 in December 2020. On January 7, 2021, we received a clinical hold letter from the FDA related to our IND. In the letter, the FDA informed us that
we need to develop a new assay that more precisely measures the amount of protein being administered and demonstrate with this assay that dose and
administration procedures will accurately deliver the intended dose of NL-201. The FDA also had additional requests not related to the clinical hold to be
addressed by amendment of the IND. While we believe that we will be able to develop the requested assay and respond to the FDA's requests, we do not
have a definitive timeline as to when or if we will be able to obtain clearance to proceed. In
22
Table of Contents
addition, it is possible that the FDA may deny our re-submission or require additional testing before allowing clinical testing in humans. Additionally, we
have a portfolio of targets and programs that are in earlier stages of discovery and preclinical development and may never advance to clinical-stage
development. If we do not receive regulatory approvals for clinical testing and commercialization of our product candidates, we may not be able to
continue our operations.
We may not have the financial resources to continue development of, or to enter into collaborations for, a product candidate if we experience any issues that
delay or prevent regulatory approval of, or our ability to commercialize, product candidates, including:
•
•
•
•
•
•
•
•
•
•
•
•
preclinical study results may show the product candidate to be less effective than desired or to have harmful or problematic side effects, which
could cause us to delay or even abandon clinical testing;
negative or inconclusive results from our clinical trials or the clinical trials of others for product candidates similar to ours, leading to a decision or
requirement to conduct additional preclinical testing or clinical trials or abandon a program;
product-related side effects experienced by patients in our clinical trials or by individuals using drugs or therapeutic biologicals similar to our
product candidates;
our third-party manufacturers’ inability to successfully manufacture our products or to meet regulatory specifications;
inability of any third-party contract manufacturer to scale up manufacturing of our product candidates and those of our collaborators to supply the
needs of clinical trials or commercial sales;
delays in submitting INDs or comparable foreign applications or delays or failures in obtaining the necessary approvals from regulators to
commence a clinical trial, or a suspension or termination of a clinical trial once commenced;
conditions imposed by the FDA, the European Medicines Agency, or EMA, or other applicable regulatory authorities regarding the scope or
design of our clinical trials;
delays in enrolling patients in our clinical trials;
high drop-out rates of our clinical trial patients;
inadequate supply or quality of product candidate components or materials or other supplies necessary for the conduct of our clinical trials;
inability to obtain alternative sources of supply for which we have a single source for product candidate components or materials;
greater than anticipated costs of our clinical trials;
• manufacturing costs, formulation issues, pricing or reimbursement issues or other factors that no longer make a product candidate economically
feasible;
•
•
•
•
•
•
harmful side effects or inability of our product candidates to meet efficacy endpoints during clinical trials;
failure to demonstrate a benefit-risk profile acceptable to the FDA, EMA or other applicable regulatory authorities;
unfavorable inspection and review by the FDA, EMA or other applicable regulatory authorities of one or more clinical trial sites or manufacturing
facilities used in the testing and manufacture of any of our product candidates;
failure of our third-party contractors or investigators to comply with regulatory requirements or otherwise meet their contractual obligations in a
timely manner, or at all;
delays and changes in regulatory requirements, policy, and guidelines, including the imposition of additional regulatory oversight around clinical
testing generally or with respect to our technology in particular; or
varying interpretations of our data by the FDA, EMA or other applicable regulatory authorities.
23
Table of Contents
We or our future partners’ inability to complete development of, or commercialize our product candidates, or significant delays in doing so due to one or
more of these factors, could have a material and adverse effect on our business, financial condition, results of operations, and prospects.
Further, cancer therapies are sometimes characterized as first-line, second-line, or third-line, and the FDA often approves new therapies initially only for
advanced cancers, i.e. third-line or beyond. When cancer is detected early enough, first-line therapy, usually chemotherapy, surgery, radiation therapy,
immunotherapy, hormone therapy, or a combination of these, is sometimes adequate to cure the cancer or prolong life without a cure. Second- and third-
line therapies are administered to patients when prior therapy is not effective. We expect our clinical trials for NL-201 will be with patients who have
received one or more prior treatments. Subsequently, for those of our products that prove to be sufficiently beneficial, if any, we would expect to seek
approval in earlier lines of therapy. Any product candidates we develop, even if approved, may not be successfully approved for earlier lines of therapy,
and, prior to any such approvals, we will likely have to conduct additional clinical trials, which are often very lengthy, expensive, and have a significant
risk of failure.
Our business is heavily dependent on the success of our Neoleukin platform and of our most advanced product candidate, NL-201. Existing and future
preclinical studies and clinical trials of these product candidates may not be successful, and if we are unable to commercialize these product candidates
or experience significant delays in doing so, our business will be materially harmed.
Our business is heavily dependent on our ability to obtain regulatory approval of and then successfully launch and commercialize our product candidates.
We have invested a significant portion of our efforts and financial resources in the development of our proprietary system of advanced computational
algorithms and methods for the design of functional de novo proteins, which we refer to as our Neoleukin platform, with an initial focus on key cytokine
mimetics, which we refer to as Neoleukin de novo cytokine mimetics. Our lead product candidate, NL-201, is a Neoleukin de novo protein derived from
our Neoleukin platform. However, NL-201 and our other product candidates are still in the preclinical or earlier stage. Our ability to generate commercial
product revenues, which we do not expect will occur for many years, if ever, will depend heavily on the successful development and eventual
commercialization of our lead product candidates. Our product candidates may not be successful in clinical trials or receive regulatory approval. Even if
they are successful in clinical trials, regulatory authorities may not complete their review in a timely manner, or additional delays may result if an FDA
Advisory Committee or other regulatory authority recommends non-approval or restrictions on approval. In addition, we may experience delays or
rejections based upon additional government regulation from future legislation or administrative action, or changes in regulatory authority policy during the
period of product development, clinical trials, and the review process. Regulatory authorities may approve a product candidate for targets, disease
indications or patient populations that are not as broad as we intended or desired, approve more limited indications than requested, or require distribution
restrictions or strong safety language, such as contraindications or boxed warnings. Regulatory authorities may also require Risk Evaluation and Mitigation
Strategies, or REMS, or the performance of costly post-marketing clinical trials. Even if we successfully obtain regulatory approvals to market our product
candidates, our revenues will be dependent, in part, upon the size of the markets in the territories for which we gain regulatory approval and have
commercial rights. If the markets for patient subsets that we are targeting are not as significant as we estimate, we may not generate significant revenues
from sales of such products, if approved.
We plan to seek regulatory approval to commercialize our product candidates both in the United States and in selected foreign countries. In order to market
and sell our product candidates in the European Union and many other jurisdictions, we must obtain separate marketing approvals and comply with
numerous and varying regulatory requirements. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions,
and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or
by the FDA. The approval procedure varies among countries and can involve additional testing. In addition, clinical trials conducted in one country may
not be accepted by regulatory authorities in other countries. The time required to obtain approval may differ substantially from that required to obtain FDA
approval. The regulatory approval process outside the United States generally includes all of the risks associated with obtaining FDA approval. In addition,
in many countries outside the United States, it is required that the product be approved for reimbursement before the product can be approved for sale in
that country. We may be required to expend significant resources to obtain regulatory approval, which may not be on a timely basis or successful at all, and
to comply with ongoing regulations in these jurisdictions.
The success of our Neoleukin platform, NL-201, and our other product candidates will depend on many factors, including the following:
•
•
•
successful completion of necessary preclinical studies to enable the initiation of clinical trials;
successful enrollment of patients in, and the completion of, our clinical trials;
obtaining adequate financing to perform the expensive clinical development programs anticipated for approval;
24
Table of Contents
•
•
•
•
•
•
•
•
receiving required regulatory authorizations for the development and approvals for the commercialization of our product candidates;
establishing and maintaining arrangements with third-party manufacturers;
obtaining and maintaining patent and trade secret protection and non-patent exclusivity for our product candidates and their components;
enforcing and defending our intellectual property rights and claims;
achieving desirable therapeutic properties for our product candidates’ intended indications;
launching commercial sales of our product candidates, if and when approved, whether alone or in collaboration with third parties;
acceptance of our product candidates, if and when approved, by patients, the medical community and third-party payors;
effectively competing with other therapies, including those that are currently in development; and
• maintaining an acceptable safety profile of our product candidates through clinical trials and following regulatory approval.
If we do not achieve any one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully
commercialize our product candidates, which would materially harm our business.
Our future clinical trials or those of any future collaborators may reveal significant adverse events not seen in our preclinical studies and may result in
a safety profile that could inhibit regulatory approval or market acceptance of any of our product candidates.
If significant adverse events or other side effects are observed in any of our clinical trials, we may have difficulty recruiting patients to our clinical trials,
patients may drop out of our trials, we may be required to pause, delay, or abandon the trials or our development efforts of one or more product candidates
altogether, we may be required to have more restrictive labeling, or we may experience the delay or denial of regulatory approval by the FDA, EMA or
other applicable regulatory authorities. We, the FDA, EMA or other applicable regulatory authorities, or an IRB may suspend clinical trials of a product
candidate at any time for various reasons, including a belief that subjects or patients in such trials are being exposed to unacceptable health risks or adverse
side effects. Some potential therapeutics developed in the biotechnology industry that initially showed therapeutic promise in early-stage trials have later
been found to cause side effects that prevented their further development. Even if the side effects do not preclude the product candidate from obtaining or
maintaining marketing approval, undesirable side effects may inhibit market acceptance of the approved product due to its tolerability versus other
therapies. We designed NL-201 to mimic the therapeutic activity of the cytokine interleukin-2, or IL-2, and interleukin-15, or IL-15, while limiting the
toxicity caused by the preferential binding of native IL-2 and native IL-15 to cells that co-express the alpha subunit, known as CD25. However, it is
possible NL-201 will demonstrate significant adverse events similar to, or in addition to, those associated with IL-2 and IL-15, such as vascular leak
syndrome, hypotension, impaired kidney and liver function, and mental status changes. Therapies involving cytokines have been known to cause side
effects such as neurotoxicity and cytokine release syndrome.
Further, de novo proteins are a new class of therapeutics that have not been previously tested in humans. De novo proteins can be substantially different
from all known proteins and as a result, it is unknown to what extent, if any, these de novo proteins will produce immunologic reactions in patients.
Immunologic reactions could substantially limit the effectiveness of the treatment, the duration of treatment, or represent safety risks.
Additionally, if any of our product candidates receives marketing approval, the FDA could require us to adopt a REMS to ensure that the benefits of the
product outweigh its risks, which may include, among other things, a Medication Guide outlining the risks of the product for distribution to patients and a
communication plan to health care practitioners. Furthermore, if we or others later identify undesirable side effects caused by any of our products, several
potentially significant negative consequences could result, including:
•
•
regulatory authorities may suspend or withdraw approvals of such product;
regulatory authorities may require additional warnings on the label of such product;
• we may be required to change the way such a product is administered or conduct additional clinical trials;
• we could be sued and held liable for harm caused to patients; and
25
Table of Contents
•
our reputation may suffer.
Any of these developments could materially harm our business, financial condition and prospects.
If we do not achieve our projected development goals in the timeframes we announce and expect, the commercialization of our products may be
delayed and, as a result, our stock price may decline.
From time to time, we estimate the timing of the anticipated accomplishment of various scientific, clinical, regulatory and other product development goals,
which we sometimes refer to as milestones. These milestones may include the commencement or completion of scientific studies and clinical trials and the
submission of regulatory filings. From time to time, we may publicly announce the expected timing of some of these milestones. All of these milestones are
and will be based on numerous assumptions. The actual timing of these milestones can vary dramatically compared to our estimates, in some cases for
reasons beyond our control. If we do not meet these milestones as publicly announced, or at all, the commercialization of our products may be delayed or
never achieved and, as a result, our stock price may decline.
Our approach to the discovery and development of our therapeutic treatments is based on novel de novo protein design technology that are unproven
and may not result in marketable products.
The success of our business depends primarily upon our ability to discover, develop, and commercialize a pipeline of product candidates using our
Neoleukin platform. Unlike traditional protein-based therapeutics that modify native proteins, our Neoleukin platform designs new proteins from the
ground up. Our platform uses advanced computational algorithms and methods to design functional de novo proteins that are hyper-stable, modifiable, and
are designed to optimize desired intermolecular interactions and eliminate undesirable interactions. While we believe this approach will enable us to
develop product candidates that may offer unique therapeutic benefits, the scientific basis of our efforts to develop product candidates using our Neoleukin
platform is ongoing and may not result in viable product candidates.
While we have had favorable preclinical study results related to precursors to NL-201, we are still in the early stages of product development of NL-201.
Our approach may be unsuccessful in moving NL-201 from preclinical studies into clinical development, discovering additional product candidates, and
NL-201 or any product candidates that we are currently developing may be shown to have harmful side effects or may have other characteristics that may
necessitate additional clinical testing or make the product candidates unmarketable or unlikely to receive marketing approval. If any of these events occur,
we may be forced to abandon our development efforts for a program or programs, which would have a material adverse effect on our business and could
potentially cause us to cease operations.
To date, we have not tested any of our product candidates in any clinical trials. We may ultimately discover that our Neoleukin platform and any product
candidates resulting therefrom do not possess certain properties required for therapeutic effectiveness. Our product candidates may also be unable to remain
stable in the human body for the period of time required for the drug to reach the target tissue, or they may trigger immune responses that inhibit the
activity of the product candidate or that cause adverse side effects in humans. We may spend substantial funds attempting to mitigate these properties and
may never succeed in doing so. In addition, product candidates based on our Neoleukin platform may demonstrate different chemical and pharmacological
properties in patients than they do in laboratory studies. Our Neoleukin platform and any product candidates resulting therefrom may not demonstrate the
same chemical and pharmacological properties in humans and may interact with human biological systems in unforeseen, ineffective, or harmful ways.
The regulatory approval process for novel product candidates such as ours can be more expensive and take longer than for other, better known or
extensively studied product candidates. Because the FDA has no prior experience with de novo proteins as therapeutics, we anticipate that this may
increase the complexity, uncertainty and length of the regulatory approval process for our product candidates. We or any future partners may be required to
perform additional or unanticipated clinical trials to obtain approval or be subject to post-marketing testing requirements to maintain regulatory approval. If
the products resulting from our Neoleukin platform and research programs prove to be ineffective, unsafe, or commercially unviable, our Neoleukin
Platform and pipeline would have little, if any, value, which would have a material and adverse effect on our business, financial condition, results of
operations, and prospects.
Preclinical and clinical development involve a lengthy and expensive process, with an uncertain outcome, and results of earlier studies and trials may
not be predictive of future trial results. We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the
development and commercialization of our current product candidates or any future product candidates.
All of our product candidates are in preclinical or earlier development and their risk of failure is high. It is impossible to predict when or if any of our
product candidates will receive regulatory approval. To obtain the requisite regulatory approvals to commercialize any product candidates, we must
demonstrate through extensive preclinical studies and lengthy, complex, and expensive clinical trials that our product candidates are safe and effective in
humans. Clinical testing can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial
process. The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the success of later-stage clinical
26
Table of Contents
trials. The design of a clinical trial can determine whether its results will support approval of a product and flaws in the design of a clinical trial may not
become apparent until the clinical trial is well advanced. We may be unable to establish clinical endpoints that applicable regulatory authorities would
consider clinically meaningful, and a clinical trial can fail at any stage of testing, and we have limited experience in designing clinical trials and may be
unable to design and execute a clinical trial to support marketing approval. Differences in trial design between early-stage clinical trials and later-stage
clinical trials make it difficult to extrapolate the results of earlier clinical trials to later clinical trials. Moreover, clinical data are often susceptible to varying
interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in clinical trials have nonetheless
failed to obtain marketing approval of their products. A number of companies in the biopharmaceutical industry have suffered significant setbacks in
advanced clinical trials due to lack of efficacy or to unfavorable safety profiles, notwithstanding promising results in earlier trials, and we could face
similar setbacks. There is typically a high rate of failure of product candidates proceeding through clinical trials. Most product candidates that commence
clinical trials are never approved as products and there can be no assurance that any of our future clinical trials will ultimately be successful or support
clinical development of our current or any of our future product candidates.
Commencement of our future clinical trials is subject to finalizing the trial design and receiving approval from the FDA to proceed with clinical testing or
similar approval from the FDA, EMA, or comparable foreign regulatory authorities. Even after we submit our IND or comparable submissions in other
jurisdictions, the FDA, EMA, or comparable foreign regulatory authorities could disagree that we have satisfied their requirements to commence our
clinical trials or disagree with our study design, which may require us to complete additional preclinical studies or amend our protocols or impose stricter
conditions on the commencement of clinical trials.
We may encounter substantial delays in the commencement or completion, or termination or suspension, of our clinical trials, which could result in
increased costs to us, delay or limit our ability to generate revenue and adversely affect our commercial prospects.
We or any collaborators may experience delays in initiating or completing clinical trials or may experience numerous unforeseen events during, or as a
result of, any future clinical trials that we could conduct that could delay or prevent our ability to receive marketing approval or commercialize NL-201 or
any future product candidates, including:
• we may be unable to generate sufficient preclinical, toxicology, or other in vivo or in vitro data to obtain regulatory authorizations to commence a
clinical trial;
• we may experience issues in reaching a consensus with regulatory authorities on trial design;
•
regulators or institutional review boards, or IRBs, ethics committees, FDA, EMA or other applicable regulatory authorities, may not authorize us
or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
• we may experience delays in reaching, or fail to reach, agreement on acceptable terms with prospective trial sites and prospective contract
research organizations, or CROs, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and
trial sites;
•
•
•
•
clinical trial sites may deviate from trial protocol or drop out of a trial;
clinical trials of any product candidates may fail to show safety or efficacy, produce negative or inconclusive results, and we may decide, or
regulators may require us, to conduct additional preclinical studies or clinical trials or we may decide to abandon product development programs;
the number of subjects required for clinical trials of any product candidates may be larger than we anticipate, enrollment in these clinical trials
may be slower than we anticipate, or subjects may drop out of these clinical trials or fail to return for post-treatment follow-up at a higher rate than
we anticipate;
our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all,
or may deviate from the clinical trial protocol or drop out of the trial, which may require that we add new clinical trial sites or investigators;
• we may elect to, or regulators, IRBs, or ethics committees may require that we or our investigators, suspend or terminate clinical research or trials
for various reasons, including noncompliance with regulatory requirements or a finding that the participants in our trials are being exposed to
unacceptable health risks;
•
the cost of clinical trials of any of our product candidates may be greater than we anticipate;
27
Table of Contents
•
the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient
or inadequate to initiate or complete a given clinical trial;
• we may be unable to obtain or manufacture sufficient quantities of our product candidates for use in clinical trials;
•
reports from clinical testing of other therapies may raise safety or efficacy concerns about our product candidates; and
• we may fail to establish an appropriate safety profile for a product candidate based on clinical or preclinical data for such product candidate as
well as data emerging from other molecules in the same class as our product candidate.
We could also encounter delays if a clinical trial is suspended or terminated by us, the IRBs of the institutions in which such trials are being conducted, or
the FDA, EMA or other regulatory authorities, or if a clinical trial is recommended for suspension or termination by the Data Safety Monitoring Board, or
the DSMB, for such trial. A suspension or termination may be imposed due to a number of factors, including failure to conduct the clinical trial in
accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA, EMA, or other
regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from
using a product or treatment, failure to establish or achieve clinically meaningful trial endpoints, changes in governmental regulations or administrative
actions or lack of adequate funding to continue the clinical trial. Clinical studies may also be delayed or terminated as a result of ambiguous or negative
interim results. Many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the
denial of regulatory approval of our product candidates. Further, the FDA, EMA, or other regulatory authorities may disagree with our clinical trial design
and our interpretation of data from clinical trials, or may change the requirements for approval even after they have reviewed and commented on the design
for our clinical trials.
Our product development costs will increase if we experience delays in clinical testing or obtaining marketing approvals. We do not know whether any of
our clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant clinical trial delays also could
shorten any periods during which we may have the exclusive right to commercialize our product candidates and may allow our competitors to bring
products to market before we do, potentially impairing our ability to successfully commercialize our product candidates and harming our business and
results of operations. Any delays in our clinical development programs may harm our business, financial condition, and results of operations significantly.
If we experience delays or difficulties in the enrollment of patients in clinical trials, our clinical development activities could be delayed or otherwise
adversely affected.
Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors including the size and nature of the patient population, the
number and location of clinical sites we enroll, the proximity of patients to clinical sites, the eligibility and exclusion criteria for the trial, the design of the
clinical trial, the inability to obtain and maintain patient consents, the risk that enrolled participants will drop out before completion, competing clinical
trials, and clinicians’ and patients’ perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies,
including any new drugs or therapeutic biologics that may be approved for the indications being investigated by us. Furthermore, we expect to rely on our
collaborators, CROs, and clinical trial sites to ensure the proper and timely conduct of our future clinical trials, including the patient enrollment process,
and we have limited influence over their performance. Additionally, we could encounter delays if treating physicians encounter unresolved ethical issues
associated with enrolling patients in future clinical trials of our product candidates in lieu of prescribing existing treatments that have established safety and
efficacy profiles.
Our inability to enroll a sufficient number of patients for our clinical trials would result in significant delays or might require us to abandon one or more
clinical trials altogether. Enrollment delays in our clinical trials may result in increased development costs for our product candidates, slow down or halt
our product candidate development and approval process and jeopardize our ability to seek and obtain the marketing approval required to commence
product sales and generate revenue, which would cause the value of our company to decline and limit our ability to obtain additional financing if needed.
Interim and preliminary or topline data from our clinical trials that we announce or publish from time to time may change as more patient data become
available and are subject to audit and verification procedures that could result in material changes in the final data.
From time to time, we may publish interim topline or preliminary data from our clinical trials. Interim data from clinical trials that we may complete are
subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available.
Preliminary or topline data also remain subject to audit and verification procedures that may result in the final data being materially different from the
preliminary or topline data we previously published. As a result, interim and preliminary data should be viewed with caution until the final data are
available.
28
Table of Contents
Adverse differences between interim or preliminary or topline data and final data could significantly harm our reputation and business prospects.
Failure to obtain regulatory approval in international jurisdictions would prevent any future product candidates from being marketed outside the
United States.
In order to market and sell our products in the European Union and other jurisdictions, we must obtain separate marketing approvals and comply with
numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to
obtain approval may differ substantially from that required to obtain FDA approval. The regulatory approval process outside the United States generally
includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the United States, it is required that the product be
approved for reimbursement before the product can be approved for sale in that country. Obtaining foreign regulatory approvals and compliance with
foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our products in
certain countries. We may not obtain approvals from regulatory authorities outside the United States on a timely basis, if at all. Approval by the FDA does
not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not
ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. A failure or delay in obtaining regulatory approval in one
country may have a negative effect on the regulatory approval process in others. We may not be able to file for marketing approvals and may not receive
necessary approvals to commercialize our products in any market. If we are unable to obtain approval of any of our future product candidates by regulatory
authorities in the European Union or another jurisdiction, the commercial prospects of that product candidate may be significantly diminished and our
business prospects could decline.
Recently enacted and future legislation, including potentially unfavorable pricing regulations or other healthcare reform initiatives, may increase the
difficulty and cost for us to obtain marketing approval of, and commercialization of, our future product candidates and affect the prices we may obtain.
The regulations that govern, among other things, marketing approvals, coverage, pricing and reimbursement for new drug products vary from country to
country. In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes
regarding the healthcare system that could prevent or delay marketing approval of our future product candidates, restrict or regulate post-approval activities
and affect our ability to successfully sell any product candidates for which we obtain marketing approval.
In the United States in recent years, Congress has considered reductions in Medicare reimbursement for drugs administered by physicians. The Centers for
Medicare and Medicaid Services, or CMS, the agency that administers the Medicare program, also has the authority to revise reimbursement rates and to
implement coverage restrictions for drugs. Cost reduction initiatives and changes in coverage implemented through legislation or regulation could decrease
utilization of, and reimbursement for, any approved products, which in turn could affect the price we can receive for those products. While Medicare
regulations apply only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in
establishing their own coverage polices and reimbursement rates. Therefore, any reduction in reimbursement that results from federal legislation or
regulation may result in a similar reduction in payments from private payors.
In March 2010, President Obama signed into law the Affordable Care Act in an effort to, among other things, broaden access to health insurance, reduce or
constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for healthcare and health
insurance industries, impose new taxes and fees on pharmaceutical and medical device manufacturers and impose additional health policy reforms. The
Affordable Care Act, among other things, also expanded manufacturers’ rebate liability to include covered drugs dispensed to individuals who are enrolled
in Medicaid managed care organizations, increased the minimum rebate due for innovator drugs from 15.1% of average manufacturer price, or AMP, to
23.1% of AMP and capped the total rebate amount for innovator drugs at 100% of AMP. The Affordable Care Act and subsequent legislation and
regulation also revised the definition of AMP for calculating and reporting Medicaid drug rebates on outpatient prescription drug prices. Furthermore, the
Affordable Care Act imposes a significant annual, nondeductible fee on companies that manufacture or import certain branded prescription drug products.
Substantial provisions affecting compliance were enacted, which may affect our business practices with healthcare practitioners, and a significant number
of provisions are not yet, or have only recently become, effective. Certain provisions of the Affordable Care Act have been subject to judicial and
Congressional challenges, as well as efforts by the Trump administration to repeal or replace certain aspects of the Affordable Care Act. Since January
2017, President Trump has signed two executive orders and other directives designed to delay, circumvent, or loosen certain requirements mandated by the
Affordable Care Act. Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the Affordable Care Act.
While Congress has not passed repeal legislation, the Tax Cuts and Jobs Act includes a provision repealing, effective January 1, 2019, the tax-based shared
responsibility payment imposed by the Affordable Care Act on certain individuals who fail to maintain qualifying health coverage for all or part of a year
that is commonly referred to as the “individual mandate”. The Affordable Care Act has also been subject to judicial challenge. In December 2018, a federal
district court judge, in a challenge brought by a number of state attorneys general, found the Affordable Care Act unconstitutional in its entirety. Pending
appeals, which could take some time,
29
Table of Contents
the Affordable Care Act is still operational in all respects. Congress may consider other legislation to repeal or replace elements of the Affordable Care Act.
Because of the continued uncertainty about the implementation of Affordable Care Act, including the potential for further legal challenges or repeal of
Affordable Care Act, we cannot quantify or predict with any certainty the likely impact of the Affordable Care Act or its repeal on our business, prospects,
financial condition or results of operations.
