nltx-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

__________________________________________________

FORM 10-Q

__________________________________________________

(Mark One)


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

For the quarterly period ended June 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 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						98-0542593
(State or other jurisdiction of incorporation or organization)						(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	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.000001	NLTX	The Nasdaq Capital Market

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	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ☒

As of August 8, 2023, there were 44,021,429 shares of the registrant’s common stock outstanding.

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NEOLEUKIN THERAPEUTICS, INC.

Quarterly Report on Form 10-Q

For the Quarter Ended June 30, 2023

INDEX



			Page
		PART I. FINANCIAL INFORMATION (Unaudited)

Item 1.		Condensed Balance Sheets	2

		Condensed Statements of Operations and Comprehensive Income (Loss)	3

		Condensed Statements of Cash Flows	4

		Condensed Statements of Stockholders’ Equity	5

		Notes to Condensed Financial Statements	7

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	16

Item 3.		Quantitative and Qualitative Disclosures About Market Risk	22

Item 4.		Controls and Procedures	22

		PART II. OTHER INFORMATION

Item 1.		Legal Proceedings	23

Item 1A.		Risk Factors	23

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	80

Item 3.		Defaults Upon Senior Securities	80

Item 4.		Mine Safety Disclosures	80

Item 5.		Other Information	80

Item 6.		Exhibits	81

	SIGNATURES		82

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 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.

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PART I. FINANCIAL INFORMATION

Item 1. Condensed Financial Statements

NEOLEUKIN THERAPEUTICS, INC.

Condensed Balance Sheets

(Unaudited)

(In thousands of U.S. dollars, except per share and share amounts)


	June 30, 2023		December 31, 2022
Assets
Current assets
Cash and cash equivalents	$	31,110	$	37,887
Short-term investments	50,952		58,497
Other current assets	1,718		2,750
Total current assets	83,780		99,134

Property and equipment, net	561		6,163
Operating lease right-of-use assets	9,135		9,715
Other non-current assets	529		936
Total assets	$	94,005	$	115,948

Liabilities
Current liabilities
Accounts payable and accrued liabilities	$	3,387	$	9,547
Operating lease liabilities	1,490		1,375
Finance lease liabilities	3		140
Total current liabilities	4,880		11,062

Non-current operating lease liabilities	9,543		10,322
Non-current finance lease liabilities	6		233
Total liabilities	14,429		21,617

Stockholders’ equity
Common stock - $0.000001 par value - authorized, 100,000,000 as of June 30, 2023 and December 31, 2022; issued and outstanding, 44,021,429 as of June 30, 2023 and 42,648,346 as of December 31, 2022	—		—
Preferred stock - $0.000001 par value - authorized, 5,000,000 as of June 30, 2023 and December 31, 2022; issued and outstanding, 0 as of June 30, 2023 and December 31, 2022	—		—
Additional paid-in capital	546,933		545,407
Accumulated other comprehensive income (loss)	(13)		(21)
Accumulated deficit	(467,344)		(451,055)
Total stockholders’ equity	79,576		94,331
Total liabilities and stockholders’ equity	$	94,005	$	115,948

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

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NEOLEUKIN THERAPEUTICS, INC.

Condensed Statements of Operations and Comprehensive Income (Loss)

(Unaudited)

(In thousands of U.S. dollars, except per share and share amounts)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Operating expenses
Research and development	$	(426)	$	10,956	$	7,263	$	21,656
General and administrative	3,492		4,915		7,519		9,580
Impairment of property and equipment	—		—		3,418		—
Total operating expenses	3,066		15,871		18,200		31,236
Loss from operations	(3,066)		(15,871)		(18,200)		(31,236)
Interest income	981		194		1,926		207
Other income (loss), net	—		(11)		(15)		(10)
Net loss	$	(2,085)	$	(15,688)	$	(16,289)	$	(31,039)
Comprehensive income (loss):
Unrealized gain (loss) on available-for-sale securities	(31)		(72)		8		(72)
Comprehensive loss	$	(2,116)	$	(15,760)	$	(16,281)	$	(31,111)

Net loss per share – basic and diluted	$	(0.04)	$	(0.28)	$	(0.29)	$	(0.56)
Basic and diluted weighted average common shares outstanding	56,158,629		55,203,709		55,791,808		55,173,789

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

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NEOLEUKIN THERAPEUTICS, INC.

