SEC Filing - Kronos Bio

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kron-20210630

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 June 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: 001-39592

Kronos Bio, Inc.

(Exact name of registrant as specified in its charter)


Delaware			82-1895605
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification Number)

1300 So. El Camino Real, Suite 400

San Mateo, California 94402

(650) 781-5200

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

1300 So. El Camino Real, Suite 300

San Mateo, California 94402

(Former name, former address and former fiscal year, if changed since last report)

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, $0.001 par value per share	KRON	The Nasdaq Stock Market LLC

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 or ☐ 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 or ☐ 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 definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Smaller reporting company	☐
Non-accelerated filer	☒	Accelerated filer	☐
		Emerging growth company	☒

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 or ☒ No

As of August 5, 2021 the registrant had 56,254,188 shares of common stock, $0.001 par value per share, outstanding.

TABLE OF CONTENTS


		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Condensed Balance Sheets as of June 30 , 2021 (unaudited) and December 31, 2020	3
	Condensed Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2021 and 2020 (unaudited)	4
	Condensed Statements of Convertible Preferred Stock and Stockholders’ (Equity) Deficit for the Three and Six Months Ended June 30 , 2021 and 2020 (unaudited)	5
	Condensed Statements of Cash Flows for the Six Months Ended June 30 , 2021 and 2020	6
	Notes to Condensed Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	32
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	96
Item 6.	Exhibits	97
	Signatures	98

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

KRONOS BIO, INC.

Condensed Balance Sheets

(Unaudited)

(in thousands, except share and per share amounts)


	June 30, 2021		December 31, 2020
Assets			(1)
Current assets:
Cash and cash equivalents	$	185,658	$	248,009
Short-term investments	231,219		165,052
Prepaid expenses and other current assets	7,426		6,741
Total current assets	424,303		419,802
Long-term investments	2,377		49,001
Property and equipment, net	14,967		13,646
Operating lease right-of-use assets	27,957		27,322
Restricted cash	2,026		2,027
Other noncurrent assets	112		166
Total assets	$	471,742	$	511,964
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	3,342	$	4,550
Accrued expenses	6,516		4,974
Current portion of operating lease liabilities	1,133		937
Current portion of other liabilities	2,087		2,395
Total current liabilities	13,078		12,856
Noncurrent operating lease liabilities	32,843		31,120
Other noncurrent liabilities	1,714		2,469
Total liabilities	47,635		46,445
Commitments and contingencies (Note 11)
Stockholders’ equity:
Common stock, $0.001 par value, 200,000,000 authorized as of June 30, 2021 and December 31, 2020; 54,759,344 and 54,073,901 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively.	55		54
Preferred stock, $0.001 par value; 10,000,000 authorized; no shares issued and outstanding.	—		—
Additional paid-in capital	591,093		577,390
Accumulated deficit	(167,047)		(111,906)
Accumulated other comprehensive income (loss)	6		(19)
Total stockholders' equity	424,107		465,519
Total liabilities, convertible preferred stock and stockholders’ equity	$	471,742	$	511,964

(1) The balance sheet as of December 31, 2020 is derived from the audited financial statements as of that date.

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

KRONOS BIO, INC.

Condensed Statements of Operations and Comprehensive Loss

(Unaudited)

(in thousands, except share and per share amounts)


	Three months ended June 30,				Six months ended June 30,
	2021		2020		2021		2020
Operating expenses:
Research and development	$	19,802	$	7,175	$	37,396	$	13,370
General and administrative	9,339		1,623		17,923		2,777
Total operating expenses	29,141		8,798		55,319		16,147
Loss from operations	(29,141)		(8,798)		(55,319)		(16,147)
Other income (expense), net:
Interest expense	—		—		—		(1)
Interest and other income, net	86		219		178		574
Total other income (expense), net	86		219		178		573
Net loss	(29,055)		(8,579)		(55,141)		(15,574)
Other comprehensive income (loss):
Net unrealized gain (loss) on available-for-sale securities	29		24		25		182
Net comprehensive loss	$	(29,026)	$	(8,555)	$	(55,116)	$	(15,392)
Net loss per share, basic and diluted	$	(0.53)	$	(1.47)	$	(1.01)	$	(2.70)
Weighted-average shares of common stock, basic and diluted	54,506,195		5,833,946		54,330,402		5,764,389

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

KRONOS BIO, INC.

