The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this quarterly report on Form 10ÂQ for the quarter endedSeptember 30, 2021 (this "Quarterly Report"). This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, such statements are subject to the "safe harbor" created by those sections and involve risks and uncertainties. Forward-looking statements are based on our management's beliefs and assumptions and on information available to our management as of the date hereof. As a result of many factors, such as those set forth under "Item 1A. Risk Factors" included in our 2020 Annual Report and Part II, "Item 1A. Risk Factors" in this Quarterly Report, our actual results may differ materially from those anticipated in these forward-looking statements, accordingly, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. Such factors may be amplified by the COVID-19 pandemic and its potential impact on our business and the global economy. OverviewLumos Pharma, Inc. is a clinical-stage biopharmaceutical company. References in this report to "us," "we," "our," "the Company," or "Lumos" are toLumos Pharma, Inc. and its wholly-owned subsidiaries. With our principal executive offices located inAustin, Texas and additional executive and administrative offices located inAmes, Iowa , we are engaged in advancing our clinical program and focused on identifying, acquiring, developing, and commercialization of novel products and new therapies for people with rare diseases on a global level, for which there is currently a significant unmet need for safe and effective therapies. Our common stock is listed on the NASDAQ Select Market ("Nasdaq") and trades under the ticker symbol "LUMO". We entered into a business combination (the "Merger") between the Company, formerly known asNewLink Genetics Corporation ("NewLink"),Cyclone Merger Sub, Inc. ("Merger Sub"), a wholly owned subsidiary of NewLink, andLumos Pharma, Inc. , ("Private Lumos"), which has since been renamed "Lumos Pharma Sub, Inc. " The Merger closed onMarch 18, 2020 , and Merger Sub merged with and into Private Lumos, with Private Lumos surviving as a wholly-owned subsidiary of the Company. Immediately prior to the closing of the Merger, the shares of NewLink common stock were adjusted with a reverse split ratio of 1-for-9. Under the terms of the Merger, Private Lumos stockholders received an aggregate of 4,146,405 shares of our common stock (after giving effect to the reverse split) for each share of outstanding common stock, Series A Preferred Stock and Series B Preferred Stock of Private Lumos converted at an exchange ratio of 0.1308319305, 0.0873621142 and 0.1996348626, respectively. Immediately following the reverse stock split and the completion of the Merger, there were 8,292,803 shares of the Company's common stock outstanding, of which approximately 50% was held by each of Private Lumos and NewLink security holders. The Merger was accounted for as a reverse asset acquisition. Since the consummation of the Merger, we have focused our efforts on the development of Private Lumos' sole product candidate, LUM-201, a potential oral therapy for PGHD and other rare endocrine disorders. PGHD is a rare endocrine disorder occurring in approximately one in 3,500 persons aged birth to 17 years. Causes of PGHD can be congenital (children are born with the condition), acquired (brain tumor, head injuries or other causes), iatrogenic (induced by medical treatment) or idiopathic (of unknown cause). Children with untreated PGHD will have significant growth failure (potential adult heights significantly less than five feet and may have abnormal body composition with decreased bone mineralization, decreased lean body mass and increased fat mass). The main therapeutic goal in PGHD is to restore growth, enabling short children to achieve normal height and prevent complications that could involve metabolic abnormalities, cognitive deficiencies and reduced quality of life. The current standard of care for PGHD is limited to daily subcutaneous injections of rhGH with a treatment cycle lasting up to an average of seven years. Poor compliance with daily rhGH injections during treatment can result in an adverse impact on growth. The FDA recently approved a competitive treatment, Skytrofa, a once-weekly injection which would reduce the number of injections over the course of treatment for a patient, however, we believe that many providers and patients will have a preference for an orally administered treatment. LUM-201 Growth Hormone Secretagogue Our pipeline is focused on the development of an orally administered small molecule, LUM-201, which is a growth hormone ("GH") secretagogue, also called ibutamoren, for rare endocrine disorders where injectable recombinant human growth hormone ("rhGH") is currently approved. LUM-201 is a tablet formulation that will be administered once daily. -------------------------------------------------------------------------------- Table of Contents Lumos acquired LUM-201 fromAmmonett Pharma LLC ("Ammonett") inJuly 2018 . LUM-201 received the Orphan Drug Designation ("ODD") inthe United States and theEuropean Union for Growth Hormone Deficiency ("GHD") in 2017.The United States patent "Detecting and Treating Growth Hormone Deficiency" has been issued with an expiration in 2036. Other patent applications are pending in multiple jurisdictions. If approved, LUM-201 has the potential to become the first approved oral GH secretagogue to treat rare endocrine disorders associated with GH deficiencies, starting with PGHD, providing an alternative to the current standard regimen of recombinant growth hormone product injections. A secretagogue is a substance that stimulates the secretion or release of another substance. LUM-201 stimulates the release of GH and is referred to as a GH secretagogue. LUM-201 stimulates GH via the GH secretagogue receptor, also known as the ghrelin receptor, thus providing a differentiated mechanism of action to treat some rare endocrine disorders (involving a deficiency of GH) by increasing the amplitude of endogenous, pulsatile GH secretion. LUM-201's stimulatory effect is regulated by both circulating levels of GH and its down-stream mediator insulin-like growth factor which at supraphysiological levels feedback or negatively regulate additional release of GH from the pituitary, hence protecting against hyperstimulation of GH release. LUM-201 has been observed to stimulate endogenous GH secretion in patients who have a functional but reduced hypothalamic pituitary GH axis. We believe that a subset of patients with PGHD who have a functional but reduced hypothalamic pituitary GH axis are expected to respond to LUM-201 and represent approximately 60% of PGHD patients. During the fourth quarter of 2020, we launched our OraGrowtH Trials (as defined below) program to study the effects of LUM-201 in PGHD and initiated our Phase 2 clinical trial ("OraGrowtH210 Trial" or the "Phase 2 Trial") with the opening of the initial sites participating in this study. The OraGrowtH210 Trial currently has sites enrolling inthe United States ,Australia ,New Zealand ,Poland andUkraine with plans to activate the remaining sites inRussia andIsrael by the end of 2021. We currently anticipate the primary outcome data read out for the OraGrowtH210 Trial will be in the second half of 2023. In response to theFDA's request in a letter datedJuly 16, 2021 , we announced inJuly 2021 that we would extend the treatment period from six months to twelve months to gather additional efficacy data for LUM-201 in PGHD prior to starting our originally planned long-term extension trial. The extension of the treatment period will not impact the primary outcome data read out which will be based on the annualized data from the first six months of treatment. We continue to review the timing of the start of the long-term extension study in context of the OraGrowtH210 Trial extension and gather the requested additional efficacy data to be reviewed by the FDA prior to initiation. We do not anticipate these protocol changes, on a stand-alone basis, will extend the time to the initiation of our Phase 3 clinical trial. The OraGrowtH210 trial is a randomized study testing three doses of LUM-201 in a parallel enrollment approach versus the current standard dose of injectable rhGH. The primary endpoint of the study is preliminary validation of our predictive enrichment marker ("PEM") patient selection strategy as evidenced by the percentage of selected patients who grow in response to LUM-201. Secondary endpoints include selection of a pediatric dose of LUM-201 for future studies including Phase 3 and determination of the degree of repeatability of the PEM selection process in PEM positive patients screened for participation in OraGrowtH210. The coronavirus pandemic has caused pervasive interruptions to clinical trials industry-wide. Facing similar near-term impediments, we have experienced significant delays related to the pandemic as clinical sites adapt their procedures to caring for patients during a pandemic and we may experience further delays should significant pandemic related disruptions persist. During the second quarter of 2021, we initiated our OraGrowtH212 Trial in PGHD which will run in parallel with the OraGrowtH210 Trial. The OraGrowtH212 trial will evaluate the effects of the pharmacokinetic and pharmacodynamic ("PK/PD") effects of LUM-201 in PGHD patients at two dose levels to confirm prior clinical data illustrating the increased pulsatile release of endogenous growth hormone unique to LUM-201 and its potential for this mechanism of action to contribute to efficacy in PGHD. OraGrowtH212 is being conducted at a single specialized pediatric center with the capacity to conduct the more frequent sample acquisition and monitoring required for this type of clinical trial. Data from the OraGrowtH212 Trial may be supportive in future regulatory filings; however, this trial is not required for regulatory approval of LUM-201. As we announced inJuly 2021 , this