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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
__________________________________________________
FORM 10-Q
__________________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
OR
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)
__________________________________________________

Delaware98-0542593
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.000001NLTXThe Nasdaq Global 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 filerSmaller 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 5, 2022, there were 42,579,852 shares of the registrant’s common stock outstanding.




 
 
NEOLEUKIN THERAPEUTICS, INC.
Quarterly Report on Form 10-Q
For the Quarter Ended June 30, 2022
INDEX
Page
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.
 


1




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, 2022December 31, 2021
Assets
Current assets
Cash and cash equivalents$77,526 $142,467 
Short-term investments38,931  
Other current assets2,028 1,522 
Total current assets118,485 143,989 
Property and equipment, net6,241 6,452 
Operating lease right-of-use assets10,257 10,766 
Intangible asset, net18 128 
Other non-current assets2,020 1,928 
Total assets$137,021 $163,263 
Liabilities
Current liabilities
Accounts payable and accrued liabilities$7,886 $7,415 
Operating lease liabilities1,267 1,166 
Finance lease liabilities118 55 
Total current liabilities9,271 8,636 
Non-current operating lease liabilities11,032 11,696 
Non-current finance lease liabilities10 67 
Total liabilities20,313 20,399 
Stockholders’ equity
Common stock - $0.000001 par value - authorized, 100,000,000 as of June 30, 2022 and December 31, 2021; issued and outstanding, 42,579,852 as of June 30, 2022 and 42,457,471 as of December 31, 2021.
  
Preferred stock - $0.000001 par value - authorized, 5,000,000 as of June 30, 2022 and December 31, 2021; issued and outstanding, 0 as of June 30, 2022 and December 31, 2021.
  
Additional paid-in capital541,317 536,362 
Accumulated other comprehensive income (loss)(72) 
Accumulated deficit(424,537)(393,498)
Total stockholders’ equity116,708 142,864 
Total liabilities and stockholders’ equity$137,021 $163,263 
The accompanying notes form an integral part of these condensed financial statements. 

2




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,
 2022202120222021
Operating expenses  
Research and development$10,956 $9,824 $21,656 $19,506 
General and administrative4,915 5,300 9,580 10,566 
Total operating expenses15,871 15,124 31,236 30,072 
Loss from operations(15,871)(15,124)(31,236)(30,072)
Other income (loss), net183 (5)197 (7)
Net loss$(15,688)$(15,129)$(31,039)$(30,079)
Comprehensive income (loss):
Unrealized loss on available-for-sale securities(72) (72) 
Comprehensive loss$(15,760)$(15,129)$(31,111)$(30,079)
Net loss per share – basic and diluted$(0.28)$(0.27)$(0.56)$(0.55)
Basic and diluted weighted average common shares outstanding55,203,709 55,026,404 55,173,789 54,985,639 
The accompanying notes form an integral part of these condensed financial statements.
 

3




NEOLEUKIN THERAPEUTICS, INC.
Condensed Statements of Cash Flows
(Unaudited)
(In thousands of U.S. dollars)
Six Months Ended June 30,
 20222021
Operating activities  
Net loss$(31,039)$(30,079)
Adjustments to reconcile net loss to net cash used in operating activities:  
Stock-based compensation4,758 5,338 
Depreciation and amortization870 560 
Amortization of operating lease right-of-use assets509 494 
Amortization and accretion of premiums/discounts on available-for-sale securities3  
Changes in operating assets and liabilities:  
Other current assets and other non-current assets(537)(1,614)
Accounts payable and accrued liabilities614 (1,157)
Operating lease liabilities(563)(176)
Net cash used in operating activities(25,385)(26,634)
Investing activities  
Purchase of property and equipment(684)(2,280)
Purchase of available-for-sale securities(39,067) 
Net cash used in investing activities(39,751)(2,280)
Financing activities  
Proceeds from exercise of stock options134 376 
Proceeds from the issuance of common stock under Employee Stock Purchase Plan63 219 
Payment on finance lease obligations(2)(2)
Net cash provided by financing activities195 593 
Net change in cash, cash equivalents, and restricted cash during the period(64,941)(28,321)
Cash, cash equivalents, and restricted cash, beginning of period143,345 193,434 
Cash, cash equivalents, and restricted cash, end of period$78,404 $165,113 
Supplemental disclosure of non-cash investing and financing activities:  
Operating lease liabilities arising from obtaining ROU asset$ $1,584 
Purchases of property and equipment unpaid at period-end$265 $419 
The accompanying notes form an integral part of these condensed financial statements.

4




NEOLEUKIN THERAPEUTICS, INC.
Condensed Statements of Stockholders’ Equity
(Unaudited)
(In thousands of U.S. dollars, except share amounts)
 Common StockAdditional Paid-InAccumulated Other ComprehensiveAccumulatedTotal
Stockholders'
 NumberAmountCapital  Income (Loss)DeficitEquity
Balances, December 31, 202142,457,471 $— $536,362 $ $(393,498)$142,864 
Shares issued upon exercises of stock options36,500 — 134 — — 134 
Stock-based compensation— — 2,446 — — 2,446 
Net loss— — — — (15,351)(15,351)
Balances, March 31, 202242,493,971 $— $538,942 $ $(408,849)$130,093 
Issuance of shares under Employee Stock Purchase Plan75,881 — 63 — — 63 
Shares issued upon vesting of restricted stock units10,000 — — — — — 
Stock-based compensation— — 2,312 — — 2,312 
Unrealized loss on available-for-sale securities— — — (72)— (72)
Net loss— — — — (15,688)(15,688)
Balance, June 30, 202242,579,852 $— $541,317 $(72)$(424,537)$116,708 
The accompanying notes form an integral part of these condensed financial statements.