Condensed Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(Unaudited)

(in thousands, except share and per share data)


	Convertible Preferred Stock			Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity (Deficit)
	Shares	Amount		Shares	Amount
Balance at December 31, 2020	—	$	—	54,073,901	$	54	$	577,390	$	(19)	$	(111,906)	$	465,519
Issuance of common stock upon vesting and exercise of options and vesting of restricted stock	—	—		312,062	—		590		—		—		590
Stock-based compensation expense	—	—		—	—		5,238		—		—		5,238
Net unrealized gain on available-for-sale securities	—	—		—	—		—		(4)		—		(4)
Net loss	—	—		—	—		—		—		(26,086)		(26,086)
Balance at March 31, 2021	—	$	—	54,385,963	$	54	$	583,218	$	(23)	$	(137,992)	$	445,257
Issuance of common stock upon vesting and exercise of options and vesting of restricted stock	—	—		322,812	1		626		—		—		627
Stock-based compensation expense	—	—					6,432		—		—		6,432
Employee stock purchase plan	—	—		50,569	—		817		—		—		817
Net unrealized gain on available-for-sale securities	—	—		—	—		—		29		—		29
Net loss	—	—		—	—		—		—		(29,055)		(29,055)
Balance at June 30, 2021	—	$	—	54,759,344	$	55	$	591,093	$	6	$	(167,047)	$	424,107

Balance, December 31, 2019	21,504,893	$	122,907	5,660,391	$	6	$	271	$	(18)	$	(23,462)	$	(23,203)
Issuance of common stock upon vesting and exercise of options and vesting of restricted stock	—	—		119,939	—		20		—		—		20
Stock-based compensation expense	—	—		—	—		188		—		—		188
Net unrealized loss on available-for-sale securities	—	—		—	—		—		158		—		158
Net loss	—	—		—	—		—		—		(6,995)		(6,995)
Balance at March 31, 2020	21,504,893	$	122,907	5,780,330	$	6	$	479	$	140	$	(30,457)	$	(29,832)
Issuance of common stock upon vesting and exercise of options and vesting of restricted stock	—	—		171,713	—		113		—		—		113
Stock-based compensation expense	—	—		—	—		293		—		—		293
Net unrealized loss on available-for-sale securities	—	—		—	—		—		24		—		24
Net loss	—	—		—	—		—		—		(8,579)		(8,579)
Balance at June 30, 2020	21,504,893	$	122,907	5,952,043	$	6	$	885	$	164	$	(39,036)	$	(37,981)

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

KRONOS BIO, INC.

Condensed Statements of Cash Flows

(Unaudited)

(in thousands)


	Six Months Ended June 30,
	2021		2020
Cash flows from operating activities:
Net loss	$	(55,141)	$	(15,574)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization	908		343
Net amortization/accretion on available-for-sale securities	2,074		64
Change in accrued interest on available-for-sale securities	53		48
Stock-based compensation expense	11,670		481
Noncash lease expense	1,112		1,016
Changes in operating assets and liabilities:
Prepaid expenses and other current assets	(65)		(32)
Other long-term assets	54		(272)
Accounts payable	(1,488)		294
Accrued expenses	2,454		26
Right-of-use operating assets and liabilities, net	172		148
Other liabilities	(1,065)		1,462
Net cash used in operating activities	(39,262)		(11,996)

Cash flows from investing activities:
Purchase of property and equipment	(2,856)		(1,721)
Purchase of available-for-sale securities	(141,196)		(8,158)
Maturities of available-for-sale securities	118,933		29,180
Net cash provided by (used in) investing activities	(25,119)		19,301

Cash flows from financing activities:
Principal payments on finance lease	(5)		(16)
Proceeds from issuance of common stock upon exercise of stock options	1,217		133
Proceeds from issuance of common stock under the employee stock purchase plan	817		—
Net cash provided by financing activities	2,029		117

Net increase (decrease) in cash and cash equivalents	(62,352)		7,422
Cash, cash equivalents and restricted cash at beginning of period	250,036		32,570
Cash, cash equivalents and restricted cash at end of period	$	187,684	$	39,992

Supplemental disclosures of non-cash activities:
Property and equipment additions included in accounts payable and accrued expenses	$	648	$	782
Reduction of right-of-use asset due to modification	$	(1,741)	$	—
Right-of-use asset obtained in exchange for operating lease liability	$	3,764	$	30,031

Cash and cash equivalents at end of period	$	185,658	$	37,966
Restricted cash at end of period	2,026		2,026
Cash, cash equivalents and restricted cash at end of period	$	187,684	$	39,992

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

KRONOS BIO, INC.