open-label trial was extended from six months to twelve months of treatment for the patients to capture additional PK/PD and height velocity data. Given the open-label design of this trial, we have the ability to perform an interim analysis at our discretion. The PD pulsatility assessment will continue to occur at baseline and six months on therapy as planned. -------------------------------------------------------------------------------- Table of Contents The graphic below depicts the clinical development plan for PGHD. [[Image Removed: nlnk-20210930_g2.jpg]] Potential expansion of LUM-201 into additional endocrine indications We continue to explore our development path to expand into additional indications for LUM-201. We are actively reviewing the pathway for LUM-201 in a certain subset of affected patients in other potential indications including Turners Syndrome, Prader Willi Syndrome, Idiopathic Short Stature and for Children Born Small for Gestational Age. Management is working towards developing the clinical plans for additional targeted indications and will provide further updates as the indications and plans are developed. Timing for the initiation of these plans will be somewhat dependent on the outcome of data developed and identification of the most efficacious dose in the OraGrowtH210 Trial and the timing of such data. Ebola Vaccine InNovember 2014 , NewLink entered into the NewLink Merck Agreement with Merck to develop and potentially commercialize its Ebola vaccine rVSV?G-ZEBOV that it licensed from PHAC. rVSV?G-ZEBOV was also eligible to receive a PRV if approval was granted by the FDA, with the Company entitled to 60% of the PRV value obtained through sale, transfer or other disposition of the PRV. OnDecember 20, 2019 , Merck announced that the FDA approved its application for ERVEBO® (Ebola Zaire Vaccine, Live) for the prevention of disease caused by Zaire Ebola virus in individuals 18 years of age and older. OnJuly 27, 2020 , we and Merck entered into the PRV Asset Purchase Agreement, whereby we and Merck each agreed that Merck would purchase the PRV from us for$100.0 million . Merck paid us$60.0 million , representing our share of the purchase price in two installments. The first installment of$34.0 million was received by us at the closing onJuly 27, 2020 and the final installment of$26.0 million was received onJanuary 11, 2021 . We also have the potential to earn royalties on sales of the vaccine in certain countries, if the vaccine is successfully commercialized by Merck. However, we believe that the market for the vaccine will be limited primarily to areas in the developing world that are excluded from royalty payment or where the vaccine is donated or sold at low or no margin and therefore we do not expect to receive material royalty payments from Merck in the foreseeable future. NewLink's Legacy Oncology Candidates In connection with the Merger, we acquired NewLink's small-molecule product candidates. These product candidates, indoximod,NLG802 (a prodrug of indoximod) andNLG919 (a direct IDO1 enzymatic inhibitor) are indoleamine-2, 3-dioxygenase pathway inhibitors. -------------------------------------------------------------------------------- Table of Contents TwoU.S. patents covering both the salt and prodrug formulations of indoximod were issued inthe United States onAugust 15, 2017 andFebruary 19, 2019 , respectively, providing exclusivity until at least 2036. We are continuing to pursue international patent coverage for these formulations in some countries, we are exploring the potential for further development and licensing opportunities and we are actively providing drug product to external collaborators conducting investigator initiated studies. Financial Overview Revenue We have no products approved for commercial sale and have not generated any revenue from product sales. In the future, we may generate revenue from product sales, royalties on product sales, or license fees, milestones, or other upfront payments if we enter into any collaborations or license agreements. We expect that our future revenue will fluctuate from quarter to quarter for many reasons, including the uncertain timing and amount of any such payments and sales. Research and Development Expenses Research and development expenses consist primarily of costs incurred to advance our product candidate, LUM-201. Our research and development expenses include internal personnel expenditures along with external research and development expenses incurred under arrangements with third parties, such as contract research and manufacturing organizations, consultants, and our scientific advisors. We expense research and development costs as incurred. Nonrefundable advance payments for goods and services that will be used in future research and development activities are capitalized as an asset and expensed when the service has been performed or when the goods have been received. We expect our research and development expenses to increase for the foreseeable