Longboard Pharmaceuticals(LBPH) - 2021 Q3 - Quarterly Report

Special Note Regarding Forward-Looking Statements This section outlines the nature of forward-looking statements, their inherent risks, and the factors that could cause actual results to differ materially from projections - This Quarterly Report contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995[7] - Actual results may differ materially from current expectations due to known and unknown risks, uncertainties, and other factors, particularly those listed under Part II, Item 1A, 'Risk Factors'[8] - Forward-looking statements cover plans for R&D, clinical trials, therapeutic potential, manufacturing, funding, market size, intellectual property rights, personnel, and the effects of the COVID-19 pandemic[10] Summary Risk Factors This section provides a concise overview of the primary risks facing the company, including its limited operating history, capital needs, and early-stage product development - The company has a very limited operating history, has incurred losses since inception, and anticipates continued significant losses, with no guarantee of future profitability[13] - Substantial additional capital is required to finance operations; failure to secure it may force delays or termination of product development efforts[13] - The company is in early development with only one product candidate, LP352, in early clinical development, and others in preclinical stages, facing lengthy, expensive, and uncertain drug development processes[13] - Regulatory approval processes are lengthy, time-consuming, and inherently unpredictable, and the company currently lacks a marketing and sales organization[13] - The business is adversely impacted by the COVID-19 pandemic and depends on intellectual property licensed from Arena, with termination risks[13] PART I. Financial Information This part presents the company's unaudited condensed financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed financial statements, including balance sheets, statements of operations and comprehensive loss, statements of cash flows, and detailed notes, providing a comprehensive overview of the company's financial position, performance, and cash movements for the reported periods Condensed Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and equity at specific points in time Condensed Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2021 | Dec 31, 2020 | Change (%) | | :-------------------------------- | :----------- | :----------- | :--------- | | Cash and cash equivalents | $75,461 | $55,316 | +36.4% | | Short-term investments | $37,098 | — | N/A | | Total current assets | $115,299 | $55,362 | +108.2% | | Total assets | $115,948 | $56,238 | +106.2% | | Total current liabilities | $4,021 | $3,135 | +28.3% | | Total stockholders' equity (deficit) | $111,652 | $(2,692) | N/A (from deficit to positive) | Condensed Statements of Operations and Comprehensive Loss This section outlines the company's financial performance, including revenues, expenses, and net loss over specified periods Condensed Statements of Operations and Comprehensive Loss (in thousands) | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | Period from Jan 3, 2020 (Inception) through Sep 30, 2020 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :---------------------------------------------------------------- | | 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 | | Net loss | $(6,345) | $(2,550) | $(19,024) | $(4,291) | | Comprehensive loss | $(6,335) | $(2,550) | $(19,048) | $(4,291) | - Net loss significantly increased by 148.8% for the three months ended September 30, 2021, and by 343.3% for the nine months ended September 30, 2021, compared to the prior year periods, driven by increased R&D expenses and G&A expenses[18] Condensed Statements of Cash Flows This section details the cash inflows and outflows from operating, investing, and financing activities over specified periods Condensed Statements of Cash Flows (in thousands) | Metric | 9 Months Ended Sep 30, 2021 | Period from Jan 3, 2020 (Inception) through Sep 30, 2020 | | :-------------------------------- | :-------------------------- | :---------------------------------------------------------------- | | Net cash used in operating activities | $(19,030) | $(1,983) | | Net cash used in investing activities | $(37,276) | — | | Net cash provided by financing activities | $76,451 | $2,200 | | Net increase in cash and cash equivalents | $20,145 | $217 | - Cash used in operating activities increased significantly, but was offset by a substantial increase in cash provided by financing activities, primarily from the IPO proceeds[21] Notes to Unaudited Condensed Financial Statements These notes provide detailed explanations and disclosures for the unaudited condensed financial statements, covering the company's formation, IPO, accounting policies, financial instrument valuations, related party agreements, stock-based compensation, lease commitments, and employee benefits Note 1. Organization and Basis of Presentation This note describes the company's formation, its Initial Public Offering, and the basis for presenting its financial statements - Longboard Pharmaceuticals, Inc. was incorporated on January 3, 2020, as a clinical-stage