Notes to Condensed Financial Statements

(Unaudited)

1.NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Kronos Bio, Inc. (Kronos or the Company), a Delaware corporation, was incorporated on June 2, 2017. The Company is a clinical-stage biopharmaceutical company dedicated to the discovery and development of novel cancer therapeutics designed to transform patient outcomes through a precision medicine strategy by targeting dysregulated transcription.

The Company operates in one business segment: the development of biopharmaceutical products.

Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (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, they do not include all of the information and footnotes required by GAAP for complete financial statements.

Initial Public Offering

In October 2020, the Company completed an initial public offering (IPO) of its common stock. In connection with its IPO, the Company issued and sold 15,131,579 shares of its common stock, which included 1,973,684 shares of its common stock issued and sold pursuant to the full exercise of the underwriters’ option to purchase additional shares, at a price to the public of $19.00 per share. As a result of the IPO, the Company received approximately $263.7 million in net proceeds, after deducting underwriting discounts and commissions of $20.1 million and offering expenses of approximately $3.7 million payable by the Company. At the closing of the IPO, all then outstanding convertible preferred stock were automatically converted into 22,687,625 shares of common stock and the then outstanding 2020 Notes were automatically converted into 9,610,713 shares of common stock. At the closing of the IPO, the then outstanding Gilead Note (See Note 11) was also converted into 188,567 shares of common stock. Following the IPO, there were no shares of convertible preferred stock outstanding.

Forward Stock Split

On October 2, 2020, the Company filed an amendment to the Company’s amended and restated certificate of incorporation to effect a forward split of shares of the Company’s common stock on a 1.055-for-1 basis (the Forward Stock Split). In connection with the Forward Stock Split, the conversion ratio for the Company’s outstanding convertible preferred stock was proportionally adjusted such that the common stock issuable upon conversion of such preferred stock was increased in proportion to the Forward Stock Split. The par value of the common stock was not adjusted as the result of the Forward Stock Split. All references to common stock, options to purchase common stock, early exercised options, share data, per share data, convertible preferred stock (to the extent presented on an as-converted to common stock basis) and related information contained in these condensed financial statements have been retrospectively adjusted to reflect the effect of the Forward Stock Split for all periods presented.

Need for Additional Capital

The Company has incurred net operating losses since its inception of $167.0 million as of June 30, 2021. The Company expects that its cash, cash equivalents and investments as of June 30, 2021, in addition to its approximate net cash proceeds of $263.7 million from the Company’s IPO, which closed on October 14, 2020, will enable it to fund its planned operating expenses and capital expenditure requirements for at least one year from the date of issuance of these condensed financial statements. Management expects to incur additional losses in the future to fund its operations and conduct product research and development and recognizes the need to raise additional capital to fully implement its business plan.

KRONOS BIO, INC.

Notes to Condensed Financial Statements

(Unaudited)

The Company intends to raise additional capital through the issuance of equity securities, debt financings or other sources in order to further implement its business plan. However, if such financing is not available when needed and at adequate levels, the Company will need to reevaluate its operating plan and may be required to delay the development of its product candidates. The Company expects that its cash and cash equivalents and investments will be sufficient to fund its operations for a period of at least one year from the date the accompanying financial statements are filed with the Securities and Exchange Commission (SEC).

The Company cannot at this time predict the specific extent, duration, or full impact that the COVID-19 pandemic will have on its financial condition and operations, including ongoing and planned clinical trials. The impact of the COVID-19 pandemic on the financial performance of the Company will depend on future developments, including the duration and spread of the pandemic and related governmental advisories and restrictions. These developments and the impact of the COVID-19 pandemic on the financial markets and the overall economy are highly uncertain. If the financial markets and/or the overall economy are impacted for an extended period, the Company’s results may be adversely affected.

The future viability of the Company is dependent on its ability to generate cash from operating activities or to raise additional capital to finance its operations. The Company’s failure to raise capital as and when needed could have a material adverse effect on its financial condition and ability to pursue business strategies. The Company may not be able to obtain financing on acceptable terms, or at all, and the Company may not be able to enter into collaboration arrangements or obtain government grants. The terms of any financing may adversely affect the holdings or the rights of the Company’s stockholders. If the Company is unable to obtain funding, the Company could be forced to delay, reduce, or eliminate its research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect its business prospects. In the event that the Company requires additional funding, there can be no assurance that it will be successful in obtaining sufficient funding on terms acceptable to the Company to fund its continuing operations, if at all.