future as we continue to conduct our clinical trial programs for our product candidates develop our pipeline and pursue regulatory approval of our product candidates. General and Administrative Expenses General and administrative expenses consist primarily of professional fees for legal, auditing, tax and business consulting services, personnel expenses and travel costs. We expect that general and administrative expenses will increase in the future as we expand our operating activities. Critical Accounting Policies and Significant Judgments and Estimates We have prepared our condensed consolidated financial statements in accordance withU.S. GAAP which requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, expenses. On an ongoing basis, we evaluate these estimates and judgments. We based our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results could, therefore, differ materially from these estimates under different assumptions or conditions. Management believes there have been no material changes to the critical accounting policies from those discussed in Note 2 - "Summary of Significant Accounting Policies and Recent Accounting Pronouncements" of our consolidated financial statements included in the Company's 2020 Annual Report. COVID-19 The pandemic caused by an outbreak of COVID-19 has resulted, and is likely to continue to result, in significant national and global economic disruption and may continue to adversely affect our operations. We are actively monitoring the potential impact of COVID-19, if any, on the carrying value of certain assets and our continued operations. To date, we have experienced delays related to clinical trials as clinical sites adapt their procedures to caring for patients during a pandemic, however, we have not incurred impairment of any assets as a result of COVID-19. The extent to which these events may impact our business, clinical development, regulatory efforts, and the value of our common stock, will depend on future developments, which are highly uncertain and cannot be predicted at this time. The duration and intensity of these impacts and resulting disruption to our operations is uncertain and we will continue to evaluate the impact that these events could have on our operations, financial position, and results of operations and cash flows during the remainder of fiscal year 2021. -------------------------------------------------------------------------------- Table of Contents Results of Operations Comparison of the Three Months EndedSeptember 30, 2021 and 2020: Three Months Ended September 30, 2021 2020 Change in $ Change in % (in thousands) (in thousands) Revenues:
License and collaboration revenues $ –
(74) (100) % Total revenues - 74 Operating expenses: Research and development 4,112 2,075 2,037 98 % General and administrative 3,385 5,156 (1,771) (34) % Total operating expenses 7,497 7,231 Other income, net 9 6,490 (6,481) (100) % Income tax benefit - 2,432 (2,432) (100) % Net income (loss) attributable to common shareholders$ (7,488) $ 1,765 Revenues. Revenues decreased by$74,000 for the three months endedSeptember 30, 2021 compared to the same period in 2020 primarily due to the wind-down of work we performed in relation to ERVEBO® as a subcontractor of Merck. Research and Development Expenses. Research and development expenses increased by$2.0 million for the three months endedSeptember 30, 2021 compared to the same period in 2020 primarily due to increases of$1.8 million in clinical trial and contract manufacturing expenses,$0.4 million in personnel-related expenses and$0.1 million in stock compensation expenses, offset by a decrease of$0.3 million in supplies and other expenses. General and Administrative Expenses. General and administrative expenses decreased by$1.8 million for the three months endedSeptember 30, 2021 as compared to the same period in 2020 primarily due to decreases of$1.3 million in personnel-related expenses,$0.3 million in legal, consulting and other expenses and$0.2 million in operating expenses for insurance, rent, supplies, and depreciation. Other Income, net. Other income, net decreased by$6.5 million for the three months endedSeptember 30, 2021 compared to the same period in 2020 primarily due to a gain of$6.3 million recognized upon sale of the PRV inJuly 2020 . Income Tax Benefit. The income tax benefit decreased by$2.4 million for the three months endedSeptember 30, 2021 as compared to the same period in 2020 primarily due to anticipated taxable loss relating to operations in 2021 as compared to the benefit recorded as a result of the release of the valuation allowance relating to Private Lumos NOL carryforwards and a current tax benefit that management anticipated would be utilized in 2020. -------------------------------------------------------------------------------- Table of Contents Comparison of the Nine Months EndedSeptember 30, 2021 and 2020: Nine Months Ended September 30, 2021 2020 Change in $ Change in % (in thousands) (in thousands) Revenues: Licensing and collaboration revenue$ 10 $ 128 (118) (92) % Total revenues 10 128 Operating expenses: Research and development 12,885 6,743 6,142 91 % General and administrative 11,903 12,634 (731) (6) % Total operating expenses 24,788