In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. On August 2, 2011, the President signed
into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congress
proposals in spending reductions. The Joint Select Committee did not achieve a targeted deficit reduction of at least $1.2 trillion for the years 2013 through
2021, triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to
providers of up to 2% per fiscal year that went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in
effect through 2029 unless additional Congressional action is taken. On January 2, 2013, President Obama signed into law the American Taxpayer Relief
Act of 2012, which, among other things, further reduced Medicare payments to several providers and increased the statute of limitations period for the
government to recover overpayments to providers from three to five years. These laws may result in additional reductions in Medicare and other healthcare
funding, which could have a material adverse effect on our customers and accordingly, our financial operations. Legislative and regulatory proposals have
been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. Furthermore, there has been
heightened governmental scrutiny recently over the manner in which manufacturers set prices for their marketed products. For example, there have been
several recent Congressional inquiries and proposed bills designed to, among other things, bring more transparency to drug pricing, review the relationship
between pricing and manufacturer’s patient programs, and reform government program reimbursement methodologies for drug products. We cannot be sure
whether additional legislative changes will be enacted, or whether existing regulations, guidance or interpretations will be changed, or what the impact of
such changes on the marketing approvals of our future product candidates, if any, may be.
In the United States, the European Union and other potentially significant markets for our future product candidates, government authorities and third-party
payors are increasingly attempting to limit or regulate the price of medical products and services, particularly for new and innovative products and
therapies, which has resulted in lower average selling prices. Furthermore, the increased emphasis on managed healthcare in the United States and on
country and regional coverage, pricing and reimbursement controls in the European Union will put additional pressure on product coverage, pricing,
reimbursement and utilization, which may adversely affect our business, results of operations, financial condition and cash flows and future prospects.
These pressures can arise from various sources, including but not limited to, rules and practices of managed care groups, judicial decisions and
governmental laws and regulations related to Medicare, Medicaid and healthcare reform, pharmaceutical reimbursement policies and pricing in general.
Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing
or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control
even after initial approval is granted. As a result, we might obtain marketing approval for a product candidate in a particular country, but then be subject to
price regulations that delay our commercial launch of the product, possibly for lengthy time periods, which could negatively impact the revenues we are
able to generate from the sale of the product in that particular country. Adverse pricing limitations may hinder our ability to recoup our investment in one or
more product candidates even if our product candidates obtain marketing approval.
Laws and regulations governing international operations may preclude us from developing, manufacturing and selling certain product candidates
outside of the United States and require us to develop and implement costly compliance programs.
As we expand our operations outside of the United States, we must comply with numerous laws and regulations in each jurisdiction in which we plan to
operate. We must also comply with U.S. laws applicable to the foreign operations of U.S. businesses and individuals, such as the Foreign Corrupt Practices
Act, or FCPA. The creation and implementation of international business practices compliance programs is costly and such programs are difficult to
enforce, particularly where reliance on third parties is required.
The FCPA prohibits any U.S. individual or business from paying, offering, authorizing payment or offering anything of value, directly or indirectly, to any
foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or
business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with certain
accounting provisions requiring us to maintain books and records that accurately and fairly reflect all transactions of the corporation, including
international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations. The anti-bribery
provisions of the FCPA are enforced primarily by the DOJ. The SEC is involved with enforcement of the books and records provisions of the FCPA.
30
Table of Contents
Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the FCPA presents
particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other hospital
employees are considered foreign officials. Certain payments to hospitals in connection with clinical trials and other work have been deemed to be
improper payments to government officials and have led to FCPA enforcement actions.
Various laws, regulations and executive orders also restrict the use and dissemination outside the United States, or the sharing with certain non-U.S.
nationals, of information classified for national security purposes, as well as certain products and technical data relating to those products. Our expanding
presence outside the United States will require us to dedicate additional resources to comply with these laws, and these laws may preclude us from
developing, manufacturing, or selling certain products and product candidates outside the United States, which could limit our growth potential and
increase our development costs.
The failure to comply with laws governing international business practices may result in substantial penalties, including suspension or debarment from
government contracting. Violation of the FCPA can result in significant civil and criminal penalties. Indictment alone under the FCPA can lead to
suspension of the right to do business with the U.S. government until the pending claims are resolved. Conviction of a violation of the FCPA can result in
long-term disqualification as a government contractor. The termination of a government contract or relationship as a result of our failure to satisfy any of
our obligations under laws governing international business practices would have a negative impact on our operations and harm our reputation and ability
to procure government contracts. The SEC also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s
accounting provisions.
Even if we are able to commercialize our future product candidates, the products may not receive coverage and adequate reimbursement from third-
party payors, which could harm our business.
Our ability to commercialize any products successfully will depend, in part, on the extent to which coverage and adequate reimbursement for these
products and related treatments will be available from government authorities, private health insurers, health maintenance organizations and third-party
payors. Patients who are prescribed medications for the treatment of their conditions generally rely on third-party payors to reimburse all or part of the
costs associated with their prescription drugs. Coverage and adequate reimbursement from government healthcare programs, such as Medicare and
Medicaid, and private health insurers are critical to new product acceptance. Patients are unlikely to use our future product candidates unless coverage is
provided and reimbursement is adequate to cover a significant portion of the cost of our product candidates. A primary trend in the U.S. healthcare industry
and elsewhere is cost containment. As a result, government authorities and other third-party payors have attempted to control costs by limiting coverage
and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that drug companies provide them with
predetermined discounts from list prices and are challenging the prices charged for medical products. Third-party payors may also seek additional clinical
evidence, beyond the data required to obtain marketing approval, demonstrating clinical benefits and value in specific patient populations before covering
our products for those patients. We cannot be sure that coverage and adequate reimbursement will be available for any product that we commercialize and,
if reimbursement is available, what that level of reimbursement will be. Coverage and reimbursement may impact the demand for, or the price of, any
product candidate for which we obtain marketing approval. If coverage and reimbursement are not available or are available only at limited levels, we may
not be able to successfully commercialize any product candidate for which we obtain marketing approval.
There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the purposes
for which the drug is approved by the FDA or comparable foreign regulatory authorities. Moreover, obtaining coverage does not imply that any drug will
be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sales and distribution. Interim reimbursement levels
for new drugs, if applicable, may also not be sufficient to cover our costs and may only be temporary. Reimbursement rates may vary according to the use
of the drug and the clinical setting in which it is used. Reimbursement rates may also be based in part on existing reimbursement amounts for lower cost
drugs or may be bundled into the payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by
government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they
may be sold at lower prices than in the United States. Coverage and reimbursement for drug products can differ significantly from payor to payor. As a
result, the coverage and reimbursement determination process is often a time-consuming and costly process with no assurance that coverage and adequate
reimbursement will be obtained or applied consistently. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting
their own coverage and reimbursement policies. Our inability to promptly obtain coverage and profitable reimbursement rates from both government-
funded and private payors for any approved products that we develop could have a material adverse effect on our operating results, our ability to raise
capital needed to commercialize products and our overall financial condition.
31
Table of Contents
We have never marketed a drug before. If we are able to identify and acquire a product candidate that is ultimately approved for sale but are unable to
establish an effective sales force and marketing infrastructure or enter into acceptable third-party sales and marketing or licensing arrangements, we
may be unable to generate any revenue.
We do not currently have an infrastructure for the sales, marketing and distribution of pharmaceutical drug products and the cost of establishing and
maintaining such an infrastructure may exceed the cost-effectiveness of doing so. While we do not currently have any product candidates in clinical
development, if we were able to identify and establish product candidates and advance them through clinical development, in order to market any products
that may ultimately be approved by the FDA and comparable foreign regulatory authorities, we must build our sales, marketing, managerial and other non-
technical capabilities or make arrangements with third parties to perform these services. If we are unable to establish adequate sales, marketing, and
distribution capabilities, whether independently or with third parties, we may not be able to generate product revenue and may not become profitable. We
will be competing with many companies that have extensive and well-funded sales and marketing operations. Without an internal commercial organization
or the support of a third party to perform sales and marketing functions, we may be unable to compete successfully against these more established
companies.
We may not be successful in our efforts to use our Neoleukin platform to expand our pipeline of product candidates and develop marketable products.
The success of our business depends in part upon our ability to discover, develop, and commercialize products based on our Neoleukin platform, which
may fail to identify other potential product candidates for clinical development for a number of reasons. Our research methodology may be unsuccessful in
identifying potential product candidates or our potential product candidates may be shown to have harmful side effects or may have other characteristics
that may make the products unmarketable or unlikely to receive marketing approval. If any of these events occur, we may be forced to abandon our
development efforts for a program or for multiple programs, which would materially harm our business and could potentially cause us to cease operations.
Research programs to identify new product candidates require substantial technical, financial, and human resources.
We may expend our limited resources to pursue a particular product candidate and fail to capitalize on product candidates that may be more profitable
or for which there is a greater likelihood of success.
Because we have limited financial and managerial resources, we focus our research and development efforts on our lead product candidate, NL-201, with
initial indications including renal cell carcinoma and melanoma. As a result, we may forgo or delay pursuit of opportunities with other product candidates
that later prove to have greater commercial potential. Due to the ongoing COVID-19 public health emergency, we are also utilizing a portion of our
research and computational bandwidth to investigate the potential application of our de novo protein technology toward COVID-19. Our resource
allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future
research and development programs and product candidates for specific indications may not yield any commercially viable product candidates. If we do not
accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate
through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development
and commercialization rights to such product candidate.
We face substantial competition, including companies developing novel treatments and technology platforms in oncology. If these companies develop
technologies or product candidates more rapidly than we do or their technologies are more effective, our ability to develop and successfully
commercialize product candidates may be adversely affected.
The development and commercialization of drugs is highly competitive. Our product candidates, if approved, will face significant competition and our
failure to effectively compete may prevent us from achieving significant market penetration. Most of our competitors have significantly greater resources
than we do and we may not be able to successfully compete. We compete with a variety of multinational biopharmaceutical companies, specialized
biotechnology companies, and emerging biotechnology companies, as well as with technologies and product candidates being developed at academic
institutions, governmental agencies, and other public and private research institutions. Our competitors have developed, are developing, or will develop
product candidates and processes competitive with our product candidates and processes. Competitive therapeutic treatments include those that have
already been approved and accepted by the medical community and any new treatments, including those based on novel technology platforms that enter the
market. We believe that a significant number of products are currently under development, and may become commercially available in the future, for the
treatment of conditions for which we are trying, or may try, to develop product candidates. There is intense and rapidly evolving competition in the
biotechnology, biopharmaceutical, and interleukin and immunoregulatory therapeutics fields. Competition from many sources exists or may arise in the
future. Our competitors include larger and better funded biopharmaceutical, biotechnological, and therapeutics companies, including companies focused on
oncology therapeutics, as well as numerous small companies. Moreover, we also compete with current and future therapeutics developed at universities and
other research institutions. Some
32
Table of Contents
of these companies are well-capitalized and, in contrast to us, have significant clinical experience, and may include our future partners. In addition, these
companies compete with us in recruiting scientific and managerial talent.
Our success will depend partially on our ability to develop and commercialize therapeutics that are safer and more effective than competing products. Our
commercial opportunity and success will be reduced or eliminated if competing products are safer, more effective, or less expensive than the therapeutics
we develop.
Our lead product candidate, NL-201, is under development for the treatment of advanced solid tumors, including melanoma and renal cell carcinoma. If
approved, it would face competition from approved advanced melanoma and renal cell carcinoma treatments, including multiple checkpoint inhibitors,
tyrosine kinase inhibitors, VEGF inhibitors, recombinant human IL-2, and several chemotherapy drugs or combinations. Further, we are aware of several
IL-2 or IL-15 agonists in various stages of clinical and preclinical development.
Many of our competitors have significantly greater financial, technical, manufacturing, marketing, sales, and supply resources or experience than we have.
If we successfully obtain approval for any product candidate, we will face competition based on many different factors, including the safety and
effectiveness of our products, the ease with which our products can be administered and the extent to which patients accept relatively new routes of
administration, the timing and scope of regulatory approvals for these products, the availability and cost of manufacturing, marketing and sales capabilities,
price, reimbursement coverage, and patent position. Competing products could present superior treatment alternatives, including by being more effective,
safer, less expensive, or marketed and sold more effectively than any products we may develop. Competitive products may make any products we develop
obsolete or noncompetitive before we recover the expense of developing and commercializing our product candidates. Such competitors could also recruit
our employees, which could negatively impact our level of expertise and our ability to execute our business plan.
We expect the product candidates we develop will be regulated as biological products, or biologics, and therefore they may be subject to competition
sooner than anticipated.
The Biologics Price Competition and Innovation Act of 2009, or the BPCIA, was enacted as part of the Affordable Care Act to establish an abbreviated
pathway for the approval of biosimilar biological products (both highly similar and interchangeable biosimilar biological products. The regulatory pathway
establishes legal authority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable”
based on its similarity to an approved biologic. Under the BPCIA, an application for a biosimilar product cannot be approved by the FDA until 12 years
after the first licensure date of the reference product licensed under a BLA. The law is complex and some provisions are still being interpreted and
implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty.
A biological product submitted for licensure under a BLA is eligible for a period of exclusivity that commences on the date of its licensure, unless its date
of licensure is not considered a date of first licensure because it falls within an exclusion under the PBCIA. There is a risk that this exclusivity could be
shortened due to congressional action or otherwise, potentially creating the opportunity for generic competition sooner than anticipated. Most states have
enacted substitution laws that permit substitution of only interchangeable biosimilars. The extent to which a highly similar biosimilar, once approved, will
be substituted for any one of the reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear,
and will depend on a number of marketplace and regulatory factors that are still developing.
Risks Related to Our Reliance on Third Parties
We expect to rely on third parties to conduct certain of our preclinical studies or clinical trials. If those third parties do not perform as contractually
required, fail to satisfy legal or regulatory requirements, miss expected deadlines or terminate the relationship, our development program could be
delayed with potentially material and adverse effects on our business, financial condition, results of operations, and prospects.
We intend to rely in the future on third-party clinical investigators, CROs, clinical data management organizations, and consultants to assist or provide the
design, conduct, supervision, and monitoring of preclinical studies and clinical trials of our product candidates. Because we intend to rely on these third
parties and will not have the ability to conduct all preclinical studies or clinical trials independently, we will have less control over the timing, quality, and
other aspects of preclinical studies and clinical trials than we would have had we conducted them on our own. These investigators, CROs, and consultants
will not be our employees, and we will have limited control over the amount of time and resources that they dedicate to our programs. These third parties
may have contractual relationships with other entities, some of which may be our competitors, which may draw time and resources from our programs. The
third parties with which we may contract might not be diligent, careful, or timely in conducting our preclinical studies or clinical trials, resulting in the
preclinical studies or clinical trials being delayed or unsuccessful.
If we cannot contract with acceptable third parties on commercially reasonable terms, or at all, or if these third parties do not carry out their contractual
duties, satisfy legal and regulatory requirements for the conduct of preclinical studies or clinical trials
33
Table of Contents
or meet expected deadlines, our clinical development programs could be delayed and otherwise adversely affected. In all events, we will be responsible for
ensuring that each of our preclinical studies and clinical trials are conducted in accordance with the general investigational plan and protocols for the trial
as well as applicable legal and regulatory requirements. The FDA generally requires preclinical studies to be conducted in accordance with Good
Laboratory Practices and clinical trials to be conducted in accordance with Good Clinical Practices, including for designing, conducting, recording, and
reporting the results of preclinical studies and clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity,
and confidentiality of clinical trial participants are protected. Our reliance on third parties that we do not control will not relieve us of these responsibilities
and requirements. Any adverse development or delay in our preclinical studies or clinical trials as a result of our reliance on third parties could have a
material and adverse effect on our business, financial condition, results of operations, and prospects.
If any of our relationships with these third-party CROs or others terminate, we may not be able to enter into arrangements with alternative CROs or other
third parties or to do so on commercially reasonable terms. Switching or adding additional CROs involves additional cost and requires management time
and focus. In addition, there is a natural transition period when a new CRO begins work. As a result, delays may occur, which can materially impact our
ability to meet our desired clinical development timelines.
We rely on third-party manufacturers and suppliers to supply components of our product candidates. The loss of our third-party manufacturers or
suppliers, or our or their failure to comply with applicable regulatory requirements or to supply sufficient quantities at acceptable quality levels or
prices, or at all, would materially and adversely affect our business.
We do not own or operate facilities for drug manufacturing, storage, distribution, or quality testing. We currently rely, and expect to continue to rely, on
third-party contract manufacturers to manufacture bulk drug substances, drug products, raw materials, samples, components, or other materials and reports,
and conduct fill-finish services. Reliance on third-party manufacturers may expose us to different risks than if we were to manufacture product candidates
ourselves. There can be no assurance that our preclinical and clinical development product supplies will not be limited, available at acceptable prices. In
particular, any replacement of our manufacturer could require significant effort and expertise because there may be a limited number of qualified
replacements.
The manufacturing process for a product candidate is subject to review by the FDA, EMA, or other applicable regulatory authorities. We, and our suppliers
and manufacturers, must meet applicable manufacturing requirements and undergo rigorous facility and process validation tests required by regulatory
authorities in order to comply with regulatory standards, such as current Good Manufacturing Practices, or cGMPs. Securing marketing approval also
requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the FDA and foreign
regulatory authorities. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory
requirements of the FDA, EMA or other applicable regulatory authorities, we may not be able to rely on their manufacturing facilities for the manufacture
of elements of our product candidates and approval may be delayed. Moreover, although we do not control the manufacturing process at our contract
manufacturers and are completely dependent on them for compliance with current regulatory requirements, we are responsible for ensuring that our
products comply with regulatory requirements. If any of our manufacturers fails to comply with such requirements or to perform its obligations in relation
to quality, timing or otherwise, or if our supply of components or other materials becomes limited or interrupted for other reasons, we may be forced to
enter into an agreement with another third party, which we may not be able to do on reasonable terms, if at all. In some cases, the technical skills or
technology required to manufacture our product candidates may be unique or proprietary to the original manufacturer and we may have difficulty
transferring such to another third party. These factors would increase our reliance on such manufacturer or require us to obtain a license from such
manufacturer in order to enable us, or to have another third party, manufacture our product candidates. If we are required to change manufacturers for any
reason, we will be required to verify that the new manufacturer maintains facilities and procedures that comply with quality standards and with all
applicable regulations and guidelines; and we may be required to repeat some of the development program. The delays associated with the verification of a
new manufacturer could negatively affect our ability to develop product candidates in a timely manner or within budget.
We expect to continue to rely on third-party manufacturers if we receive regulatory approval for any product candidate. To the extent that we have existing,
or enter into future, manufacturing arrangements with third parties, we will depend on these third parties to perform their obligations in a timely manner
consistent with contractual and regulatory requirements, including those related to quality control and assurance. Any manufacturing facilities used to
produce our products will be subject to periodic review and inspection by the FDA, EMA, or other applicable regulatory authorities, including for
continued compliance with cGMP requirements, quality control, quality assurance, and corresponding maintenance of records and documents. If we are
unable to obtain or maintain third-party manufacturing for product candidates, or to do so on commercially reasonable terms, we may not be able to
develop and commercialize our product candidates successfully. Our or a third party’s failure to execute on our manufacturing requirements, comply with
cGMPs, or maintain a compliance status acceptable to the FDA, EMA, or other applicable regulatory authorities could adversely affect our business in a
number of ways, including:
34
Table of Contents
•
•
•
•
•
•
an inability to initiate or continue clinical trials of product candidates under development;
delay in submitting regulatory applications, or receiving regulatory approvals, for product candidates;
loss of the cooperation of future collaborators;
subjecting third-party manufacturing facilities to additional inspections by regulatory authorities;
requirements to cease distribution or to recall batches of our product candidates; and
in the event of approval to market and commercialize a product candidate, an inability to meet commercial demands for our products.
Additionally, our contract manufacturers may experience manufacturing difficulties due to resource constraints or as a result of labor disputes or unstable
political environments. For example, in December 2019 the outbreak of COVID-19 originated in Wuhan, China, has since spread across the globe. To date,
this pandemic has resulted in extended shutdowns of businesses in the United States, Canada and many other countries and has had ripple effects to
businesses around the world. Global health concerns, such as COVID-19, could also result in adverse effects to our manufacturing operations. If our
contract manufacturers were to encounter any of these difficulties, our ability to provide our product candidates to patients in preclinical and clinical trials,
or to provide product for treatment of patients once approved, would be jeopardized.
Our third-party manufacturers may encounter difficulties in production. If we or any of our third-party manufacturers encounter such difficulties, our
ability to provide supply of our product candidates for clinical trials, our ability to obtain marketing approval, or our ability to provide supply of our
products for patients, if approved, could be delayed or stopped.
Our product candidates are biopharmaceuticals, and the process of manufacturing biopharmaceuticals is complex, time-consuming, highly regulated, and
subject to multiple risks. Our contract manufacturers must comply with legal requirements, cGMPs, and guidelines for the bulk manufacturing, fill-finish
services, packaging, and storage of biopharmaceuticals used in clinical trials and, if approved, marketed products. Our contract manufacturers may have
limited experience in the manufacturing of cGMP batches.
Manufacturing biopharmaceuticals is highly susceptible to product loss due to contamination, equipment failure, improper installation or operation of
equipment, vendor or operator error, inconsistency in yields, variability in product characteristics, and difficulties in scaling the production process. Even
minor deviations from normal manufacturing processes could result in reduced production yields, product defects, and other supply disruptions. If
microbial, viral, or other contaminations are discovered at our third-party manufacturers’ facilities, such facilities may need to be closed for an extended
period of time to investigate and remedy the contamination, which could delay clinical trials and adversely harm our business. Moreover, if the FDA
determines that our third-party manufacturers’ facilities are not in compliance with FDA laws and regulations, including those governing cGMPs, the FDA
may deny approval of our application until the deficiencies are corrected or we replace the manufacturer in our application with a manufacturer that is in
compliance.
In addition, there are risks associated with large scale manufacturing for clinical trials or commercial scale including, among others, cost overruns, potential
problems with process scale-up, process reproducibility, stability issues, compliance with cGMPs, lot consistency and timely availability of raw materials.
Even if we obtain regulatory approval for any of our product candidates, there is no assurance that manufacturers will be able to manufacture the approved
product, or provide fill-finish services, to specifications acceptable to the FDA, EMA, or other applicable regulatory authorities, to produce it in sufficient
quantities to meet the requirements for the potential launch of the product or to meet potential future demand. If our manufacturers are unable to produce
sufficient quantities for clinical trials or for commercialization, commercialization efforts would be impaired, which would have an adverse effect on our
business, financial condition, results of operations, and prospects.
Scaling up a biopharmaceutical manufacturing process is a difficult and uncertain task, and our third-party manufacturers may not have the necessary
capabilities to complete the implementation, manufacturing, and development process. If we are unable to adequately validate or scale-up the
manufacturing process at our current manufacturers’ facilities, we will need to transfer to another manufacturer and complete the manufacturing validation
process, which can be lengthy. If we are able to adequately validate and scale-up the manufacturing process for our product candidates with a contract
manufacturer, we will still need to negotiate with such contract manufacturer an agreement for commercial supply and it is not certain we will be able to
come to agreement on terms acceptable to us.
We cannot assure you that any stability or other issues relating to the manufacture of any of our product candidates or products will not occur in the future.
Our de novo protein product candidates may not demonstrate sufficient long-term stability to support a BLA filing or obtain approval, or the product shelf
life may be limited by stability results. Poor control of production processes can lead to the introduction of adventitious agents or other contaminants, or to
inadvertent changes in the properties
35
Table of Contents
or stability of our product candidates that may not be detectable in final product testing. If our third-party manufacturers were to encounter any of these
difficulties, our ability to provide any product candidates to patients in planned clinical trials and products to patients, once approved, would be
jeopardized. Any delay, interruption or other issues that arise in the manufacture, fill- finish, packaging, or storage of clinical trial supplies could delay the
completion of planned clinical trials, increase the costs associated with maintaining clinical trial programs and, depending upon the period of delay, require
us to commence new clinical trials at additional expense or terminate clinical trials completely. Any adverse development affecting clinical or commercial
manufacturing of our product candidates or products may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls, or
other interruptions in the supply of our product candidates or products. We may also have to take inventory write-offs and incur other charges and expenses
for product candidates or products that fail to meet specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives.
Accordingly, failures or difficulties faced at any level of our supply chain could adversely affect our business and delay or impede the development and
commercialization of any of our product candidates or products, if approved, and could have an adverse effect on our business, prospects, financial
condition, and results of operations.
As part of our process development efforts, we also may make changes to the manufacturing processes at various points during development, for various
reasons, such as controlling costs, achieving scale, decreasing processing time, increasing manufacturing success rate or other reasons. Such changes carry
the risk that they will not achieve their intended objectives, and any of these changes could cause our product candidates to perform differently and affect
the results of our ongoing clinical trials or future clinical trials. In some circumstances, changes in the manufacturing process may require us to perform ex
vivo comparability studies and to collect additional data from patients prior to undertaking more advanced clinical trials. For instance, changes in our
process during the course of clinical development may require us to show the comparability of the product used in earlier clinical phases or at earlier
portions of a trial to the product used in later clinical phases or later portions of the trial.
We may, in the future, seek to enter into collaborations with other third parties for the discovery, development and commercialization of our product
candidates. If our collaborators cease development efforts under our collaboration agreements, or if any of those agreements are terminated, these
collaborations may fail to lead to commercial products, and we may never receive milestone payments or future royalties under these agreements.
We expect a significant portion of our future revenue and cash resources to be derived from collaboration agreements or other similar agreements into
which we may enter in the future for research, development, and commercialization of other therapeutic technologies or product candidates.
Biopharmaceutical companies are our likely future collaborators for any marketing, distribution, development, licensing, or broader collaboration
arrangements. If we fail to enter into future collaborations on commercially reasonable terms, or at all, or such collaborations are not successful, we may
not be able to execute our strategy to develop certain targets, product candidates, or disease areas that we believe could benefit from the resources of either
larger biopharmaceutical companies or those specialized in a particular area of relevance.