2.SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS

Unaudited Interim Financial Information

The accompanying balance sheet as of June 30, 2021, the statements of operations and comprehensive loss for the three and six months ended June 30, 2021 and 2020, the statements of convertible preferred stock and stockholders’ equity (deficit) as of June 30, 2021 and 2020, the statements of cash flows for the six months ended June 30, 2021 and 2020, and the financial data and other financial information disclosed in the notes to the condensed financial statements are unaudited. The unaudited interim financial statements have been prepared on a basis consistent with the Company’s audited annual financial statements and, in the opinion of management, reflect all adjustments, consisting solely of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of June 30, 2021 and the results of its operations for the three and six months ended June 30, 2021 and 2020. The results for the three and six months ended June 30, 2021 are not necessarily indicative of results to be expected for the full year ending December 31, 2021, any other interim periods, or any future year or period. These financial statements should be read in conjunction with the Company's audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 23, 2021.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these condensed financial statements include, but are not limited to, the accrual of research and development expenses, the fair value of convertible notes and investments, income tax uncertainties, the valuation of equity instruments and the incremental borrowing rate for determining the operating lease assets and liabilities. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Actual results could differ from the Company’s estimates.

KRONOS BIO, INC.

Notes to Condensed Financial Statements

(Unaudited)

The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including expenses, clinical trials and research and development costs, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19, as well as the economic impact on local, regional, national and international markets.

Significant Accounting Policies

There have been no significant changes to the accounting policies during the six months ended June 30, 2021, as compared to the significant accounting policies described in Note 2 of the “Notes to Financial Statements” of the Company’s audited financial statements included in its Annual Report..

Recent Accounting Pronouncements Not Yet Adopted

In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force), which clarifies and reduces diversity in accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. This guidance will be effective for the Company in the first quarter of 2022, and early adoption is permitted. The Company is currently evaluating the impact of the new guidance on its financial statements.

3.FAIR VALUE MEASUREMENTS

The Company follows authoritative accounting guidance, which among other things, 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 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.

The Company measures and reports its cash equivalents, investments, and convertible notes at fair value.

Money market funds are measured at fair value on a recurring basis using quoted prices and are classified as Level 1. Investments measured at fair value based on inputs other than quoted prices that are derived from observable market data are classified as Level 2.

Financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used in such measurements by major security type as of June 30, 2021 and December 31, 2020 were as follows:


	June 30, 2021
	Level 1		Level 2		Level 3		Fair Value
			(in thousands)
Financial Assets:
Money market funds	$	173,988	$	—	$	—	$	173,988
Certificates of deposit	—		—		—		—
Corporate bonds	—		87,240		—		87,240
U.S. treasury securities	150,165		—		—		150,165
Total financial assets	$	324,153	$	87,240	$	—	$	411,393

KRONOS BIO, INC.

Notes to Condensed Financial Statements

(Unaudited)


	December 31, 2020
	Level 1		Level 2		Level 3		Fair Value
	(in thousands)
Financial Assets:
Money market funds	$	114,184	$	—	$	—	$	114,184
Certificates of deposit	1,229		—		—		1,229
Corporate bonds	—		40,736		—		40,736
U.S. agency securities	—		10,001		—		10,001
U.S. treasury securities	284,721		—		—		284,721
Total financial assets	$	400,134	$	50,737	$	—	$	450,871

The carrying amounts of accounts payable and accrued expenses approximate their fair values due to their short-term maturities. The Company’s Level 2 securities are valued using third-party pricing sources. The pricing services utilize industry standard valuation models, including both income- and market-based approaches, for which all significant inputs are observable, either directly or indirectly.

The Company did not have any financial assets or liabilities as of June 30, 2021 and December 31, 2020 that required Level 3 inputs.