5





NEOLEUKIN THERAPEUTICS, INC.
Condensed Statements of Stockholders’ Equity
(Unaudited)
(In thousands of U.S. dollars, except share amounts)
 
Common StockAdditional Paid-InAccumulated other comprehensiveAccumulatedTotal
Stockholders'
NumberAmountCapitalincome (loss)DeficitEquity
Balances, December 31, 202042,196,296 $— $524,022 $— $(332,806)$191,216 
Shares issued upon exercises of stock options91,737 — 282 — — 282 
Shares issued upon vesting of restricted stock units38,000 — — — — — 
Stock-based compensation— — 2,420 — — 2,420 
Net loss— — — — (14,950)(14,950)
Balances, March 31, 202142,326,033 $— $526,724 $— $(347,756)$178,968 
Shares issued upon exercises of stock options25,124 — 95 — — 95 
Issuance of shares under Employee Stock Purchase Plan22,972 — 219 — — 219 
Shares issued upon vesting of restricted stock units45,000 — — — — — 
Stock-based compensation— — 2,918 — — 2,918 
Net loss— — — — (15,129)(15,129)
Balances, June 30, 202142,419,129 $— $529,956 $— $(362,885)$167,071 
The accompanying notes form an integral part of these condensed financial statements.

6




NEOLEUKIN THERAPEUTICS, INC.
Notes to the Condensed Financial Statements
(Unaudited)


1. Nature of operations
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. 
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, 2021, filed with the Securities and Exchange Commission on March 1, 2022.
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, 2022, 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, 2022.
(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 and depreciation of property, plant and equipment, and pre-clinical, clinical, and other accruals. Actual results could differ from those estimates.
(c)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 and payments for lessor-owned assets that are not covered by a tenant improvement allowance.
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, 2022.
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.

7




(d)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 accrued 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    
At June 30, 2022, and December 31, 2021, the Company had $76.4 million and $140.9 million in money market funds, respectively. Money market funds and short-term investments, consisting entirely of investments in U.S. treasury securities, are Level 1 financial instruments as they are valued at the closing price reported by the fund sponsor from an actively traded exchange.
The following table presents information about the Company's financial instruments that are measured at fair value on a recurring basis:
June 30, 2022
(in thousands)TotalLevel 1Level 2Level 3
Financial assets
Cash equivalents$76,431 $76,431 $ $ 
Short-term investments38,931 38,931   
Total financial assets$115,362 $115,362 $ $ 
December 31, 2021
(in thousands)TotalLevel 1Level 2Level 3
Financial assets

Cash equivalents$140,856 $140,856 $ $ 
Short-term investments    
Total financial assets$140,856 $140,856 $ $ 
(e)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, 2022 and 2021.
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, 2022, the Company recognized no year-to-date credit losses and no allowance for credit losses is recorded as of June 30, 2022. The aggregate fair value of investments with unrealized losses as of June 30, 2022 is $38.9 million.

8




(f)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, 2022 and June 30, 2021 are 12,663,010 and 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.
(g)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.
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.
(h)Recently issued and recently adopted accounting standards
In June 2016, the FASB issued Accounting Standard Update ("ASU") No. 2016-13, Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which replaces the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. In November 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives (Topic 815), and Leases (Topic 842). This ASU delayed the required adoption for SEC filers that are smaller reporting companies as of their determination on November 15, 2019, until annual and interim periods beginning after December 15, 2022, with early adoption permitted. The Company has elected to adopt this standard in conjunction with the investment in debt securities during the quarter ended June 30, 2022.
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 as of June 30, 2022 and December 31, 2021 consisted of money market funds.

9




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, 2022December 31, 2021
Cash and cash equivalents$77,526 $142,467 
Restricted cash878 878 
Total cash, cash equivalents, and restricted cash$78,404 $143,345 
Restricted cash, included in other non-current assets in the condensed balance sheets, includes $0.9 million in cash deposits the Company maintains with its bank as collateral for the irrevocable letters of credit related to its lease obligations.
4. Investments
The Company's investments consist of the following:

June 30, 2022
(in thousands)Amortized CostGross Unrealized Gains Gross Unrealized LossesFair Value
U.S. treasury securities - due within 1 year$39,003 $ $(72)$38,931 
Money market funds76,431 — — 76,431 
Total$115,434 $ $(72)$115,362 

December 31, 2021
(in thousands)Amortized CostGross Unrealized Gains Gross Unrealized LossesFair Value
U.S. treasury securities - due within 1 year$ $ $ $ 
Money market funds140,856 — — 140,856 
Total$140,856 $ $ $140,856 
5. Leases
The Company enters into lease arrangements for its facilities as well as certain equipment, classified either as operating or finance leases.
The Company has an operating lease agreement, as amended by the execution of two subsequent amendments, 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 lease commenced on January 15, 2020 and expires on February 1, 2029, with the option to extend the lease for two five-year terms.  The lease provides for a tenant improvement allowance of up to $9.5 million, which has been fully utilized.
The Company has an operating lease agreement for approximately 6,272 square feet of office space in Seattle, Washington, for additional office and laboratory space for research and development and related uses. In March 2021, the Company executed an amendment to this lease pursuant to which the contractual lease term was extended through September 30, 2026, unless terminated earlier, with the option to extend the lease for an additional 28-month term. The execution of this amendment was accounted for as a modification to the lease due to the extension of the lease term and an increase in lease payments, and the Company recorded an increase in the lease liability and related right-of-use asset of $1.6 million.

