LONGBOARD PHARMACEUTICALS, INC. You should read the following discussion and analysis of our financial condition
and results of operations together with our unaudited condensed financial
statements and related notes included elsewhere in this Quarterly Report and our
audited consolidated financial statements and related notes included in the
final prospectus dated
Overview
We are a clinical-stage biopharmaceutical company focused on developing novel,
transformative medicines for neurological diseases. We were formed in
• LP352, an oral, centrally acting, 5-hydroxytryptamine 2c receptor subtype
("5-HT2c") superagonist, that is currently in a multiple-ascending dose
("MAD") portion of a Phase 1 clinical trial and is expected to be
initiated in a Phase 1b/2a clinical trial for the treatment of
developmental and epileptic encephalopathies ("DEEs"), including Dravet
syndrome and Lennox-Gastaut syndrome, among others, in the first quarter
of 2022;
• LP143, a centrally acting, full cannabinoid type 2 receptor ("CB2")
agonist in investigational new drug ("IND") application enabling studies
for neurodegenerative diseases associated with neuroinflammation caused by
microglial activation, including amyotrophic lateral sclerosis ("ALS");
and
• LP659, a centrally acting, sphingosine-1-phosphate (S1P) receptor subtypes
1 and 5 ("S1P1,5") receptor modulator in IND-enabling studies for CNS
neuroinflammatory diseases.
We also have additional earlier discovery stage compounds.
In
The following table provides an overview of our current programs:
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* We hold worldwide rights to our product candidates in our therapeutic areas of focus for such compounds through the Arena License Agreement.
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We were incorporated in
We have incurred net losses since our inception. Our net losses were
We do not expect to generate any revenues from product sales unless and until we successfully complete development and obtain regulatory approval for one or more product candidates, which will not be for many years, if ever. Accordingly, until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and could force us to delay, reduce or terminate our research and development programs or other operations, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
The global COVID-19 pandemic continues to rapidly evolve. As a result of the
COVID-19 pandemic, we have faced and may continue to face delays in meeting our
anticipated timelines for our ongoing and planned clinical trials. Specifically,
the initiation of the MAD portion of the Phase 1 clinical trial of LP352 was
delayed, in part, as a result of the impact of the COVID-19 pandemic on the
clinical site in the
Agreements with Arena
Below is a summary of the key terms for our license and other agreements with Arena.
License Agreement
In
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Royalty Purchase Agreement
In
Services Agreement
In
Components of Our Results of Operations
Operating Expenses
Our operating expenses consist of (i) research and development expenses and (ii) general and administrative expenses.
Research and Development
Our research and development expenses consist primarily of direct and indirect costs incurred in connection with the preclinical and clinical development of our product candidates.
Direct costs include:
• external research and development expenses incurred under agreements with
Arena, CROs, investigative sites, and consultants to conduct our
preclinical studies and clinical trials; and
• costs related to manufacturing our product candidates for preclinical
studies and clinical trials, including fees paid to third-party
manufacturers.
Indirect costs include:
• personnel-related costs, which include salaries, payroll taxes, employee
benefits, and other employee-related costs, including stock-based
compensation, for personnel engaged in research and development functions;
and
• facilities and other various expenses.
Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received. We track direct costs by stage of program, clinical or preclinical. However, we do not track indirect costs on a program specific or stage of program basis because these costs are deployed across multiple programs and, as such, are not separately classified.
As described above, Arena charges us for certain expenses associated with these research and development functions under the Services Agreement. We expect to assume responsibility from Arena for these research and development functions as we continue to grow our business and build our internal research and development capabilities. We expect that our research and development expenses will increase substantially for the foreseeable future as we continue the development of our product candidates, particularly as product candidates in later stages of development generally have higher development costs than those in earlier stages of development. We cannot determine with certainty the timing of initiation, the duration or the completion costs of future clinical trials and preclinical studies of our product candidates due to the inherently unpredictable nature of clinical and preclinical development. Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations.
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We anticipate that we will make determinations as to which product candidates and development programs to pursue and how much funding to direct to each product candidate or program on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments and our ongoing assessments as to each product candidate's commercial potential. We will need to raise substantial additional capital in the future. In addition, we cannot forecast which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.