Revenue from research and development collaborations depends upon continuation of the collaborations, payments for research and development services,
and resulting options to acquire any licenses of successful product candidates, and the achievement of milestones, contingent payments, and royalties, if
any, derived from future products developed from our research. If we are unable to successfully advance the development of our product candidates or
achieve milestones, revenue and cash resources from milestone payments under our collaboration agreements will be substantially less than expected.
With respect to future collaboration agreements, we expect to have limited control over the amount and timing of resources that our collaborators dedicate
to the development or commercialization of our product candidates. Moreover, our ability to generate revenues from these arrangements will depend on our
collaborators’ abilities to successfully perform the functions assigned to them in these arrangements.
Collaborations involving our product candidates may pose the following risks to us:
•
•
•
collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations;
collaborators may not pursue development and commercialization of our product candidates or may elect not to continue or renew development or
commercialization programs based on preclinical studies or clinical trial results, changes in the collaborators’ strategic focus or available funding,
or external factors such as an acquisition that diverts resources or creates competing priorities;
collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial, or abandon a product candidate,
repeat or conduct new clinical trials, or require a new formulation of a product candidate for clinical testing;
36
Table of Contents
•
•
•
•
•
•
collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our product candidates
if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are
more economically attractive than ours;
collaborators with marketing and distribution rights to one or more products may not commit sufficient resources to the marketing and distribution
of such product or products;
collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to
invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to litigation or potential
liability;
collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability;
disputes may arise between the collaborators and us that result in the delay or termination of the research, development or commercialization of
our product candidates or that result in costly litigation or arbitration that diverts management attention and resources; and
collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or
commercialization of the applicable product candidates.
As a result of the foregoing, our current and any future collaboration agreements may not lead to development or commercialization of our product
candidates in the most efficient manner or at all. If a collaborator of ours were to be involved in a business combination, the continued pursuit and emphasis
on our product development or commercialization program could be delayed, diminished or terminated. Any failure to successfully develop or
commercialize our product candidates pursuant to our current or any future collaboration agreements could have a material and adverse effect on our
business, financial condition, results of operations, and prospects.
Moreover, to the extent that any of our future collaborators were to terminate a collaboration agreement, we may be forced to independently develop these
product candidates, including funding preclinical studies or clinical trials, assuming marketing and distribution costs and defending intellectual property
rights, or, in certain instances, abandon product candidates altogether, any of which could result in a change to our business plan and have a material
adverse effect on our business, financial condition, results of operations, and prospects.
We may have conflicts with our collaborators that could delay or prevent the development or commercialization of our product candidates.
We may have conflicts with our collaborators, such as conflicts concerning the interpretation of preclinical or clinical data, the achievement of milestones,
the interpretation of contractual obligations, payments for services, development obligations or the ownership of intellectual property developed during our
collaboration. If any conflicts arise with any of our collaborators, such collaborator may act in a manner that is adverse to our best interests. Any such
disagreement could result in one or more of the following, each of which could delay or prevent the development or commercialization of our product
candidates, and in turn prevent us from generating revenues: unwillingness on the part of a collaborator to pay us milestone payments or royalties we
believe are due to us under a collaboration, which could require us to raise additional capital; uncertainty regarding ownership of intellectual property rights
arising from our collaborative activities, which could prevent us from entering into additional collaborations; unwillingness by the collaborator to cooperate
in the development or manufacture of the product, including providing us with product data or materials; unwillingness on the part of a collaborator to keep
us informed regarding the progress of its development and commercialization activities or to permit public disclosure of the results of those activities;
initiating of litigation or alternative dispute resolution options by either party to resolve the dispute; or attempts by either party to terminate the agreement.
We may not successfully engage in strategic transactions, including any additional collaborations we seek, which could adversely affect our ability to
develop and commercialize product candidates, impact our cash position, increase our expenses, and present significant distractions to our
management.
From time to time, we may consider strategic transactions, such as additional collaborations, acquisitions of companies, asset purchases, and out- or in-
licensing of product candidates or technologies that we believe will complement or augment our existing business. In particular, we will evaluate and, if
strategically attractive, seek to enter into additional collaborations, including with major biotechnology or biopharmaceutical companies. The competition
for collaborators is intense, and the negotiation process is time-consuming and complex. Any new collaboration may be on terms that are not optimal for
us, and we may not be able to maintain any new collaboration if, for example, development or approval of a product candidate is delayed,
37
Table of Contents
sales of an approved product candidate do not meet expectations or the collaborator terminates the collaboration. In addition, a significant number of recent
business combinations among large pharmaceutical companies has resulted in a reduced number of potential future strategic partners. Our collaborators
may consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration
could be more attractive than the one with us for our product candidate. Our ability to reach a definitive agreement for a collaboration will depend, among
other things, upon our assessment of the strategic partner’s resources and expertise, the terms and conditions of the proposed collaboration, and the
proposed strategic partner’s evaluation of a number of factors. These factors may include the design or results of clinical trials, the likelihood of approval
by the FDA, EMA, or other applicable regulatory authorities, the potential market for the subject product candidate, the costs and complexities of
manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our
ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge, and industry and market
conditions generally. Moreover, if we acquire assets with promising markets or technologies, we may not be able to realize the benefit of acquiring such
assets if we are not able to successfully integrate them with our existing technologies. We may encounter numerous difficulties in developing, testing,
manufacturing, and marketing any new products resulting from a strategic acquisition that delay or prevent us from realizing their expected benefits or
enhancing our business.
We cannot assure you that following any such collaboration, or other strategic transaction, we will achieve the expected synergies to justify the transaction.
For example, such transactions may require us to incur non-recurring or other charges, increase our near- and long-term expenditures and pose significant
integration or implementation challenges or disrupt our management or business. These transactions would entail numerous operational and financial risks,
including exposure to unknown liabilities, disruption of our business and diversion of our management’s time and attention in order to manage a
collaboration or develop acquired products, product candidates or technologies, incurrence of substantial debt or dilutive issuances of equity securities to
pay transaction consideration or costs, higher than expected collaboration, acquisition or integration costs, write-downs of assets or goodwill or impairment
charges, increased amortization expenses, difficulty, and cost in facilitating the collaboration or combining the operations and personnel of any acquired
business, impairment of relationships with key suppliers, manufacturers or customers of any acquired business due to changes in management and
ownership, and the inability to retain key employees of any acquired business.
Accordingly, although there can be no assurance that we will undertake or successfully complete any transactions of the nature described above, any
transactions that we do complete may be subject to the foregoing or other risks and would have a material and adverse effect on our business, financial
condition, results of operations, and prospects. Conversely, any failure to enter any additional collaboration or other strategic transaction that would be
beneficial to us could delay the development and potential commercialization of our product candidates and have a negative impact on the competitiveness
of any product candidate that reaches market.
Risks Related to Our Business and Operations
The outbreak of the novel strain of coronavirus, SARS-CoV-2, which causes COVID-19, could adversely impact our business, including our preclinical
development activities and planned clinical trials.
Public health crises such as pandemics or similar outbreaks could adversely impact our business. The outbreak of a novel strain of coronavirus, which
causes the disease called COVID-19, has evolved into a global pandemic. As a result of the COVID-19 pandemic, or similar pandemics, we may
experience disruptions that could severely impact our business, manufacturing, preclinical development activities, preclinical studies and planned clinical
trials, including:
•
•
•
•
•
delays or disruptions in preclinical development activities, including non-clinical experiments and investigational new drug application-enabling
good laboratory practice standard toxicology studies due to unforeseen circumstances in supply chain;
interruption or delays in the operations of the FDA and comparable foreign regulatory agencies, which may impact timelines for regulatory
submission, trial initiation and regulatory approval;
interruption or delays in our CROs and collaborators meeting expected deadlines or complying with regulatory requirements related to preclinical
development activities, preclinical studies and planned clinical trials;
interruptions of, or delays in receiving, supplies of our product candidates from our contract manufacturing organizations due to staffing shortages,
productions slowdowns, limited availability of raw materials, or stoppages and disruptions in delivery systems;
delays or difficulties in any planned clinical site initiation, including difficulties in obtaining IRB approvals, recruiting clinical site investigators
and clinical site staff;
38
Table of Contents
•
•
•
•
•
•
delays or difficulties in enrolling patients in clinical trials;
increased rates of patients withdrawing from any planned clinical trials following enrollment as a result of contracting COVID-19 or being forced
to quarantine;
diversion of healthcare resources away from the conduct of our preclinical development activities, preclinical studies and planned clinical trials,
including the diversion of hospitals serving as any potential clinical trial sites and hospital staff supporting the conduct of our planned clinical
trials;
interruption of planned key clinical trial activities, such as clinical trial site data monitoring, due to limitations on travel imposed or recommended
by federal or state governments, employers and others or interruption of clinical trial subject visits and study procedures (particularly any
procedures that may be deemed non-essential), which may impact the integrity of subject data and planned clinical study endpoints;
limitations on employee or collaborator resources that would otherwise be focused on the conduct of our preclinical development activities,
preclinical studies and planned clinical trials, including because of sickness of employees or their families, the desire of employees to avoid
contact with large groups of people, an increased reliance on working from home or mass transit disruptions; and
reduced ability to engage with the medical and investor communities due to the cancellation of conferences scheduled throughout the year.
These and other factors arising from the COVID-19 pandemic could worsen in countries afflicted with COVID-19, or could return to countries where the
pandemic has been partially contained, each of which could further adversely impact our ability to conduct preclinical development activities, preclinical
studies and planned clinical trials and our business generally, and could have a material adverse impact on our operations and financial condition and
results.
In addition, the trading prices for our common stock and other biopharmaceutical companies, as well as the broader equity and debt markets, have been
highly volatile as a result of the COVID-19 pandemic and the resulting impact on economic activity. As a result, we may face difficulties raising capital
when needed, and any such sales may be on unfavorable terms to us. Further, to the extent we raise additional capital through the sale of equity or
convertible debt securities, the ownership interest of existing stockholders will be diluted.
The extent to which the COVID-19 pandemic may impact our business, manufacturing, preclinical development activities, preclinical studies and planned
clinical trials and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic
spread of COVID-19, the duration of the pandemic, the potential for a second pandemic after it is contained, travel restrictions and actions to address the
pandemic or treat its impact, such as social distancing and quarantines or lock-downs in the United States and other countries, business closures or business
disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.
We will need to grow our organization, and we may experience difficulties in managing our growth and expanding our operations, which could
adversely affect our business.
As of December 31, 2020, we had approximately 70 full-time employees. As our development and commercialization plans and strategies develop, we
expect to expand our employee base for managerial, operational, financial and other resources. In addition, we have limited experience in product
development. As our product candidates enter and advance through preclinical studies and clinical trials, we will need to expand our development and
regulatory capabilities and contract with other organizations to provide manufacturing and other capabilities for us. In the future, we expect to have to
manage additional relationships with collaborators or partners, suppliers, and other organizations. Our ability to manage our operations and future growth
will require us to continue to improve our operational, financial, and management controls, reporting systems, and procedures. We may not be able to
implement improvements to our management information and control systems in an efficient or timely manner and may discover deficiencies in existing
systems and controls. Our inability to successfully manage our growth and expand our operations could have a material and adverse effect on our business,
financial condition, results of operations, and prospects.
Any inability to attract and retain qualified key management and technical personnel would impair our ability to implement our business plan.
Our success largely depends on the continued service of key management, advisors and other specialized personnel. We currently do not maintain key
person insurance on any of these individuals. The loss of one or more members of our management team or other key employees or advisors could delay
our research and development programs and have a material
39
Table of Contents
and adverse effect on our business, financial condition, results of operations, and prospects. The relationships that our key managers have cultivated within
our industry make us particularly dependent upon their continued employment with us. We are dependent on the continued service of our technical
personnel because of the highly technical nature of our product candidates and technologies related to our Neoleukin Platform, and the specialized nature of
the regulatory approval process. Because our management team and key employees are not obligated to provide us with continued service, they could
terminate their employment with us at any time without penalty.
Competition for skilled personnel in our market is intense and may limit our ability to hire and retain highly qualified personnel on acceptable terms or at
all. We also face competition for personnel from other companies, universities, public and private research institutions, government entities and other
organizations. Our future success will depend in large part on our continued ability to attract and retain other highly qualified scientific, technical and
management personnel, as well as personnel with expertise in clinical testing, manufacturing, governmental regulation, and commercialization. If we are
unable to continue to attract and retain high-quality personnel, the rate and success at which we can discover and develop product candidates will be limited
which could have a material and adverse effect on our business, financial condition, results of operations and prospects.
Our relationships with healthcare professionals, principal investigators, consultants, customers (actual and potential) and third-party payors are and
will be subject, directly and indirectly, to applicable anti-kickback, fraud and abuse, privacy, transparency and other healthcare laws and regulations,
which could expose us to penalties, including without limitation, civil, criminal and administrative sanctions, civil penalties, damages, fines,
disgorgement, individual imprisonment, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, integrity
obligations, contractual damages, reputational harm, administrative burdens and diminished profits and future earnings and the curtailment or
restructuring of our operations.
As a biopharmaceutical company, even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other
third-party payors, federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable to our
future arrangements with third-party payors and customers who are in a position to purchase, recommend and/or prescribe our product candidates for which
we obtain marketing approval. These broadly applicable fraud and abuse and other healthcare laws and regulations may constrain our future business or
financial arrangements and relationships with healthcare professionals, principal investigators, consultants, customers, and third-party payors and other
entities, including our marketing practices, educational programs and pricing policies. Restrictions under applicable federal and state healthcare laws and
regulations that may affect our ability to operate include, but are not limited to, the following:
•
•
the federal Anti-Kickback Statute, which, among other things, prohibits persons from knowingly and willfully soliciting, offering, receiving or
providing paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to
induce or reward, or in return for, either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility,
item or service, for which payment may be made, in whole or in part, under a federal healthcare program such as Medicare and Medicaid;
federal civil and criminal false claims laws, including the federal civil False Claims Act, and civil monetary penalty laws impose criminal and civil
penalties, including through civil whistleblower or qui tam actions, among other things, prohibits individuals or entities from knowingly
presenting, or causing to be presented, to the federal government, including the Medicare and Medicaid programs, claims for payment or approval
that are false or fraudulent or from knowingly making a false statement to improperly avoid, decrease or conceal an obligation to pay money to the
federal government;
• HIPAA, which, among other things, imposes criminal liability for knowingly and willfully executing, or attempting to execute, a scheme to
defraud any healthcare benefit program or to obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or
property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g. public or private) and
knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in
connection with the delivery of or payment for healthcare benefits, items or services relating to healthcare matters;
• HIPAA, as amended by HITECH, and its implementing regulations, which also imposes certain obligations, including mandatory contractual
terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information without the appropriate
authorization by entities subject to the law, such as health plans, healthcare clearinghouses and healthcare providers;
40
Table of Contents
•
•
the federal Physician Payments Sunshine Act and its implementing regulations, which requires certain manufacturers of drugs, devices, biologics
and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain
exceptions) to report annually to CMS, information related to “payments or other transfers of value” made to physicians (defined to include
doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, and applicable manufacturers and applicable group
purchasing organizations to report annually to CMS ownership and investment interests held by physicians (as defined above) and their immediate
family members and payments or other “transfers of value” to such physician owners and their immediate family members; and
analogous local, state and foreign laws and regulations, including: state anti-kickback and false claims laws which may apply to our business
practices, including, but not limited to, research, distribution, sales and marketing arrangements and claims involving healthcare items or services
reimbursed by state governmental and non-governmental third-party payors, including private insurers; state laws that require pharmaceutical
companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by
the federal government; local, state and foreign laws that require drug manufacturers to track gifts and other remuneration and items of value
provided to healthcare professionals and entities and file reports relating to pricing and marketing information and/or register their pharmaceutical
sales representatives; and local, state and foreign laws that govern the privacy and security of health information in specified circumstances, many
of which differ from each other in significant ways and often are not pre-empted by HIPAA, thus complicating compliance efforts.
Efforts to ensure that our internal operations and any business arrangements with third parties will comply with applicable healthcare laws and regulations
will involve substantial costs. Recent healthcare reform legislation has also strengthened these laws. For example, the Affordable Care Act, among other
things, amends the intent requirement of the federal Anti-Kickback Statute, such that a person or entity no longer needs to have actual knowledge of this
statute or specific intent to violate it in order to have committed a violation. In addition, the Affordable Care Act codified case law that a claim that
includes items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the federal
civil False Claims Act. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes,
regulations, agency guidance, or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in
violation of any of these laws or any other governmental laws and regulations that may apply to us, we may be subject to penalties, including without
limitation, significant civil, criminal and administrative penalties, damages, fines, disgorgement, individual imprisonment, exclusion from government
funded healthcare programs, such as Medicare and Medicaid, integrity obligations, contractual damages, reputational harm, administrative burdens and
diminished profits and future earnings, and the curtailment or restructuring of our operations. If any physicians or other healthcare providers or entities with
whom we expect to do business are found to not be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions,
including exclusions from government funded healthcare programs. Moreover, we expect there will continue to be federal, state, local and foreign laws and
regulations, proposed and implemented, that could impact our operations and business. The extent to which future legislation or regulations, if any, relating
to healthcare fraud abuse laws or enforcement, may be enacted or what effect such legislation or regulation would have on our business remains uncertain.
We may form strategic alliances in the future, and we may not realize the benefits of such alliances.
We may form strategic alliances, create joint ventures or collaborations or enter into licensing arrangements with third parties that we believe will
complement or augment our existing business. These relationships or those like them may require us to incur non-recurring and other charges, increase our
near- and long-term expenditures, issue securities that dilute our stockholders or disrupt our management and business. In addition, we face significant
competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex. Moreover, we may not be successful in
our efforts to establish a strategic partnership or other alternative arrangements for any future drug candidates and programs because our research and
development pipeline may be insufficient, our drug candidates and programs may be deemed to be at too early a stage of development for collaborative
effort and third parties may not view our drug candidates and programs as having the requisite potential to demonstrate safety and efficacy. If we license
products or businesses, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing
operations and company culture. We cannot be certain that, following a strategic transaction or license, we will achieve the revenues or specific net income
that justifies such transaction. Any delays in entering into new strategic partnership agreements related to our drug candidates could also delay the
development and commercialization of our drug candidates and reduce their competitiveness even if they reach the market.
41
Table of Contents
Our employees, independent contractors, principal investigators, CROs, consultants, vendors and collaboration partners may engage in misconduct or
other improper activities, including noncompliance with regulatory standards and requirements, which could cause significant liability for us and
harm our reputation.
We are exposed to the risk of fraud or other misconduct by our employees, independent contractors, principal investigators, CROs, consultants, vendors and
collaboration partners, including intentional failures to comply with FDA regulations or similar regulations of comparable foreign regulatory authorities,
provide accurate information to the FDA or comparable foreign regulatory authorities, comply with manufacturing standards we have established, comply
with federal and state data privacy and security, fraud and abuse and other healthcare laws and regulations and similar laws and regulations established and
enforced by comparable foreign regulatory authorities, report financial information or data accurately or disclose unauthorized activities to us. Specifically,
sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct,
kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and
promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use or
misrepresentation of information obtained in the course of clinical trials or creating fraudulent data in our pre-clinical studies or clinical trials, which could
result in regulatory sanctions and cause serious harm to our reputation. We have adopted a code of conduct for our directors, officers and employees, but it
is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity
may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits
stemming from a failure to be in compliance with such laws or regulations. Additionally, we are subject to the risk that a person or government could allege
such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or
asserting our rights, those actions could have a significant impact on our business, results of operations, financial condition and cash flows from future
prospects, including the imposition of significant fines or other sanctions.
Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any products that we may develop.
We will face an inherent risk of product liability exposure related to the testing of our product candidates in clinical trials and will face an even greater risk
if we commercialize any of our product candidates. If we cannot successfully defend ourselves against claims that our product candidates caused injuries,
we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
•
•
decreased demand for any product candidates that we may develop;
injury to our reputation and significant negative media attention;
• withdrawal of clinical trial participants;
•
•
•
•
significant time and costs to defend the related litigation;
substantial monetary awards to trial participants or patients;
loss of revenue; and
the inability to commercialize any product candidates that we may develop.
We currently maintain product liability insurance coverage for our trials, but the amount may not be adequate to cover all liabilities that we may incur. We
anticipate that we will need to increase our insurance coverage for each new clinical trial we begin and if we successfully commercialize any product
candidate. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate
to satisfy any liability that may arise.
We may engage in future acquisitions that could disrupt our business, cause dilution to our stockholders and harm our business, results of operations,
financial condition and cash flows and future prospects.
We may, in the future, make acquisitions of, or investments in, companies that we believe have products or capabilities that are a strategic or commercial fit
with our future product candidates and business or otherwise offer opportunities for our company. In connection with these acquisitions or investments, we
may:
•
•
•
issue stock that would dilute our stockholders’ percentage of ownership;
incur debt and assume liabilities; and
incur amortization expenses related to intangible assets or incur large and immediate write-offs.
42
Table of Contents
We may not be able to complete acquisitions on favorable terms, if at all. If we do complete an acquisition, we cannot assure you that it will ultimately
strengthen our competitive position or that it will be viewed positively by customers, financial markets or investors. Furthermore, future acquisitions could
pose numerous additional risks to our operations, including:
•
•
•
•
•
•
•
problems integrating the purchased business, products or technologies;
increases to our expenses;
the failure to discover undisclosed liabilities of the acquired asset or company;
diversion of management’s attention from their day-to-day responsibilities;
harm to our operating results or financial condition;
entrance into markets in which we have limited or no prior experience; and
potential loss of key employees, particularly those of the acquired entity.
We may not be able to complete any acquisitions or effectively integrate the operations, products or personnel gained through any such acquisition.
Our ability to use our U.S. net operating losses to offset future taxable income will be subject to Section 382 limitations and may be limited by other
factors.
As of December 31, 2020, we had U.S. net operating losses, or NOLs, of $58.1 million, for Federal tax purposes, for which we have recorded a full
valuation allowance and R&D credit carryovers of $1.0 million, which may be offset by future taxable income. These NOLs and tax credit carryforwards
will expire in various years beginning in 2028, if not utilized. Unused losses incurred in taxable years beginning on or prior to December 31, 2017 will
carry forward to offset future taxable income, if any, until such unused losses expire. Under the Tax Cuts and Jobs Act, as modified by the CARES Act,
unused U.S. federal NOLs generated in tax years beginning after December 31, 2017, will not expire and may be carried forward indefinitely but the
deductibility of such federal NOLs (particularly those generated in taxable years beginning after December 31, 2020) in taxable years beginning after
December 31, 2020, is limited to 80% of current year taxable income. It is uncertain if and to what extent various states will conform to the Tax Cuts and
Jobs Act or the CARES Act. Utilization of the NOLs will be subject to an annual limitation due to historical or future ownership changes rules pursuant to
Sections 382 and 383 of the Internal Revenue Code, or the Code. In addition, if we have experienced an ownership change in the past or will experience an
ownership change as a result of future changes in our stock ownership, some of which changes are outside of our control, the tax benefits related to the
NOLs may be limited or lost. Any such disallowances may result in greater tax liabilities than we would incur in the absence of such a limitation and any
increased liabilities could adversely affect our business, results of operations, financial condition, cash flow and future prospects. As a result, even if we
attain profitability, we may be unable to use all or a material portion of our NOLs and other tax attributes, which could adversely affect our future cash
flows.
Risks Related to Intellectual Property
If we are not able to obtain, maintain, and enforce patent protection for our product candidates, our Neoleukin platform technology, or other
proprietary technologies we may develop, development and commercialization of our product candidates may be adversely affected.
Our success depends in part on our ability to obtain and maintain patents and other forms of intellectual property rights, including in-licenses of intellectual
property rights of others, for our product candidates, as well as our ability to preserve our trade secrets, to prevent third parties from infringing upon our
proprietary rights and to operate without infringing upon the proprietary rights of others. Under our License Agreement with the University of Washington,
dated July 8, 2019, as amended on October 29, 2020, effective July 24, 2020, we have an exclusive license to develop and commercialize products covered
by patent applications with claims covering the composition of matter of key molecule families as well as methods of using the computational algorithms
that form the basis of the Neoleukin platform. However, we may not be able to apply for patents on certain aspects of our product candidates in a timely
fashion or at all. Further, we may not be able to prosecute all necessary or desirable patent applications, or maintain, enforce, and license any patents that
may issue from such patent applications, at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our
research and development output before it is too late to obtain patent protection. We may not have the right to control the preparation, filing, and
prosecution of all patent applications that we license from third parties, or to maintain the rights to patents licensed to third parties. Therefore, these patents
and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. Future patents we obtain may not be
sufficiently broad to prevent others from using our technology or from developing competing products and technology. There is no guarantee that any of
our pending patent applications will result in issued or granted patents, that any of our future issued or granted patents will not later be found to be invalid
or unenforceable or that any future issued or granted patents will include claims that are sufficiently broad to cover our product
43
Table of Contents
candidates or to provide meaningful protection from our competitors. Moreover, the patent position of biotechnology and biopharmaceutical companies can
be highly uncertain because it involves complex legal and factual questions. We will be able to protect our proprietary rights from unauthorized use by third
parties only to the extent that our current and future proprietary technology and product candidates are covered by valid and enforceable patents or are
effectively maintained as trade secrets. If third parties disclose or misappropriate our proprietary rights, it may materially and adversely affect our position
in the market.
Our pending patent applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent
issues from such applications. Assuming the other requirements for patentability are met, currently, the first to file a patent application is generally entitled
to the patent. However, prior to March 16, 2013, in the United States, the first to invent was entitled to the patent. Publications of discoveries in the
scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published
until 18 months after filing, or in some cases not at all. Therefore, we cannot be certain that we were the first to make the inventions claimed in our pending
patent applications, or that we were the first to file for patent protection of such inventions.
The U.S. Patent and Trademark Office, or USPTO, and various foreign governmental patent agencies require compliance with a large number of
procedural, documentary, fee payment and other provisions during the patent process. There are situations in which noncompliance can result in
abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event,
competitors might be able to enter the market earlier than would otherwise have been the case. The standards applied by the USPTO and foreign patent
offices in granting patents are not always applied uniformly or predictably. For example, there is no uniform worldwide policy regarding patentable subject
matter or the scope of claims allowable in biotechnology and biopharmaceutical patents. As such, we do not know the degree of future protection that we
will have on our proprietary products and technology. The process of obtaining patents is time consuming, expensive and sometimes unpredictable.