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As of June 30, 2022, and December 31, 2021, the Company’s operating lease right-of-use assets were $10.3 million and $10.8 million, respectively.  As of June 30, 2022, and December 31, 2021, the Company’s finance lease right-of-use assets, included within property and equipment on the condensed balance sheets, were $0.2 million and $0.2 million, respectively.
6. Equity 
(a)Common stock and pre-funded warrants
The Company is authorized to issue 100,000,000 shares of common stock with a par value of $0.000001 as of June 30, 2022 and December 31, 2021. As of June 30, 2022 and December 31, 2021, the total number of shares of common stock issued and outstanding was 42,579,852 and 42,457,471, respectively.
As of June 30, 2022, the Company had pre-funded warrants outstanding to purchase an aggregate of 12,663,010 shares of common stock. The pre-funded warrants are exercisable at any time for an exercise price of $0.000001, except that the pre-funded warrants cannot be exercised by the holders if, after giving effect thereto, the holders would beneficially own more than 9.99% of the outstanding common stock, subject to certain exceptions. However, any holder may increase or decrease such percentage to any other percentage (not in excess of 19.99%) upon at least 61 days’ prior notice from the holder to the Company. The holders of the pre-funded warrants will not have the right to vote on any matter except to the extent required by Delaware law.
On November 4, 2021, the Company entered into an ATM or “at-the-market” Equity Offering Sales Agreement (the “Sales Agreement”) with BofA Securities, Inc., as agent (“BofA”), pursuant to which the Company may offer and sell, from time to time through BofA, shares of the Company’s common stock, having an aggregate offering price of up to $40.0 million. The offer and sale of the shares will be made pursuant to a shelf registration statement on Form S-3 and the related prospectus filed on December 11, 2020, and declared effective by the SEC on December 21, 2020, as supplemented by a prospectus supplement dated November 4, 2021. The Company has no obligation to sell any such shares under the Sales Agreement. Through June 30, 2022, no sales of common stock have been made pursuant to the Sales Agreement.
(b)Stock-based compensation expense
Stock-based compensation expense is classified in the condensed statements of operations as follows:
(in thousands)Three Months Ended
June 30,
Six Months Ended
June 30,
2022202120222021
Research and development expenses$1,051 $1,409 $2,315 $2,427 
General and administrative expenses1,261 1,509 2,443 2,911 
Total stock-based compensation expense$2,312 $2,918 $4,758 $5,338 
Total unrecognized compensation expense for all stock-based compensation plans was $21.0 million as of June 30, 2022. This expense is expected to be recognized over a weighted average remaining vesting period of 2.42 years.
The fair values of stock options granted are estimated using the Black-Scholes option pricing model with the following weighted average assumptions:
 Three Months Ended
June 30,
Six Months Ended
June 30,
 2022202120222021
Expected volatility82.68 %89.12 %83.01 %89.19 %
Expected dividends0 %0 %0 %0 %
Expected terms (years)5.735.945.965.95
Risk free rate2.77 %1.07 %2.22 %1.00 %


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(c)Stock options
A summary of the Company’s stock option activity and related information for the six months ended June 30, 2022 is as follows:
 Number of SharesWeighted Average Exercise PriceWeighted Average Remaining Contractual Life
 (in Years)
Aggregate Intrinsic Value
(in Thousands)
Outstanding at December 31, 20218,963,945 $7.20 8.32$6,912 
Options granted1,079,700 $2.06 
Options exercised(36,500)$3.67 
Options cancelled/forfeited(2,368,752)$7.87 
Outstanding at June 30, 20227,638,393 $6.29 8.11$4 
Exercisable as of June 30, 20223,189,117 $6.08 7.20$ 
During the six months ended June 30, 2022, 36,500 shares of common stock were issued upon exercise of options with an aggregate intrinsic value of $0.1 million. During the six months ended June 30, 2021, 116,861 shares of common stock were issued upon exercise of options with an aggregate intrinsic value of $1.2 million. The weighted-average grant date fair value of options granted during the six months ended June 30, 2022 and June 30, 2021 was $1.47 and $8.99 per share, respectively.
(d)Restricted stock units
A summary of the Company’s RSU activity and related information for the six months ended June 30, 2022 is as follows:
 Number of SharesWeighted Average Grant Date Fair Value
Non-vested at December 31, 2021132,000 $9.97 
Restricted stock units granted700,000 $3.69 
Restricted stock units vested(10,000)$12.49 
Restricted stock units forfeited(219,000)$5.13 
Non-vested at June 30, 2022603,000 $4.39 
(e)Employee stock purchase plan
The Company’s 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 shares of the Company’s 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.  
For the six months ended June 30, 2022, the Company issued 75,881 shares of common stock at a purchase price of $0.83 per share under the 2020 ESPP. Cash received from the purchases under the 2020 ESPP for the six months ended June 30, 2022 was $0.1 million. As of June 30, 2022, $0.1 million of employee contributions are included in accounts payable and accrued liabilities in the accompanying condensed balance sheet.

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7. Net loss per share
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:
 Three Months Ended
June 30,
Six Months Ended
June 30,
 2022202120222021
Outstanding stock options7,638,393 7,706,353 7,638,393 7,706,353 
Restricted stock units603,000 173,500 603,000 173,500 
Shares issuable under 2020 ESPP76,872 29,102 76,872 29,102 
 8,318,265 7,908,955 8,318,265 7,908,955 
 
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion of our financial condition and results of operations in conjunction with the unaudited interim condensed financial statements and notes thereto included elsewhere in this report and our audited consolidated financial statements and notes included as part of our Annual Report on Form 10-K for the year ended December 31, 2021.
Forward-Looking Statements
The following discussion of our financial condition and results of operations 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 and financial guidance. 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 document 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, including, among other things, impacts on our business due to health pandemics or other contagious outbreaks, such as the current COVID-19 pandemic. In evaluating these statements, you should specifically consider various factors, including the risks outlined under the caption “Risk Factors” set forth in Item 1A of Part II of this quarterly report on Form 10-Q, as well as those contained from time to time in our other filings with the SEC. We caution investors that our business and financial performance are subject to substantial risks and uncertainties.