4.INVESTMENTS

The fair value and amortized cost of available-for-sale securities by major security type as of June 30, 2021 and December 31, 2020 were as follows:


	June 30, 2021
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
			(in thousands)
Money market funds	$	173,988	$	—	$	—	$	173,988
Certificates of deposit	—		—		—		—
Corporate bonds	87,241		11		(12)		87,240
U.S. agency securities	—		—		—		—
U.S. treasury securities	150,158		9		(2)		150,165
Total cash equivalents and investments	$	411,387	$	20	$	(14)	$	411,393


	December 31, 2020
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
	(in thousands)
Money market funds	$	114,184	$	—	$	—	$	114,184
Certificates of deposit	1,225		4		—		1,229
Corporate bonds	40,743		9		(16)		40,736
U.S. agency securities	9,999		2		—		10,001
U.S. treasury securities	284,739		3		(21)		284,721
Total cash equivalents and investments	$	450,890	$	18	$	(37)	$	450,871

KRONOS BIO, INC.

Notes to Condensed Financial Statements

(Unaudited)

These available-for-sale securities were classified on the Company’s balance sheets as of June 30, 2021 and December 31, 2020 as:


	Fair Value
	June 30, 2021		December 31, 2020
	(in thousands)
Cash equivalents	$	177,797	$	236,818
Short-term investments	231,219		165,052
Long-term investments	2,377		49,001
Total cash equivalents and investments	$	411,393	$	450,871

The fair values of available-for-sale securities by contractual maturity as of June 30, 2021 and December 31, 2020 were as follows:


	June 30, 2021		December 31, 2020
	(in thousands)
Due in 1 year or less	$	235,028	$	287,686
Due in 1 to 2 years	2,377		49,001
Instruments not due at a single maturity date	173,988		114,184
Total cash equivalents and investments	$	411,393	$	450,871

As of June 30, 2021 and December 31, 2020, the remaining contractual maturities of available-for-sale securities were less than two years, respectively. There have been no significant realized losses on available-for-sale securities for any of the periods presented in the accompanying financial statements. Based on the Company’s review of its available-for-sale securities, the Company believes that it had no other-than-temporary impairments on these securities as of June 30, 2021 and December 31, 2020 because the Company does not intend to sell these securities nor does it believe that it will be required to sell these securities before the recovery of their amortized cost basis. Gross realized gains and gross realized losses were immaterial for any of the periods presented in the accompanying financial statements.

As of June 30, 2021 and December 31, 2020, unrealized losses on available-for-sale investments are not attributed to credit risk. The Company believes that an allowance for credit losses is unnecessary because the unrealized losses on certain of the Company’s marketable securities are due to market factors.

KRONOS BIO, INC.

Notes to Condensed Financial Statements

(Unaudited)

5.PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following as of June 30, 2021 and December 31, 2020:


	June 30, 2021		December 31, 2020
	(in thousands)
Accrued interest on short-term available-for-sale securities	$	1,224	$	612
Prepaid equipment service contracts	379		383
Prepaid external research and development and outside services	3,693		1,889
Prepaid software	641		736
Prepaid insurance	1,025		2,881
Prepaid rent and other	464		240
Total prepaid expenses and other current assets	$	7,426	$	6,741

6.PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following as of June 30, 2021 and December 31, 2020:


	June 30, 2021		December 31, 2020
	(in thousands)
Property and equipment:
Lab equipment	$	7,296	$	5,619
Leasehold improvements	9,229		8,957
Furniture and fixtures	588		216
Finance lease on R&D equipment	—		139
Computer equipment	47		—
Total property and equipment	17,160		14,931
Less: Accumulated depreciation and amortization	(2,193)		(1,285)
Total property and equipment, net	$	14,967	$	13,646

Depreciation and amortization expense was $0.5 million and $0.1 million for the three months ended June 30, 2021 and 2020, respectively, and $0.9 million and $0.3 million for the six months ended June 30, 2021 and 2020, respectively. Computer equipment has a useful life of 3 years.

KRONOS BIO, INC.

Notes to Condensed Financial Statements

(Unaudited)

7.ACCRUED EXPENSES AND CURRENT PORTION OF OTHER LIABILITIES

Accrued expenses consisted of the following as of June 30, 2021 and December 31, 2020:


	June 30, 2021		December 31, 2020
	(in thousands)
Accrued compensation	$	1,766	$	2,274
Accrued taxes	146		558
External research and development	3,475		1,017
Accrued outside services	937		—
Accrued leasehold improvements	—		927
Other accrued expenses	192		198
Total accrued expenses	$	6,516	$	4,974

Current portion of other liabilities consist of the following as of June 30, 2021 and December 31, 2020:


	June 30, 2021		December 31, 2020
	(in thousands)
Current portion of finance lease liability	$	—	$	5
Current portion of unvested early exercised share liability	2,087		2,174
ESPP withholdings	—		216
Total current portion of other current liabilities	$	2,087	$	2,395