Once granted, for a given period after allowance or grant patents may remain open to opposition, interference, re-examination, post-grant review, inter
partes review, nullification, or derivation action in court or before patent offices or similar proceedings, during which time third parties can raise objections
against such initial grant. Such proceedings may continue for a protracted period of time and an adverse determination in any such proceedings could
reduce the scope of the allowed or granted claims thus attacked, or could result in our patents being invalidated in whole or in part, or being held
unenforceable, which could allow third parties to commercialize our product candidates and compete directly with us without payment to us. In addition,
there can be no assurance that:
•
others will not or may not be able to make, use or sell compounds that are the same as or similar to our product candidates but that are not covered
by the claims of the patents that we own or license;
• we or our licensors, or our future collaborators are the first to make the inventions covered by each of our issued patents and pending patent
applications that we own or license;
• we or our licensors, or our future collaborators are the first to file patent applications covering certain aspects of our inventions;
•
•
•
others will not independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual
property rights;
a third party may not challenge our patents and, if challenged, a court would hold that our patents are valid, enforceable and infringed;
any issued patents that we own or have licensed or that we may license in the future will provide us with any competitive advantages, or will not
be challenged by third parties;
• we may develop additional proprietary technologies that are patentable;
•
•
the patents of others will not have a material or adverse effect on our business, financial condition, results of operations, and prospects; and
our competitors do not conduct research and development activities in countries where we do not have enforceable patent rights and then use the
information learned from such activities to develop competitive products for sale in our major commercial markets.
44
Table of Contents
If we or our licensors or collaborators fail to maintain patent applications and later-issued patents covering our product candidates, our competitors might
be able to enter the market, which could have a material and adverse effect on our business, financial condition, results of operations, and prospects. In
addition, if the breadth or strength of protection provided by our patent applications and later-issued patents is threatened, regardless of the outcome, it
could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates.
We could be required to incur significant expenses to strengthen our intellectual property rights, and our intellectual property rights may be inadequate
to protect our competitive position.
The patent prosecution process is expensive and time-consuming, and we or our future potential licensors may not be able to file and prosecute all
necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we or our future potential licensors will fail to
identify patentable aspects of inventions made in the course of our development and commercialization activities before it is too late to obtain patent
protection on them. Further, given the amount of time required for the development, testing and regulatory review of new product candidates, patents
protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our owned and licensed patent portfolio
may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours. We expect to seek extensions of
patent terms in the United States and, if available, in other countries where we are prosecuting patents. In the United States, the Drug Price Competition
and Patent Term Restoration Act of 1984 permits a patent term extension of up to five years beyond the expiration of the patent. However, the applicable
authorities, including the FDA in the United States, and any equivalent regulatory authority in other countries, may not agree with our assessment of
whether such extensions are available, and may refuse to grant extensions to our patents, or may grant more limited extensions than we request. If this
occurs, our competitors may be able to take advantage of our investment in development and clinical trials by referencing our clinical and preclinical data
and launch their product earlier than might otherwise be the case. Changes in either the patent laws or interpretation of the patent laws in the United States
and other countries may diminish the value of our patents or narrow the scope of our patent protection. The laws of foreign countries may not protect our
rights to the same extent as the laws of the United States, and these foreign laws may also be subject to change. For example, methods of treatment and
manufacturing processes may not be patentable in certain jurisdictions. Publications of discoveries in the scientific literature often lag behind the actual
discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing or in some cases not
at all. Therefore, we cannot be certain that we or our licensors were the first to make the inventions claimed in our owned or licensed patents or pending
patent applications, or that we or our licensors were the first to file for patent protection of such inventions.
Our patent applications and the enforcement or defense of our issued patents may be impacted by the application of or changes in U.S. and foreign
standards.
The standards that the USPTO and foreign patent offices use to grant patents are not always applied predictably or uniformly and can change.
Consequently, our pending patent applications may not be allowed and, if allowed, may not contain the type and extent of patent claims that will be
adequate to conduct our business as planned. Additionally, any issued patents we currently own or obtain in the future may have a shorter patent term than
expected or may not contain claims that will permit us to stop competitors from using our technology or similar technology or from copying our product
candidates. Similarly, the standards that courts use to interpret patents are not always applied predictably or uniformly and may evolve, particularly as new
technologies develop. In addition, changes to patent laws in the United States or other countries may be applied retroactively to affect the validation
enforceability, or term of our patent. For example, the U.S. Supreme Court has recently modified some legal standards applied by the USPTO in
examination of U.S. patent applications, which may decrease the likelihood that we will be able to obtain patents and may increase the likelihood of
challenges to patents we obtain or license. In addition, changes to the U.S. patent system have come into force under the Leahy-Smith America Invents Act,
or the Leahy-Smith Act, which was signed into law in September 2011. The Leahy-Smith Act included a number of significant changes to U.S. patent law.
These include provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. In particular, under the Leahy-
Smith Act, the United States transitioned in March 2013 to a “first to file” system in which the first inventor to file a patent application will be entitled to
the patent. Third parties are allowed to submit prior art before the issuance of a patent by the USPTO, and may become involved in opposition, derivation,
reexamination, inter-partes review or interference proceedings challenging our patent rights or the patent rights of others. An adverse determination in any
such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, which could adversely affect our competitive position.
While we cannot predict with certainty the impact the Leahy-Smith Act or any potential future changes to the U.S. or foreign patent systems will have on
the operation of our business, the Leahy-Smith Act and such future changes could increase the uncertainties and costs surrounding the prosecution of our
patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business, results of
operations, financial condition and cash flows and future prospects.
45
Table of Contents
Obtaining and maintaining any patent protection we may receive will depend on compliance with various procedural, document submissions, fee
payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-
compliance with these requirements.
Periodic maintenance and annuity fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime
of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment
and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by
other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent
application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or
lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees
and failure to properly legalize and submit formal documents. If we or our future potential licensors fail to maintain the patents and patent applications
covering our future product candidates, our competitive position would be adversely affected.
We may be subject to claims by third parties claiming ownership of what we regard as our own intellectual property.
Many of our employees, including our senior management, were previously employed at universities or at other biotechnology or biopharmaceutical
companies, including our competitors or potential competitors. Some of these employees, including members of our senior management, executed
proprietary rights, non-disclosure and non-competition agreements, in connection with such previous employment. Although we try to ensure that our
employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we, or these employees,
have used or disclosed confidential information or intellectual property, including trade secrets or other proprietary information, of any such employee’s
former employer. We are not aware of any threatened or pending claims related to these matters or concerning the agreements with our senior management,
but in the future litigation may be necessary to defend against such claims. In addition, third parties may from time to time make claims over what we
regard as our intellectual property, or we may get into disputes with licensors or licensees of our intellectual property rights over the interpretation of the
license terms. Our licensors may have the right to terminate their license agreements with us or pursue damages or other legal remedies. If we fail in
defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel or sustain damages.
Such intellectual property rights could be awarded to a third party, and we could be required to obtain a license from such third party to commercialize our
technology or products. Such a license may not be available on commercially reasonable terms or at all. Even if we are successful in defending against such
claims, litigation could result in substantial costs and be a distraction to management.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
In addition to seeking patents for some of our technology and products, we also rely on trade secrets, including unpatented know-how, technology and other
proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure and
confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract
manufacturing organizations, consultants, advisors and other third parties. We also generally enter into confidentiality and invention or patent assignment
agreements with our employees and consultants. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary
information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally
disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts both
within and outside the United States may be less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or
independently developed by a competitor, we would have no right to prevent such competitor from using that technology or information to compete with
us, which could harm our competitive position.
Although we expect all of our employees to assign their inventions to us, and all of our employees, consultants, advisors and any third parties who have
access to our proprietary know-how, information or technology to enter into confidentiality agreements, we cannot provide any assurances that all such
agreements have been duly executed or that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will
not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Additionally, if the steps taken
to maintain our trade secrets are deemed inadequate, we may have insufficient recourse against third parties for misappropriating the trade secret. In
addition, others may independently discover our trade secrets and proprietary information. For example, the FDA, as part of its Transparency Initiative, is
currently considering whether to make additional information publicly available on a routine basis, including information that we may consider to be trade
secrets or other proprietary information, and it is not currently clear how the FDA’s disclosure policies may change in the future, if at all.
46
Table of Contents
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on our product candidates throughout the world would be prohibitively expensive. In addition, the laws of some
foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we and our
licensors or future collaborators may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from
selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in
jurisdictions where we have not obtained patent protection to develop their own products and may export otherwise infringing products to territories where
we have patent protection, but where enforcement is not as strong as that in the United States. These products may compete with our products in
jurisdictions where we do not have any issued patents and our patent claims or other intellectual property rights may not be effective or sufficient to prevent
them from so competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems
of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly
those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in
violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our
efforts and attention from other aspects of our business. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if
any, may not be commercially meaningful.
The requirements for patentability may differ in certain countries, particularly developing countries. For example, unlike other countries, China has a
heightened requirement for patentability, and specifically requires a detailed description of medical uses of a claimed drug. In India, unlike the United
States, there is no link between regulatory approval of a drug and its patent status. Furthermore, generic or biosimilar drug manufacturers or other
competitors may challenge the scope, validity or enforceability of our or our licensors’ or collaborators’ patents, requiring us or our licensors or
collaborators to engage in complex, lengthy and costly litigation or other proceedings. Generic or biosimilar drug manufacturers may develop, seek
approval for, and launch biosimilar versions of our products. In addition to India, certain countries in Europe and developing countries, including China,
have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In those countries, we and our licensors or
collaborators may have limited remedies if patents are infringed or if we or our licensors or collaborators are compelled to grant a license to a third party,
which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our and our licensors’ or
collaborators’ efforts to enforce intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the
intellectual property that we own or license.
Intellectual property rights do not necessarily address all potential threats to any competitive advantage we may have.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not
adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:
• Others may be able to make compounds that are the same as or similar to our future product candidates but that are not covered by the claims of
the patents that we own or have exclusively licensed.
• We or any of our licensors or strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent
application that we own or have exclusively licensed.
• We or any of our licensors or strategic partners might not have been the first to file patent applications covering certain of our inventions.
• Others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual
property rights.
It is possible that our pending patent applications will not lead to issued patents.
Issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or
unenforceable, as a result of legal challenges by our competitors.
•
•
• Our competitors might conduct research and development activities in the United States and other countries that provide a safe harbor from patent
infringement claims for certain research and development activities, as well as in countries where we do not have patent rights and then use the
information learned from such activities to develop competitive products for sale in our major commercial markets.
47
Table of Contents
• We may not develop additional proprietary technologies that are patentable.
•
The patents of others may have an adverse effect on our business.
Risks Related to Ownership of Our Common Stock
Our stock price has been and will likely continue to be volatile and may decline regardless of our operating performance, resulting in substantial losses
for investors.
The trading price of our common stock has been, and is likely to continue to be, volatile for the foreseeable future. The trading price of our common stock
could be subject to wide fluctuations in response to various factors, some of which are beyond our control. In addition to the factors discussed in this “Risk
Factors” section and elsewhere in this report, these factors include:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the success of competitive products or technologies;
regulatory actions with respect to our products or our competitors’ products;
actual or anticipated changes in our growth rate relative to our competitors;
announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations or capital commitments;
results of clinical trials, including both safety and efficacy, of any of our future product candidates or those of our competitors;
regulatory or legal developments in the United States and other countries;
developments or disputes concerning patent applications, issued patents or other proprietary rights;
the recruitment or departure of key personnel;
the level of expenses related to any of our future product candidates or clinical development programs;
the results of our efforts to in-license or acquire additional product candidates or products;
actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;
variations in our financial results or those of companies that are perceived to be similar to us;
fluctuations in the valuation of companies perceived by investors to be comparable to us;
share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;
announcement or expectation of additional financing efforts;
sales of our common stock by us, our insiders or our other stockholders;
changes in the structure of healthcare payment systems;
• market conditions in the pharmaceutical and biotechnology sectors; and
•
general economic, industry and market conditions, including market volatility and economic uncertainty related to the COVID-19 pandemic.
In addition, the stock market in general, and pharmaceutical and biotechnology companies in particular, have experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may
negatively affect the market price of our common stock, regardless of our actual operating performance. The realization of any of these risks or any of a
broad range of other risks, including those described in this “Risk Factors” section and elsewhere in this report, could have a dramatic and material adverse
impact on the market price of our common stock.
48
Table of Contents
Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even
if an acquisition would be beneficial to our stockholders and may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our amended and restated certificate of incorporation, or certificate of incorporation, and amended and restated bylaws, or bylaws, as well as
provisions of Delaware law, could make it more difficult for a third party to acquire us or increase the cost of acquiring us, even if doing so would benefit
our stockholders, or remove our current management. These include provisions that:
•
•
•
•
•
•
permit our board of directors to issue up to 5,000,000 shares of preferred stock, with any rights, preferences and privileges as they may designate;
provide that all vacancies on our board of directors, including as a result of newly created directorships, may, except as otherwise required by law,
be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum;
require that any action to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and not be taken
by written consent;
provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a
meeting of stockholders must provide advance notice in writing, and also specify requirements as to the form and content of a stockholder’s
notice;
not provide for cumulative voting rights, thereby allowing the holders of a majority of the shares of common stock entitled to vote in any election
of directors to elect all of the directors standing for election; and
provide that special meetings of our stockholders may be called only by the board of directors or by such person or persons requested by a
majority of the board of directors to call such meetings.
These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for
stockholders to replace members of our board of directors, who are responsible for appointing the members of our management. Because we are
incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may discourage, delay or
prevent someone from acquiring us or merging with us whether or not it is desired by or beneficial to our stockholders. Under Delaware law, a corporation
may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three
years or, among other things, the board of directors has approved the transaction. Any provision of our certificate of incorporation or bylaws or Delaware
law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of
our common stock, and could also affect the price that some investors are willing to pay for our common stock.
The exclusive forum provisions in our restated certificate of incorporation and amended and restated bylaws may limit a stockholder's ability to bring a
claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, or other employees, which may discourage lawsuits
with respect to such claims.
Our restated certificate of incorporation, to the fullest extent permitted by law, will provide that the Court of Chancery of the State of Delaware will be the
exclusive forum for: any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim
against us arising pursuant to the Delaware General Corporation Law, or the DGCL, our restated certificate of incorporation, or our restated bylaws; or any
action asserting a claim against us that is governed by the internal affairs doctrine. This exclusive forum provision does not apply to suits brought to
enforce a duty or liability created by the Securities Exchange Act of 1934, as amended, or the Exchange Act. It could apply, however, to a suit that falls
within one or more of the categories enumerated in the exclusive forum provision and asserts claims under the Securities Act, inasmuch as Section 22 of
the Securities Act, creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities
Act or the rule and regulations thereunder. There is uncertainty as to whether a court would enforce such provision with respect to claims under the
Securities Act, and our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations
thereunder.
In April 2020, we amended and restated our restated bylaws to provide that the federal district courts of the United States of America will, to the fullest
extent permitted by law, be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, or a Federal Forum
Provision. Our decision to adopt a Federal Forum Provision followed a decision by the Supreme Court of the State of Delaware holding that such
provisions are facially valid under
49
Table of Contents
Delaware law. While there can be no assurance that federal or state courts will follow the holding of the Delaware Supreme Court or determine that the
Federal Forum Provision should be enforced in a particular case, application of the Federal Forum Provision means that suits brought by our stockholders
to enforce any duty or liability created by the Securities Act must be brought in federal court and cannot be brought in state court.
These choice of forum provisions may limit a stockholder's ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of
our directors, officers, or other employees, which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of
forum provisions contained in our restated certificate of incorporation or amended and restated bylaws to be inapplicable or unenforceable in an action, we
may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations and financial
condition.
We are no longer an “emerging growth company,” however, we are still a “smaller reporting company,” and the reduced disclosure requirements
applicable to smaller reporting companies may make our common stock less attractive to investors.
Although we ceased to be an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act, on December 31,
2019, we are a “smaller reporting company,” meaning that the market value of our stock held by non-affiliates is less than $700.0 million and our annual
revenue is less than $100.0 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the
market value of our stock held by non-affiliates is less than $250.0 million or (ii) our annual revenue is less than $100.0 million during the most recently
completed fiscal year and the market value of our stock held by non-affiliates is less than $700.0 million. As a smaller reporting company, we may continue
to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, we may choose to present only
the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller
reporting companies have reduced disclosure obligations regarding executive compensation. We cannot predict if investors will find our common stock less
attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading
market for our common stock and our stock price may be more volatile.
We may become a "large accelerated filer" and have to comply with more rigorous disclosure and reporting requirements and regulations
If we cease to be a “smaller reporting company” or a “non-accelerated filer” in the future, we may be subject to certain disclosure requirements that are
applicable to other public companies that had not been applicable to us previously. These requirements include:
•
•
•
compliance with the auditor attestation requirements in the assessment of our internal control over financial reporting once we are an accelerated
filer or large accelerated filer;
compliance with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s
report providing additional information about the audit and the financial statements; and
full disclosure and analysis obligations regarding executive compensation.
There can be no assurance that we will be able to comply with the applicable regulations in a timely manner, if at all. Inability to comply with these
regulations could impact our ability to raise additional capital.
General Risk Factors
We may be subject to securities litigation, which is expensive and could divert management attention.
The trading price of our common stock has been and will continue to be volatile. In the past, companies that have experienced volatility in the market price
of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against
us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.
Our principal stockholders, directors and management own a significant percentage of our stock and will be able to exert significant control over
matters subject to stockholder approval.
Our executive officers, directors, holders of 5% or more of our capital stock and their respective affiliates together beneficially own a majority of our
outstanding voting stock. These stockholders are able to determine the outcome of all matters requiring stockholder approval. For example, these
stockholders are able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other
major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your
best interest as one of our stockholders. The interests of this group of stockholders may not always coincide with your interests or the interests of other
stockholders and they may act in a manner that advances their best interests and not necessarily those of other
50
Table of Contents
stockholders, including seeking a premium value for their common stock, and might affect the prevailing market price for our common stock.
If we fail to maintain an effective system of internal control over financial reporting in the future, we may not be able to accurately report our business,
results of operations, financial condition and cash flows and future prospects, which may adversely affect investor confidence in us and, as a result, the
value of our common stock.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure controls and
procedures and that we furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This
assessment needs to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. A material
weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting that results in more than a reasonable possibility that a
material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. Section 404 of the Sarbanes-Oxley Act
also generally requires an attestation from our independent registered public accounting firm on the effectiveness of our internal control over financial
reporting. However, for as long as we are not an accelerated filer or large accelerated filer, we intend to take advantage of the exemption permitting us not
to comply with the independent registered public accounting firm attestation requirement.
Our compliance with Section 404 will require that we incur substantial accounting expense and expend significant management efforts. We currently do not
have an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical
accounting knowledge and compile the system and process documentation necessary to perform the evaluation needed to comply with Section 404. We
may not be able to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we fail to
identify and to remediate any significant deficiencies or material weaknesses that may be identified, or encounter problems or delays in the implementation
of internal control over financial reporting, we will be unable to assert that our internal control over financial reporting is effective. We cannot assure you
that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future. Any failure to maintain
internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows. If
we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines
we have a material weakness or significant deficiency in our internal control over financial reporting, we could lose investor confidence in the accuracy and
completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by the
Nasdaq Stock Market, or NASDAQ, the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial
reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital
markets.
Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
We are subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Our disclosure controls
and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is
accumulated and communicated to management, recorded, processed, summarized and reported within the time periods specified in the rules and forms of
the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of the control system are met.
These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or
mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized
override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements or insufficient disclosures due to error or
fraud may occur and not be detected.
Our business and operations would suffer in the event of computer system failures or security breaches.
In the ordinary course of our business, we collect, store and transmit confidential information, including intellectual property, proprietary business
information and personal information. Despite the implementation of security measures, our internal computer systems, and those of our CROs and other
third parties on which we rely, are vulnerable to damage from computer viruses, unauthorized access, cyberattacks, natural disasters, fire, terrorism, war
and telecommunication and electrical failures. Cyberattacks are increasing in their frequency, sophistication and intensity. Cyberattacks could include the
deployment of harmful malware, denial-of-service attacks, social engineering and other means to affect service reliability and threaten the confidentiality,
integrity and availability of information. Significant disruptions of our information technology systems or security breaches could adversely affect our
business operations and/or result in the loss, misappropriation, and/or unauthorized access, use or disclosure of, or the prevention of access to, confidential
information (including trade secrets or other intellectual property, proprietary business information and personal information), and could result in financial,
legal, business and reputational harm to us. If such disruptions were to occur and cause interruptions in our operations, it could result in a material
51
Table of Contents
disruption of our product development programs. For example, the loss of clinical trial data from completed, ongoing or planned clinical trials could result
in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security
breach results in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur
liability and the further development of our future product candidates could be delayed.
Business disruptions could seriously harm our future revenues and financial condition and increase our costs and expenses.
Our operations could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme
weather conditions, medical epidemics such as the COVID-19 pandemic and other natural or manmade disasters or business interruptions, for which we are
predominantly self-insured. We do not carry insurance for all categories of risk that our business may encounter. The occurrence of any of these business
disruptions could seriously harm our operations and financial condition and increase our costs and expenses. We rely on third-party manufacturers to
produce our product candidates. Our ability to obtain clinical supplies of product candidates could be disrupted, if the operations of these suppliers are
affected by a man-made or natural disaster or other business interruption. The ultimate impact on us, our significant suppliers and our general infrastructure
of being consolidated in certain geographical areas is unknown, but our operations and financial condition could suffer in the event of a major earthquake,
fire or other natural disaster. Further, any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our
business, results of operations, financial condition and cash flows from future prospects.
We have incurred and will incur increased costs as a result of operating as a public company, and our management is required to devote substantial
time to new compliance initiatives.
As a public company, we have incurred and will incur significant legal, accounting and other expenses that we did not incur as a private company, and
these expenses will likely increase even more given we are no longer an “emerging growth company.” We are subject to the reporting requirements of the
Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Protection Act, as well as rules adopted, and to be adopted, by the SEC
and NASDAQ. Our management and other personnel devote a substantial amount of time to these compliance initiatives. Moreover, these rules and
regulations have substantially increased our legal and financial compliance costs and made some activities more time-consuming and costly. The increased
costs will increase our consolidated net loss. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these
requirements.
Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be your sole
source of gain.
We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth
and development of our business. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, capital
appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.
Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall.
Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that
the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock.
We have in the past and may in the future grant rights to some of our stockholders that require us to register the resale of our common stock or other
securities on behalf of these stockholders and/or facilitate public offerings of our securities held by these stockholders, including in connection with
potential future acquisition or capital-raising transactions. For example, in connection with our public offering of common stock on September 19, 2016,
we entered into a registration rights agreement with the Baker Entities that together, based on information available to us, collectively beneficially owned
approximately 45.1% of our common stock as of September 19, 2016. Under the registration rights agreement, we agree that, if at any time and from time
to time after December 19, 2016, the Baker Entities demand that we register their shares of our common stock for resale under the Securities Act, we would
be obligated to effect such registration. On January 6, 2017, pursuant to the registration rights agreement, we registered for resale, from time to time, up to
10,536,092 shares of our common stock held by the Baker Entities. Our registration obligations under this registration rights agreement cover all shares
now held or hereafter acquired by the Baker Entities, would be in effect for up to ten years, and would include our obligation to facilitate certain
underwritten public offerings of our common stock by the Baker Entities in the future. If the Baker Entities or any other holders of registration rights with
respect to our common stock, by exercising their registration and/or underwriting rights or otherwise, sell a large number of our shares, or the market
perceives that the Baker Entities or such holders intend to sell a large number of our shares, this could adversely affect the market price of our common
stock. We have registered all currently reserved shares of common stock that we may issue under our equity compensation plans and intend to register in
the future any additional reserved or issued shares of common stock. These registered shares can be freely sold in the public market upon issuance,
52
Table of Contents
subject to volume limitations applicable to affiliates. We have also filed registration statements covering the sale of up to $400.0 million of any
combination of our common stock, preferred stock, debt securities or warrants and may conduct one or more sales of securities pursuant to such registration
statement, from time to time.
Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans, could result in
additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.
We expect that significant additional capital will be needed in the future to continue our planned operations. To raise capital, we may sell substantial
amounts of common stock or securities convertible into or exchangeable for common stock. These future issuances of common stock or common stock-
related securities, including the exercise of outstanding options and any additional shares issued in connection with acquisitions, if any, may result in
material dilution to our stockholders. New investors could also gain rights, preferences and privileges senior to those of holders of our common stock.
Pursuant to our 2014 Equity Incentive Plan, our compensation committee is authorized to grant equity-based incentive awards to our directors, executive
officers and other employees and service providers, including officers, employees and service providers of our subsidiaries and affiliates. Future option
grants and issuances of common stock under our 2014 Equity Incentive Plan may have an adverse effect on the market price of our common stock.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading
volume could decline.
The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us, or our business.
If one or more of the securities or industry analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business,
our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for
our stock could decrease, which might cause our stock price and trading volume to decline.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our corporate headquarters are located at 188 East Blaine Street, Suite 450, Seattle, Washington 98102 where we lease 33,300 square feet of office space
that we use for laboratory, discovery, research and development and general and administrative purposes.
We also lease approximately 6,272 square feet of office space at 360-1616 Eastlake Avenue East, Seattle, Washington 98102.
We believe that our existing facilities are adequate for our near-term needs. We believe that suitable additional or alternative space would be available if
required in the future on commercially reasonable terms.
Item 3. Legal Proceedings.
We are not currently subject to any material legal proceedings.
Item 4. Mine Safety Disclosures.
Not applicable.
53
Table of Contents
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
PART II
Price Range of Our Common Stock
Our common stock is traded on The Nasdaq Global Market under the symbol “NLTX.”
Stockholders
As of March 22, 2021, there were 42,326,033 shares of our common stock outstanding, which were held by 10 holders of record of our common stock,
including The Depository Trust Company, which holds shares of our common stock on behalf of an indeterminate number of beneficial owners.
Dividend Policy
We have not paid any cash dividends on our common stock since our inception. We do not intend to pay any cash dividends in the foreseeable future, but
intend to retain all earnings, if any, for use in our business operations.
Securities Authorized for Issuance under Equity Compensation Plans
The information required by this item will be included in an amendment to this Annual Report on Form 10-K or incorporated by reference from our
definitive proxy statement to be filed pursuant to Regulation 14A.