19 377
Other (expense) income, net (11) 6,680 (6,691) (100) % Income tax benefit - 9,321 (9,321) (100) % Net loss attributable to common shareholders$ (24,789) $
(3,248)
Revenues. Revenues decreased by$0.1 million for the nine months endedSeptember 30, 2021 compared to the same period in 2020 primarily due to the wind-down of work we performed in relation to ERVEBO® as a subcontractor of Merck. Research and Development Expenses. Research and development expenses increased by$6.1 million for the nine months endedSeptember 30, 2021 compared to the same period in 2020 primarily due to increases of$4.4 million in clinical trial and contract manufacturing expenses,$1.3 million in personnel-related expenses and$0.6 million in stock compensation expenses, offset by a decrease of$0.2 million in operating expenses for supplies, depreciation and rent. General and Administrative Expenses. General and administrative expenses decreased by$0.7 million for the nine months endedSeptember 30, 2021 as compared to the same period in 2020 primarily due to decreases of$1.5 million in legal, consulting and other expenses,$0.3 million in operating expenses for supplies, depreciation and rent and$0.2 million in personnel-related expenses, offset by increases of$1.0 million in stock compensation expenses and$0.3 million in insurance expenses. Other Income, net. Other income, net decreased by$6.7 million for the nine months endedSeptember 30, 2021 compared to the same period in 2020 primarily due to a gain of$6.3 million recognized upon sale of the PRV inJuly 2020 . Income Tax Benefit. The income tax benefit decreased by$9.3 million for the nine months endedSeptember 30, 2021 as compared to the same period in 2020 primarily due to anticipated taxable loss relating to operations in 2021 as compared to 2020, which included recording of$4.5 million of current tax benefit related to carry back of NOL under the CARES Act,$3.8 million of deferred tax benefit for losses we anticipate would be offset by future income and$1.0 million of deferred tax benefit for release of valuation allowance from Private Lumos. Liquidity and Capital Resources We have historically devoted substantially all our efforts toward research and development and have never earned revenue from commercial sales of our products. We expect to continue to incur additional substantial losses in the foreseeable future as a result of our research and development programs and from general and administrative costs associated with our operations. However, we believe that our existing cash and cash equivalents of approximately$100.7 million as ofSeptember 30, 2021 will be sufficient to allow us to fund our operations through read out of the Phase 2b clinical trial for a subset of patients with PGHD indication under our LUM-201 product candidate and for at least 12 months from the filing date of this Quarterly Report. We may seek to sell additional equity or debt securities or obtain a credit facility from time to time or if our available cash and cash equivalents are insufficient to satisfy our liquidity requirements or if we develop additional opportunities to do so. The sale of additional equity and debt securities may result in additional ownership dilution to our stockholders. If we raise additional funds through the issuance of debt securities or preferred stock, these securities could have rights senior to those of -------------------------------------------------------------------------------- Table of Contents our common stock and could contain covenants that would restrict our operations. We may require additional capital beyond our currently forecasted amounts. Any such required additional capital may not be available on reasonable terms, if at all. If we are unable to obtain additional financing, we may be required to reduce the scope of, delay or eliminate some or all of our planned research and development activities, which could harm our business. Because of the numerous risks and uncertainties associated with the research and development of our product candidates, we are unable to estimate the exact amounts of our working capital requirements. Our future funding requirements will depend on many factors, including, but not limited to: •the scope, progress, results, and costs of clinical trials for our product candidates, and discovery and development activities related to new product candidates; •the timing of, and the costs involved in, obtaining regulatory approvals for our product candidates; •the cost of commercialization activities if any of our product candidates are approved for sale, including marketing, sales, facilities, and distribution costs; •the cost of manufacturing our product candidates and any products we commercialize; •our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements; •whether, and