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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. Protein engineering methods generally involve the modification of native proteins. With our de novo protein design process we design new protein scaffolds 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. With the introduction of machine learning to this process in recent months, we have been able to accelerate our timeline for adding potential candidates in our pipeline. 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 and inflammatory conditions. 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, potency and targeting to tumor or inflamed tissues.
On August 8, 2019, Neoleukin Therapeutics, Inc. ("Former Neoleukin"), completed its merger with Aquinox, in accordance with the terms of the Agreement and Plan of Merger dated August 5, 2019 ("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 (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.
NL-201
Our lead product candidate, NL-201, is an IL-2/IL-15 agonist designed to eliminate binding to the alpha subunit of the IL-2 receptor (also known as CD25) while enhancing binding to the beta and gamma subunits. We believe it to be the first fully de novo protein to be put into clinical trials. 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 the 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, as well as initiated a first in-human clinical trial. 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, including checkpoint inhibitors. In addition, we believe NL-201 holds promise in combination with allogeneic cellular therapies to expand and maintain populations of transplanted CAR-T and natural killer ("NK") cells.
Recombinant human IL-2 (rhIL-2) is one of the few immuno-oncology drugs with demonstrated activity as a single agent. IL-2 has a confirmed mechanism of action for treating tumors; however, it has encountered issues as a therapeutic due to the preferential binding and activation of cells that contain CD25, the alpha subunit of the heterotrimeric IL-2 receptor. CD25 induces conformational changes in IL-2 that enable high-affinity binding to the beta and gamma subunits of the IL-2 receptor. At high doses, preferential binding to endothelial cells expressing CD25 is believed to exacerbate vascular leak syndrome, whereas at low doses, preferential activation of CD25-expressing regulatory T cells (Tregs) can inhibit anticancer immune responses. Due to IL-2’s potential for severe 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 treatment with IL-2 has generally been insufficient to demonstrate antitumor activity.

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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 while eliminating binding to CD25. Instead of modifying native IL-2, NL-201 was developed using computational methods to design a new sequence with the proper intermolecular interactions to efficiently bind the beta and gamma subunits while eliminating CD25 binding. As opposed to traditional recombinant 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 may be mitigated by several factors, including the stability of the protein and its resistance to proteolytic degradation.
In May 2021, we enrolled the first patient in a Phase 1 clinical trial of NL-201 for advanced solid tumors. On May 16, 2022, we announced that we had begun dosing patients in a new arm of the clinical trial study with a combination of NL-201 and Merck's checkpoint inhibitor KEYTRUDA® (pembrolizumab).
The Phase 1 study is planned to enroll up to 252 patients with advanced, relapsed or refractory solid tumors, with approximately 120 patients expected to receive intravenous NL-201 as monotherapy and up to 132 patients expected to receive NL-201 in combination with pembrolizumab. The trial is assessing safety, pharmacokinetics, pharmacodynamics, immunogenicity, and antitumor activity. When a recommended Phase 2 dose and schedule are determined, we expect to enroll indication-specific expansion cohorts of patients with renal cell carcinoma and melanoma. The trial is being conducted at multiple sites in North America and Australia.
The trial is evaluating two different schedules and multiple dose levels, with doses escalating gradually from 0.1 μg/kg to 24 μg/kg. Intermediate dose levels have been added to both schedules, which has extended the timeline to reach the anticipated Phase 2 dose. Dose escalation continues in both schedules, and we now anticipate disclosing interim data in 2023.
In addition to our ongoing Phase 1 clinical trial of NL-201 for advanced solid tumors, we plan to initiate a Phase 1 clinical trial in hematological malignancies. The timing of enrollment in this trial will be dependent on data to come from our ongoing solid tumor Phase 1 trial relating to safety and optimal dosing schedules.
Other Research Programs
Beyond our initial focus on NL-201, our research team is using de novo protein design to develop additional molecules as therapeutic candidates. In 2020, we reported development of NL-CVX1, a fully de novo decoy protein that was designed to block infection of human cells by the SARS-CoV-2 virus. In June 2021, we suspended plans to develop this molecule as effective vaccines became widely available, however we believe this is a powerful example of the capability of our technology to develop potential de novo therapies in a short time frame. In 2021, we reported preclinical data for an inhibitor of IL-2 and IL-15 activity, Neo-5171, which demonstrated in vivo anti-inflammatory activity.
Recently, our scientists have been incorporating machine learning and neural networks to our existing de novo protein design methods to more quickly develop potential therapeutics that we believe will be able to address significant unmet medical needs in areas including oncology, inflammation, and autoimmunity. Advances in machine learning, combined with the expertise and experience of our protein design and research team, expands the scope of our de novo protein design process to include complex structures.
We are currently exploring targeted and/or conditionally active IL-2/IL-15 mimetics, targeted T-Reg agonists, and other cytokine mimetics that we believe will provide important mechanisms of action for immuno-oncology and treatment of inflammation. Additional candidates will enter our preclinical pipeline as they become validated.

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Finances
We will need to raise substantial additional capital to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we plan to finance our operations through the sale of equity, debt financings, or other capital sources, which may include collaborations with other companies or other strategic transactions. There are no assurances that we will be successful in obtaining an adequate level of financing as and when needed to finance our operations on terms acceptable to us or at all. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. If we are unable to secure adequate additional funding, we may have to significantly delay, scale back, or discontinue the development and commercialization of one or more product candidates, reduce our early stage research projects, reduce the size of our team, or delay our pursuit of potential in‑licenses or acquisitions.
Based upon our current operating plan, we believe our cash-on-hand will be sufficient to fund operations through 2023.
COVID-19 Impact
The COVID-19 pandemic continues to impact worldwide economic activity and poses a continued health risk. During this unprecedented time, protecting the health and well-being of our employees and community is a top priority. In addition, we are focused on maintaining continuity of our research, development, and business activities while balancing potential impacts from the COVID-19 pandemic.
In March 2020, we transitioned to a work from home policy for our employees and discontinued all work-related travel. Beginning in the first quarter of 2021, our offices reopened, with some employees returning to working in person in accordance with guidance from Washington State and the U.S. Centers for Disease Control and Prevention ("CDC") and applicable regulations. During 2022, we have seen an increase in the number of employees returning to in-office work with hybrid schedules, as well as an increase in travel to in-person conferences and events, and we continue to assess the ongoing impacts of the pandemic on our workforce, supply chain, and availability of critical vendors. Business-critical research and development work has continued throughout the pandemic, adhering to employee safety guidelines. We continually assess our work policies and monitor federal, state, and local guidance and regulations in order to determine any changes to work practices.

