SEC Filing | Longboard Pharmaceuticals

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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 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 September 30, 2021


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

For the transition period from __________ to ___________

Commission File Number: 001-40192

Longboard Pharmaceuticals, Inc.

(Exact Name of Registrant as Specified in its Charter)


Delaware	84-5009619
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
4275 Executive Square, Suite 950 La Jolla, CA	92037
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (619) 592-9775

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.0001 per share

LBPH

The 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 (§232.405 of this chapter) 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, 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.

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 November 2, 2021, the registrant had 17,215,350 shares of common stock, $0.0001 par value per share, outstanding, comprised of 13,585,950 shares of voting common stock, $0.0001 par value per share and 3,629,400 shares of non-voting common stock, $0.0001 par value per share.

Table of Contents


		Page
	SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS	1
	SUMMARY RISK FACTORS	2

PART I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements (Unaudited)	3
	Condensed Balance Sheets	3
	Condensed Statements of Operations and Comprehensive Loss	4
	Condensed Statements of Cash Flows	5
	Notes to Unaudited Condensed Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29

PART II.	OTHER INFORMATION	30
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	75
Item 3.	Defaults Upon Senior Securities	75
Item 4.	Mine Safety Disclosures	75
Item 5.	Other Information	75
Item 6.	Exhibits	76
Signatures		77

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or the negative of these words or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:



our plans to research, develop and commercialize our product candidates;



the initiation, progress, success, cost and timing of our clinical trials and product development activities;



the therapeutic potential of our product candidates, and the disease indications for which we intend to develop our product candidates;



our ability and timing to advance our product candidates into, and to successfully initiate, conduct, enroll and complete, clinical trials;



our ability to manufacture our product candidates for clinical development and, if approved, for commercialization, and the timing and costs of such manufacture;



the performance of third parties in connection with the development and manufacture of our product candidates, including third parties conducting our clinical trials as well as third-party suppliers and manufacturers;



our ability to obtain funding for our operations, including funding necessary to initiate and complete clinical trials of our product candidates;



the size and growth of the potential markets for our product candidates and our ability to serve those markets;



the potential scope, duration and value of our intellectual property rights;



our ability, and the ability of our licensors, to obtain, maintain, defend and enforce intellectual property rights protecting our product candidates, and our ability to develop and commercialize our product candidates without infringing the proprietary rights of third parties;



our ability to recruit and retain key personnel;



the effects of the COVID-19 pandemic on our operations; and



other risks and uncertainties, including those described under Part II, Item 1A, “Risk Factors” of this Quarterly Report.

Any forward-looking statements in this Quarterly Report reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A, “Risk Factors” of this Quarterly Report. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

Unless the context otherwise indicates, references in this Quarterly Report to the terms, "Longboard", "the Company", "we", "our", and "us" refer to Longboard Pharmaceuticals, Inc. and references to our "common stock" refers to our voting common stock.

SUMMARY OF RISKS ASSOCIATED WITH OUR BUSINESS

An investment in shares of our common stock involves a high degree of risk. Below is a list of the more significant risks associated with our business. This summary does not address all of the risks that we face. Additional discussion of the risks listed in this summary, as well as other risks that we face, are set forth under Part I, Item 1A, “Risk Factors” in this Quarterly Report. Some of the material risks associated with our business include the following:



We have a very limited operating history, and we have incurred losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future. We may never generate any revenue or become profitable or, if we achieve profitability, we may not be able to sustain it.



We will need substantial additional capital to finance our operations, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate certain of our product development efforts or other operations.



We are early in our development efforts and have only one product candidate, LP352, in early clinical development. All of our other product candidates are in the preclinical stage. If we are unable to advance our product candidates in clinical development, obtain regulatory approval and ultimately commercialize our product candidates, or experience significant delays in doing so, our business will be materially harmed.



Clinical and preclinical drug development involves a lengthy and expensive process with an uncertain outcome. The results of prior clinical trials and early preclinical studies and clinical trials of our product candidates are not necessarily predictive of future results.



The regulatory approval processes of the U.S. Food and Drug Administration ("FDA") and comparable foreign authorities are lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.



Because we have multiple product candidates in our clinical pipeline and are considering a variety of target indications, we may expend our limited resources to pursue a particular product candidate and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.



