Neoleukin Therapeutics, Inc. (formerly Aquinox Pharmaceuticals, Inc.) — Q3 2019 Form 10-Q
Period: Quarter and nine months ended September 30, 2019. The filing is for Neoleukin Therapeutics, not Neurogene Inc. The August 8, 2019 merger materially changed the company’s business and makes comparisons with 2018 less representative.
Business context and reporting period
After the merger, the company became a biotechnology company developing computationally designed proteins. Its lead candidate, NL-201, is a preclinical IL-2/IL-15 mimetic being developed for cancer indications, including renal cell carcinoma and melanoma. The former Aquinox rosiptor program had been halted following a failed Phase 3 trial in 2018.
Key financial metrics
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $25.0 million |
| Research and development expense (income) | $1.4 million | $10.7 million | $(0.5) million | $39.2 million |
| Acquired in-process R&D expense | $47.7 million | $0 | $47.7 million | $0 |
| General and administrative expense | $10.4 million | $4.5 million | $15.4 million | $13.1 million |
| Net loss | $(59.1) million | $(15.0) million | $(61.3) million | $(26.7) million |
| Basic and diluted loss per share | $(2.26) | $(0.64) | $(2.51) | $(1.14) |
Liquidity and balance sheet: At September 30, cash and cash equivalents were $66.3 million, down from $76.9 million at December 31, 2018. Working capital was $65.0 million; total assets were $69.8 million and total liabilities were $2.9 million. The filing reports no conventional borrowings; reported liabilities primarily include accounts payable and lease obligations. Accumulated deficit was $291.4 million.
Cash flow, nine months: Operating activities used $10.8 million, investing activities provided $0.1 million, and financing activities provided $0.03 million. Cash decreased by $10.6 million. No meaningful operating margin is applicable because the company reported no current-period revenue.
Material changes versus prior comparable periods
- Q3 net loss increased to $59.1 million from $15.0 million, principally due to the $47.7 million acquired in-process R&D charge recorded for the merger. This non-cash expense reflected the determination that the acquired asset had no alternative future use.
- Nine-month net loss rose to $61.3 million from $26.7 million, while operating cash use declined to $10.8 million from $21.8 million. Lower legacy rosiptor spending and restructuring effects reduced cash use; the 2019 period also included post-merger activity.
- The $25.0 million of revenue in the first nine months of 2018 was the nonrefundable Astellas upfront payment, recognized after the collaboration agreement was terminated. There was no revenue in 2019.
- The merger consideration totaled $51.6 million, including common and non-voting convertible preferred shares, cash for fractional shares, and transaction costs. Preferred shares converted into 10,192,700 common shares following stockholder approval on November 12, 2019. The filing reports 38,332,943 common shares outstanding as of November 13.
Outlook, commentary, risks and unusual items
- Management expected available cash and cash equivalents to fund operating expenses and capital expenditures through 2021 under its current operating plan. It also cautioned that spending and financing needs could differ materially and that additional capital may be needed.
- Management anticipated submitting an IND for NL-201 by the end of 2020, following preclinical development, manufacturing work, and IND-enabling toxicology studies. This is a forward-looking target, not a guarantee.
- Key risks include the early, unproven stage of NL-201 and the protein-design platform; potential preclinical, safety, immunogenicity, manufacturing, regulatory, clinical-trial, competitive, intellectual-property, and financing setbacks. The company had no approved products and expected continuing losses.
- Other notable items: restructuring charges and recoveries related to prior workforce reductions; a new Seattle office and laboratory lease commencing October 1, 2019; and ongoing license obligations to the University of Washington, including potential milestones and royalties. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
- No specific financial guidance beyond the cash-runway estimate was provided. The filing does not provide revenue, profit, or margin targets.
Important facts for investors to verify
- Confirm the post-merger share count and the effect of the preferred-stock conversion, options, restricted stock units, and other potential dilution.
- Track NL-201’s preclinical, manufacturing, toxicology, and IND-enabling milestones against the stated end-2020 IND target.
- Assess the assumptions underlying management’s cash runway through 2021, including planned R&D spending and the timing or terms of any future financing.
- Review the merger-related $47.7 million acquired R&D charge and distinguish it from recurring operating costs and cash burn.
- Monitor potential obligations under the University of Washington license and the company’s lease commitments, as well as material changes in the risk factors.