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Results of Operations
Operating Expenses
The following table summarizes our operating expenses for the three and six months ended June 30, 2022 and 2021:
 Three Months Ended June 30,ChangeSix Months Ended June 30,Change
(in thousands)20222021$%20222021$%
Research and development$10,956 $9,824 $1,132 12 %$21,656 $19,506 $2,150 11 %
General and administrative4,915 5,300 (385)(7)%9,580 10,566 (986)(9)%
Total operating expenses$15,871 $15,124 $747 %$31,236 $30,072 $1,164 %
Research and Development Expenses
Research and development expenses consist primarily of costs incurred under arrangements with third parties, such as contract research organizations ("CROs"), manufacturing organizations, and consultants, personnel-related costs (including stock-based compensation and travel expenses), facility-related costs, and lab supplies.
For the three and six months ended June 30, 2022, research and development expenses were $11.0 million and $21.7 million, respectively, compared to $9.8 million and $19.5 million for the three and six months ended June 30, 2021, respectively. The increase in research and development expenses during the three and six months ended June 30, 2022, as compared to the three and six months ended June 30, 2021, was primarily due to increased clinical trial expenses related to our lead product candidate, NL-201.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel-related costs (including stock-based compensation and travel expenses), facility-related costs, insurance, and professional fees for consulting, legal, and accounting services.
For the three and six months ended June 30, 2022, general and administrative expenses were $4.9 million and $9.6 million, respectively, compared to $5.3 million and $10.6 million for the three and six months ended June 30, 2021, respectively. The decrease in general and administrative expenses during the three and six months ended June 30, 2022, as compared to the three and six months ended June 30, 2021, was primarily due to decreases in personnel-related and facility-related costs.
Other income (loss), net 
 Three Months Ended June 30,ChangeSix Months Ended June 30,Change
(in thousands)20222021$%20222021$%
Interest income$194 $$189 3780 %$207 $$199 2488 %
Foreign exchange gains/(losses)400 %(4)10 (250)%
Other expenses(16)(11)(5)45 %(16)(11)(5)45 %
Total other income (loss), net$183 $(5)$188 (3760)%$197 $(7)$204 (2914)%
The increase in interest income during the three and six months ended June 30, 2022, as compared to the three and six months ended June 30, 2021, was due to broad increases in the interest rate environment resulting in higher interest earned on our money market fund investments. Additionally, the increase is due to purchases of U.S. treasury securities during the three months ended June 30, 2022 which yield a higher rate of interest than investments in money market funds.

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Liquidity and Capital Resources
Since our inception, we have incurred net losses and negative cash flows from our operations. Our operating activities used $25.4 million and $26.6 million of cash flows during the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, we had an accumulated deficit of $424.5 million, working capital of $109.2 million, and cash, cash equivalents, and short-term investments of $116.5 million.
On November 4, 2021, we entered into an ATM "at-the-market" Equity Offering Sales Agreement, or the Sales Agreement, with BofA Securities, Inc., or BofA, pursuant to which we may, but are not obligated to, offer and sell, from time to time, shares of our common stock with an aggregate offering price up to $40.0 million through BofA, as sales agent. No sales of our common stock have been made pursuant to this Sales Agreement to date.
Cash Flows
The following table summarizes our cash flows for the six months ended June 30, 2022 and 2021: 
 Six Months Ended June 30,
(in thousands)20222021
Net cash (used in) provided by:  
Operating activities$(25,385)$(26,634)
Investing activities(39,751)(2,280)
Financing activities195 593 
Net change in cash, cash equivalents, and restricted cash$(64,941)$(28,321)

Net cash used in operating activities
Net cash used in operating activities for the six months ended June 30, 2022 and June 30, 2021 consisted of net loss for the period adjusted for non-cash items and changes in components of operating assets and liabilities. For the six months ended June 30, 2022, a net loss of $31.0 million was adjusted for non-cash items including stock-based compensation expense of $4.8 million and a net decrease of $0.5 million due to changes in operating assets and liabilities. For the six months ended June 30, 2021, a net loss of $30.1 million was adjusted for non-cash items including stock-based compensation expense of $5.3 million and a net decrease of $2.9 million due to changes in operating assets and liabilities.
Net cash used in investing activities
For the six months ended June 30, 2022, cash used in investing activities consisted primarily of purchases of available-for-sale securities and laboratory equipment. For the six months ended June 30, 2021, cash used in investing activities consisted primarily of purchases of laboratory equipment and office furnishings.
Net cash provided by financing activities
For the six months ended June 30, 2022 and June 30, 2021, net cash provided by financing activities consisted primarily of proceeds from stock option exercises and purchases of common stock under our 2020 Employee Stock Purchase Plan.

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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 June 30, 2022, we had approximately $116.5 million in cash, cash equivalents, and short-term investments. Based on our current business plans, we believe that our existing cash, cash equivalents, and short-term investments will be sufficient to fund our planned operations through 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 products candidates or 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 potential delays in our preclinical studies, our development programs and our planned clinical trials due to the continued impacts of the COVID-19 pandemic and related economic pressures, including supply chain disruptions, and other disruptions that may occur with any resurgence of acute cases of SARS-CoV-2, including resurgances relating to new variants;
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 Part II of this Quarterly Report titled “Risk Factors” for additional risks associated with our substantial capital requirements.