Stock Performance Graph
As a “smaller reporting company,” as defined by Rule 12b-2 of the Exchange Act, and pursuant to Instruction 6 to Item 201(e) of Regulation S-K we are
not required to provide the stock performance graph.
54
Table of Contents
Item 6. Selected Financial Data.
As a “smaller reporting company,” as defined by Rule 12b-2 of the Exchange Act, and pursuant to Item 301(c) of Regulation S-K we are not required to
provide selected financial data.
55
Table of Contents
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and
related notes appearing elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that reflect our plans,
estimates and beliefs, and involve risks and uncertainties. Actual events or results may differ materially. Our forward-looking statements can be affected by
inaccurate assumptions we might make or by known or unknown risks, uncertainties and other factors. We discuss many of these risks, uncertainties and
other factors in this Annual Report on Form 10-K in greater detail under the heading “Item 1A—Risk Factors.” We caution investors that our business and
financial performance are subject to substantial risks and uncertainties.
Overview
We are a biopharmaceutical company creating next generation immunotherapies for cancer, inflammation, and autoimmunity using de novo protein design
technology. We use sophisticated computational methods to design proteins that demonstrate specific pharmaceutical properties that provide potentially
superior therapeutic benefit over native proteins. Our lead product candidate, NL-201, is a combined IL-2 and IL-15 agonist designed to eliminate alpha
receptor binding.
Results of Operations
Operating Loss
The following table summarizes our operating expenses for the years ended December 31, 2020 and 2019 (in thousands):
Research and development
Acquired in-process research and development
General and administrative
Gain on sale of Aquinox Canada
Total operating loss
Research and Development Expenses
Years Ended December 31,
2019
2020
$ Change
% Change
$
$
24,344 $
—
17,210
(7,826)
33,728 $
4,417 $
47,716
18,826
—
70,959 $
19,927
(47,716)
(1,616)
(7,826)
(37,231)
451 %
(100)%
(9)%
(100)%
(52)%
Research and development expenses consists primarily of costs incurred under arrangements with third parties, such as CROs, manufacturing
organizations, and consultants, personnel related costs (including stock-based compensation and travel expenses), facility-related costs and lab supplies.
Research and development expenses for the year ended December 31, 2020 were $24.3 million compared to $4.4 million for the year ended December 31,
2019. 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.
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.
For the year ended December 31, 2020, general and administrative expenses were $17.2 million compared to $18.8 million for the year ended
December 31, 2019. 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.
56
Table of Contents
Gain on sale of Aquinox Canada
The gain relates to the sale of Aquinox Canada in July 2020. The gain of $7.8 million recognized is the total consideration of $8.2 million, less transaction
costs of $0.4 million.
Other income, net (in thousands)
Interest income
Foreign exchange losses
Other expenses
Total other income, net
Years Ended December 31,
2019
2020
$ Change
% Change
$
$
490 $
5
(44)
451 $
1,542 $
(16)
(9)
1,517 $
(1,052)
21
(35)
(1,066)
(68)%
(131)%
389 %
(70)%
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.
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. As of December 31, 2020, we had an accumulated deficit of $332.8 million, working capital of $186.6 million, and cash and cash equivalents
of $192.6 million. We believe that our existing capital resources will be sufficient to fund our operations into 2023.
Cash Flows
The following table summarizes our cash flows for the years ended December 31, 2020 and 2019 (in thousands):
Net cash (used in) provided by:
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes
Net change in cash and cash equivalents
Net cash used in operating activities
Years Ended December 31,
2020
2019
$
$
(24,575) $
(2,219)
77,135
50,341
—
50,341 $
(15,394)
(688)
82,237
66,155
10
66,165
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 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 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
57
Table of Contents
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.
Operating and Capital Expenditure Requirements
We have not generated product revenue or achieved profitability since our inception and we expect to continue to incur net losses for the foreseeable future.
As of December 31, 2020, we had approximately $192.6 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. However, our future
capital requirements and the period for which we expect our existing resources to support our operations, fund expansion, develop new or enhanced
products, or otherwise respond to competitive pressures, may vary significantly from our expectation and we may need to seek additional funds sooner than
planned. Unless and until we generate sufficient revenue to be profitable, we will seek to fund our operations through public or private equity or debt
financings or other sources. If we raise additional funds through the issuance of convertible debt securities, these securities could have rights senior to those
of our common stock and could contain covenants that restrict our operations. There can be no assurance that we will be able to obtain additional equity or
debt financing on terms acceptable to us, if at all. Our failure to obtain sufficient funds on acceptable terms when needed could have a negative impact on
our business, results of operations, financial condition, cash flows and future prospects. Our future capital requirements will depend on many factors,
including:
•
•
•
•
•
•
•
•
•
•
the number and characteristics of any future product candidates we develop or may acquire;
the scope, progress, results and costs of researching and developing our product candidates or any future product candidates, and conducting
preclinical studies and clinical trials;
the timing of, and the costs involved in, obtaining regulatory approvals for any future product candidates;
the cost of manufacturing our future product candidates and any products that may achieve regulatory approval;
the cost of commercialization activities if any future product candidates are approved for sale, including marketing, sales and distribution costs;
the timing, receipt and amount of sales of, or royalties on, future approved products, if any;
our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements;
any product liability or other lawsuits related to our products;
the expenses needed to attract and retain skilled personnel; and
the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome
of such litigation.
Please see Item 1A of this Annual Report titled “Risk Factors” for additional risks associated with our substantial capital requirements.
Contractual Obligations and Commitments
The following is a summary of our long-term contractual cash obligations as of December 31, 2020 (in thousands):
Operating lease obligations (1)
Finance lease obligations
Laboratory equipment (2)
TOTAL
2021
2022
2023
2024
2025
Thereafter
$
$
19,537 $
180
792
20,509 $
2,161 $
60
792
3,013 $
2,289 $
60
—
2,349 $
2,341 $
60
—
2,401 $
2,394 $
—
—
2,394 $
2,448 $
—
—
2,448 $
7,904
—
—
7,904
1.
2.
Operating lease obligations reflect remaining minimum commitments for our office and laboratory spaces in Seattle, Washington. Please see Note 7,
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.
58
Table of Contents
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. These contracts generally provide for termination on notice,
and therefore are cancelable contracts and not included in the table of contractual obligations and commitments.
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. 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.
Furthermore, we are 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; (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
us and our 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) we receive from sublicensees, based on the stage of
development at the time the sublicense is executed; and (vi) a certain percentage of consideration we receive from an acquisition of us or our assets based
on the stage of development at the relevant time. We are 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.
Critical Accounting Policies and Significant Judgments and Estimates
The preparation of these consolidated financial statements in accordance with U.S. GAAP requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities. We evaluate those estimates and
judgments on an ongoing basis. We base our estimates on historical experience, known trends and events and various other factors that we believe to be
reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
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.
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. No product development expenditures have been deferred to date. We record costs for certain development activities based on our
evaluation of the progress to completion of specific tasks or information provided to us by our 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 liabilities.
Stock-Based Compensation
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
59
Table of Contents
award, generally the vesting period. We account 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.
We estimate the fair value of options granted using the Black-Scholes option pricing model. This approximation uses assumptions regarding a number of
inputs that required us to make significant estimates and judgments, including the expected term of the options. We also make decisions regarding the
method of calculating the expected stock price volatility and the risk-free interest rate used in the model. The expected volatility assumption is based on
industry peer information and we expect to continue to do so until it has adequate and relevant historical volatility of its common stock. Additionally,
because we have no significant history to calculate the expected term, the simplified method calculation is used.
There is inherent uncertainty in our forecasts and projections and, if we had made different assumptions and estimates than those described previously, the
amount of our stock-based compensation expense, net loss and net loss per common stock amounts could have been materially different.
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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
As a “smaller reporting company,” as defined by Rule 12b-2 of the Exchange Act, and pursuant to Item 305 of Regulation S-K we are not required to
provide quantitative and qualitative disclosures about market risk.
Item 8. Financial Statements and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Neoleukin Therapeutics, Inc.
Reports of Independent Registered Public Accounting Firm
Consolidated balance sheets
Consolidated statements of operations and comprehensive loss
Consolidated statements of cash flow
Consolidated statements of stockholders’ equity
Notes to the consolidated financial statements
PAGE
62
63
64
65
66
67
60
Table of Contents
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.
61
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
Neoleukin Therapeutics, Inc.
Opinion on the Financial Statements
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 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 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.
/s/ Deloitte LLP
Chartered Professional Accountants
Vancouver, Canada
March 12, 2020
We began serving as the Company’s auditor in 2007. In 2020, we became the predecessor auditor.
62
Table of Contents
Assets
Current assets
Cash and cash equivalents
Other current assets
Total current assets
Property and equipment, net
Operating lease right-of-use asset
Intangible asset, net
Other non-current assets
Total assets
Liabilities
Current liabilities
Accounts payable and other liabilities
Operating lease liability
Finance lease liability
Total current liabilities
Non-current operating lease liability
Non-current finance lease liability
Total liabilities
NEOLEUKIN THERAPEUTICS, INC.
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
Years Ended December 31,
2020
2019
$
192,556 $
1,966
194,522
3,570
10,154
347
1,926
143,093
503
143,596
2,060
770
567
30
210,519 $
147,023
$
$
7,181 $
659
49
7,889
11,306
108
19,303
—
—
524,022
(332,806)
191,216
4,125
556
62
4,743
447
146
5,336
—
—
441,216
(299,529)
141,687
147,023
Stockholders’ equity
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
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
210,519 $
The accompanying notes form an integral part of these consolidated financial statements
63
Table of Contents
NEOLEUKIN THERAPEUTICS, INC.
Consolidated Statements of Operations
(in thousands, except share and per share amounts)
Operating loss
Research and development
Acquired in-process research and development
General and administrative
Gain on sale of Aquinox Canada
Total operating loss
Other income, net
Net loss
Net loss per common stock - basic and diluted
Years Ended December 31,
2020
2019
$
$
$
24,344 $
—
17,210
(7,826)
33,728
451
(33,277) $
(0.64) $
4,417
47,716
18,826
—
70,959
1,517
(69,442)
(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
64
Table of Contents
NEOLEUKIN THERAPEUTICS, INC.
Consolidated Statements of Cash Flows
(in thousands)
Operating activities
Net loss
Adjustments to reconcile net loss used in operating activities:
Stock-based compensation
Acquired in-process research & development
Depreciation and amortization
Loss on disposal of property and equipment
Amortization of right-of-use asset
Write-off of right-of-use asset upon lease termination
Unrealized foreign exchange loss and others
Changes in operating assets and liabilities:
Other current assets and non-current assets
Accounts payable and accrued liabilities
Operating lease right-of-use assets
Operating lease liabilities
Net cash used in operating activities
Investing activities
Acquisition of Neoleukin Therapeutics, Inc., net of cash acquired
Purchase of property and equipment
Net cash used in investing activities
Financing activities
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.
Payment of offering costs
Proceeds from exercise of stock options
Proceeds from issuance of common stock under Employee Stock Purchase Plan
Payment on finance lease obligations
Net cash provided by financing activities
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
Net change in cash, cash equivalents, and restricted cash during the year
Cash, cash equivalents, and restricted cash at beginning of year
Cash, cash equivalents, and restricted cash at end of year
Non-cash investing and financing activities:
Other current assets acquired through the issuance of common stock
Property, equipment and intangibles acquired through the issuance of common stock
Accounts payable, finance lease and other liabilities assumed through the issuance of common stock
Operating lease liabilities arising from obtaining right-of-use asset
Purchase of property and equipment unpaid at period end
Years Ended December 31,
2020
2019
$
(33,277) $
(69,442)
5,622
—
785
180
1,036
113
—
(2,481)
3,018
(169)
598
(24,575)
—
(2,219)
(2,219)
71,675
(355)
5,665
199
(49)
77,135
—
50,341
143,093
$
$
$
$
$
$
193,434 $
— $
— $
— $
10,364 $
36 $
7,683
47,716
340
5
188
—
70
290
(2,007)
—
(237)
(15,394)
191
(879)
(688)
81,043
(352)
1,555
—
(9)
82,237
10
66,165
76,928
143,093
560
1,693
(1,673)
1,182
—
The accompanying notes form an integral part of these consolidated financial statements
65
Table of Contents
NEOLEUKIN THERAPEUTICS, INC.
Consolidated Statements of Stockholders' Equity
(in thousands, except share amounts)
Common Stock
Non-Voting
Convertible
Preferred Stock
Number
Amount
Number
Amount
Additional
Paid-In
Capital
Amount
Accumulated
Deficit
Accumulated Other
Comprehensive Loss
Total
Stockholders’
Equity
Amount
Amount
Amount
Balances, December 31, 2018
23,537,368 $
Issuance of common stock
for Former Neoleukin
common stock
Issuance of convertible
preferred stock for Former
Neoleukin common stock
Conversion of convertible
preferred stock into
common shares
Issuance of common stock,
net of discounts,
commissions and offering
expenses of $5,525
Issuance of common stock
to University of Washington
Conversion of common
stock to pre-funded warrants
Options exercised
Stock-based compensation
Net loss
4,589,771
—
10,192,700
10,263,750
12,647
(10,925,481)
326,094
—
—
Balances, December 31, 2019
37,996,849 $
Issuance of common stock
and pre-funded warrants, net
of discounts, commissions
and offering expenses of
$4,930
Options exercised
Restricted stock units vested
Issuance of common stock
under Employee Stock
Purchase Plan
Stock-based compensation
Net loss
3,262,471
882,624
36,000
18,352
—
—
Balances, December 31, 2020
42,196,296 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
— $
302,759 $
(230,087) $
— $
72,672
—
102
(102)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
15,055
33,432
—
80,691
41
—
1,555
7,683
—
—
—
—
—
—
—
—
—
(69,442)
—
—
—
—
—
—
—
—
—
— $
— $
441,216 $
(299,529) $
— $
—
—
—
—
—
—
— $
—
—
—
—
—
—
— $
71,320
5,665
—
—
—
—
199
5,622
—
524,022 $
—
—
(33,277)
(332,806) $
—
—
—
—
—
—
— $
15,055
33,432
—
80,691
41
—
1,555
7,683
(69,442)
141,687
71,320
5,665
—
199
5,622
(33,277)
191,216
The accompanying notes form an integral part of these consolidated financial statements
66
Table of Contents
1. Nature of operations
NEOLEUKIN THERAPEUTICS, INC.
Notes to Consolidated Financial Statements
Neoleukin Therapeutics, Inc. (“Neoleukin” or “the Company”) is a biopharmaceutical company creating next generation immunotherapies for cancer,
inflammation and autoimmunity using de novo protein design technology. Neoleukin uses sophisticated computational methods to design proteins that
demonstrate specific pharmaceutical properties that provide potentially superior therapeutic benefit over native proteins. The Company’s lead product
candidate, NL-201, is a combined IL-2 and IL-15 agonist designed to eliminate alpha receptor binding.
2. 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. GAAP”). The financial results are presented on a consolidated basis. All intercompany
transactions are eliminated on consolidation.
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.
(c) Reclassification
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.
(d) Leases
At contract inception, the Company determines if the contract is or contains a lease. Lease liabilities are recognized on the lease commencement date based
on the estimated present value of lease payments over the lease term. To determine the present value of the lease payments, the Company utilizes its
estimated incremental borrowing rate based on information available at the lease commencement date as the interest rate implicit in the lease is typically
not readily determinable. The related right-of-use assets are recorded net of any lease incentives received. Variable lease cost primarily includes building
operating expenses as charged to the Company by its landlords.
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.
67
Table of Contents
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
Restricted cash
Total cash, cash equivalents, and restricted cash
(f) Property and equipment
December 31,
2020
2019
$
$
192,556 $
878
193,434 $
143,093
—
143,093
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 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.
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) 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. 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.
68
Table of Contents
(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 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
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. 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.
(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 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.
69
Table of Contents
(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. 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 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.
3. Merger of Neoleukin Therapeutics, Inc. 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 amounts):
Fair value of 4,589,771 Aquinox common stock
Fair value of 101,927 Aquinox convertible preferred stock
Cash consideration for fractional shares
Transaction costs
Total consideration
$
$
15,055
33,432
5
3,086
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 use.
70
Table of Contents
The following table summarizes the assets acquired and liabilities assumed (in thousands):
Assets acquired:
Cash and cash equivalents
Receivables, prepayments and deposits
Property and equipment
In-process research and development
Intangible asset
Total assets acquired
Liabilities assumed:
Accounts payable and other liabilities
Financing lease liability
Total liabilities assumed
Total consideration
4. Property and equipment, net
Property and equipment, net consist of the following (in thousands):
$
$
3,282
560
1,034
47,716
659
53,251
1,472
201
1,673
51,578
Laboratory equipment
Furniture, fixtures, and IT equipment
Leasehold improvements
Laboratory equipment
Furniture, fixtures, and IT equipment
December 31, 2020
Accumulated
Amortization
Net Book Value
426 $
159
585 $
2,976
594
3,570
December 31, 2019
Accumulated
Amortization
Net Book Value
333 $
62
293
688 $
157
1,453
450
2,060
Cost
Cost
3,402 $
753
4,155 $
490 $
1,515
743
2,748 $
$
$
$
$
Depreciation expense on property and equipment totaled $0.6 million and $0.2 million for the years ended December 31, 2020 and 2019, respectively.
5. Intangible asset, net
The following table summarizes intangible asset (in thousands):
Cost
Accumulated amortization
Net intangible asset
December 31,
2020
2019
$
$
659 $
(312)
347 $
659
(92)
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.
71
Table of Contents
6. Accounts payable and other liabilities
Accrued liabilities consist of the following (in thousands):
Trade accounts payable
Accrued clinical and preclinical expenses
Accrued compensation and vacation
Other accrued liabilities
7. Leases
December 31,
2020
2019
$
$
1,323 $
1,687
3,244
927
7,181 $
1,604
944
1,238
339
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.
72
Table of Contents
The components of the lease expense were as follows (in thousands):
Finance lease cost
Amortization of right-of-use asset
Interest on lease liabilities
Operating lease cost
Short term lease cost
Variable lease cost
Total net lease cost
Supplemental balance sheet information related to leases is as follows:
Weighted average remaining lease term—finance leases
Weighted average remaining lease term—operating leases
Weighted average discount rate—finance leases
Weighted average discount rate—operating leases
Supplemental cash flow information related to leases was as follows (in thousands):
Cash paid for amounts included in the measurement of operating lease liabilities
Cash paid for amounts included in the measurement of finance lease liabilities
December 31,
2020
2019
19
—
197
105
181
502
46 $
14
2,368
348
321
3,097 $
December 31,
2020
2.45 years
7.97 years
7.11%
12.88%
2019
3.33 years
1.83 years
7.11%
5.37%
December 31,
2020
2019
460 $
60
236
9
$
$
$
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
December 31, 2022
December 31, 2023
December 31, 2024
December 31, 2025
Thereafter
Total undiscounted lease payments
Less: imputed interest
Total lease liabilities
Less: current portion
Non-current lease liabilities—December 31, 2020
$
$
60 $
60
60
—
—
—
180
(23)
157
(49)
108 $
2,161
2,289
2,341
2,394
2,448
7,904
19,537
(7,572)
11,965
(659)
11,306
73
Table of Contents
8. 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 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. As of December 31, 2020 and
December 31, 2019, 0 shares of preferred stock were issued or outstanding.
(c) Merger with Former Neoleukin
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 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 not 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.
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, 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 4.00% of the total number of shares of capital stock
74
Table of Contents
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:
Outstanding at December 31, 2019
Options granted
Options exercised
Options cancelled/forfeited
Outstanding at December 31, 2020
Exercisable as of December 31, 2020
Number of Shares
Weighted Average
Exercise Price
5,840,538 $
2,404,300
(882,624)
(515,925)
6,846,289 $
1,878,082 $
5.11
11.6
6.42
15.69
6.42
5.02
Weighted
Average
Remaining
Contractual
Life
(In Years)
Aggregate
Intrinsic
Value
(In Thousands)
7.7 $
45,037
8.7 $
7.7 $
53,127
17,547
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. 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
Expected dividends
Expected terms (years)
Risk free rate
Restricted stock units
December 31,
2020
2019
93 %
0 %
6.02
0.42 %
90 %
0 %
6.07
1.43 %
A summary of the Company's restricted stock unit activity and related information for the year ended December 31, 2020 is as follows:
Non-vested at December 31, 2019
Restricted stock units granted
Restricted stock units vested
Restricted stock units forfeited
Non-vested at December 31, 2020
Number of
Shares
Weighted
Average
Grant Date Fair Value
72,000 $
152,000
(36,000)
(1,500)
186,500 $
3.47
9.26
3.47
3.47
8.19
75
Table of Contents
(f) Stock-based compensation
Stock-based compensation expense is classified in the consolidated statements of operations as follows (in thousands):
Research and development expenses
General and administrative expenses
Total stock-based compensation expense
December 31,
2020
2019
$
$
$
1,999 $
3,623 $
5,622 $
486
7,197
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.
9. Restructuring
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. 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.
76
Table of Contents
10. Other income, net
Other income is presented for all periods (in thousands):
Interest income
Foreign exchange gains (losses)
Other expenses
11. Net loss per common stock
December 31
2020
2019
$
$
490 $
5
(44)
451 $
1,542
(16)
(9)
1,517
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:
Outstanding stock options
Restricted stock units
Shares issuable under 2020 ESPP
12. Income taxes
December 31,
2020
2019
YEARS
ENDED
6,848,289
186,500
22,521
7,057,310
5,840,538
72,000
—
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:
Statutory federal income tax rate
Change in tax rate
State income taxes
Foreign rate differential
Acquired in-process research and development
Stock compensation
Disposal of Aquinox Canada
Change in valuation allowance
Expiration of NOLs (section 382)
Tax Credits
Other
Income tax recovery
Net loss before taxes (in thousands):
Canada
U.S.
Total
77
December 31,
2020
2019
(21.0)%
(21.0)%
—
—
(0.1)
—
1.8
(5.2)
26.5
0.5
(2.5)
—
— %
—
—
(0.2)
14.4
2.6
—
(0.6)
5.4
(0.9)
0.3
— %
Years Ended December 31,
2019
2020
$
$
(522) $
(32,755)
(33,277) $
(2,129)
(67,313)
(69,442)
Table of Contents
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
U.S. net operating losses
Research and development deductions and credits
Intangibles
Lease Liability
Stock Compensation
Other
Total deferred tax assets:
Deferred income tax liabilities
ROU Assets
Other
Total deferred tax liabilities
Net deferred income tax assets
Less: valuation allowance
Deferred tax assets, net of valuation allowance
December 31,
2020
2019
$
— $
12,328
1,040
422
2,513
717
162
17,182
2,132
157
2,289
14,893
(14,893)
$
— $
39,574
5,347
11,062
1,189
233
309
330
58,044
169
60
229
57,815
(57,815)
—
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. The
U.S. 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.
78
Table of Contents
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.
13. 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 foregoing
licenses are sublicensable by the Company without UW’s consent, subject to certain limited conditions. 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; (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.
14. Commitments and contingencies
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.
15. 401(k) plan
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.
79
Table of Contents
16. 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.
80
Table of Contents
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of disclosure controls and procedures. Our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer
(our principal accounting officer) have evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended) prior to the filing of this annual report. Based on that evaluation, they have concluded that, as of the end of the period
covered by this annual report, our disclosure controls and procedures were, in design and operation, effective at a reasonable assurance level.
Management’s Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. Our
management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the 2013 framework in Internal Control
—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its evaluation under the framework
in Internal Control—Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31,
2020.
Changes in internal control over financial reporting. There have not been any changes in our internal control over financial reporting during the
quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent limitation on the effectiveness of internal control. The effectiveness of any system of internal control over financial reporting, including
ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and
procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no
matter how well designed and operated, can only provide reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but
cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting
This Annual Report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to rules
of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report.
Item 9B. Other Information.
None
81
Table of Contents
The information required by Part III is omitted from this report because we will file a definitive proxy statement within 120 days after the end of our
2020 fiscal year pursuant to Regulation 14A for our 2021 Annual Meeting of Stockholders, or the 2021 Proxy Statement, and the information to be
included in the 2021 Proxy Statement is incorporated herein by reference.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
(1) The information required by this Item concerning our executive officers and our directors and nominees for director, including information with
respect to our audit committee and audit committee financial expert, may be found under the section entitled “Proposal No. 1 Election of Directors,”
“Information Regarding the Board of Directors and Corporate Governance,” and “Information About Our Executive Officers” appearing in the 2021 Proxy
Statement. Such information is incorporated herein by reference.
(2) The information required by this Item concerning our code of ethics may be found under the section entitled “Information Regarding the Board of
Directors and Corporate Governance” appearing in the 2021 Proxy Statement. Such information is incorporated herein by reference.
(3) The information required by this Item concerning compliance with Section 16(a) of the Securities Exchange Act of 1934 may be found in the
section entitled “Delinquent Section 16(a) Reports” appearing in the 2021 Proxy Statement. Such information is incorporated herein by reference.
Item 11. Executive Compensation.
The information required by this Item may be found under the sections entitled “Director Compensation,” “Executive Compensation” and “Equity
Compensation Plan Information” appearing in the 2021 Proxy Statement. Such information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
(1) The information required by this Item with respect to security ownership of certain beneficial owners and management may be found under the
section entitled “Security Ownership of Certain Beneficial Owners and Management” appearing in the 2021 Proxy Statement. Such information is
incorporated herein by reference.
(2) The information required by this Item with respect to securities authorized for issuance under our equity compensation plans may be found under
the sections entitled “Equity Compensation Plan Information” appearing in the 2021 Proxy Statement. Such information is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
(1) The information required by this Item concerning related party transactions may be found under the section entitled “Transactions with Related
Persons” appearing in the 2021 Proxy Statement. Such information is incorporated herein by reference.
(2) The information required by this Item concerning director independence may be found under the sections entitled “Information Regarding the
Board of Directors and Corporate Governance—Independence of the Board of Directors” and “Information Regarding the Board of Directors and
Corporate Governance—Information Regarding Committees of the Board of Directors” appearing in the 2021 Proxy Statement. Such information is
incorporated herein by reference.
Item 14. Principal Accounting Fees and Services.