Condensed Statements of Cash Flows

(Unaudited)

(In thousands of U.S. dollars)


	Six Months Ended June 30,
	2023		2022
Operating activities
Net loss	$	(16,289)	$	(31,039)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation	1,522		4,758
Depreciation and amortization	406		870
Impairment of property and equipment	3,418		—
Amortization of operating lease right-of-use assets	580		509
Amortization and accretion of premiums/discounts on available-for-sale securities	(1,178)		3
Gain on sale of property and equipment	(47)		—
Changes in operating assets and liabilities:
Other current assets and other non-current assets	1,046		(537)
Accounts payable and accrued liabilities	(5,876)		614
Operating lease liabilities	(664)		(563)
Net cash used in operating activities	(17,082)		(25,385)

Investing activities
Purchases of property and equipment	(551)		(684)
Proceeds from sale of property and equipment	2,115		—
Purchases of available-for-sale securities	(55,269)		(39,067)
Proceeds from maturities of available-for-sale securities	64,000		—
Net cash provided by (used in) investing activities	10,295		(39,751)

Financing activities
Proceeds from exercise of stock options	—		134
Payment on finance lease obligations	(364)		(2)
Proceeds from the issuance of common stock under Employee Stock Purchase Plan	4		63
Net cash provided by (used in) financing activities	(360)		195

Net change in cash, cash equivalents, and restricted cash during the period	(7,147)		(64,941)
Cash, cash equivalents, and restricted cash, beginning of period	38,765		143,345

Cash, cash equivalents, and restricted cash, end of period	$	31,618	$	78,404

Supplemental disclosure of non-cash investing and financing activities:
Purchases of property and equipment unpaid at period-end	$	—	$	265

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

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NEOLEUKIN THERAPEUTICS, INC.

Condensed Statements of Stockholders’ Equity

(Unaudited)

(In thousands of U.S. dollars, except share amounts)


	Common Stock			Additional Paid-In		Accumulated Other Comprehensive		Accumulated		Total Stockholders'
	Number	Amount		Capital		Income (Loss)		Deficit		Equity
Balances, December 31, 2022	42,648,346	$	—	$	545,407	$	(21)	$	(451,055)	$	94,331
Shares issued upon vesting of restricted stock units	170,000	—		—		—		—		—
Unrealized gain on available-for-sale securities	—	—		—		39		—		39
Stock-based compensation	—	—		1,191		—		—		1,191
Net loss	—	—		—		—		(14,204)		(14,204)
Balances, March 31, 2023	42,818,346	$	—	$	546,598	$	18	$	(465,259)	$	81,357
Shares issued upon the exercise of pre-funded warrants	1,180,000	—		—		—		—		—
Issuance of shares under Employee Stock Purchase Plan	13,083	—		4		—		—		4
Shares issued upon vesting of restricted stock units	10,000	—		—		—		—		—
Stock-based compensation	—	—		331		—		—		331
Unrealized loss on available-for-sale securities	—	—		—		(31)		—		(31)
Net loss	—	—		—		—		(2,085)		(2,085)
Balances, June 30, 2023	44,021,429	$	—	$	546,933	$	(13)	$	(467,344)	$	79,576

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

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NEOLEUKIN THERAPEUTICS, INC.