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Critical Accounting Policies and Significant Judgments and Estimates
The preparation of these 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 in our financial statements. We evaluate our 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. A summary of our significant accounting policies is presented in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2021. There have been no material changes to our significant accounting policies during the three and six months ended June 30, 2022 other than those discussed in Note 2(g) in the Notes to Condensed Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Recent Accounting Pronouncements
See Note 2(g), Recently issued and recently adopted accounting standards in the Notes to Condensed Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Item 3.    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 4.    Controls and Procedures
Evaluation of disclosure controls and procedures. Under the supervision and with the participation of our principal executive and financial officer, our management conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report.
In designing and evaluating our disclosure controls and procedures, management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Based on management’s evaluation, our principal executive and financial officer concluded that our disclosure controls and procedures are designed to, and are effective to, provide assurance at a reasonable level that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and financial officer, as appropriate, to allow timely decisions regarding required disclosures.
Changes in internal control over financial reporting.  There have not been any changes in our internal control over financial reporting during the quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II. Other Information
Item 1.    Legal Proceedings
We may from time to time be named as a party to legal claims, actions and complaints, including matters involving employment, intellectual property or others. We are not presently a party to any legal proceedings that, in the opinion of our management, would reasonably be expected to have a material adverse effect on our business, financial condition, operating results or cash flows if determined adversely to us. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.
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 de novo protein design technology and of our most advanced product candidate, NL-201. Existing and future preclinical studies and clinical trials of our 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 clinical trials or those of any future collaborators and additional preclinical studies may reveal significant adverse events not seen in our earlier 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 rely on and expect to continue to rely on third parties to conduct certain of our preclinical studies and 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 and expect to continue to 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.

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Unfavorable global economic conditions or other geopolitical developments could adversely affect our business, financial condition, stock price, and results of operations.
If we are not able to obtain, maintain, and enforce patent protection and other intellectual property rights for our product candidates, our Neoleukin design process, or other proprietary technologies we may develop, the development and commercialization of our product candidates may be adversely affected.

Risk Factors
You should carefully consider the following risk factors, in addition to the other information contained in this Quarterly Report on Form 10-Q, including our condensed financial statements and related notes. If any of the events described in the following risk factors occurs, our business, operating results, and financial condition could be adversely affected. This Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q.
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 June 30, 2022, we had approximately $116.5 million in cash, cash equivalents, and short-term investments. 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, cash equivalents, and short-term investments will be sufficient to fund our operating expenses and capital expenditure requirements through 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, and may also be impacted by inflationary pressures in the current economic environment. 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;

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the costs of manufacturing our product candidates by third parties;
the cost of regulatory requirements, regulatory submissions and timing of regulatory approvals;
the potential delays in our preclinical studies, our development programs and our ongoing and planned clinical trial activities due to the effects of global events, including the COVID-19 pandemic and supply chain disruptions;
the impact of inflationary pressures on salaries and wages, costs of goods and transportation expenses, among other things;
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.
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. Any future debt financings we may do, if available to us, 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 some or all of our rights to certain 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 of developing next generation immunotherapies for cancer, inflammation, and autoimmunity using de novo protein design technology. 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 early clinical or 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 as Aquinox in 2003. For the six months ended June 30, 2022 and June 30, 2021, we reported net losses of $31.0 million and $30.1 million, respectively. For the years ended December 31, 2021 and 2020, we reported net losses of $60.7 million and $33.3 million, respectively. As of June 30, 2022, we had an accumulated deficit since our inception as Aquinox of $424.5 million.

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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 product candidates or future product candidates fail in clinical trials or do not gain regulatory approval, or if approved, fail 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 as a company developing therapies using de novo protein design technology, which may make it difficult for you to evaluate the success of our business to date and to assess our future viability.
Since we became Neoleukin Therapeutics, Inc., our operations have been primarily limited to organizing and staffing our company, acquiring product and technology rights, discovering and developing novel de novo proteins, and undertaking preclinical studies and early clinical development activities. 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 product candidates or 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 product candidates or 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;
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.

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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 product candidates or future product candidates, we anticipate incurring significant costs associated with commercializing these products.
Even if we can generate revenues from the sale of any product candidates or 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 may 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, cash equivalents, and short-term investments 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 current or 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.
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 NL-201 and any future product candidates;

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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 the COVID-19 pandemic, including secondary effects on financial markets such as supply chain disruptions, 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 early clinical, 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. 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 cause or require us to delay or abandon preclinical or clinical trials or delay and/or prevent regulatory approval of or our ability to commercialize product candidates, including:
preclinical study results showing the product candidate to be less effective than desired or to have harmful or problematic side effects;
negative or inconclusive results from our clinical trials or the clinical trials of others for product candidates similar to ours;
product-related side effects experienced by patients in our clinical trials or by individuals using drugs or therapeutic biologics similar to our product candidates;
our third-party manufacturers’ inability to successfully manufacture our products or to meet regulatory specifications;

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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;
supply chain disruptions that may impact our ability to obtain materials for preclinical testing or supply materials to clinical testing sites or significantly increase our costs;
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.
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. Our current phase 1 clinical trial for NL-201 is in patients who have received one or more prior treatments, and we expect that to be the case for future clinical trials of NL-201. 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.

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Our business is heavily dependent on the success of our Neoleukin design process and of our most advanced product candidate, NL-201. Existing and future preclinical studies and clinical trials of our 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 advanced computational algorithms and other methods, including machine learning for the design of functional de novo proteins 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 design process. However, NL-201 and our other product candidates are still in early stages of development. 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 design process, 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;
receiving required regulatory authorizations for the development and approvals for the commercialization of our product candidates;
establishing and maintaining arrangements with third-party manufacturers;

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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;
achieving appropriate reimbursement, pricing, and payment coverage for our product candidates;
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 current or 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 applicable regulatory authorities. We, applicable regulatory authorities, or 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. NL-201 was designed to mimic the therapeutic activity of the cytokine interleukin-2, or IL-2, and interleukin-15, or IL-15, while limiting the toxicity cause 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;

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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
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 design process. Unlike traditional protein-based therapeutics that modify native proteins, our Neoleukin design process allows us to create new proteins from the ground up. Our design process 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 design process is ongoing and may not result in viable product candidates.
While we have had favorable preclinical study results related 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 through clinical development, or in 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 one or more programs, which would have a material adverse effect on our business and could potentially cause us to cease operations.
To date, NL-201 is our only product candidate currently being tested in a clinical trial, and testing is in the early stages. We have not tested any of our other product candidates in any clinical trials. We may ultimately discover that our Neoleukin design process 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 design process may demonstrate different chemical and pharmacological properties in patients than they do in laboratory studies. Our Neoleukin design process 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.