The information required by this Item may be found under the section entitled “Proposal No. 2 Ratification of Appointment of Independent
Registered Public Accounting Firm” appearing in the 2021 Proxy Statement. Such information is incorporated herein by reference.
Table of Contents
Item 15. Exhibits, Financial Statement Schedules.
(a) The following documents are filed as part of this report:
PART IV
(1)
(2)
(3)
Financial Statements and Report of Independent Registered Public Accounting Firm
Financial Statement Schedules
Financial Statement Schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the
financial statements or notes thereto.
Exhibits are incorporated herein by reference or are filed with this report as indicated below (numbered in accordance with Item 601 of
Regulation S-K).
(b) Exhibits
The exhibits listed below on the Exhibit Index are filed herewith or are incorporated by reference to exhibits previously filed with the SEC.
Number
2.1*
3.1
3.2
3.3
3.4
3.5
4.1
EXHIBIT INDEX
Description
Agreement and Plan of Merger by and between Aquinox Pharmaceuticals, Inc., Apollo Sub, Inc., and Neoleukin Therapeutics, Inc., dated
August 5, 2019—Incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K filed with the Securities and Exchange
Commission on August 6, 2019
Amended and Restated Certificate of Incorporation of Neoleukin Therapeutics, Inc.—Incorporated by reference to Exhibit 3.1 to our Current
Report on Form 8-K filed with the Securities and Exchange Commission on March 12, 2014
Amended and Restated Bylaws of Neoleukin Therapeutics, Inc.—Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-
K, filed with the Securities and Exchange Commission on April 13, 2020
Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Stock, filed August 8, 2019—Incorporated by
reference to Exhibit 3.1 to our Current Report on Form 8-K filed with the Securities and Exchange Commission August 12, 2019
Certificate of Amendment to Amended and Restated Certificate of Incorporation of Neoleukin Therapeutics, Inc., filed August 9, 2019—
Incorporated by reference to Exhibit 3.4 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 filed with the
Securities and Exchange Commission on November 13, 2019.
Certificate of Amendment to Amended and Restated Certificate of Incorporation of Neoleukin Therapeutics, Inc., filed November 13, 2019
—Incorporated by reference to Exhibit 3.5 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 filed with the
Securities and Exchange Commission on November 13, 2019.
Specimen Common Stock Certificate of the Registrant—Incorporated by reference to Exhibit 4.1 to our Quarterly Report on Form 10-Q for
the quarter ended March 31, 2014 filed with the Securities and Exchange Commission on May 13, 2014
Table of Contents
Number
4.2
4.3
4.4
4.5
10.1
10.2
10.3
10.4+
10.5+
10.6
10.7
10.8+
10.9+
10.10+
10.11+
10.12+
10.13
10.14*
Description
Registration Rights Agreement, dated September 19, 2016, by and between Aquinox Pharmaceuticals, Inc. and the persons listed on
Schedule A attached thereto—Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the Securities and
Exchange Commission on September 20, 2016
Description of Securities Registered Under Section 12 of the Securities Exchange Act of 1934, as amended
Form of Pre-Funded Warrant—Incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed with the Securities and
Exchange Commission on December 19, 2019
Form of Pre-Funded Warrant— Incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed with the Securities and
Exchange Commission on July 2, 2020.
Exclusive Start-Up License Agreement, dated July 8, 2019, by and between the University of Washington and Neoleukin Therapeutics, Inc.
—Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the Securities and Exchange Commission
August 12, 2019
Facility Use Agreement, dated December 4, 2018, by and between Institute for Systems Biology and Neoleukin Therapeutics, Inc.—
Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed with the Securities and Exchange Commission August 12,
2019
Amendment No. 1 to the Facility Use Agreement, dated April 17, 2019, by and between Institute for Systems Biology and Neoleukin
Therapeutics, Inc.—Incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed with the Securities and Exchange
Commission August 12, 2019
Separation Agreement and Release, dated August 5, 2019, by and between Aquinox Pharmaceuticals, Inc., and David J. Main—Incorporated
by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on August 6, 2019
Transition Retention Agreement, dated August 5, 2019, by and between Aquinox Pharmaceuticals, Inc., and Kamran Alam—Incorporated
by reference to Exhibit 10.3 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on August 6, 2019
Lease Agreement, dated September 23, 2019, by and between Neoleukin Therapeutics, Inc. and ARE-Eastlake Avenue No. 3, LLC.
Incorporated by reference to Exhibit 10.7 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 filed with the
Securities and Exchange Commission on November 13, 2019
Lease Agreement, dated December 23, 2019, by and between Neoleukin Therapeutics, Inc. and ARE-Eastlake Avenue No. 3, LLC
Joint Canadian Stock Option Plan—Incorporated by reference to Exhibit 10.1 to our Registration Statement on Form S-1 (File No. 333-
193615) filed with the Securities and Exchange Commission on January 28, 2014
Forms of Option Agreement for Registrant’s Joint Canadian Stock Option Plan—Incorporated by reference to Exhibit 10.2 to our
Registration Statement on Form S-1 (File No. 333-193615) filed with the Securities and Exchange Commission on January 28, 2014
Neoleukin Therapeutics, Inc. 2014 Equity Incentive Plan, as amended November 12, 2019—Incorporated by reference to Exhibit 10.1 to our
Current Report on Form 8-K filed with the Securities and Exchange Commission on November 14, 2019
Forms of Option Agreement and Option Grant Notice for Registrant’s 2014 Equity Incentive Plan—Incorporated by reference to Exhibit 10.4
to our Registration Statement on Form S-1 (File No. 333-193615) filed with the Securities and Exchange Commission on January 28, 2014
Neoleukin Therapeutics, Inc. 2020 Employee Stock Purchase Plan—Incorporated by reference to Exhibit 10.1 to our Current Report on Form
8-K filed with the Securities and Exchange Commission on May 6, 2020.
Form of Indemnity Agreement entered into between the Registrant and each of its directors and its executive officers—Incorporated by
reference to Exhibit 10.5 to our Registration Statement on Form S-1 (File No. 333-193615) filed with the Securities and Exchange
Commission on January 28, 2014
Exchange Agreement, dated December 17, 2019, by and among Neoleukin Therapeutics, Inc., 667, L.P. and Baker Brothers Life Sciences,
L.P.—Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on
December 19, 2019
84
Table of Contents
Number
10.15
10.16+
10.17+
10.18
10.19
Description
Lease Agreement, dated February 5, 2016, by and between Aquinox Pharmaceuticals (Canada) Inc. and 560677 B.C. Ltd. Incorporated by
reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on February 10, 2016
Executive Employment Agreement, dated March 16, 2020, Neoleukin Therapeutics, Inc. and Robert Ho—Incorporated by reference to
Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 filed with the Securities and Exchange
Commission on May 6, 2020.
Amended and Restated Executive Employment Agreement, dated April 15, 2020, by and between Neoleukin Therapeutics, Inc., and
Jonathan G. Drachman—Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the Securities and
Exchange Commission on April 17, 2020
Underwriting Agreement, dated July 1, 2020, by and among Neoleukin Therapeutics, Inc., and BofA Securities, Inc. and Piper Sandler & Co.
as Representatives of the several Underwriters named in Schedule A thereto— Incorporated by reference to Exhibit 1.1 to our Current Report
on Form 8-K filed with the Securities and Exchange Commission on July 2, 2020.
First Amendment to Lease, dated June 18, 2020, by and between Neoleukin Therapeutics, Inc. and ARE-Eastlake Avenue No. 3, LLC—
Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 filed with the Securities
and Exchange Commission on August 12, 2020.
10.20+
Form of Restricted Stock Unit Grant Notice for Registrant’s 2014 Equity Incentive Plan— Incorporated by reference to Exhibit 10.1 to our
Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 filed with the Securities and Exchange Commission on August 12, 2020
10.21
10.22
10.23
10.24
21.1
23.1
23.2
31.1
31.2
32.1#
32.2#
Amendment No. 1 to Exclusive Start-Up License Agreement, dated July 24, 2020, by and between the University of Washington and
Neoleukin Therapeutics, Inc.
Executive Employment Agreement, dated September 29, 2020, by and between Neoleukin Therapeutics, Inc., and Holly Vance
Purchase Order, dated November 25, 2020, by and between Neoleukin Therapeutics, Inc. and Rigaku Americas Corporation
First Amendment to Lease, dated November 5, 2020, by and between Neoleukin Therapeutics, Inc. and ARE-Seattle No. 28, LLC
List of subsidiaries of the Registrant
Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm.
Consent of Deloitte LLP, Independent Registered Public Accounting Firm.
Certification of Chief Executive Officer pursuant to Rule 13a-14(a).
Certification of Chief Financial Officer pursuant to Rule 13a-14(a).
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document.
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB
XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.
+ Indicates a management contract or compensatory plan.
# This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise
subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or
the Exchange Act.
* Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be
furnished to the SEC upon request.
85
Table of Contents
Item 16. Form 10-K Summary.
N/A
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Neoleukin Therapeutics, Inc.
Date: March 25, 2021
By:
/s/ Jonathan G. Drachman
Jonathan G. Drachman
President & Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Jonathan G. Drachman
Jonathan G. Drachman
Director, President & Chief Executive Officer
(Principal Executive Officer)
/s/ Robert Ho
Robert Ho
/s/ Martin Babler
Martin Babler
/s/ M. Cantey Boyd
M. Cantey Boyd
/s/ Erin Lavelle
Erin Lavelle
/s/ Sarah Noonberg
Sarah Noonberg
/s/ Todd Simpson
Todd Simpson
/s/ Lewis T. Williams
Lewis T. Williams
Chief Financial Officer
(Principal Financial and Accounting Officer)
Director
Director
Director
Director
Director
Director
86
March 25, 2021
March 25, 2021
March 25, 2021
March 25, 2021
March 25, 2021
March 25, 2021
March 25, 2021
March 25, 2021
Exhibit 10.21
CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***], HAS BEEN
OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE COMPETITIVE HARM TO THE
COMPANY IF PUBLICLY DISCLOSED.
AMENDMENT NO. 1
TO EXCLUSIVE START-UP LICENSE AGREEMENT
This Amendment No. 1 to the Exclusive Start-Up License Agreement (this “Amendment No. 1”) effective as of July 24,
2020 (the “Amendment No. 1 Effective Date”), is entered into between the University of Washington (“University”), and
Neoleukin Corporation, formerly known as Neoleukin Therapeutics, Inc. (“Company”).
WHEREAS, the Parties previously entered into that certain Exclusive Start-Up License Agreement dated as of July 8,
2019 (the “Agreement”);
WHEREAS, the Parties wish to amend the Agreement in certain respects on the terms and conditions set forth herein.
NOW THEREFORE, capitalized terms not defined in this Amendment No. 1 shall have the meaning ascribed in the
Agreement, and the Parties hereby agree as follows:
1.
Background. [***]. The Parties desire to add the Jointly Owned Licensed Patents (as defined herein below) within
the scope of the licenses granted to Company under the Agreement.
2.
Amendment.
a. Section 1 of the Agreement is hereby amended to add the following new definitions:
“Jointly Owned Application” has the meaning set forth in Amendment No. 1 to this Agreement.
“Jointly Owned Licensed Patents” means (a) the Jointly Owned Application, (b) all patent cooperation treaty (PCT)
applications, non-provisional applications, divisions, continuations, and claims in continuationsinpart that are entitled to
claim priority to, or that share a common priority claim with, and are directed to subject matter specifically described in
the Jointly Owned Application; (c) any patents that issue from patent applications in clauses (a) and (b), (d) extensions,
renewals, substitutes, re-examinations and re-issues of any of the items in (a) or (b) or (c); and (e)foreign counterparts of
any of the items in (a), (b), (c) or (d)
wherever and whenever filed. For the avoidance of doubt, Jointly Owned Licensed Patents is/are a Licensed Patents for
all purposes in the Agreement, except where Jointly Owned Licensed Patents are specifically called out in the Agreement.
“Jointly Owned Licensed Product” means any method, process, composition, product, service, or component part
thereof that (a) would, but for the granting of the rights set forth in this Agreement, infringe a Valid Claim contained in
the Jointly Owned Licensed Patents. For the avoidance of doubt, Jointly Owned Licensed Product is a Licensed Product
for all purposes in the Agreement, except where Jointly Owned Licensed Product is specifically called out in the
Agreement.
b. Section 2.3 of the Agreement is hereby amended by adding the following new sentences to the end of Section 2.3.
“Notwithstanding the foregoing, if a Sublicense is only for the Jointly Owned Licensed Patents (and not any other Licensed
Patents), then the foregoing requirement to include obligations, terms and conditions in favor of HHMI shall not apply. During
the term of this Agreement and for so long as Company has an exclusive license to University’s rights in the Jointly Owned
Licensed Patents pursuant to this Agreement, Company shall not license its own rights in Jointly Owned Licensed Patents
separate from University’s rights in Jointly Owned Licensed Patents.”
c. Section 2.5 of the Agreement is hereby amended by adding the following new sentence to the end of Section 2.5:
“The foregoing rights of the federal government of the United States of America do not apply to the Jointly Owned Licensed
Patents as no federal funding was used in the generation of the inventions claimed in the Jointly Owned Application.”
d. Section 2.6 of the Agreement is hereby amended and restated in its entirety as follows:
2.6 Rights to Subsidiaries of Company. Company may extend rights granted to Company under this Agreement to
any entities that control Company (which, as of the Amendment No. 1 Effective date includes Neoleukin
Therapeutics, Inc.) or are under common control with Company including wholly owned subsidiaries (collectively
“Subsidiaries”) of Company, provided that (a) Company is responsible for all acts of such Subsidiaries as if they
were acts of Company, (b) such Subsidiary is bound to perform all obligations to University and HHMI of this
Agreement, other than making payments pursuant to Article 6 “Payments, Reimbursements, Reports, and Records”, as
if such Subsidiary were Company, and (c) Company reports to University pursuant to Section 13.10 “Notices” that
such Subsidiary will be exercising rights under this Agreement prior to such Subsidiary exercising any such rights
under this Agreement, provided that no notice is necessary if the Subsidiary is Neoleukin Therapeutics, Inc. For
avoidance of doubt, Company may perform any obligation of Subsidiary on Subsidiary’s behalf. For
purposes of this Section 2.6 only, “control” of another person, organization or entity shall mean the ability, directly or
indirectly, to direct the activities of the relevant entity, and shall include, without limitation (i) ownership or direct
control of fifty percent (50%) or more of the outstanding voting stock or other ownership interest of the other
organization or entity, or (ii) possession of, or the power to elect or appoint fifty percent (50%) or more of the
members of the governing body of the organization or other entity.
e. Section 2.7 of the Agreement is hereby amended by adding the following new sentence to the end of Section 2.7:
“The Parties acknowledge that the Jointly Owned Licensed Patents were not developed (in whole or in part) by employees of
HHMI and therefore the license granted to Company to the Jointly Owned Licensed Patents, by inclusion under section 2.1 of
this Agreement, is not subject to the HHMI License.”
f. Section 4.1 of the Agreement is hereby amended and restated in its entirety as follows:
4.1 Pre-Agreement Patent Filings. With respect to the Licensed Patents, other than the Jointly Owned Application,
Company has reviewed such Licensed Patents and as of the Effective Date is not aware of any basis to challenge or
dispute the inventorship, validity, or enforceability of any of the claims made in such Licensed Patents. With respect to the
Jointly Owned Application, each Party has reviewed the Jointly Owned Application and as of the Amendment No. 1
Effective Date is not aware of any basis to challenge or dispute the inventorship, validity, or enforceability of any of the
claims made in the Jointly Owned Application.
g. Section 4 of the Agreement is hereby amended by adding the following new Section 4.4 immediately following
the end of Section 4.3:
4.4 Patent Prosecution for Jointly Owned Application. The rights and obligations set forth in Sections 4.2 and
4.3 above shall apply to Licensed Patents other than the Jointly Owned Licensed Patents. University and Company will
consult on the preparation, filing and prosecution of the Jointly Owned Licensed Patents, provided that Company will
have the first right to file, prosecute, and maintain, as applicable, at Company’s sole expense, the Jointly Owned Licensed
Patents. Company may thereafter abandon or allow to lapse any or all patents or patent applications resulting from the
Jointly Owned Licensed Patents, provided that Company will notify University of any abandoned or lapsed patents at
least [***] days prior to such abandonment or lapse and University will have the right, at University’s sole expense, to
control the prosecution and maintenance of such patents.
h. Section 5.2 of the Agreement is hereby amended by adding the following new sentence to the end of Section 5.2.
“The Parties acknowledge that the performance category for the Jointly Owned Licensed Products that were added as Section
A2.4
pursuant to Amendment No. 1 to this Agreement shall be treated as a separate performance category for the above referenced
renegotiation and termination procedures; provided that the payment for the Performance Milestone Extension with respect to
such performance category shall be [***].”
i. Section 9.6 of the Agreement is hereby amended by adding the following new sentence to the end of Section 9.6.
“Notwithstanding the foregoing, but Subject to Section 9.8, upon termination of this Agreement, any Sublicense to the extent
granting rights to the Jointly Owned Licensed Patents will not automatically terminate in total, as rights granted by Company to
Company’s rights in the Jointly Owned Licensed Patents would remain, but rights granted by Company to University’s rights in
the Jointly Owned License Patents would automatically terminate unless converted into a direct license with University pursuant
to Section 9.8.”
j. Section 9.8 of the Agreement is hereby amended by adding the following new sentence to the end of Section 9.8.
“With respect to the Jointly Owned Licensed Patents, the procedures and obligations set forth in this Section 9.8 shall only apply
to the University’s ownership interest in the Jointly Owned Licensed Patents.”
k. Section 13.2 of the Agreement is hereby amended and restated in its entirety as follows:
13.2 Assignment. The rights and licenses granted by University in this Agreement are personal to Company and
Company will not assign its interest or delegate its duties under this Agreement without the written consent of
University, which consent will not to be unreasonably withheld or delayed; any such assignment or delegation made
without written consent of University will not release Company from its obligations under this Agreement.
Notwithstanding the foregoing, Company, without the prior approval of University, may assign all, but no less than
all, of its rights and delegate all, but no less than all, of its duties under this Agreement to a Third Party provided that:
(a) the assignment is made to such Third Party as a part of and in connection with an Acquisition, (b) Company
obtains from such Third Party written agreement to honor all obligations under this Agreement accrued by Company
before Acquisition and all obligations under this Agreement to accrue by such Third Party assignee after Acquisition,
and (c) Company provides written notice to University of the Acquisition, together with a substitution of parties
document or copy of the assignment confirming compliance with (b) above, no later than [***] days after the close of
the Acquisition. Additionally, notwithstanding the foregoing, Company may assign all of its interest and delegate its
duties under this Agreement, as amended by Amendment No. 1, to Neoleukin Therapeutics, Inc. (“Parent Co.”),
whether by written agreement or by operation of law, in connection with a merger of Company with and into Parent
Co. (the “Merger”). For the avoidance of doubt, following the consummation of the Merger, Parent Co.
will enjoy the same rights and will remain subject to the same obligations that Company enjoyed and was subject to
pursuant to the Agreement, as amended by Amendment No. 1. Any assignment made in violation of this Section 13.2
“Assignment” is void and will constitute an act of breach that requires remedy under Section 9.2 “Termination by
University”. This Agreement will inure to the benefit of Company and University and their respective permitted
assignees and trustees.
l. Exhibit A1.1 is hereby amended to add the following patent application to the end of the list of Licensed Patents:
UW Ref No.
Patent No.
Filing Date
Type
Status
[***]
[***]
[***]
[***]
m. Exhibit A2 is hereby amended to add the following performance milestones for the Jointly Owned Licensed
Performance Milestones for Jointly Owned Licensed Products
[***]
Products:
A2.4
A2.4.1
Performance Milestone 1
A2.4.2
Performance Milestone 2
A2.4.3
Performance Milestone 3
A2.4.4
Performance Milestone 4
A2.4.5
Performance Milestone 5
A2.4.6
Performance Milestone 6
A2.4.7
Performance Milestone 7
[***]
[***]
[***]
[***]
[***]
[***]
[***]
n. Exhibit A3.2 of the Agreement is hereby amended and restated in its entirety as follows:
A3.2 Running Royalty Payments. Company will pay to University within [***] days after the last day of each calendar
quarter during the term of this Agreement an amount equal to (a) with respect to Licensed Products other than the Jointly
Owned Licensed Product [***] of Net Sales of such Licensed Products during such quarter as a running royalty payment,
and (b) with respect to the Jointly Owned Licensed Product [***] of Net Sales of the Jointly Owned Licensed Products
during such quarter as a running royalty payment. On a country-by-
country basis, and a Licensed Product-by-Licensed Product basis, if in a country there is no Valid Claim that covers the
Licensed Product, then the foregoing royalty rate shall be reduced by [***] with respect to Net Sales of such Licensed
Product in such country.
o. Exhibit A3.2 of the Agreement is hereby amended and restated in its entirety as follows:
A3.2.1 Third Party Royalties. If Company or its Sublicensees are required to pay royalties to a Third Party based on
Company’s or such Sublicensee’s manufacture, use, offer for sale, sale or import of Licensed Product subject to one or
more patents of such Third Party that create a total royalty burden for the Licensed Product of greater than (a) with
respect to Licensed Products other than the Jointly Owned Licensed Product [***] (such figure including the above
running royalty to University) or (b) with respect to the Jointly Owned Licensed Products [***] (such figure including the
above running royalty to University), then in each case the royalty Company pays to University may be reduced by the
lesser of (i) [***] of the royalty otherwise due to the University absent of a Third Party royalty reduction, (ii) [***] of the
royalty actually paid to the Third Party, or (iii) the percent Company may reduce such Third Party royalty by based on a
royalty stacking provision for the same product. To qualify for this reduction the Third Party patent must be required for
the manufacture, use, offer for sale, sale or import of the Licensed Product.
p. Exhibit A3.4 of the Agreement is hereby amended by adding the following at the end of Exhibit A3.4:
The foregoing milestones shall not apply to the Jointly Owned Licensed Product, and Company will pay to University the
following non-cumulative, non-creditable, and non-refundable milestone achievement payments within [***] days of
achieving the corresponding milestone, whether achieved by Company or a Sublicensee, for the first Jointly Owned
Licensed Product:
$[***]
$[***]
$[***]
$[***]
$[***]
Milestone
Performance Milestone 4 in A.2.4.4
Performance Milestone 5 in A.2.4.5
Performance Milestone 6 in in A.2.4.6
Cumulative Net Sales of $[***]
Cumulative Net Sales of $[***]
q. Exhibit A3.5 of the Agreement is hereby amended by striking the last sentence of Section A3.5.1 and adding the
following at the end of Exhibit A3.5:
A3.5.2 The Parties agree, that as of the Amendment No. 1 Effective Date, Company has met all of its obligations with
respect to Section A3.5.1 and all obligations of Company and rights of University and/or its Assignee as set forth in
Section A3.5.1 are hereby terminated and shall have no further force or effect.
r. Exhibit A3.6 of the Agreement is hereby amended by adding the following at the end of Exhibit A3.6:
The foregoing sublicense consideration percentages shall not apply to a Sublicense solely for the Jointly Owned Licensed
Patents (i.e., does not include rights granted to any other Licensed Patents), and the following sublicense consideration
percentages will apply to a Sublicense solely for the Jointly Owned Licensed Patents (i.e., does not include rights granted
to any other Licensed Patents):
Milestone Has Been Achieved at the Date of Execution of the
Sublicense
Sublicense Consideration
Percentage
A3.6.8
A3.6.9
A3.6.10
A 3.6.11
A 3.6.12
A3.6.13
A3.6.14
A3.6.15
No Milestone achieved
Performance Milestone 1 in A2.4.1
Production Methods of GLP material established for Jointly
Owned Licensed Product
Performance Milestone 2 in A2.4.2
Performance Milestone 3 in A2.4.3
Performance Milestone 4 in A2.4.4
Performance Milestone 5 in A2.4.5
Performance Milestone 6 in A2.4.6 or initiation of a registrational
Phase 2 study
A3.6.16
Performance Milestone 7 in A2.4.7
[***]%
[***]%
[***]%
[***]%
[***]%
[***]%
[***]%
[***]%
[***]%
3.
Miscellaneous. This Amendment No. 1 shall be effective for all purposes as of the Amendment No. 1 Effective
Date. Except as expressly modified herein, the Agreement shall continue to remain in full force and effect in accordance with its
terms. This Amendment No. 1 may be executed in counterparts, each of which shall be deemed to be an original and together
shall be deemed to be one and the same document.
IN WITNESS WHEREOF, the Parties have caused this Amendment No. 1 to be executed by their respective duly
authorized representatives effective as of the Amendment No. 1 Effective Date.
University of Washington
By: /s/ Dennis Hanson
Name: Dennis Hanson
Title: Associate Director, Innovation Development
Neoleukin Corporation
By: /s/ Jonathan Drachman
Name: Jonathan Drachman
Title: Chief Executive Officer
EXECUTIVE EMPLOYMENT AGREEMENT
Exhibit 10.22
This Executive Employment Agreement (the “Agreement”), made between Neoleukin Therapeutics, Inc., a Delaware
corporation (the “Company”), and Holly Vance (the “Executive” and, collectively with the Company, the “Parties”), is
entered into as of September 29, 2020, to be effective as of the Effective Date (as defined below).
Whereas, the Company desires for Executive to provide services to the Company and wishes to provide Executive with
certain compensation and benefits in return for such employment services; and
Whereas, Executive wishes to be employed by the Company and to provide personal services to the Company in return
for certain compensation and benefits.
Now, Therefore, in consideration of the mutual promises and covenants contained herein and for other good and
valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties hereto agree as follows:
1. Employment by the Company.
1.1 Employment. This Agreement shall govern the terms of Executive’s employment with the Company,
effective as of the commencement of Executive’s employment with the Company, which shall occur on October 19, 2020 (the
“Effective Date”).
1.2 Position. Executive shall serve as the Company’s General Counsel. During the term of Executive’s
employment with the Company, Executive will devote Executive’s best efforts and substantially all of Executive’s business
time and attention to the business of the Company.
1.3 Duties and Location. Executive shall perform such duties as are typically performed by a General
Counsel. Executive will report to the Company’s Chief Executive Officer. Executive’s primary office location shall be the
Company’s office located in Seattle, Washington.
1.4 Policies and Procedures. The employment relationship between the Parties shall be governed by the
general employment policies and practices of the Company, except that when the terms of this Agreement differ from or are in
conflict with the Company’s general employment policies or practices, this Agreement shall control.