to what extent, we are required to repay our royalty obligation to IEDA; •the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of such litigation; •the impact of public health crises such as the current COVID-19 pandemic or similar outbreaks, and •the timing, receipt and amount of sales of, or royalties on, our future products, if any. OnDecember 30, 2020 , we entered into a Controlled Equity OfferingSM Sales Agreement (the "Sales Agreement") withCantor Fitzgerald & Co. , as agent (the "Agent"), pursuant to which we may offer and sell from time to time through the Agent up to$50.0 million of shares of our common stock (the "Shares"). The offering and sale of the Shares has been registered under the Securities Act. Under the Sales Agreement, the Agent may sell the Shares by any method permitted by law and deemed to be an "at-the-market" offering as defined in Rule 415(a)(4) promulgated under the Securities Act, including sales made directly on or through the Nasdaq, on any other existing trading market for the Shares, in negotiated transactions at market prices prevailing at the time of sale or at prices related to such prevailing market prices and/or any other method permitted by law. We will notify the Agent of the number of Shares to be issued, the time period during which sales are requested to be made, any limitation on the number of Shares that may be sold in any one day and any minimum price below which sales may not be made. We intend to use the net proceeds from this offering for working capital and general corporate purposes, which include, but are not limited to, expanding clinical development opportunities for our product candidate into potential additional indications, and general and administrative expenses. We may also use a portion of the net proceeds to invest in future strategic transactions to expand and diversify our product pipeline through the acquisition or licensing of product candidates or technologies that are complementary to our own. We will pay the Agent a commission of up to 3.0% of the gross sales price of the Shares sold through it under the Sales Agreement. In addition, we have agreed to reimburse certain expenses incurred by the Agent in connection with the offering. The Sales Agreement may be terminated by the Agent or by us at any time upon notice to the other party, as set forth in the Sales Agreement, or by the Agent at any time in certain circumstances, including the occurrence of a material and adverse change in our business or financial condition that makes it impractical or inadvisable to market the shares or to enforce contracts for the sale of the Shares. As ofSeptember 30, 2021 , no shares have been issued under the Sales Agreement. -------------------------------------------------------------------------------- Table of Contents Cash Flows The following table sets forth the primary sources and uses of cash for each of the periods set forth below (in thousands): Nine Months Ended
2021 2020 Net cash used in operating activities$ (23,820) $ (16,017) Net cash provided by investing activities 25,983 116,661 Net cash used in financing activities (192) (21) Net increase in cash and equivalents $ 1,971$ 100,623 For the nine months endedSeptember 30, 2021 and 2020, our operating activities used cash of$23.8 million and$16.0 million , respectively. The increase was primarily due to an increase in net loss during the nine months endedSeptember 30, 2021 as compared to the nine months endedSeptember 30, 2020 . The increase in net loss was offset by a gain on sale of the PRV of$6.3 million and recognition of a deferred tax benefit of$4.8 million in the nine months endedSeptember 30, 2020 , as well as decrease in the change in working capital for the nine months endedSeptember 30, 2021 as compared to the nine months endedSeptember 30, 2020 . The decrease in working capital is primarily due to obligations paid out related to the Merger during the nine months endedSeptember 30, 2020 . For the nine months endedSeptember 30, 2021 and 2020, our investing activities provided cash of$26.0 million and$116.7 million , respectively. The decrease resulted from$26.0 million in cash received towards the final installment from sale of the PRV during the nine months endedSeptember 30, 2021 as compared to$32.5 million in cash received towards the first installment from sale of the PRV and$84.2 million in cash acquired in connection with the Merger during the nine months endedSeptember 30, 2020 . For the nine months endedSeptember 30, 2021 and 2020, our financing activities used net cash of$192,000 and none, respectively. The cash used in financing activities relates to$148,000 in expenses related to the common stock offering under our Controlled Equity OfferingSM and a$114,000 payment for tax withholding on vested awards offset by$64,000 received upon the exercise of stock options and$6,000 from sale of shares under the employee stock purchase plan.
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