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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 design process and research programs prove to be ineffective, unsafe, or commercially unviable, our Neoleukin design process 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 early clinical, 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 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. 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 current or 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 EMA or other 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 of our clinical trials, or may be required to terminate or suspend such trials, which could result in increased costs to us or delay or limit our ability to generate revenue, adversely affecting 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 may 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;

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regulators or institutional review boards, 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, or may produce negative or inconclusive results, which in turn may cause us to decide, or regulators to 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;
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, or may be adversely impacted by global supply chain issues;
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. For example, our IND for NL-201 was initially placed on clinical hold. Even though the FDA removed the clinical hold on the IND for NL-201, NL-201 could be put on clinical hold again, and other future product candidates may be subject to clinical holds in the future. 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.

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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. The COVID-19 pandemic may also delay clinical trials if there are inadequate clinical resources for sites to safely conduct clinical research or if there are continued impacts from disruptions to the global supply chain relating to the pandemic. 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.
If we are unable to enroll a sufficient number of patients for our clinical trials, it 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, preliminary, and 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, and such changes in the final data may be material.
From time to time, we may publish preliminary or topline data from our clinical trials, which is based on a preliminary analysis of then-available data. Those results and any related findings and conclusions are subject to change following a more comprehensive review of the more complete data related to the particular study or trial. We also make assumptions, estimations, calculations, and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the interim or preliminary results that we report may differ from future results of the same studies or clinical trials, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. 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. 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. As a result, interim, preliminary, and topline data should be viewed with caution until the final data are available. Adverse differences between interim, preliminary, or topline data and final data could significantly harm our reputation and business prospects.

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Failure to obtain regulatory approval would prevent any future product candidates from being marketed.
In order to market and sell our products, we must obtain 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 differ substantially from jurisdiction to jurisdiction. 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. Approval by a single regulatory authority does not ensure approval by other regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities. 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, 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. For example, on September 9, 2021, the Biden administration published a wide-ranging list of policy proposals, most of which would need to be carried out by Congress, to reduce drug prices and drug payment. The HHS plan includes, among other reform measures, proposals to lower prescription drug prices, including by allowing Medicare to negotiate prices and disincentivizing price increases, and to support market changes that strengthen supply chains, promote biosimilars and generic drugs, and increase price transparency. Many similar proposals, including the plans to give Medicare Part D authority to negotiate drug prices, require drug manufacturers to pay rebates on drugs whose prices increase greater than the rate of inflation, and cap out-of-pocket costs, have already been included in policy statements and legislation currently being considered by Congress. It is unclear to what extent these and other statutory, regulatory, and administrative initiatives will be enacted and implemented, and to what extent these or any future legislation or regulations by the Biden administration will have on our business or future product candidates. 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.

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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 under the Medicaid Drug Rebate Program, imposed a significant annual, nondeductible fee on companies that manufacture or import certain branded prescription drug products, and enacted substantial provisions affecting compliance, which may affect our business practices with healthcare practitioners. Certain provisions of the Affordable Care Act have been subject to judicial and Congressional challenges to repeal or replace certain aspects of the Affordable Care Act. On June 17, 2021, the U.S. Supreme Court dismissed a challenge on procedural grounds that argued that the Affordable Care Act is unconstitutional in its entirety because the “individual mandate” was repealed by Congress. Thus, the Affordable Care Act will remain in effect in its current form. It is possible that the Affordable Care Act will be subject to judicial or Congressional challenges in the future. It is uncertain how any such challenges and the healthcare measures of the Biden administration will impact the Affordable Care Act and in turn our business, prospects, financial condition, or results of operations.
Other legislative measures impacting federal expenditures on health care may also have an adverse impact on our business. For example, on August 2, 2011, President Obama 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 2030, with the exception of a temporary suspension from May 1, 2020 through March 31, 2022 due to the COVID-19 pandemic, unless additional Congressional action is taken. The Medicare reductions phase back in starting with a 1% reduction in effect from April 1, 2022 to June 30, 2022 before increasing to the full 2% reduction. In addition, 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 also been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. Furthermore, in the past few years there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, including 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, 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.

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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 the company 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 U.S. Department of Justice. The SEC is involved with enforcement of the books and records provisions of the FCPA.
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 therefore 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.

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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.

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We have never marketed a drug before. If we are able to identify and develop or 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. In addition, NL-201 is our only product candidate in clinical development, and such clinical development is in the early stages. If we are able to successfully advance NL-201 or any other product candidates we may establish or acquire through clinical development to approval by the FDA and comparable foreign regulatory authorities, we will need to either build our sales, marketing and distribution operations, including 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.
Even if we are able to effectively hire a sales force and develop a marketing and sales infrastructure, our sales force and marketing team may not be successful in commercializing our product candidates, which would negatively affect our ability to generate revenue.
We may not be successful in our efforts to use our Neoleukin design process 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 design process, 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. 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.

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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 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.
Our product candidates may face competition from other products that are the same as or similar to ours. If the FDA or comparable foreign regulatory authorities approve biosimilar versions of our product candidates, or such authorities do not grant our products appropriate periods of regulatory exclusivity, the sales of our products could be adversely impacted.

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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. Our biological product candidates may qualify for the BPCIA’s 12-year period of exclusivity, but there is a risk that the FDA will not consider our product candidates to be reference products for competing products, potentially creating the opportunity for biosimilar competition sooner than anticipated. There is also a risk that this exclusivity could be shortened due to congressional action or otherwise, potentially creating the opportunity for generic competition sooner than anticipated. For example, there have been efforts to decrease this period of exclusivity to a shorter timeframe—future proposed budgets, international trade agreements, and other arrangements or proposals may affect periods of exclusivity. 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.