If the market opportunities for our product candidates are smaller than we estimate, even assuming approval of a product candidate, our business may suffer. Because the patient populations in the market for our product candidates may be small, we must be able to successfully identify patients and acquire a significant market share to achieve profitability and growth.



We currently have no marketing and sales organization and have no experience as a company in commercializing products, and we may have to invest significant resources to develop these capabilities. If we are unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell our products, we may not be able to generate product revenue.



COVID-19 has impacted and could continue to adversely impact our business.



Arena Pharmaceuticals, Inc. ("Arena") currently performs or supports certain of our operating activities pursuant to a services agreement, and if we are unable to replicate or replace these functions if this services agreement is terminated, our operations could be adversely affected.



We intend to rely on third parties to conduct, supervise and monitor our preclinical studies and clinical trials, and if those third parties perform in an unsatisfactory manner, it may harm our business.



Our principal stockholders and management own a significant percentage of our stock and are able to exert significant control over matters subject to stockholder approval. Our stock market price may be negatively affected if our principal stockholders and management sell some or all of their stock.



We depend on intellectual property licensed from Arena, the termination of which could result in the loss of significant rights, which would harm our business.



If we are unable to obtain and maintain patent protection for our current or any future product candidates, or if the scope of the patent protection obtained is not sufficiently broad, we may not be able to compete effectively in our markets.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Longboard Pharmaceuticals, Inc.

Condensed Balance Sheets

(unaudited)


	September 30,			December 31,
(in thousands, except share and per share data)	2021			2020
ASSETS
Current assets:
Cash and cash equivalents	$	75,461		$	55,316
Short-term investments		37,098			—
Prepaid expenses and other current assets		2,740			46
Total current assets		115,299			55,362
Right-of-use assets		600			—
Property and equipment		16			—
Other long-term assets		33			—
Deferred financing costs		—			876
Total assets	$	115,948		$	56,238
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	891		$	1,213
Accrued research and development expenses		1,653			916
Accrued other expenses		231			845
Accrued compensation and related expenses		918			161
Right-of-use liabilities, current portion		328			—
Total current liabilities		4,021			3,135
Right-of-use liabilities, net of current portion		275			—
Commitments and contingencies (see Note 9)
Convertible preferred stock:
Series A convertible preferred stock $0.0001 par value; authorized shares - none and 5,600,000 at September 30, 2021 and December 31, 2020, respectively; issued and outstanding shares - none and 5,600,000 at September 30, 2021 and December 31, 2020, respectively; aggregate liquidation preference – none and $56,000 at September 30, 2021 and December 31, 2020, respectively		—			55,795
Stockholders' equity (deficit):		—
Preferred stock, $0.0001 par value; authorized shares - 10,000,000 and none at September 30, 2021 and December 31, 2020, respectively; issued and outstanding shares - none at September 30, 2021 and December 31, 2020		—			—
Voting common stock, $0.0001 par value; authorized shares - 300,000,000 and 10,500,000 at September 30, 2021 and December 31, 2020, respectively; issued and outstanding shares - 13,237,500 and 3,840,540 at September 30, 2021 and December 31, 2020, respectively, both excluding 348,450 shares subject to repurchase		1			—
Non-voting common stock, $0.0001 par value; authorized shares - 10,000,000 and none at September 30, 2021 and December 31, 2020, respectively; issued and outstanding shares - 3,629,400 and none at September 30, 2021 and December 31, 2020, respectively		—			—
Additional paid-in capital		145,099			11,708
Accumulated other comprehensive loss		(24	)		—
Accumulated deficit		(33,424	)		(14,400	)
Total stockholders' equity (deficit)		111,652			(2,692	)
Total liabilities, convertible preferred stock and stockholders' equity (deficit)	$	115,948		$	56,238

The accompanying notes are an integral part of these financial statements.

Longboard Pharmaceuticals, Inc.