Our research and development expenses may vary significantly based on a variety of factors, such as:
• the scope, rate of progress, expense and results of our preclinical
development activities;
• the phase of development of our product candidates;
• per patient clinical trial costs;
• the number of clinical trials required for approval;
• the number of sites included in our ongoing and planned clinical trials;
• the number of patients that participate in our ongoing and planned
clinical trials;
• the countries in which our clinical trials are conducted;
• uncertainties in clinical trial design and patient enrollment or drop out
or discontinuation rates, particularly in light of the current COVID-19
pandemic environment;
• potential additional safety monitoring requested by regulatory agencies;
• the duration of patient participation in our ongoing and planned clinical
trials and follow-up;
• the efficacy and safety profile of our product candidates;
• the timing, receipt, and terms of any approvals from applicable regulatory
authorities including the FDA and foreign regulatory authorities;
• significant and changing government regulation and regulatory guidance;
• potential additional trials requested by regulatory agencies;
• the cost and timing of manufacturing our product candidates;
• establishing clinical and commercial manufacturing capabilities or making
arrangements with third-party manufacturers in order to ensure that we or
our third-party manufacturers are able to make product successfully;
• the extent to which we establish additional strategic collaborations or
other arrangements;
• the impact of any business interruptions to our operations or to those of
the third parties with whom we work, including Arena, particularly in
light of the current COVID-19 pandemic environment; and
• maintaining a continued acceptable safety profile of our product
candidates following approval, if any, of our product candidates.
A change in the outcome of any of these variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate.
General and Administrative
General and administrative expenses consist primarily of personnel-related costs, which include salaries, payroll taxes, employee benefits, and other employee-related costs, including stock-based compensation, for personnel in executive, finance and other administrative functions. Other significant costs include legal fees relating to corporate matters, professional fees for accounting and consulting services and facility-related costs.
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As described above, Arena charges us for certain expenses associated with these
general and administrative functions under the Services Agreement. We expect
that our ongoing general and administrative expenses will increase substantially
for the foreseeable future to support our increased research and development
activities and increased costs of operating as a public company and in building
our internal resources to become less reliant on Arena. These increased costs
will include increased expenses related to audit, legal, regulatory and
tax-related services associated with maintaining compliance with exchange
listing and
Financial Operations Overview
Results of Operations
The following table summarizes our results of operations for the three months endedMarch 31, 2021 and the period fromJanuary 3, 2020 (inception) throughMarch 31, 2020 : Period from January 3, 2020 Three Months Ended (Inception) through (in thousands) March 31, 2021 March 31, 2020 Operating expenses: Research and development $ 4,398 $ 59 General and administrative 1,305 115 Total operating expenses 5,703 174 Loss from operations (5,703 ) (174 ) Interest income 4 - Net loss and comprehensive loss $ (5,699 ) $ (174 )
Research and Development Expenses
The following table summarizes our research and development expenses for the
three months ended
Period from
January 3,
2020
(Inception)
Three Months Ended through
(in thousands) March 31, 2021 March 31, 2020
Direct costs:
LP352 $ 1,508 $ -
Preclinical programs 2,110 29
Indirect costs:
Personnel-related 646 30
All other 134 -
Total research and development expenses $ 4,398 $ 59
Research and development expenses were
General and Administrative Expenses
General and administrative expenses were
Liquidity and Capital Resources
We have incurred net losses and negative cash flows from operations since our
inception and anticipate we will continue to incur net losses for the
foreseeable future. As of
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Initial Public Offering
In connection with our IPO, we issued and sold 5,298,360 shares of common stock,
which included 298,360 shares of its common stock issued pursuant to the
over-allotment option granted to the underwriters to purchase additional shares
of common stock, at a public offering price of
Funding Requirements
We expect that our existing cash and cash equivalents will be sufficient to fund our operations for at least the next 12 months. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. Additionally, the process of testing product candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain.