If we decide to pursue accelerated approval for any of our product candidates, it may not lead to a faster development or regulatory review or approval process and does not increase the likelihood that our product candidates will receive marketing approval. If we are unable to obtain approval under an accelerated pathway, we may be required to conduct additional clinical trials beyond those that we contemplate, which could increase the expense of obtaining, reduce the likelihood of obtaining and/or delay the timing of obtaining, necessary marketing approvals.
In the future, we may decide to pursue accelerated approval for one or more of our product candidates. Under the FDA’s accelerated approval program, the FDA may approve a drug for a serious or life-threatening disease or condition that provides a meaningful advantage over available therapies based upon a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit. For drugs granted accelerated approval, post-marketing confirmatory trials are required to verify and describe the anticipated effect on irreversible morbidity or mortality or other clinical benefit. These confirmatory trials must be completed with due diligence, and the FDA may require that the trial be designed, initiated, and/or fully enrolled prior to approval. If we were to pursue accelerated approval for a product candidate for a disease or condition, we would do so on the basis that there is no available therapy for that disease or condition. If any of our competitors were to receive full approval on the basis of a confirmatory trial for a drug for a disease or condition for which we are seeking accelerated approval before we receive accelerated approval, the disease or condition would no longer qualify as one for which there is no available therapy, and accelerated approval of our product candidate would not occur. Many cancer therapies rely on accelerated approval, and the treatment landscape can change quickly as the FDA converts accelerated approvals to full approvals on the basis of successful confirmatory trials.
Moreover, the FDA may withdraw approval of any product candidate approved under the accelerated approval pathway if, for example:
the trial or trials required to verify the predicted clinical benefit of our product candidate fail to verify such benefit or do not demonstrate sufficient clinical benefit to justify the risks associated with such product;
other evidence demonstrates that our product candidate is not shown to be safe or effective under the conditions of use;
we fail to conduct any required post-approval trial of our product candidate with due diligence; or

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we disseminate false or misleading promotional materials relating to the relevant product candidate.
Recently, the accelerated approval pathway has come under scrutiny within the FDA and by Congress. The FDA has put increased focus on ensuring that confirmatory studies are conducted with diligence and, ultimately, that such studies confirm the benefit. For example, FDA has convened its Oncologic Drugs Advisory Committee to review what the FDA has called dangling or delinquent accelerated approvals where confirmatory studies have not been completed or where results did not confirm benefit. In addition, Congress is considering various proposals to potentially make changes to the accelerated approval pathway, including proposals to increase the likelihood of withdrawal of approval in such circumstances.
Risks Related to Our Reliance on Third Parties
We rely on and expect to continue to rely on third parties to conduct certain of our preclinical studies and 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 currently rely and intend to continue 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 rely on and intend to continue 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. Although we have agreements governing the activities of third parties, 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 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, or GLPs, and clinical trials to be conducted in accordance with Good Clinical Practices, or GCPs, 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. If we or any of our third-party service providers fail to comply with applicable GCPs or other regulatory requirements, we or they may be subject to enforcement or other legal actions, the data generated in our trials may be deemed unreliable, and the FDA or comparable foreign regulatory authorities may require us to perform additional studies. 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.

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We rely on and expect to continue to rely on third-party manufacturers and suppliers to supply materials used in our research and development and preclinical testing as well as 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. Our third-party manufacturers may prioritize another customer’s needs in front of ours, especially in the event of a global pandemic. Additionally, raw materials and components used in the manufacturing process, particularly those for which we have no other source or supplier, may not be available or may not be suitable or acceptable for use due to material or component defects, may be in short supply, and may significantly increase in price. There can be no assurance that our preclinical and clinical development product supplies will not be limited, or that they will available at acceptable prices, if at all. In particular, any replacement of our manufacturer could require significant effort and expertise because there may be a limited number of qualified replacements. In addition, global supply chain disruption may hamper our ability to source materials needed for our research and development, including our preclinical trial programs, may increase our costs due to scarcity or may require us to buy materials on spec in advance of when we need it, which may impact our ability to budget or forecast expenditures, and may also hamper our ability to complete our preclinical trials on time, or at all.
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 in a timely manner or 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 costs and 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.

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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:
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, the global outbreak of the COVID-19 pandemic resulted in extended shutdowns of businesses in the United States, Canada, and many other countries and had ripple effects to businesses around the world. Global health concerns, such as the COVID-19 pandemic, and the ensuing impacts on financial markets and supply chain logistics could also result in adverse effects to our manufacturing operations, including our ability to source raw materials and reagents. 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.

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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. For example, certain resins used in the manufacture of biopharmaceuticals have recently experienced limited availability. 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 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.

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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;
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;

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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.

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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, 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.

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Risks Related to Our Business and Operations
The continued impact of the novel strain of coronavirus, SARS-CoV-2, which causes COVID-19 disease, could adversely impact our business, including our preclinical and clinical development activities.
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, is a global pandemic. As a result of the COVID-19 pandemic, including the resurgence of cases relating to the spread of Delta and Omicron variants, or similar pandemics, we may experience disruptions that could severely impact our business, manufacturing, preclinical development activities, preclinical studies, and existing and planned clinical trial activities, including:
delays or disruptions in preclinical development activities, including non-clinical experiments and investigational new drug application-enabling GLP 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 clinical trial activities;
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, and recruiting clinical site investigators and clinical site staff;
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 clinical trial sites and potential clinical trial sites, and hospital staff supporting the conduct of clinical trial activities;
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 clinical trial activities, 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, clinical trial activities, and our business generally, and could have a material adverse impact on our operations and our financial condition and results.

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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 in part due to 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 clinical trial activities 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 June 30, 2022, we had approximately 79 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, and may not be able to retain key employees or identify and hire the personnel we need to accommodate that growth. 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 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 key scientific and other skilled personnel because of the nature of our research and development process, de novo protein design and technologies required to create product candidates, 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 eff