Condensed Statements of Operations and Comprehensive Loss

(unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,			Period from January 3, 2020 (Inception) through September 30,
(in thousands, except share and per share data)	2021			2020			2021			2020
Operating expenses:
Research and development	$	4,093		$	1,603		$	13,406		$	2,462
General and administrative		2,262			947			5,639			1,829
Total operating expenses		6,355			2,550			19,045			4,291
Loss from operations		(6,355	)		(2,550	)		(19,045	)		(4,291	)
Interest income, net		23			—			40			—
Other expense		(13	)		—			(19	)		—
Net loss	$	(6,345	)	$	(2,550	)	$	(19,024	)	$	(4,291	)

Net loss per share, basic and diluted	$	(0.38	)	$	(0.66	)	$	(1.41	)	$	(1.13	)

Weighted-average shares outstanding, basic and diluted		16,866,900			3,840,540			13,538,458			3,798,025

Comprehensive loss:
Net loss	$	(6,345	)	$	(2,550	)	$	(19,024	)	$	(4,291	)
Unrealized gain (loss) on short-term investments, net		10			—			(24	)		—
Comprehensive loss	$	(6,335	)	$	(2,550	)	$	(19,048	)	$	(4,291	)

The accompanying notes are an integral part of these financial statements.

Longboard Pharmaceuticals, Inc.

Condensed Statements of Cash Flows

(unaudited)


(in thousands)	Nine Months Ended September 30, 2021			Period from January 3, 2020 (Inception) through September 30, 2020
Cash flows from operating activities:
Net loss	$	(19,024	)	$	(4,291	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		1,383			1,148
Accretion of premiums on investments, net		142			—
Changes in operating assets and liabilities:
Prepaid expenses and other assets		(2,727	)		(1	)
Accounts payable		(322	)		122
Accrued research and development expenses		738			716
Accrued other expenses		22			148
Accrued compensation and related expenses		756			175
Operating right-of-use assets and lease liabilities, net		2			—
Net cash used in operating activities		(19,030	)		(1,983	)
Cash flows from investing activities:
Purchases of short-term investments		(37,263	)		—
Purchase of property and equipment		(13	)		—
Net cash used in investing activities		(37,276	)		—
Cash flows from financing activities:
Capital contributions from Arena Pharmaceuticals, Inc.		—			2,200
Series A convertible preferred stock issuance costs		(1	)		—
Proceeds from initial public offering		84,774			—
Initial public offering costs		(8,322	)		—
Net cash provided by financing activities		76,451			2,200
Net increase in cash and cash equivalents		20,145			217
Cash and cash equivalents at the beginning of the period		55,316			—
Cash and cash equivalents at the end of the period	$	75,461		$	217

Supplemental disclosure of cash flow information:
Property and equipment in accrued expenses	$	3		$	—

The accompanying notes are an integral part of these financial statements.

Longboard Pharmaceuticals, Inc.

Notes to Unaudited Financial Statements

Note 1. Organization and Basis of Presentation

Description of Business

Longboard Pharmaceuticals, Inc. (the "Company"), formerly Arena Neuroscience, Inc., was incorporated in the state of Delaware on January 3, 2020 and is based in San Diego, California. The Company was organized and initially wholly-owned by Arena Pharmaceuticals, Inc. ("Arena"), until the closing of its Series A convertible preferred stock ("Series A Preferred Stock") financing in October 2020. The Company is a clinical stage biopharmaceutical company focused on developing novel, transformative medicines for neurological diseases. The Company’s most advanced product candidate, LP352, is being developed to treat patients with developmental and epileptic encephalopathies and is currently in preparations to begin a Phase 1b/2a clinical study in the first quarter of 2022. The Company’s preclinical product candidates include LP143 and LP659, which are focused on developing therapies for central nervous system neuroinflammatory diseases.

Initial Public Offering

On March 16, 2021, the Company completed the initial public offering (“IPO”) of its common stock. In connection with the IPO, the Company issued and sold 5,298,360 shares of voting common stock, which included 298,360 shares of its voting common stock issued pursuant to the option granted to the underwriters to purchase additional shares in April 2021, at a public offering price of $16.00 per share. The Company raised $76.2 million in net proceeds from the IPO after deducting underwriters’ discounts and commissions of $5.9 million and issuance costs of $2.6 million. Unless otherwise noted, all references in the financial statements and related footnotes to the Company's "common stock" refers to the Company's voting common stock.

Immediately prior to the closing of the IPO, 2,630,000 shares of Series A Preferred Stock were exchanged for 3,629,400 shares of non-voting common stock and 2,970,000 shares were automatically converted into 4,098,600 shares of voting common stock. Following the IPO, there were no shares of Series A Preferred Stock outstanding.

Forward Stock Splits

On October 27, 2020, the Company filed an amendment to the Company’s certificate of incorporation to effect a forward stock split of shares of the Company’s common stock on a 2,783-for-1 basis (October Forward Stock Split). The par value of the common stock was not adjusted as a result of the October Forward Stock Split. The accompanying financial statements and notes to the financial statements give retroactive effect to the October Forward Stock Split for the periods presented.