Condensed Statements of Stockholders’ Equity

(Unaudited)

(In thousands of U.S. dollars, except share amounts)


	Common Stock			Additional Paid-In		Accumulated Other Comprehensive		Accumulated		Total Stockholders'
	Number	Amount		Capital		Income (loss)		Deficit		Equity
Balances, December 31, 2021	42,457,471	$	—	$	536,362	$	—	$	(393,498)	$	142,864
Shares issued upon exercises of stock options	36,500	—		134		—		—		134
Stock-based compensation	—	—		2,446		—		—		2,446
Net loss	—	—		—		—		(15,351)		(15,351)
Balances, March 31, 2022	42,493,971	$	—	$	538,942	$	—	$	(408,849)	$	130,093
Issuance of shares under Employee Stock Purchase Plan	75,881	—		63		—		—		63
Shares issued upon vesting of restricted stock units	10,000	—		—		—		—		—
Stock-based compensation	—	—		2,312		—		—		2,312
Unrealized loss on available-for-sale securities	—	—		—		(72)		—		(72)
Net loss	—	—		—		—		(15,688)		(15,688)
Balances, June 30, 2022	42,579,852	$	—	$	541,317	$	(72)	$	(424,537)	$	116,708

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

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NEOLEUKIN THERAPEUTICS, INC.

Notes to the Condensed Financial Statements

(Unaudited)

1. Nature of operations

Neoleukin Therapeutics, Inc. (“Neoleukin” or “the Company”) has historically been a biopharmaceutical company creating next generation immunotherapies for cancer, inflammation, and autoimmunity using de novo protein design technology. Based on decisions made by the Company's Board of Directors in November 2022 and March 2023, the Company has restructured operations to significantly reduce its workforce, discontinue development of NL-201, a de novo protein that was in Phase 1 clinical trial for the treatment of cancer, and suspended all research and development activities in order to conserve capital and focus on other strategic alternatives for the Company.

On July 17, 2023, Neoleukin, Project North Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Neoleukin (“Merger Sub”), and Neurogene Inc., a privately held Delaware corporation (“Neurogene”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which, among other matters, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Neurogene, with Neurogene continuing as a wholly owned subsidiary of Neoleukin and the surviving corporation of the merger (the “Merger”). The Merger is intended to qualify for federal income tax purposes as a tax-free reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "IRC"). The Merger Agreement is subject to customary closing conditions, including approval of certain matters by stockholders of each of Neoleukin and Neurogene, and is anticipated to close in the fourth quarter of 2023, assuming satisfaction or waiver of all of the conditions of the Merger.

If the Merger is completed, Neoleukin will continue as the surviving corporation after the Merger, but will change its name to Neurogene Inc., and the management of Neurogene is expected to become the management of the surviving corporation. The surviving company is expected to pursue the business activities of Neurogene following the closing of the Merger.

2. Summary of significant accounting policies

(a)Basis of presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, these financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission on March 20, 2023.

In management’s opinion, the unaudited condensed financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position of the Company as of June 30, 2023, and results of operations and cash flows for all periods presented. The interim results presented are not necessarily indicative of results that can be expected for the full year ending December 31, 2023. The Company reclassified prior year interest income in the condensed statements of operations and comprehensive income (loss) to conform to current year presentation. This reclassification had no effect on net loss or comprehensive loss.

(b)Use of estimates and assumptions

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the 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/depreciation and impairment of property and equipment, and pre-clinical, clinical, and other accruals. Actual results could differ from those estimates.

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(c)Property and equipment, net

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

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, as a result of the corporate restructuring announced in March 2023, including the decision to suspend all research and development activities, there were indicators of impairment of certain property and equipment. In March 2023, the Company recorded $3.4 million in impairment charges. There were no additional indicators of impairment of property and equipment as of June 30, 2023 and none as of December 31, 2022.

(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.

The Company includes options to extend the lease in its lease liability and right-of-use asset when it is reasonably certain that it will exercise that option. None of the Company's options to extend the rental term of any of its existing leases were considered reasonably certain as of June 30, 2023.