Our future capital requirements will depend on many factors, including:
• the type, number, scope, progress, expansions, results, costs and timing
of, our preclinical studies and clinical trials for our current and any
future product candidates and the potential indications which we are
pursuing or may choose to pursue in the future;
• the outcome, timing and costs of regulatory review of our product candidates;
• the costs and timing of manufacturing for our product candidates,
including commercial manufacturing;
• our efforts to enhance operational systems and hire additional personnel
to satisfy our obligations as a public company, including enhanced
internal controls over financial reporting;
• the costs associated with hiring additional personnel and consultants as
our preclinical and clinical activities increase;
• the timing and amount of the payments we must make under the Arena License
Agreement;
• the costs and timing of establishing or securing sales and marketing and
distribution capabilities, whether alone or with third parties, to
commercialize product candidates for which we may obtain regulatory
approval, if any;
• our ability to achieve sufficient market acceptance, coverage and adequate
reimbursement from third- party payors and adequate market share and
revenue for any approved products;
• patients' willingness to pay out-of-pocket for any approved products in
the absence of coverage and/or adequate reimbursement from third-party
payors;
• the terms and timing of establishing and maintaining collaborations,
licenses and other similar arrangements;
• the costs of obtaining, expanding, maintaining and enforcing our patent
and other intellectual property rights;
• costs associated with any product candidates, products or technologies
that we may in-license or acquire; and
• if we experience any delays or encounter any issues with any of the above,
including the risk of each of which may be exacerbated by the ongoing
COVID-19 pandemic.
Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval for any product candidates or generate revenue from the sale of any product candidate for which we may obtain marketing approval. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for at least several years, if ever. As a result, we will need substantial additional financing to support our continuing operations and further the development of and commercialize our product candidates.
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Until such time as we can generate significant revenue from sales of our product
candidates, if ever, we expect to finance our cash needs through public or
private equity or debt financings or other capital sources, including potential
collaborations, licenses and other similar arrangements. However, we may be
unable to raise additional funds or enter into such other arrangements when
needed on favorable terms or at all. Our ability to raise additional funds may
be adversely impacted by potential worsening global economic conditions and the
recent disruptions to, and volatility in, the credit and financial markets in
Cash Flows The following table sets forth a summary of our cash flows for the three months endedMarch 31, 2021 and the period fromJanuary 3, 2020 (inception) throughMarch 31, 2020 : Period from January 3, 2020 (Inception) Three Months Ended through (in thousands) March 31, 2021 March 31, 2020 Cash used in operating activities $ (7,746 ) (39 ) Cash provided by financing activities 73,281 39 Net increase in cash and cash equivalents $ 65,535 $ - Operating Activities
Net cash used in operating activities was
Financing Activities
Net cash provided by financing activities was
Critical Accounting Policies and Significant Judgments and Estimates
Our financial statements are prepared in accordance with generally accepted
accounting principles in
While our significant accounting policies are described in more detail in the notes to our financial statements appearing in the Prospectus, we believe that the following accounting policies are critical to understanding our historical and future performance, as the policies relate to the more significant areas involving management's judgments and estimates used in the preparation of our financial statements.
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As part of the process of preparing our financial statements, we are required to estimate our accrued research and development expenses as of each balance sheet date. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice us in arrears for services performed, based on a pre-determined schedule or when contractual milestones are met, but some require advance payments. We make estimates of our accrued expenses as of each balance sheet date in the financial statements based on facts and circumstances known to us at that time. If timelines or contracts are modified based upon changes in the protocol or scope of work to be performed, we modify our estimates and accruals accordingly on a prospective basis.
We base our expenses related to external research and development services on our estimates of the services received and efforts expended pursuant to quotes and contracts with vendors that conduct research and development on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the amount of prepaid expenses accordingly.
Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses.
Emerging Growth Company and Smaller Reporting Company Status
We are an "emerging growth company" under the Jumpstart Our Business Startups Act of 2012 ("JOBS Act"), and as such, we can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of accounting standards that have different effective dates for public and private companies until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards, and therefore we will not be subject to the same requirements to adopt new or revised accounting standards as other public companies that are not emerging growth companies.
We will cease to be an emerging growth company prior to the end of
We are also a "smaller reporting company" as defined in the Exchange Act. We may
continue to be a smaller reporting company even after we are no longer an
emerging growth company. We may take advantage of certain of the scaled
disclosures available to smaller reporting companies and will be able to take
advantage of these scaled disclosures for so long as our voting and non-voting
common stock held by non-affiliates is less than
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