On March 5, 2021, the Company filed an amendment to the Company’s amended and restated certificate of incorporation to effect a forward stock split of shares of the Company’s common stock on a 1.38-for-1 basis (March Forward Stock Split). Adjustments corresponding to the March Forward Stock Split were made to the ratio at which the Company’s Series A Preferred Stock were converted into common stock immediately prior to the closing of the IPO. The par value of the common stock and number of shares authorized were not adjusted as a result of the March Forward Stock Split. All references to common stock, options to purchase common stock, share data, per share data, and related information contained in the financial statements and related footnotes have been retrospectively adjusted to reflect the effect of the March Forward Stock Split for all periods presented.

Basis of Presentation

The Company’s condensed financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and pursuant to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, the accompanying condensed financial statements do not include all of the information and footnotes required by GAAP for complete financial statements.

The accompanying condensed financial statements and related notes are unaudited. The unaudited condensed financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results for the periods presented. All such adjustments are of a normal and recurring nature. The condensed balance sheet as of December 31, 2020 has been derived from the audited financial statements at that date but does not include all information and notes required by GAAP for complete financial statements. The operating results presented in these unaudited condensed financial statements are not necessarily indicative of the results that may be expected for any future periods. These condensed financial statements should be read in conjunction with the Company's audited financial statements included in the prospectus dated March 11, 2021 that forms a part of the Company’s registration statement on Form S-1 (File No. 333-253329) as filed with the SEC pursuant to Rule 424(b)(4) promulgated under the Securities Act of 1933, as amended, on March 12, 2021.

In addition, the accompanying condensed financial statements include the financial results from inception (January 3, 2020) through September 30, 2021. The Company’s fiscal year-end is December 31. The Company concluded under the guidance in Accounting Standards Codification 805, Business Combinations that the Company was not required to present historical carve-out financial results for activity occurring at Arena prior to the Company’s formation as the assets licensed to the Company by Arena did not constitute a business. The financial statements include allocations for certain Arena corporate expenses, including costs of information technology, human resources, accounting, legal, facilities, insurance, treasury and other corporate and infrastructure services. These allocations were made on the basis of the actual hours incurred in providing services to the Company by employees of Arena multiplied by a fully burdened average cost per employee. Management believes such allocation of corporate expenses from Arena is reasonable. Effective October 27, 2020, the Company entered into a formal services agreement with Arena for these services (see Note 7). The financial statements may not include all of the expenses that would have been incurred had the Company been a stand-alone company during the period presented and may not reflect the Company’s results of operations, financial position and cash flows had the Company been a stand-alone company during the period presented. The Company also received capital contributions of $3.2 million from Arena to fund start-up activities throughout the period ended December 31, 2020. The capital contributions from Arena have been presented in additional paid-in capital on the balance sheet.

Liquidity and Capital Resources

Since its inception, the Company has devoted substantially all of its resources to research and development ("R&D") activities, organizing and staffing, business planning, raising capital, in-licensing intellectual property rights and establishing its intellectual property portfolio, and providing general and administrative ("G&A") support for these operations and has funded its operations primarily with the net proceeds from the issuance of Series A Preferred Stock and common stock. The Company has incurred losses and negative cash flows from operations since commencement of its operations. The Company had an accumulated deficit of $33.4 million and $14.4 million as of September 30, 2021 and December 31, 2020, respectively.

Management expects the Company will incur substantial operating losses for the foreseeable future in order to complete preclinical studies and clinical trials, seek regulatory approval, and launch and commercialize any product candidates for which it receives regulatory approval. The Company will need to raise additional capital through public or private equity or debt financings or other capital sources, including potential collaborations, licenses and other similar arrangements.

The COVID-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets. The Company’s ability to raise additional capital may be adversely impacted by potential worsening of global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the pandemic. If the disruption persists and deepens, the Company could experience an inability to access additional capital.

As of September 30, 2021, the Company had available cash, cash equivalents and investments of $112.6 million and working capital of $111.3 million to fund future operations. Management believes that its capital resources as of September 30, 2021 will be sufficient to fund the Company’s operations for at least 12 months after the date these unaudited condensed financial statements are issued.