biopharmaceutical company focused on neurological diseases[24] - The company completed its Initial Public Offering (IPO) on March 16, 2021, raising $76.2 million in net proceeds[25] Accumulated Deficit (in thousands) | Date | Amount | | :--- | :----- | | Sep 30, 2021 | $(33,424) | | Dec 31, 2020 | $(14,400) | - As of September 30, 2021, the company had $112.6 million in cash, cash equivalents, and investments, which management believes will fund operations for at least 12 months[35] Note 2. Summary of Significant Accounting Policies This note outlines the key accounting principles and methods used in preparing the financial statements Research and Development Expenses (in thousands) | Period | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | Period from Jan 3, 2020 (Inception) through Sep 30, 2020 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :---------------------------------------------------------------- | | Amount | $4,093 | $13,406 | $1,603 | $2,462 | - Stock-based compensation is measured at fair value using the Black-Scholes option pricing model and recognized over the requisite service period[44] - The company adopted ASU No. 2019-12 (Income Taxes) in the first quarter of 2021, which did not have a material impact on its financial statements[51] - The COVID-19 pandemic has caused and may continue to cause significant disruptions to global financial markets and the company's operations, including preclinical studies and clinical trials[53] Note 3. Fair Value Measurements This note details the valuation methodologies and hierarchy used for assets and liabilities measured at fair value - Fair value measurements are categorized into a three-tier hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (unobservable inputs)[54][55] Assets Measured at Fair Value (as of Sep 30, 2021, in thousands) | Asset Type | Total | Level 1 | Level 2 | Level 3 | | :-------------------------- | :------ | :------ | :------ | :------ | | Commercial paper | $12,583 | — | $12,583 | — | | Corporate debt securities | $14,120 | — | $14,120 | — | | Government and agency securities | $10,395 | $7,570 | $2,825 | — | | Total | $37,098 | $7,570 | $29,528 | — | Note 4. Short-Term Investments This note provides a breakdown of the company's short-term investment portfolio, including their fair values and maturities Short-Term Investments (as of Sep 30, 2021, in thousands) | Investment Type | Amortized Cost | Unrealized Gains | Unrealized 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 | $37,122 | — | $(24) | $37,098 | Maturities of Short-Term Investments (as of Sep 30, 2021, in thousands) | Maturity Period | 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 | $37,122 | $37,098 | Note 5. Accrued Other Expenses This note details the composition and changes in various accrued liabilities of the company Accrued Other Expenses (in thousands) | Expense Type | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------- | :----------- | :----------- | | 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 | - Accrued financing costs significantly decreased from $639 thousand to zero due to the completion of the IPO[59] Note 6. Convertible Preferred Stock and Stockholders' Equity (Deficit) This note describes changes in the company's capital structure, including preferred stock conversion and equity movements - In March 2021, the company amended its certificate of incorporation to increase authorized shares of voting common stock to 300 million, non-voting common stock to 10 million, and preferred stock to 10 million[61] - Immediately prior to the IPO, 5,600,000 shares of Series A Preferred Stock were converted into 3,629,400 shares of non-voting common stock and 4,098,600 shares of voting common stock; no Series A Preferred Stock remained outstanding post-IPO[63][65] Changes in Stockholders' Equity (Deficit) (in thousands) | Metric | Dec 31, 2020 | Sep 30, 2021 | | :-------------------------- | :----------- | :----------- | | Total Stockholders' Equity (Deficit) | $(2,692) | $111,652 | | Net loss (9 months ended Sep 30, 2021) | N/A | $(19,024) | | IPO proceeds, net | N/A | $71,849 (March 31, 2021) + $4,365 (June 30, 2021) | | Stock-based compensation (9 months ended Sep 30, 2021) | N/A | $1,383 | | Unrealized gain (loss) on short-term investments, net | N/A | $(24) | | Voting common stock outstanding | 3,840,540 | 13,237,500 | | Non-voting common stock outstanding | — | 3,629,400 | Note 7. Agreements with Arena Pharmaceuticals, Inc. This note outlines the licensing and service agreements between the company and Arena Pharmaceuticals, Inc - The company obtained an exclusive, royalty-bearing, worldwide license from Arena for LP352, LP143, and LP659[67] - Arena provides research and development, general administrative, and management services under a Services Agreement, with fees based on an hourly rate[68] Services Expensed Under Services Agreement (in thousands) | Expense Type | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | Period from Jan 3, 2020 (Inception) through Sep 30, 2020 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :---------------------------------------------------------------- | | Research and development | $235 | $399 | $699 | $637 | | General and administrative | $30 | $448 | $124 | $1,038 | | Total | $265 | $847 | $823 | $1,675 | - The company purchased rights to lorcaserin milestone and royalty payments from Arena for a one-time payment of $0.1 million, expensed to R&D[70] Note 8. Stock-Based Compensation This note details the company's equity incentive plans and the accounting for stock-based compensation expenses - The company operates under the 2020 Equity Incentive Plan and the successor 2021 Equity Incentive Plan, authorizing stock options and other awards[71][73] Stock Option Activity (as of Sep 30, 2021) | Metric | Number of Options Outstanding | Weighted-Average Exercise Price | | :-------------------------- | :---------------------------- | :------------------------------ | | Balance at Dec 31, 2020 | 873,264 | $3.42 | | Options granted | 472,973 | $11.47 | | Balance at Sep 30, 2021 | 1,346,237 | $6.25 | | Options exercisable at Sep 30, 2021 | 385,406 | $3.74 | Stock-Based Compensation Expense (in thousands) | Category | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | Period from Jan 3, 2020 (Inception) through Sep 30, 2020 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :---------------------------------------------------------------- | | Research and development | $164 | $98 | $381 | $213 | | General and administrative | $374 | $400 | $1,002 | $935 | | Total | $538 | $498 | $1,383 | $1,148 | - Unrecognized stock-based compensation expense was $5.0 million as of September 30, 2021, expected to be recognized over approximately 3.1 years[88] Note 9. Commitments and Contingencies This note discloses the company's lease obligations and any material legal proceedings or contingent liabilities - The company entered into an office space lease effective July 1, 2021, with monthly rent payments of approximately $29,000 for the first year[90] Operating Lease Liabilities (as of Sep 30, 2021, in thousands) | Metric | Amount | | :-------------------------- | :----- | | Right-of-use assets, net | $600 | | Right-of-use lease liabilities, current | $328 | | Right-of-use lease liabilities, noncurrent | $275 | | Total operating lease liabilities | $603 | | Weighted average remaining lease term | 1.8 years | | Weighted average discount rate | 9.0 % | Future Minimum Lease Commitments (as of Sep 30, 2021, in thousands) | Year Ending December 31, | Operating Leases | | :----------------------- | :--------------- | | 2021 | $90 | | 2022 | $370 | | 2023 | $189 | | Total lease payments | $649 | | Less imputed interest | $(46) | | Total | $603 | - The company is not a party to any material legal proceedings as of September 30, 2021, and December 31, 2020[93] Note 10. Employment Benefits This note describes the company's employee benefit plans, including its 401(k) salary deferral plan - The company established a 401(k) salary deferral plan for its employees in June 2021, providing a safe harbor contribution of up to 4% of compensation[96] 401(k) Safe Harbor Contributions (in thousands) | Period | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2021 | | :----- | :-------------------------- | :-------------------------- | | Amount | $34 | $42 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, liquidity, and capital resources. It highlights the company's clinical-stage focus, pipeline progress, significant net losses, and the impact of the IPO on its financial position. It also discusses the increasing R&D and G&A expenses and the ongoing challenges posed by the COVID-19 pandemic - The company is a clinical-stage biopharmaceutical company focused on neurological diseases, with LP352 in Phase 1 clinical trial (planning Phase 1b/2a in Q1 2022) and LP143/LP659 in preclinical stage[98][99] Key Financial Performance (in thousands) | Metric | 9 Months Ended Sep 30, 2021 | Period from Jan 3, 2020 (Inception) through Sep 30, 2020 | | :-------------------------- | :-------------------------- | :---------------------------------------------------------------- | | Net losses | $(19,024) | $(4,291) | | Accumulated deficit (as of Sep 30, 2021) | $(33,424) | N/A | | Cash, cash equivalents and short-term investments (as of Sep 30, 2021) | $112,600 | N/A | | Net proceeds from IPO (March 2021) | $76,200 | N/A | - R&D expenses increased to $13.4 million for the nine months ended September 30, 2021, from $2.5 million in the prior year period, primarily due to LP352 clinical trials and preclinical programs[124] - G&A expenses increased to $5.6 million for the nine months ended September 30, 2021, from $1.8 million in the prior year period, driven by personnel costs, professional services, and insurance[126] - The COVID-19 pandemic has caused delays in clinical trials, including the relocation of the LP352 Phase 1 MAD portion, and its ultimate impact remains uncertain[104] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Longboard Pharmaceuticals, Inc. is exempt from providing quantitative and qualitative disclosures about market risk - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[146] Item 4. Controls and Procedures Management, including the principal executive and financial officers, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2021. No material changes in internal control over financial reporting occurred during the quarter - Disclosure controls and procedures were evaluated and deemed effective at