2. Compensation.
2.1 Salary. For services to be rendered hereunder, Executive shall receive a base salary at the rate of Three
Hundred and Fifty Thousand U.S. Dollars ($350,000) per year (such base salary, as may be increased (but not decreased)
from time to time, the “Base Salary”), subject to standard payroll deductions and withholdings and payable in accordance
with the Company’s regular payroll schedule.
2.2 Bonus. Executive will be eligible for an annual discretionary bonus of up to 40% of Executive’s Base
Salary (the “Annual Bonus”). Whether Executive receives an Annual Bonus for
any given year, and the amount of any such Annual Bonus, will be determined by the Company’s Board of Directors (the
“Board”) or the compensation committee thereof in its sole discretion based upon the Company’s and Executive’s
achievement of objectives and milestones to be determined on an annual basis by the Board or the compensation committee
thereof. Annual Bonuses are typically paid no later
FW/11604751.4
than March 15th of the year following the applicable bonus year. Executive will not be eligible for, and will not earn, any
Annual Bonus (including a prorated bonus) if Executive’s employment terminates for any reason before any Annual Bonus is
paid, except as otherwise expressly provided in Section 6.3 below.
3. Standard Company Benefits. Executive shall be entitled to participate in all employee benefit programs for
which Executive is eligible under the terms and conditions of the benefit plans that may be in effect from time to time and
provided by the Company to its employees.
4. Expenses. The Company will reimburse Executive for reasonable travel, entertainment or other expenses incurred
by Executive in furtherance or in connection with the performance of Executive’s duties hereunder, in accordance with the
Company’s expense reimbursement policy as in effect from time to time.
5. Equity. On the Effective Date, as an inducement to enter into this Agreement, the Company will grant Executive
an option (the “Stock Option”) to purchase Two Hundred Twenty Thousand (220,000) shares of the Company’s common
stock with a per-share exercise price equal to the fair market value of a share of the Company’s common stock on the date of
grant, as determined by the Board or the compensation committee thereof. 1/4th of the shares underlying the Stock Option will
vest and become exercisable on the one-year anniversary of the grant date, and 1/48th of the shares underlying the Stock
Option will vest and become exercisable on a monthly basis thereafter, such that 100% of the shares underlying the Stock
Option shall be vested and exercisable as of the four-year anniversary of the grant date, in each case so long as Executive
remains employed by the Company through each applicable vesting date. The Stock Option will be subject to terms and
conditions consistent with those provided in the Company’s 2014 Equity Incentive Plan, and will be governed in all respects
by the terms of the stock option agreement to be entered into between Executive and the Company, except as specifically
provided herein. Further details regarding the Stock Option will be provided to Executive upon approval of such grant by the
Board.
6. Termination of Employment; Severance.
6.1 At-Will Employment. Executive’s employment relationship is at-will. Either Executive or the Company
may terminate the employment relationship at any time, with or without Cause or advance notice. In the event Executive’s
employment relationship is terminated for any reason, Executive shall be entitled to receive Executive’s earned but unpaid
Base Salary, unreimbursed business expenses properly incurred by Executive pursuant to Section 4 and any other
compensation or benefit earned by or owed to (but not yet paid to) Executive through and including the date of termination,
payable in a lump sum on the next regularly scheduled payroll date following the date on which Executive’s employment
terminated, or at such other date as shall be specified under the terms of the employee benefit plan pursuant to which such
compensation or benefit is payable.
6.2 Severance Benefits for Termination Without Cause or Resignation with Good Reason Unrelated to
a Change of Control. In the event Executive’s employment with the Company is terminated by the Company without Cause
or Executive resigns for Good Reason prior to a
Change of Control (as defined below) or more than twelve (12) months following a Change of Control, provided that
Executive remains in compliance with the terms of this Agreement and the Confidentiality Agreement (as defined below) and
subject to Section 7 below, the Company or its successor, as the case may be, shall provide Executive with the following
severance benefits:
(i) The Company shall pay Executive, as severance, the equivalent of nine (9)
months of Executive’s Base Salary in effect as of the date of Executive’s employment termination. This severance will be paid
in the form of salary continuation, payable on the Company’s regular payroll dates, subject to standard payroll deductions and
withholdings, starting on the 60th day after Executive’s termination date, with the first payment to include those payments that
would have occurred earlier but for the 60-day delay.
(ii) Provided that Executive is then eligible for and timely elects continued coverage under COBRA,
the Company shall pay Executive’s COBRA premiums to continue Executive’s coverage (including coverage for eligible
dependents, if applicable) through the period starting on Executive’s termination date and ending on the earliest to occur of:
(a) nine (9) months following Executive’s termination date; (b) the date Executive becomes eligible for comparable group
health insurance coverage through a new employer; or (c) the date Executive ceases to be eligible for COBRA continuation
coverage for any reason, including plan termination. In the event Executive becomes covered under another employer’s
comparable group health plan or otherwise ceases to be eligible for COBRA during this time period, Executive must
immediately notify the Company of such event. Notwithstanding the foregoing, if the Company determines, in its sole
discretion, that it cannot pay the COBRA premiums without a substantial risk of violating applicable law, the Company
instead shall pay to Executive, on the first day of each calendar month, a fully taxable cash payment equal to the applicable
COBRA premiums for that month, subject to applicable tax withholdings, for the remainder of the COBRA premium period.
Executive may, but is not obligated to, use such payments toward the cost of COBRA premiums.
6.3 Severance Benefits for Termination Without Cause or Resignation with Good Reason Related to a
Change of Control. In the event Executive’s employment with the Company is terminated by the Company without Cause or
Executive resigns for Good Reason during the twelve (12) month period immediately following a Change of Control, and
provided that Executive remains in compliance with the terms of this Agreement and the Confidentiality Agreement and
subject to Section 7 below, the Company, or its successor, as the case may be, shall provide Executive with the following
severance benefits:
(i) The Company shall pay Executive, as severance, the equivalent of twelve
(12) months of Executive’s base salary in effect as of the date of Executive’s employment termination. This severance will be
paid in the form of salary continuation, payable on the Company’s regular payroll dates, subject to standard payroll deductions
and withholdings, starting on the 60th day after Executive’s termination date, with the first payment to include those payments
that would have occurred earlier but for the 60-day delay.
(ii) Provided that Executive is then eligible for and timely elects continued coverage under COBRA,
the Company shall pay Executive’s COBRA premiums to continue Executive’s coverage (including coverage for eligible
dependents, if applicable) through the period starting on Executive’s termination date and ending on the earliest to occur of: (a)
twelve (12) months following Executive’s termination date; (b) the date Executive becomes eligible for comparable group
health insurance coverage through a new employer; or (c) the date Executive ceases to be eligible for COBRA continuation
coverage for any reason, including plan termination. In the event Executive
becomes covered under another employer’s comparable group health plan or otherwise ceases to be eligible for COBRA
during this time period, Executive must immediately notify the Company of such event. Notwithstanding the foregoing, if the
Company determines, in its sole discretion, that it cannot pay the COBRA premiums without a substantial risk of violating
applicable law, the Company instead shall pay to Executive, on the first day of each calendar month, a fully taxable cash
payment equal to the applicable COBRA premiums for that month, subject to applicable tax withholdings, for the remainder
of the COBRA premium period. Executive may, but is not obligated to, use such payments toward the cost of COBRA
premiums.
(iii) The Company shall pay Executive an amount equal to 100% of Executive’s target annual bonus,
payable in a lump sum, less deductions and withholdings, at the same time as the first severance payment described in
Section 6.3(i) above. For the avoidance of doubt, the amount payable pursuant to this Section 6.3(iii) shall not be subject to
proration based on the portion of the year elapsed as of the date of termination.
(iv) The vesting of all unvested equity-based incentive compensation awards then held by Executive
shall be accelerated such that 100% of the shares underlying such awards shall be deemed immediately vested and
exercisable; provided that, in the case of any unvested equity-based incentive compensation awards that are subject to
performance-based vesting terms as of the date of such termination, the treatment of such performance-based vesting
conditions shall be governed by the applicable equity plan and award agreement.
6.4 Termination for Cause; Resignation Without Good Reason; Death or
Disability.
(i) If Executive resigns without Good Reason or the Company terminates
Executive’s employment for Cause, Executive shall not be entitled to receive any payments or benefits under this Agreement,
other than as set forth in Section 6.1. In addition, Executive shall resign from all positions and terminate any relationships as
an employee, advisor, officer or director with the Company and any of its affiliates, each effective on the date of termination.
(ii) Executive’s employment shall terminate automatically upon the death or Total Disability of
Executive. “Total Disability” shall mean Executive’s inability, with reasonable accommodation, to perform the duties of her
position for a period or periods aggregating ninety (90) calendar days in any period of one hundred eighty days (180)
consecutive days as a result of any medically recognized physical or mental illness, loss of legal capacity or any other cause
beyond Executive’s control. Executive and the Company hereby acknowledge that Executive’s ability to perform the duties
specified in Section 1 is the essence of this Agreement. Termination hereunder shall be deemed to be effective (a) at the end
of the calendar month in which Executive’s death occurs or (b) immediately upon a reasonable determination by the Board or
the compensation committee thereof of Executive’s Total Disability. In the case of termination of employment under this
Section 6.4(ii), Executive shall not be entitled to receive any payments or benefits under this Agreement, other than as set
forth in Section 6.1.
7. Conditions to Receipt of Severance Benefits. The receipt of the severance benefits set forth in Section 6.2 and
Section 6.3 above shall be subject to Executive signing and not revoking a separation agreement and release of claims in a
form reasonably satisfactory to the Company and Executive (the “Separation Agreement”) no later than 60 days following
the date of termination. No severance benefits will be paid or provided unless and until the Separation Agreement becomes
effective and non-revocable. Executive shall also resign from all positions and terminate any
relationships as an employee, advisor, officer or director with the Company and any of its affiliates, each effective on the date
of termination.
8. Section 409A. It is intended that all of the severance benefits and other payments payable under this Agreement
satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Internal Revenue Code of
1986, as amended (the “Code” and “Section 409A”)
provided under Treasury Regulations 1.409A-1(b)(4), 1.409A-1(b)(5) and 1.409A-1(b)(9), and this Agreement will be
construed to the greatest extent possible as consistent with those provisions, and to the extent not so exempt, this Agreement
(and any definitions hereunder) will be construed in a manner that complies with Section 409A. All payments and benefits that
are payable upon a termination of employment hereunder shall be paid or provided only upon Executive’s “separation from
service” from the Company (within the meaning of Section 409A). For purposes of Section 409A (including, without
limitation, for purposes of Treasury Regulation Section 1.409A-2(b)(2)(iii)), Executive’s right to receive any installment
payments under this Agreement (whether severance payments, reimbursements or otherwise) shall be treated as a right to
receive a series of separate payments and, accordingly, each installment payment hereunder shall at all times be considered a
separate and distinct payment.
Notwithstanding any provision to the contrary in this Agreement, if Executive is deemed by the Company at the time of
Executive’s termination to be a “specified employee” for purposes of Section 409A(a)(2)(B)(i), and if any of the payments
upon termination set forth herein and/or under any other agreement with the Company are deemed to be “deferred
compensation”, then to the extent delayed commencement of any portion of such payments is required in order to avoid a
prohibited distribution under Section 409A(a)(2)(B)(i) and the related adverse taxation under Section 409A, such payments
shall not be provided to Executive prior to the earliest of (i) the expiration of the six-month period measured from the date of
Executive’s termination with the Company, (ii) the date of Executive’s death or (iii) such earlier date as permitted under
Section 409A without the imposition of adverse taxation.
Upon the first business day following the expiration of such applicable Section 409A(a)(2)(B)(i) period, all payments deferred
pursuant to this Paragraph shall be paid in a lump sum to Executive, and any remaining payments due shall be paid as
otherwise provided herein or in the applicable agreement. No interest shall be due on any amounts so deferred.
9. Section 280G. In the event that the severance and other benefits provided for in this Agreement or otherwise
payable to Executive (i) constitute “parachute payments” within the meaning of Section 280G of the Code and (ii) but for this
Section 9, would be subject to the excise tax imposed by Section 4999 of the Code, then, Executive’s severance and other
benefits under this Agreement shall be payable either (i) in full, or (ii) as to such lesser amount which would result in no
portion of such severance and other benefits being subject to the excise tax under Section 4999 of the Code, whichever of the
foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by
Section 4999 of the Code, results in the receipt by Employee on an after-tax basis of the greatest amount of severance benefits
under this Agreement, notwithstanding that all or some portion of such severance benefits may be taxable under Section 4999
of the Code. Any reduction shall be made in the following manner: first a pro rata reduction of (i) cash payments subject to
Section 409A as deferred compensation and (ii) cash payments not subject to Section 409A, and second a pro rata cancellation
of (i) equity-based compensation subject to Section 409A as deferred compensation and (ii) equity-based compensation not
subject to Section 409A. Reduction in either cash payments or equity compensation benefits shall be made prorata between
and among benefits which are subject to Section 409A and benefits which are exempt from Section 409A. Unless the
Company and Employee otherwise agree in writing, any determination required under this Section 9 shall be made in writing
by the
Company’s independent public accountants (the “Accountants”), whose determination shall be conclusive and binding upon
Employee and the Company for all purposes. For purposes of making the
calculations required by this Section 9, the Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999
of the Code. The Company and Employee shall furnish to the Accountants such information and documents as the
Accountants may reasonably request in order to make a determination under this Section 9. The Company shall bear all costs
the Accountants may reasonably incur in connection with any calculations contemplated by this Section 9.
10. Definitions.
10.1 Cause. For purposes of this Agreement, “Cause” for termination will mean: (a) a material breach of any
of Executive’s obligations or duties pursuant to this Agreement or the Confidentiality Agreement, which remains uncured
seven days after Executive becomes aware of the breach by formal written notification by the Company; (b) gross negligence
or willful misconduct in the course of employment; (c) any action or activity that is contrary to applicable insider trading rules
or any other applicable securities rules or legislation; or (d) a material act or omission involving substantial dishonesty or fraud
that harms or would reasonably be expected to harm the Company.
10.2 Good Reason. For purposes of this Agreement, Executive shall have “Good Reason” for resignation
from employment with the Company if any of the following actions are taken by the Company without Executive’s prior
written consent: (a) any material and adverse change to Executive’s position, authority, responsibilities, or job location in
effect under this Agreement; (b) any material reduction in base salary or bonus opportunity as provided under this
Agreement; (c) an assignment to Executive of any duties materially inconsistent with Executive’s status as General Counsel;
or (d) any failure to secure the agreement of any successor entity to fully assume the Company’s obligations under this
Agreement. In order to resign for Good Reason, Executive must provide written notice to the Board within 60 days after the
first occurrence of the event giving rise to Good Reason setting forth the basis for Executive’s resignation, allow the
Company at least 30 days from receipt of such written notice to cure such event, and if such event is not reasonably cured
within such period, Executive must resign from all positions Executive then holds with the Company not later than 90 days
after the expiration of the cure period.
10.3 Change of Control. For purposes of this Agreement, “Change of Control” means the occurrence of
one or more of the following: (a) a merger, a consolidation, a reorganization or an arrangement that results in a transfer of
more than fifty percent (50%) of the total voting power of the Company’s outstanding securities to a person or a group of
persons different from a person or a group of persons holding those securities immediately prior to such transaction (other than
the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company);
(b) a direct or indirect sale or other transfer of beneficial ownership of securities of the Company possessing more than fifty
percent (50%) of the total combined voting power of the Company’s outstanding securities to a person or a group of persons
different from a person or a group of persons holding those securities immediately prior to such transaction (other than the
Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company); (c)
a direct or indirect sale or other transfer of the right to appoint more than fifty percent (50%) of the directors of the Board or
otherwise directly or indirectly control the management, affairs and business of the Company to a person or a group of persons
different from a person or a group of persons holding this right immediately prior to such transaction (other than the Company
or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company); (d) a direct or
indirect sale or other transfer of all or substantially all of the assets of the Company to a person or a group of persons different
from a person or a group of persons holding those assets immediately prior to such transaction (other than the Company or a
person that directly or indirectly controls, is controlled by, or is under common control with, the Company); or (e) a complete
liquidation,
dissolution or winding-up of the Company; provided, however, that a Change in Control will not be deemed to have occurred if
such Change in Control results solely from the issuance, in connection with a bona fide financing or series of financings by the
Company, of voting securities of the Company or any rights to acquire voting securities of the Company which are convertible
into voting securities.
11. Proprietary Information Obligations. As a condition of employment, Executive shall
execute and abide by the Company’s standard form of Employee Invention Assignment, Confidentiality and Non-Competition
Agreement (the “Confidentiality Agreement”).
12. Outside Activities During Employment.
12.1 Non-Company Business. Except with the prior written consent of the Board, Executive will not during
the term of Executive’s employment with the Company undertake or engage in any other employment, occupation or business
enterprise, other than ones in which Executive is a passive investor. Executive may engage in civic and not-for-profit activities
so long as such activities do not materially interfere with the performance of Executive’s duties hereunder.
12.2 No Adverse Interests. Executive agrees not to acquire, assume or participate in, directly or indirectly,
any position, investment or interest known to be adverse or antagonistic to the Company, its business or prospects, financial
or otherwise.
13. Dispute Resolution. To ensure the timely and economical resolution of disputes that may arise in connection with
Executive’s employment with the Company, Executive and the Company agree that any and all disputes, claims, or causes of
action arising from or relating to the enforcement, breach, performance, negotiation, execution, or interpretation of this
Agreement, Executive’s employment, or the termination of Executive’s employment, including but not limited to statutory
claims, shall be resolved to the fullest extent permitted by law by final, binding and confidential arbitration, by a single
arbitrator, in Seattle, Washington conducted by JAMS, Inc. (“JAMS”) under the then applicable JAMS rules or by another
arbitration provider if mutually agreed upon by Executive and Board. By agreeing to this arbitration procedure, both Executive
and the Company waive the right to resolve any such dispute through a trial by jury or judge or administrative proceeding. The
Company acknowledges that Executive will have the right to be represented by legal counsel at any arbitration proceeding.
The arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such
relief as would otherwise be permitted by law; and (b) issue a written arbitration decision, to include the arbitrator’s essential
findings and conclusions and a statement of the award. The arbitrator shall be authorized to award any or all remedies that
Executive or the Company would be entitled to seek in a court of law. The Company shall pay all JAMS’ arbitration fees in
excess of the amount of court fees that would be required of Executive if the dispute were decided in a court of law. Nothing in
this Agreement is intended to prevent either Executive or the Company from obtaining injunctive relief in court to prevent
irreparable harm pending the conclusion of any such arbitration. Any awards or orders in such arbitrations may be entered and
enforced as judgments in the federal and state courts of any competent jurisdiction.
14. General Provisions.
14.1 Notices. Any notices provided must be in writing and will be deemed effective upon the earlier of
personal delivery (including personal delivery by email or fax) or the next day after sending by overnight carrier, to the
Company at its primary office location and to Executive at the address as listed on the Company payroll.
14.2 Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner
as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability
will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in
such jurisdiction to the extent possible in keeping with the intent of the parties.
14.3 Waiver. Any waiver of any breach of any provisions of this Agreement must be in writing to be
effective, and it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other
provision of this Agreement.
14.4 Complete Agreement. This Agreement, together with the Confidentiality Agreement, constitutes the
entire agreement between Executive and the Company with regard to this subject matter and is the complete, final, and
exclusive embodiment of the Parties’ agreement with regard to this subject matter. This Agreement is entered into without
reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any
other such promises, warranties or representations. It is entered into without reliance on any promise or representation other
than those expressly contained herein, and it cannot be modified or amended except in a writing signed by a duly authorized
officer of the Company.
14.5 Counterparts. This Agreement may be executed in separate counterparts, any one of which need not
contain signatures of more than one party, but all of which taken together will constitute one and the same Agreement.
14.6 Headings. The headings of the paragraphs hereof are inserted for convenience only and shall not be
deemed to constitute a part hereof nor to affect the meaning thereof.
14.7 Successors and Assigns. This Agreement is intended to bind and inure to the benefit of and be
enforceable by Executive and the Company, and their respective successors, assigns, heirs, executors and administrators,
except that Executive may not assign any of his duties hereunder and he may not assign any of his rights hereunder without
the written consent of the Company, which shall not be withheld unreasonably.
14.8 Tax Withholding and Indemnification. All payments and awards contemplated or made pursuant to
this Agreement will be subject to withholdings of applicable taxes in compliance with all relevant laws and regulations of all
appropriate government authorities. Executive acknowledges and agrees that the Company has neither made any assurances
nor any guarantees concerning the tax treatment of any payments or awards contemplated by or made pursuant to this
Agreement. Executive has had the opportunity to retain a tax and financial advisor and fully understands the tax and economic
consequences of all payments and awards made pursuant to the Agreement.
14.9 Choice of Law. All questions concerning the construction, validity and interpretation of this
Agreement will be governed by the laws of the State of Washington.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the Parties have executed this Agreement on the day and year first written above.
NEOLEUKIN THERAPEUTICS, INC.
By: /s/ Jonathan G. Drachman, M.D. Name: Jonathan Drachman
Title: Chief Executive Officer
HOLLY VANCE
/s/ Holly Vance
[Signature Page to H. Vance Employment Agreement]
Neoleukin Therapeutics, Inc.
1616 Eastlake Ave E Suite 360
Seattle, WA 98102
EIN: 83-2585260
Exhibit 10.23
PURCHASE ORDER
P.O. # 20201118-001 RIGAKU
DATE: 18 NOVEMBER 2020
VENDOR:
RIGAKU AMERICAS CORPORATION
9009 New Trails Drive
The Woodlands, TX 77381-5209 (281)362-
2300
SHIP TO:
Neoleukin Therapeutics, Inc. 188 E
BLAINE ST SUITE 450
SEATTLE, WA 98102
(206)604-0724
BILL TO:
Neoleukin Therapeutics, Inc. 1616 Eastlake
Avenue East Suite 360
Seattle, WA 98102
COMMENTS OR SPECIAL INSTRUCTIONS:
REQUISITIONER
ACCOUNT NUMBER
QUOTATION NUMBER
PX28752rev1
TAX STATUS
PAYMENT TERMS
Taxable
Net 30 days
CATALOG
NUMBER
DESCRIPTION
UNIT
PRICE
QUANTITY
EXT. PRICE
XtaLAB Synergy-R diffractometer
system
See quotation PX28752rev1 below for
details
$792,069.00
1
$792,069.00
SUBTOTAL
SALES TAX
TOTAL DUE
$792,069.00
TO: Neoleukin Therapeutics, Inc.
1616 Eastlake Ave E
Seattle, WA 98102
PHONE:
FAX:
EMAIL:
DATE: November 19, 2020
VALIDITY: 60 days
DELIVERY: 5 – 6 months ARO
SHIPMENT: FOB Destination to
Customer’s loading dock Risk of loss passes to Buyer
at FOB point.
TITLE: Title transfers to Buyer at FOB point.
INSTALLATION: Included
WARRANTY: One Year
PAYMENT TERMS: 50% on Dec. 15, 2020, 30% on shipment, 20%
on installation, Net 30
XtaLAB Synergy-R (Cu) HyPix-Arc 150° Curved HPC Detector The XtaLAB Synergy-R diffractometer combines
leading edge components and user-inspired software. The foundation of the system is the PhotonJet-R source which integrates the second
generation true microfocus MicroMax 007HF rotating anode generator with a specialized confocal MaxFlux optic to provide a uniquely
small focal spot. The intense, monochromatic beam from the PhotonJet-R optimizes signal-to-noise for the small crystals used in today’s
crystallography laboratories. The XtaLAB Synergy- R system also includes a new kappa goniometer that features a unique telescopic two-
theta arm to provide total flexibility for your diffraction experiment. The XtaLAB Synergy-R is compatible with a wide range of CCD and
hybrid photon counting (HPC) detectors to allow you to design the best diffractometer for your samples.
Notes for Purchasing Manager:
Taxes (for: Arizona, California, Colorado, Connecticut, Florida, Georgia, Hawaii, Illinois, Indiana, Maryland, Massachusetts, Michigan, New
Jersey, New York, North Carolina, Pennsylvania, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin) will be added to
invoice if applicable. If Buyer claims tax exempt status, Buyer agrees to provide Rigaku (Seller) with a tax exemption certificate acceptable to
local taxing authorities in the jurisdiction concerned.
Seller offers to sell to Buyer, and Buyer agrees to purchase from Seller, the goods and services described below, subject to the terms and
conditions stated on the face of this Quotation and Seller’s standard terms and conditions, attached. Seller hereby objects to any additional or
different terms stated in Buyer’s request for quotation, purchase order, or any other document of Buyer. Any modification of these terms of sale
must be specifically agreed to in writing by Seller. This contract is binding upon Seller’s receipt of Buyer’s Purchase Order for same. Please
address Purchase Order to Rigaku Americas Corporation to the address at the bottom of this page, or email to purchaseorder@rigaku.com.
Payment terms beyond Net 30 days are subject to a 7.5% interest charge and/or loss of applicable discounts. Preferred method of payment is check
or ACH payments. Credit card purchases are limited to $20,000. This contract is binding upon Seller’s receipt of Buyer’s Purchase Order for same.
Prices are listed in USD.
Prices are based on quoted payment terms.
Prices and specifications subject to change without notice.
Page 1 of 6
Quotation validity subject to compliance with US Government export regulations for Analytical X-ray instrumentation.
Total system price includes delivery, assembly, installation, 12 months on-site labor and parts warranty (excluding consumables), and on-site
basic operation/maintenance training.
Inside delivery is not included. If inside delivery is required, an additional charge will apply. When accepting delivery, please note on transport
documents any shortage or damage, and advise Rigaku immediately at installcoordinator@rigaku.com.
Rigaku
/s/ Eric Reinheimer
Eric Reinheimer, Ph.D., MRSC Western Regional Account
Manager Rigaku Oxford Diffraction SBU
Accepted by:
/s/ Robert Ho
Robert Ho, CFO
Neoleukin Therapeutics, Inc.