Note 2. Summary of Significant Accounting Policies

Use of Estimates

The Company’s financial statements are prepared in accordance with GAAP. The preparation of the Company’s financial statements requires the Company to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in the financial statements and accompanying notes. Such estimates include the accrual of R&D expenses and stock-based compensation. Management evaluates its estimates on an ongoing basis. Although estimates are based on the Company’s historical experience, knowledge of current events and actions it may undertake in the future, actual results may materially differ from these estimates and assumptions.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to significant concentration of credit risk consist of cash, cash equivalents and short-term investments. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits and invests in short-term investments with the primary objectives of seeking to preserve principal, achieve liquidity requirements and safeguard funds. Management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held and the nature, including the credit-ratings, of its short-term investments.

Deferred Financing Costs

Prior to the completion of the IPO, the Company had deferred financing costs consisting of legal, accounting and other fees and costs directly attributable to the IPO. As of December 31, 2020, $0.9 million of deferred financing costs were recorded on the balance sheet. Upon the completion of the IPO, all deferred financing costs were reclassified to additional paid-in capital.

Comprehensive Loss

Comprehensive loss is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources, including unrealized gains and losses on short-term investments.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. Cash and cash equivalents include cash in readily available checking accounts, money market funds, corporate debt securities, and obligations of U.S. Government-sponsored enterprises. The carrying amounts reported in the unaudited condensed balance sheets for cash and cash equivalents are valued at cost, which approximates fair value.

Short-Term Investments

Short-term investments primarily consist of commercial paper, corporate debt securities, and government and agency bonds. The Company has classified these investments as available-for-sale securities, as the sale of such investments may be required prior to maturity to implement management strategies, and therefore has classified all investments with maturity dates beyond three months at the date of purchase as current assets in the accompanying unaudited condensed balance sheets. Any premium or discount arising at purchase is amortized and/or accreted to interest income as an adjustment to yield using the straight-line method over the life of the instrument. Investments are reported at their estimated fair value. Unrealized gains and losses are included in accumulated other comprehensive loss as a component of stockholders' equity until realized. Realized gains and losses are determined using the specific identification method and are included in other income (expense).

Property and Equipment

Property and equipment are stated at cost and depreciated on a straight-line basis over the estimated useful life of the related assets (generally three to five years).

R&D Expenses

R&D expenses are expensed in the periods in which they are incurred. External expenses consist primarily of payments to contract research organizations, outside consultants and Arena in connection with the Company’s discovery, preclinical and clinical activities, process development, manufacturing activities, regulatory and other services. Certain R&D external expenses are recognized based on an evaluation of the progress to completion of specific tasks using information provided to the Company by its service providers or the estimate of the level of service that has been performed at each reporting date. R&D expenses amounted to $4.1 million and $13.4 million, respectively, for the three and nine months ended September 30, 2021 and $1.6 million and $2.5 million, respectively, for the three months ended September 30, 2020 and the period from January 3, 2020 (inception) through September 30, 2020.

Stock-Based Compensation

In October 2020, the Company’s board of directors and stockholder approved the 2020 Equity Incentive Plan ("2020 Plan"). The Company's board of directors adopted the 2021 Equity Incentive Plan ("2021 Plan") in February 2021 and the Company's stockholders approved the 2021 Plan in March 2021. The 2021 Plan is the successor and continuation of the 2020 Plan. Under both the 2021 and 2020 Plans, awards are measured at fair value and recognized over the requisite service period. Forfeitures are accounted for in the period they occur. The Company estimates the fair value of each stock-based award on the date of grant using the Black-Scholes option pricing model which requires the input of subjective assumptions, including price volatility of the underlying stock, risk-free interest rate, dividend yield, and expected term of the option.

From January 3, 2020 through October 26, 2020, Company employees participated in Arena’s stock incentive plan and therefore the Company used Arena’s Black-Scholes fair value, and underlying inputs and assumptions, to recognize stock-based compensation. Stock-based awards were measured at fair value and recognized over the requisite service period. There were no forfeitures.

Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, without consideration of potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock and potentially dilutive securities outstanding for the period. As the Company has reported a net loss for the periods presented, diluted net loss per share of common stock is the same as basic net loss per share of common stock for the periods.