the reasonable assurance level as of September 30, 2021[147] - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the quarter ended September 30, 2021[148] PART II. Other Information This part covers legal proceedings, detailed risk factors, equity sales, and other required disclosures for the reporting period Item 1. Legal Proceedings The company is not currently involved in any material legal proceedings, though it acknowledges the potential for claims arising in the ordinary course of business and their possible adverse impact - The company is not currently a party to any material legal proceedings[151] - Litigation, if it arises, could have an adverse impact due to defense and settlement costs, diversion of management resources, negative publicity, and reputational harm[151] Item 1A. Risk Factors This section details significant risks for investors, covering the company's limited operating history, substantial capital needs, early-stage product development, unpredictable regulatory approvals, challenges in commercialization, reliance on third parties, intellectual property vulnerabilities, and operational risks including the impact of COVID-19 and managing growth - The company has a very limited operating history, has incurred significant losses since inception ($33.4 million accumulated deficit as of September 30, 2021), and will require substantial additional capital to finance operations[153][154][157] - The company is in early development with only one product candidate, LP352, in early clinical development, and others in preclinical stages, facing lengthy, expensive, and uncertain drug development processes where prior results are not necessarily predictive of future success[165][170] - Regulatory approval processes are lengthy, time-consuming, and inherently unpredictable, with potential for undesirable side effects from product candidates (e.g., LP352 as a 5-HT2c superagonist) that could delay or prevent approval or limit commercial potential[186][189][203] - The company is highly dependent on intellectual property licensed from Arena, and its termination could result in the loss of significant rights; obtaining and maintaining patent protection for product candidates is uncertain and crucial for competitive positioning[252][271] - Reliance on Arena for certain operating activities and on third parties for manufacturing and clinical trials increases risks of insufficient supplies, delays, or unsatisfactory performance[311][313][318] - The COVID-19 pandemic has impacted and could continue to adversely affect business operations and clinical timelines; the company is also highly dependent on its senior management team and faces challenges in managing organizational growth[331][333][337] - Ownership of common stock carries risks including price volatility, no intention to pay dividends, significant control by principal stockholders, potential dilution from future equity sales, and the impact of being an emerging growth and smaller reporting company[345][347][348][354] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section confirms no unregistered sales of equity securities. It details the net proceeds of $76.2 million from the March 2021 IPO, which are held in cash, cash equivalents, and short-term investments, and are intended to fund ongoing operations, research and development, and commercialization efforts as outlined in the prospectus - No unregistered sales of equity securities occurred during the reported period[380] - The company completed its IPO in March 2021, selling 5,298,360 shares of common stock at $16.00 per share, generating approximately $76.2 million in net proceeds after deducting underwriting discounts and offering costs[381][382] - Net proceeds from the IPO are held in cash, cash equivalents, and short-term investments, and are expected to be used for planned operations, including clinical trials, commercialization efforts, and R&D activities[383] Item 3. Defaults Upon Senior Securities The company reports that there have been no defaults upon senior securities - There were no defaults upon senior securities[384] Item 4. Mine Safety Disclosures The company states that there are no mine safety disclosures to report - There are no mine safety disclosures[384] Item 5. Other Information The company reports that there is no other information to disclose in this section - There is no other information to disclose[384] Item 6. Exhibits This section lists all exhibits filed as part of the Quarterly Report on Form 10-Q, including organizational documents, officer certifications, and XBRL-related documents - Exhibits include the Amended and Restated Certificate of Incorporation and Bylaws[385] - Certifications of the Principal Executive Officer and Principal Financial Officer (Exhibits 31.1, 31.2, 32.1) are filed herewith[385] - Inline XBRL Instance Document and Taxonomy Extension Documents are included[385] Signatures This section contains the official signatures of the company's principal executive and financial officers, certifying the report's contents - The report is signed by Kevin R. Lind, President and Chief Executive Officer (Principal Executive Officer)[390] - The report is signed by Brandi L. Roberts, Chief Financial Officer (Principal Financial and Accounting Officer)[390]