Page 2 of 6
ITEM
1
QTY
1
DESCRIPTION
TOTAL
4-circle kappa goniometer with unique telescopic two-theta arm
Large radiation protection cabinet interlocked for safety
Bright cabinet and sample lighting with electronically controlled intensity
XtaLAB Synergy-R diffraction System Includes:
•
•
•
• Control computer – Windows – 24” monitor
• CrysAlisPro Multi-user/multi-site software license that is easy to use and can be
fully automated from data collection through data reduction and processing
• Cryo Mount
PhotonJet-R (Cu) includes the world’s most popular rotating anode generator with a
specialized Confocal MaxFlux optic featuring;
•
•
•
•
•
Loading: 1200 W
Copper anode: direct drive, one supplied (4364F501)
Effective focal size: approximately 70 microns
Filament: 1 box of 3 filaments is provided
CMF optic, housing and all necessary parts for coupling to the MM007-HF
anode
Optimal performance with samples of 300 microns or smaller
Remote control slits for divergence adjustment from 9 mR to 1 mR.
•
•
2
3
4
5
6
1
1
1
1
1
Refrigerated heat exchanger (water cooled)
Close temperature control to ± .1°C
Filaments: (3 per box) 0.1 x 1 mm
PhotonJet-R (Cu) direct drive rotating anode assembly, Cu target
HyPix-Arc 150° Curved Hybrid Photon Counting (HPC) Detector Features:
• Minimal reflection profile distortion
• All reflections measured under the same conditions
•
•
•
•
Capture more photons per image with 150° of 2θ coverage
70 Hz readout for fast data collection
Scintillator free design
100 mu pixels
1
XtaLAB Synergy Flow Robot
The XtaLAB Synergy Flow robotic system allows you to now take full advantage of the high
performance of your system by incorporating a 6- axis Universal Robot which provides
unattended data acquisition, enhanced productivity, and standardized workflow to your
crystallographic research environment. A XtaLAB Synergy Flow system can be used as part
of a lab workflow and sample submission protocol that minimizes human contact.
Page 3 of 6
ITEM
6
cont
QTY
DESCRIPTION
TOTAL
Features:
• Unattended data collection of up to 48 samples is carried out without users present in the
laboratory. This allows higher productivity where the system is always collecting data
with a user is not present, such as overnight or over the weekend.
•
• A unique X-ray safe dewar drawer system with a side loading port allows pucks to be
loaded without opening the enclosure door and without interrupting data collection.
The Intelligent Goniometer Head (iGH), a motorized marvel provides automated sample
centering as fast as 6 seconds on a dual camera system, the standard for our robotic
instruments. Manual and point and click control are also available for fine-tuning
centering or targeting a specific feature or part of the sample.
Force free end effector envelopes the sample in liquid nitrogen and transports it
without applying force to the pin for high reliability.
Samples are stored in an LN2 dewar with a capacity of 48 samples stored in 3 Uni-pucks.
Dewar accessories include a bar code reader, a defrost system, rotatable lid, level sensor
and automatic LN2 dosing system. Accepted pins include the ALS standard from ALS
and the SPINE standard from EMBL.
•
•
Includes:
•
•
•
•
Built in UR3 6-axis Universal Robot
Side loading dewar with (3) Uni-pucks
Intelligent Goniometer Head with dual camera optical sample alignment
CrysAlisPro software interface for robot operation, sample queuing, sample sorting,
and crystal judgements.
1
Deluxe Starter Kit for XtaLAB Synergy Flow Robot
(7) UniPucks, UniPuck Took Kit, UniPuck Rack Kit
Spines and CryoLoops
Pin set and tong
Includes:
•
•
•
• Dry Shipper
• Vessel Dewar and Dewar Flask
CSCOBRA: The non-liquid Cryostream designed for use in labs where
access to liquid nitrogen is logistically difficult to achieve or prohibitively
expensive.
•
House N2 kit
Temperature range of 80–400K
Cobra Table Stand for XtaLAB Synergy-R
Applications Training at the Customer’s Site
• Applications training at customer’s site (up to 3 days) by a Rigaku Applications
Scientist.
Travel and expenses are included.
Training must be completed within three months of system installation.
•
•
1
1
1
1
7
8
9
Discounted Total for Items 1 – 9
Total for Items 1 – 9
Less Package Discount
$989,781
-$197,712
$792,069
Page 4 of 6
NOTES:
1.
Due to some state and/or country regulations, a radiation leakage survey (by use of a Radiation Meter and Paddle) must be
performed upon completion of x-ray source equipment. The customer is responsible for providing a Radiation Meter and Paddle if
such survey for registration of x-ray source equipment is required for operation. To avoid any delays in registration of operation,
please check with your institution’s Radiation Safety Officer (RSO), if available, or state and/or country web sites for specific
Radiation Safety Regulations prior to installation. If your institution does not currently possess a Radiation Meter and Paddle and
one is required, then one may be purchased from Rigaku.
User agrees to provide internet access to control computers with ports available for TeamViewer. Failure to comply may result in
charges for support.
Transformers and/or UPS system are not included with this quotation.
PhotonJet-R (Cu) anode must be returned to Rigaku for re-balancing. Shipping, insurance and duties (if applicable) to and
from RAC are the responsibility of Buyer.
2.
3.
4.
ACCEPTANCE CRITERIA:
The equipment shall be deemed acceptable after complete installation of the x-ray system and when the following performance
specifications have been met.
1.
2.
Continual operation of the XtaLAB Synergy-R generator for seven (7) days. (Rigaku will not be on-site for the entire testing
process.)
The successful data collection on a cytidine or ylid crystal to 0.83 Å to an R-merge of 3.5% or less and a crystallographic
refinement to R1 = 3.5% or less.
ITEM
QTY
OPTIONS:
A
1
TOTAL
$45,325
DESCRIPTION
XtalCheck-S In-Situ Well Plate Scanner Attachment (XTC-S) XtalCheck-S In-situ Well
Plate Scanner Attachment to measure crystals or powders in well plates. This device is
mountable on the omega axis of the goniometer and provides motorized X and Y to access
all wells on a standard SBS format well plate, either full height or low profile plate types.
Motion control is provided along the beam direction for centering and image focusing. An
additional video microscope is provided over the collimator for video imaging the plate
contents and crystal alignment for X-ray diffraction in-situ. The XtalCheck-S is fully
integrated into CrysAlisPro software. It is easily added or removed by the user on demand.
Specifications:
• XtalCheck-S includes simple attachment to the Synergy Universal Kappa
Goniometer
Full accessibility to all sample wells, horizontally and vertically
Includes XtalCheck-S software that provides for
◦ Automated imaging of crystallization drops
◦ X-ray data collection of single X-ray images or partial data sets
In-Situ Video System
•
•
•
Page 5 of 6
Standard Terms and Conditions of Sale
This entire agreement supersedes any other oral and/or written communication on this subject. This
document and any other documents specifically referred to as being a part hereof constitute the entire
agreement on the subject matter and shall not be modified except in writing signed by both parties.
event such a claim is asserted, Buyer will notify Seller immediately, and Seller’s counsel will represent Buyer. If
Buyer elects to be represented through its own counsel in addition to Seller’s counsel, Buyer is responsible for its
attorney’s fees and associated expenses.
1. PRICE
Purchase price for each item of equipment is guaranteed until midnight Central Time on the date shown in the
“Valid Until” block on page one. Prices designated as “List Prices” are subject to change without notice. Prices
are stated in currency listed and do not include taxes of any kind.
2. TAXES & DUTIES
If Seller is required by law to collect taxes on any amount subject to this contract, Seller will include such taxes
on each applicable invoice and those amounts shall be due on Buyer’s receipt of the invoice. If Buyer claims tax-
exempt status, Buyer shall provide Seller a tax exemption certificate or other documentation acceptable to the
appropriate taxing authority.
Unless otherwise stated, Buyer is solely responsible for all other taxes which Seller is not required by law to
collect, and any other charges imposed on shipment of the purchased goods. Seller shall not be liable for any
delay, loss, or indirect, special, liquidated, incidental, or consequential damages resulting from Buyer’s failure to
timely pay amounts for which it is responsible.
Buyer is responsible for all duties including customs clearance charges, as applicable, outside of the United States
and/or European Community, unless otherwise stated.
3. PAYMENT TERMS
Payment shall be made in accordance with the terms stated on page one of this contract. In the event that delivery
is delayed at Buyer’s request, Buyer shall pay Seller 90% of the total contract amount on the original delivery
date.
4. SOFTWARE LICENSE
Any software which is used in conjunction with the goods sold by this contract is transferred pursuant to a
separate license agreement. Unless otherwise stated, the software is not sold to Buyer and title to the software
shall not pass to Buyer.
5. SHIPMENT
Shipment shall be made in accordance with the terms stated on page one. If inside delivery is required and not
expressly made a part of this contract, an additional charge will apply.
6. DELIVERY
Delivery shall be made in accordance with the terms stated on page one. In the event that delivery is delayed at
Buyer’s request: (1) the equipment warranty period will commence on the original delivery date, and (2) Seller
may store the goods at Seller’s facility or at such other location as Seller may choose at Seller’s sole discretion,
and Buyer shall be responsible for all storage and incidental charges, regardless of the location at which the goods
are stored.
7. TITLE
Buyer grants, and Seller retains, a security interest in all goods to secure payment therefore until all amounts due
are paid, and Buyer agrees that it shall execute all documents necessary to secure such interest to Seller. Buyer
shall not grant to any third party a security or other interest in the goods purchased pursuant to this contract which
is in conflict with this paragraph.
8. EQUIPMENT WARRANTY
New goods, except expendables and supplies, are warranted against defects in materials and workmanship that
materially affect the functionality of the goods until the earlier of twelve months from installation or fourteen
months from delivery. Seller’s sole obligation under this warranty shall be to repair or replace defective
components, including the cost of shipping parts and providing labor for installation, if applicable.
This warranty does not extend to other vendors’ products that are supplied to Buyer in conjunction with this
contract. Those products are warranted by their respective manufacturer’s or vendor’s warranties in effect on the
date of shipment to Buyer. Seller assigns to Buyer all rights it may have in such warranties. All warranties are
contingent upon proper use of the goods and operation of the same within manufacturer’s specifications.
THIS WARRANTY IS EXPRESSLY IN LIEU OF ALL OTHER WARRANTIES, INCLUDING BUT NOT
LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE, AND CONSTITUTES THE ONLY WARRANTY OF SELLER WITH RESPECT TO THE GOODS.
9. LIMITATION OF LIABILITY
Seller shall not be liable for any incidental, consequential or special damages, including, but not limited to any
loss of business, income or profits, Buyer’s expenses for downtime, or for making up downtime, and any labor
costs of Buyer related to the functioning of components covered by this Agreement. Seller’s liability on any claim
of any kind of loss, injury, or allocated damages shall not exceed the fraction of the purchase price allocable to the
component giving rise to such claim. The foregoing states the exclusive remedy of the Buyer and the exclusive
liability of Seller. Seller agrees to indemnify and hold harmless Buyer and Buyer’s employees, officers, directors,
affiliates, partially or wholly owned subsidiaries, agents, successors and assigns from all claims arising from or
connected with the Seller’s performance of this contract, except for claims arising from the negligence,
recklessness, or willful misconduct of Buyer or Buyer’s employees, officers, directors, affiliates, partially or
wholly owned subsidiaries, agents, successors, and assigns. In the
Page 6 of 6
10. DELAYS
If Seller suffers delay in performance due to any cause beyond its reasonable control including, but not limited to,
acts of God, act or failure to act of government, act or omission of Buyer, war, fire, flood, strike or labor trouble,
sabotage, or delay in obtaining from others suitable services, materials, components, equipment, or transportation,
the time for Seller’s performance shall be extended a period of time equal to the period of the delay and its
consequences. Seller will give the Buyer written notice within a reasonable time after Seller becomes aware of any
such delay.
11. SITE PREPARATION
Buyer shall prepare the installation site at Buyer’s expense; provide utilities in accordance with Seller’s pre-
installation instructions and specifications; furnish uncrating, rigging, electrical (including step-up or step-down
transformer if needed), plumbing, or other assistance, as required, and furnish materials and labor for connecting
specified utilities to the purchased goods.
It is the Buyer’s sole responsibility to comply with X-ray registration, and satisfy all federal, state, and local X-ray
radiation safety regulations with appropriate regulatory authorities.
12. INSTALLATION
On-site installation and instrumentation start up are provided by Seller at no additional charge unless otherwise
stated in the quotation. Software applications training is offered per specifications and options in the body of the
quotation.
13. CANCELLATION & DAMAGES
Buyer may not cancel or terminate this contract for convenience, nor may it direct suspension of Seller’s
manufacture of the purchased goods or delivery of the same, except with Seller’s written consent and then only with
tender of payment to Seller sufficient to compensate Seller for all direct and consequential costs incurred as a result
of Buyer’s agreement to this contract and subsequent cancellation, plus a reasonable amount for profit. Buyer
understands and agrees that the goods sold pursuant to this contract may be customized and not re-sellable to other
customers, and that Seller’s loss due to Buyer’s cancellation may be the entire contract price and, in such cases,
agrees that Seller may reasonably require the payment of 100% of the contract price notwithstanding Buyer’s desire
to cancel.
14. OBJECTIONS TO CHANGES
Seller objects to any changes to these terms and conditions, which Buyer seeks to impose by means of terms stated
in Buyer’s request for quotation, purchase order, or any other document of Buyer. Issuance of a purchase order
hereto by Buyer constitutes Buyer’s assent to Seller’s terms and conditions. Acceptance of the quotation is
expressly limited to the terms and conditions set forth herein. Any modification of these terms of sale must be
specifically agreed to in writing by Rigaku.
15. AMENDMENT IN WRITING
These standard terms and conditions may not be amended except by a separate written agreement signed by both the
Buyer and Seller. Alteration of the text of this document shall not constitute modification of the terms and
conditions of this contract.
16. GOVERNING LAW
This contract shall be enforced pursuant to the law of the jurisdiction for the Seller’s office which issued this
quotation, i.e. Texas, Massachusetts, Canada or the UK.
17. ASSIGNMENT
Buyer’s obligations pursuant to this contract may not be assigned without the express, written agreement of Seller.
18. SEVERABILITY
In the event that a court of competent jurisdiction shall hold any portion of this contract to be void or unenforceable,
that portion of this contract shall be severed and the remainder shall remain in full force and effect.
19. TRADE COMPLIANCE TERMS/OBLIGATIONS
U.S. export controls regulate the shipment of U.S.-origin Rigaku products that are exported or reexported to foreign
countries. If Buyer exports or reexports products or technology of
U.S. origin, or containing U.S. origin, it is the Buyer’s responsibility to ascertain its compliance obligations under
the U.S. export laws and regulations, as well as any foreign export laws and regulations that may apply. The U.S.
maintains economic sanctions against certain countries, including but not limited to, Cuba, Iran, North Korea,
Sudan, and Syria. The export, reexport, sale, supply, or service, directly or indirectly, from the U.S. or by a U.S.
person, wherever located, to any sanctioned countries is strictly prohibited without prior authorization by the U.S.
Government. Buyer shall not sell, transfer, export or reexport Rigaku products to prohibited countries, or
individuals listed on U.S. Government denied party lists, or for prohibited end-uses.
20. COMPLIANCE WITH THE FOREIGN CORRUPT PRACTICES ACT
Buyer acknowledges and agrees to comply with the U.S. Foreign Corrupt Practices Act, which prohibits the corrupt
offer, payment, promise to pay or authorization of payment of anything of value, directly or indirectly, to a foreign
official, political party or official thereof, or candidate for political office for the purpose of influencing any official
act or inducing the official to use his influence to obtain or retain business.
Exhibit 10.24
THIS FIRST AMENDMENT TO LEASE (this “First Amendment”) is made as of November 5th, 2020, by and between ARE-
SEATTLE NO. 28, LLC, a Delaware limited liability company (“Landlord”), and NEOLEUKIN THERAPEUTICS, INC., a Delaware
corporation (“Tenant”).
FIRST AMENDMENT TO LEASE
RECITALS
A. Landlord and Tenant are now parties to that certain lease dated as of December 23, 2019 (the “Lease”). Pursuant to the Lease,
Tenant leases certain premises consisting of approximately 33,300 rentable square feet (the “Premises”) located in that certain building
located at 188 East Blaine Street, Seattle, Washington. The Premises are more particularly described in the Lease. Capitalized terms used
herein without definition shall have the meanings defined for such terms in the Lease.
B. Landlord and Tenant desire, subject to the terms and conditions set forth below, to amend the work letter attached to the Lease
as Exhibit C (the “Work Letter”), as provided in this First Amendment.
NOW, THEREFORE, in consideration of the foregoing Recitals, which are incorporated herein by this reference, the mutual promises
and conditions contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Landlord and Tenant hereby agree as follows:
1.
2.
3.
4.
Rent Commencement Date. As of the date of this First Amendment, Landlord and Tenant acknowledge agree that the defined term
“Rent Commencement Date” set forth in the second paragraph of Section 2 of the Lease is hereby deleted and that the “Rent
Commencement Date” under the Lease shall be February 1, 2021.
Implementation of Changes. As of the date of this First Amendment, Section 4(b) of the Work Letter is hereby deleted in its entirety
and replaced with the following:
“If Landlord approves such Change, Tenant may cause the approved Change to be instituted. If any TI Permit modification or change
is required as a result of such Change, Tenant shall promptly provide Landlord with a copy of such TI Permit modification or change.”
Budget For Tenant Improvements. As of the date of this First Amendment, the final sentence of Section 5(a) of the Work Letter is
hereby deleted in its entirety.
Excess TI Costs. As of the date of this First Amendment, Section 5(e) of the Work Letter is hereby deleted in its entirety and
replaced with the following:
“(e) Excess TI Costs. Landlord shall have no obligation to bear any portion of the cost of any of the Tenant Improvements except to
the extent of the TI Allowance. Tenant shall be responsible for any and all TI Costs in excess of the TI Allowance (“Excess TI
Costs”). The TI Allowance and Excess TI Costs are herein referred to as the “TI Fund.” Notwithstanding anything to the contrary set
forth in this Section 5(e), Tenant shall be fully and solely liable for TI Costs and the cost of Minor Variations in excess of the TI
Allowance.”
4. Payment of TI Costs. Notwithstanding anything to the contrary contained in the Work Letter, Landlord’s reimbursement of TI Costs
under Section 5(f) shall be subject to the terms of Section 5(e).
5. Tenant Server Room. In connection with Tenant’s use and occupancy of the Premises, Tenant shall have the right, at Tenant’s sole cost
and expense, to construct, pursuant to plans and specifications reasonably approved by Landlord, an enclosure of approximately
400 square feet in a location in the Building garage designated by Landlord, for the storage and operation of Tenant’s server
equipment serving the Premises (the “Server Room”). Notwithstanding anything to the contrary contained in the Lease, the
construction of the Server Room shall constitute an Alteration under the Lease and shall be subject to the terms and conditions of
Section 12 of the Lease. Tenant shall have all of the obligations under the Lease with respect to the Server Room as though the
Server Room were part of the Premises, excluding the obligation to pay Base Rent. Tenant shall be responsible for any additional
Utilities and/or Operating Expenses relating to the Server Room. Tenant shall maintain appropriate records, obtain and maintain
appropriate permits, insurance, implement reporting procedures, and take or cause to be taken all other actions necessary or
required under applicable Legal Requirements in connection with the use of the Server Room. Landlord shall have no obligation to
make any repairs or other improvements to the Server Room and Tenant shall maintain the same, at Tenant’s sole cost and expense,
in the same condition following the construction of the Server Room as though the same were part of the Premises. Tenant shall, at
Tenant’s sole cost and expense, surrender the Server Room at the expiration or earlier termination of the term of the Lease free of
any debris and trash and free of any Hazardous Materials in accordance with the requirements of Section 28 of this Lease.
6. Brokers. Landlord and Tenant each represents and warrants that it has not dealt with any broker, agent or other person (collectively,
“Broker”) in connection with the transaction reflected in this First Amendment and that no Broker brought about this transaction.
Landlord and Tenant each hereby agrees to indemnify and hold the other harmless from and against any claims by any Broker
claiming a commission or other form of compensation by virtue of having dealt with Tenant or Landlord, as applicable, with regard to
this First Amendment.
1.
OFAC. Tenant and all beneficial owners of Tenant are currently (a) in compliance with and shall at all times during the Term of this
Lease remain in compliance with the regulations of the Office of Foreign Assets Control (“OFAC”) of the U.S. Department of Treasury
and any statute, executive order, or regulation relating thereto (collectively, the “OFAC Rules”), (b) not listed on, and shall not during
the term of this Lease be listed on, the Specially Designated Nationals and Blocked Persons List, Foreign Sanctions Evaders List, or
the Sectoral Sanctions Identification List, which are all maintained by OFAC and/or on any other similar list maintained by OFAC or
other governmental authority pursuant to any authorizing statute, executive order, or regulation, and (c) not a person or entity with
whom a U.S. person is prohibited from conducting business under the OFAC Rules.
2.
Miscellaneous.
i.This First Amendment is the entire agreement between the parties with respect to the subject matter contained in this First
Amendment and supersedes all prior and contemporaneous oral and written agreements and discussions. This First Amendment
may be amended only by an agreement in writing, signed by the parties hereto. Except as amended and/or modified by this First
Amendment, the Lease is hereby ratified and confirmed and all other terms of the Lease shall remain in full force and effect,
unaltered and unchanged by this First Amendment. In the event of any conflict between the provisions of this First Amendment and
the provisions of the Lease, the provisions of this First Amendment shall prevail. Whether or not specifically amended by this First
Amendment, all of the terms and provisions of the Lease are hereby amended to the extent necessary to give effect to the purpose
and intent of this First Amendment.
ii.This First Amendment is binding upon and shall inure to the benefit of the parties hereto, and their respective successors and
assigns.
iii.This First Amendment may be executed in 2 or more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or
any electronic signature process complying with the U.S. federal ESIGN Act of 2000) or other transmission method and any
counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
Electronic signatures shall be deemed original signatures for purposes of this First Amendment and all matters related thereto, with
such electronic signatures having the same legal effect as original signatures.
iv.Landlord and Tenant intend to be bound by this First Amendment and to deliver notarized signatures to this First Amendment, but are
unable to deliver notarized signatures due to the Stay Home-Stay Healthy Proclamation by the Governor of the State of Washington,
Proclamation 20 - 25. Landlord and Tenant are delivering signatures without notary, with the intent to be fully bound by this First
Amendment and will, as soon as reasonably possible, deliver notarized signatures for this First Amendment. Landlord and Tenant
each acknowledge that the other party intends to rely on the statements in this First Amendment.
[Signatures are on the next page.]
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment as of the dates set forth below.
TENANT:
NEOLEUKIN THERAPEUTICS, INC.,
a Delaware corporation
By: /s/ Jonathan G. Drachman
Its: CEO
LANDLORD:
ARE-SEATTLE NO. 28, LLC, a Delaware limited liability company
By: ALEXANDRIA REAL ESTATE EQUITIES, L.P., a Delaware limited partnership,
managing member
By: ARE-QRS CORP., a Maryland corporation, general partner
By: /s/ Gregory Kay
Its: Vice President RE Legal Affairs
LANDLORD’S ACKNOWLEDGMENT
A notary public or other officer completing this certificate verifies only
the identity of the individual who signed the document to which this
certificate is attached, and not the truthfulness, accuracy, or validity of
that document.
STATE OF CALIFORNIA )
) §
County of )
On ______________, 2020, before me, ________________________________, a Notary Public, personally appeared
___________________________________ who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized
capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted,
executed the instrument.
I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.
WITNESS my hand and official seal.
________________________________
Signature of Notary
(Affix seal here)
TENANT’S ACKNOWLEDGMENT
STATE OF WASHINGTON
COUNTY OF KING
ss.
On this ____ day of ___________, 2020, before me personally appeared ___________________, to me known to be the Authorized
Signatory of Amazon.com Services LLC, a Delaware limited liability company, that executed the within and foregoing instrument, and
acknowledged the said instrument to be the free and voluntary act and deed of said corporation for the uses and purposes therein
mentioned, and on oath stated that they were authorized to execute said instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year first above written.
(Signature of Notary)
(Legibly Print or Stamp Name of Notary)
Notary public in and for the State of Washington,
residing at
My appointment expires
LIST OF SUBSIDIARIES OF NEOLEUKIN THERAPEUTICS, INC.
Subsidiaries
None
Incorporation
Exhibit 21.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-194490, 333-203179, 333-210172, 333-216572, 333-
223589, 333-234734, 333-237124 and 333-238021 on Form S-8 and No. 333-251294 on Form S-3 of our report dated March 25, 2021,
relating to the financial statements of Neoleukin Therapeutics, Inc. appearing in this Annual Report on Form 10-K of Neoleukin
Therapeutics, Inc. for the year ended December 31, 2020.
Exhibit 23.1
/s/ Deloitte & Touche LLP
Seattle, Washington
March 25, 2021
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos.333-194490, 333-203179, 333-210172, 333-216572, 333-
223589, 333-234734, 333-237124 and 333-238021 on Form S-8 and No. 333-251294 on Form S-3 of our report dated March 12, 2020,
relating to the financial statements of Neoleukin Therapeutics, Inc. appearing in this Annual Report on Form 10-K of Neoleukin
Therapeutics, Inc. for the year ended December 31, 2020.
Exhibit 23.2
/s/ Deloitte LLP
Chartered Professional Accountants
Vancouver, Canada
March 25, 2021
Exhibit 31.1
I, Jonathan G. Drachman, certify that:
CERTIFICATIONS
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Neoleukin Therapeutics, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 25, 2021
/s/ Jonathan G. Drachman
Jonathan G. Drachman
Chief Executive Officer
Exhibit 31.2
I, Robert Ho, certify that:
CERTIFICATIONS
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Neoleukin Therapeutics, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 25, 2021
/s/ Robert Ho
Robert Ho
Chief Financial Officer
NEOLEUKIN THERAPEUTICS, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Neoleukin Therapeutics, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2020, as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jonathan G. Drachman, Chief Executive Officer of the Company,
certify, pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
/s/ Jonathan G. Drachman
Jonathan G. Drachman
Chief Executive Officer
March 25, 2021
This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be
incorporated by reference into any filing of Neoleukin Therapeutics, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.
NEOLEUKIN THERAPEUTICS, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of Neoleukin Therapeutics, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2020, as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kamran Alam, Interim Chief Financial Officer of the Company,
certify, pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
/s/ Robert Ho
Robert Ho
Chief Financial Officer
March 25, 2021
This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be
incorporated by reference into any filing of Neoleukin Therapeutics, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.