The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented because including them would have been anti-dilutive:


	Three Months Ended September 30,				Nine Months Ended September 30,		Period from January 3, 2020 (Inception) through September 30,
	2021		2020		2021		2020
Options to purchase common stock		1,346,237		—		1,346,237		—
Restricted stock awards, issued but unvested		348,450		—		348,450		—
Total		1,694,687		—		1,694,687		—

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02), which supersedes FASB Accounting Standards Codification Topic 840, Leases (Topic 840), and provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method for finance leases or on a straight-line basis over the term of the lease for operating leases. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. For companies that are not emerging growth companies, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018. For emerging growth companies, the ASU was to be effective for fiscal years beginning after December 15, 2019. However, in June 2020, the FASB issued ASU 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for certain Entities, which deferred the effective date of ASU 2016-02 for certain entities. As a result, the ASU is now effective for emerging growth companies for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The Company entered into an office space lease and office machine lease effective July 1, 2021 and accounts for these leases under the new standard. The fair value of the right-of-use assets and corresponding lease liabilities for these leases is approximately $0.6 million as of September 30, 2021. See Note 9.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses, to improve financial reporting by requiring timely recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. This guidance will become effective for the Company beginning January 1, 2023, with early adoption permitted. The Company does not expect the adoption of this standard to have a material impact on its financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes—Simplifying the Accounting for Income Taxes (ASU 2019-12). Among other items, the amendments in ASU 2019-12 simplify the accounting treatment of tax law changes and year-to-date losses in interim periods. An entity generally recognizes the effects of a change in tax law in the period of enactment; however, there is an exception for tax laws with delayed effective dates. Under current guidance, an entity may not adjust its annual effective tax rate for a tax law change until the period in which the law is effective. This exception was removed under ASU 2019-12, thereby providing that all effects of a tax law change are recognized in the period of enactment, including adjustment of the estimated annual effective tax rate. Regarding year-to-date losses in interim periods, an entity is required to estimate its annual effective tax rate for the full fiscal year at the end of each interim period and use that rate to calculate its income taxes on a year-to-date basis. However, current guidance provides an exception that when a loss in an interim period exceeds the anticipated loss for the year, the income tax benefit is limited to the amount that would be recognized if the year-to-date loss were the anticipated loss for the full year. ASU 2019-12 removes this exception and provides that, in this situation, an entity would compute its income tax benefit at each interim period based on its estimated annual effective tax rate. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim

periods within those annual periods. Early adoption is permitted. The Company adopted this new standard in the first quarter of 2021 and it did not have a material impact on its financial statements and related disclosures.

Risks and Uncertainties

In December 2019, COVID-19, a novel strain of coronavirus, was first identified in Wuhan, China. In March 2020, the World Health Organization categorized COVID-19 as a pandemic, and the virus has spread to over 100 countries, including the United States. The impact of this pandemic has been and will likely continue to be extensive in many aspects of society, which has resulted in and will likely continue to result in significant disruptions to the global economy, as well as businesses and capital markets around the world.

Potential impacts to the Company’s business include, but are not limited to, temporary closures of facilities of its vendors, disruptions or restrictions on its employees’ ability to travel, disruptions to or delays in ongoing laboratory experiments, preclinical studies, clinical trials, third-party manufacturing supply and other operations, the potential diversion of healthcare resources away from the conduct of clinical trials to focus on pandemic concerns, interruptions or delays in the operations of the U.S. Food and Drug Administration or other regulatory authorities, and the Company’s ability to raise capital and conduct business development activities.

Note 3. Fair Value Measurements

The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1 — Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2 — Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 — Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity).

The following table summarizes the Company's financial instruments measured at fair value on a recurring basis as of September 30, 2021. As of December 31, 2020, the Company did not have financial assets or liabilities that are measured at fair value on a recurring basis.


			Fair Value Measurements at Reporting Date Using
(in thousands)	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
As of September 30, 2021
Assets:
Commercial paper	$	12,583	$	—	$	12,583	$	—
Corporate debt securities		14,120		—		14,120		—
Government and agency securities		10,395		7,570		2,825		—
Total assets measured at fair value	$	37,098	$	7,570	$	29,528	$	—

Note 4. Short-Term Investments

The following table summarizes short-term investments (in thousands):


	As of September 30, 2021
			Unrealized
(in thousands)	Amortized Cost		Gains		Losses			Estimated Fair Value
Commercial paper	$	12,583	$	—	$	—		$	12,583
Corporate debt securities		14,138		—		(18	)		14,120
Government and agency securities		10,401		—		(6	)		10,395
Total short-term investments	$	37,122	$	—	$	(24	)	$	37,098