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

For leases 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)Fair value of financial instruments

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

Certain of the Company’s financial instruments are measured at fair value on a recurring basis. The Company determines the fair value of those financial instruments based upon the fair value hierarchy, which prioritizes valuation inputs based on the observable nature of those inputs. The three levels of the fair value hierarchy are as follows:

Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities that can be accessed on the measurement date

Level 2 - quoted prices (in non-active markets or in active markets for similar assets or liabilities), observable inputs other than quoted prices and inputs that are not directly observable but are corroborated by observable market data

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

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The following table presents information about the Company's financial instruments that are measured at fair value on a recurring basis:


	June 30, 2023
(in thousands)	Total		Level 1		Level 2		Level 3
Financial assets
Money market funds	$	30,593	$	30,593	$	—	$	—
U.S. treasury securities	50,965		50,965		—		—
Total financial assets	$	81,558	$	81,558	$	—	$	—


	December 31, 2022
(in thousands)	Total		Level 1		Level 2		Level 3
Financial assets
Money market funds	$	33,767	$	33,767	$	—	$	—
U.S. treasury securities	61,970		61,970		—		—
Total financial assets	$	95,737	$	95,737	$	—	$	—

(f)Investments

The Company’s short-term investments consist entirely of investments in U.S. treasury securities. These investments are classified as available-for-sale debt securities and are therefore reported at fair value in the condensed balance sheets. Unrealized gains and losses are included in accumulated other comprehensive income (loss). There were no realized gains or losses on investments for the three and six months ended June 30, 2023 and 2022.

The Company assesses investments for impairment at each reporting period. An investment is considered impaired when the amortized cost basis exceeds the fair value. When this is the case, the Company assesses whether the impairment is credit-related or noncredit-related based on various factors. When an impairment, or a portion of an impairment, is considered credit-related, an allowance for credit losses is recorded. For the six months ended June 30, 2023, the Company recognized no year-to-date credit losses and no allowance for credit losses is recorded as of June 30, 2023. The aggregate fair value of investments with unrealized losses as of June 30, 2023 is $31.1 million.

(g)Net 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 and are excluded in the calculation of diluted net loss per share in periods of net loss as their inclusion would be anti-dilutive. Outstanding pre-funded warrants as of June 30, 2023 and June 30, 2022 was 11,483,010 and 12,663,010, respectively. They are considered outstanding as of their issuance date and are included in basic and diluted net loss per share because they are fully vested and exercisable for nominal cash consideration.

(h)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. The Company utilizes newly issued shares to satisfy option exercises, the vesting of RSUs, and 2020 Employee Stock Purchase Plan ("2020 ESPP") purchases.

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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 of 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.

(i)Restructuring charges

The Company records costs and liabilities associated with exit and disposal activities in accordance with ASC 420, Exit or Disposal Cost Obligations. Restructuring charges are recorded in the period in which they are incurred. The Company evaluates and adjusts these costs as appropriate for changes in circumstances as additional information becomes available.

(j)Recently issued and recently adopted accounting standards

The Company monitors and evaluates the issuance of Accounting Standards Updates ("ASUs"). No ASUs have been issued recently which impact the Company's financial statements and disclosures.

3. Cash, cash equivalents, and restricted cash

The Company considers all highly liquid investments with an original contractual maturity or a remaining maturity of three months or less at the date of purchase to be cash equivalents. Cash equivalents consist of money market funds and U.S. treasury securities as of June 30, 2023 and December 31, 2022.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash in the condensed balance sheets that sum to the total of the same such amounts shown in the condensed statements of cash flows:


(in thousands)	June 30, 2023		December 31, 2022
Cash and cash equivalents	$	31,110	$	37,887
Restricted cash	508		878
Total cash, cash equivalents, and restricted cash	$	31,618	$	38,765

Restricted cash, included in other non-current assets in the condensed balance sheets, includes $0.5 million in cash deposits the Company maintains with its bank as collateral for the irrevocable letter of credit related to its lease obligations.

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4. Investments

The Company's investments consist of the following:


	June 30, 2023
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Cash equivalents:
Money market funds	$	30,593	$	—	$	—	$	30,593
Short-term investments:
U.S. treasury securities - due within 1 year	50,965		2		(15)		50,952
Total	$	81,558	$	2	$	(15)	$	81,545


	December 31, 2022
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Cash equivalents:
Money market funds	$	33,767	$	—	$	—	$	33,767
U.S. treasury securities - due within 3 months	3,473		—		—		3,473
Short-term investments:

SEC Form 10-Q filed by Neoleukin Therapeutics Inc.