The following table summarizes the maturities of the Company's short-term investments at September 30, 2021:


	Amortized Cost		Estimated Fair Value
Due in one year or less	$	14,006	$	14,006
Due after one year through three years		23,116		23,092
Total short-term investments	$	37,122	$	37,098

Note 5. Accrued Other Expenses

Accrued other expenses consisted of the following (in thousands):


	As of September 30, 2021		As of December 31, 2020
	(unaudited)
Accrued consulting fees	$	99	$	112
Accrued recruiting fees		71		40
Accrued computer related expenses		26		7
Accrued legal and accounting fees		19		15
Accrued financing costs		—		639
Accrued other		16		32
Total	$	231	$	845

Note 6. Convertible Preferred Stock and Stockholders’ Equity (Deficit)

Amended and Restated Certificate of Incorporation

In March 2021, the Company amended and restated the Company’s certificate of incorporation to, among other things, increase the authorized shares of voting common stock, non-voting common stock and preferred stock to 300,000,000 shares, 10,000,000 shares and 10,000,000 shares, respectively.

Voting Common Stock and Non-Voting Common Stock

As of September 30, 2021, the Company had 13,237,500 shares of voting common stock outstanding, excluding 348,450 shares subject to repurchase, and 3,629,400 shares of non-voting common stock outstanding. As of December 31, 2020, the Company had 3,840,540 shares of voting common stock outstanding, excluding 348,450 shares subject to repurchase. 3,840,540 shares were purchased by Arena for aggregate consideration of $0.10 in January 2020.

Series A Preferred Stock

In October 2020, the Company issued and sold 5,600,000 shares of Series A Preferred Stock at a price of $10.00 per share, resulting in gross proceeds of $56.0 million, including 100,000 shares purchased by Arena. The Company incurred $0.2 million in issuance costs related to the Series A Preferred Stock financing. On March 16, 2021, immediately prior to the closing of the IPO, 2,630,000 shares of the Series A Preferred Stock were exchanged for 3,629,400 shares of non-voting common stock. Upon the closing of the IPO, 2,970,000 shares of the Series A Preferred Stock were automatically converted into 4,098,600 shares of voting common stock. Following the IPO, there were no shares of Series A Preferred Stock outstanding.

The Series A Preferred Stock had been classified as temporary equity in the accompanying balance sheet as of December 31, 2020, in accordance with authoritative guidance for the classification and measurement of potentially redeemable securities whose redemption is based upon certain change in control events outside of the Company’s control, including liquidation, sale or change of control of the Company.

Reconciliation of Changes in Convertible Preferred Stock and Stockholders’ Equity (Deficit)

The following tables document the changes in convertible preferred stock and stockholders' equity (deficit) for the three and nine months ended September 30, 2021, the three months ended September 30, 2020 and the period from January 3, 2020 (inception) through September 30, 2020 (unaudited):


	Convertible Preferred Stock						Preferred Stock					Voting Common Stock				Non-Voting Common Stock
(in thousands, except shares)	Number of Shares			Amount			Number of Shares		Amount			Number of Shares		Amount		Number of Shares		Amount		Additional Paid-in Capital		Accumulated Other Comprehensive Gain/(Loss)		Accumulated Deficit			Total Stockholders' Equity (Deficit)
Balance at December 31, 2020		5,600,000		$	55,795			—	$	—			3,840,540	$	—		—	$	—	$	11,708	$	—	$	(14,400	)	$	(2,692	)
Conversion of convertible preferred stock to common stock in connection with initial public offering		(5,600,000	)		(55,795	)		—		—			4,098,600		—		3,629,400		—		55,795		—		—			55,795
Issuance of common stock in initial public offering, net		—			—			—		—			5,000,000		1		—		—		71,848		—		—			71,849
Stock-based compensation		—			—			—		—			—		—		—		—		333		—		—			333
Net loss		—			—			—		—			—		—		—		—		—		—		(5,699	)		(5,699	)
Balance at March 31, 2021		—			—			—		—			12,939,140		1		3,629,400		—		139,684		—		(20,099	)		119,586
Issuance of common stock in initial public offering, net		—			—			—		—			298,360		—		—		—		4,365		—		—			4,365
Stock-based compensation		—			—			—		—	</