8.STOCK-BASED COMPENSATION

2020 Equity Incentive Plan

In October 2020, the Company adopted its 2020 Equity Incentive Plan (the 2020 Plan) which replaced the 2017 Equity Incentive Plan (Prior Plan) upon completion of the IPO. The 2020 Plan provides for the grant of incentive stock options or nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance awards and other forms of awards to employees, directors, and consultants of the Company. The number of shares of common stock reserved for issuance under the 2020 Plan will automatically increase each year for a period of ten years, beginning in 2021 and continuing through 2030, in an amount equal to (1) 5.0% of the total numbers of shares of the Company’s common stock outstanding on December 31 of the immediately preceding year, or (2) a lesser number of shares determined by the Board of Directors no later than December 31 of the immediately preceding year. As of June 30, 2021, the maximum number of shares of common stock that may be issued was 14,739,827 shares.

The Company recognizes the impact of forfeitures on stock-based compensation expense as forfeitures occur. The Company applies the straight-line method of expense recognition to all awards with only service-based vesting conditions. Vesting periods are determined at the discretion of the Board of Directors. Stock options typically vest over four years. The maximum contractual term is 10 years.

As of June 30, 2021, there were 4,939,993 shares reserved by the Company under the 2020 Plan for the future issuance of equity awards.

KRONOS BIO, INC.

Notes to Condensed Financial Statements

(Unaudited)

Stock Options

Stock option activity under the 2020 Plan as of June 30, 2021 is summarized as follows:


	Number of Options	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value
				(in years)	(in thousands)
Balance, December 31, 2020	6,251,159	$	8.95
Granted	1,290,370	27.54
Forfeited	(61,972)	16.92
Exercised	(581,069)	2.09
Balance, June 30, 2021	6,898,488	$	12.94	9.00	$	88,595

The aggregate intrinsic values of options outstanding, exercisable, vested and expected to vest were calculated as the difference between the exercise price of the options and the closing price of the Company’s common stock on the Nasdaq Global Select Market on June 30, 2021. There was no future tax benefit related to options exercised, as the Company had accumulated net operating losses as of June 30, 2021 and December 31, 2020.

The weighted-average grant-date fair value per share of stock options granted, using the Black-Scholes option pricing model, was $19.69 during the six months ended June 30, 2021.

As of June 30, 2021 and December 31, 2020, there was $54.3 million and $36.3 million of unrecognized stock-based compensation related to stock options, respectively, which is expected to be recognized over a weighted-average period of 3.27 and 3.70 years, respectively.

2020 Employee Stock Purchase Plan

In October 2020, the Company adopted its 2020 Employee Stock Purchase Plan (ESPP), which initially reserved 688,000 shares of the Company’s common stock for employee purchase under terms and provisions established by the Board of Directors. The number of shares of our common stock reserved for issuance under the ESPP automatically increases in 2021 and continuing through 2030, by the lesser of (i) 1.0% of the total number of shares of common stock outstanding on December 31 of the immediately preceding year, and (ii) 1,376,000 shares, except before the date of any increase, the Board of Directors may determine that such increase will be less than the amount set forth in clauses (i) and (ii). The Company issued and sold 50,569 shares of common stock during the three and six months ended June 30, 2021 under the ESPP. The Company has 1,197,766 shares reserved for future issuance as of June 30, 2021.

Restricted Stock

Restricted stock awards and units as of June 30, 2021 are summarized as follows:


	Number of Restricted Stock	Weighted-Average Grant Date Fair Value		Weighted-Average Remaining Vesting Life	Aggregate Intrinsic Value
				(in years)	(in thousands)
Unvested, December 31, 2020	810,197	$	22.26
Granted - restricted stock awards and units	339,430	29.32
Vested and converted to shares	(53,805)	0.05
Forfeited	(9,776)	29.83
Unvested, June 30, 2021	1,086,046	$	25.50	2.49	$	26,011

KRONOS BIO, INC.

Notes to Condensed Financial Statements

(Unaudited)

As of June 30, 2021, there was $22.7 million of unrecognized stock-based compensation related to RSUs, which is expected to be recognized over a weighted average period of 2.51 years.

As of June 30, 2021, there was $0.4 million of unrecognized stock-based compensation related to RSAs, which is expected to be recognized over a weighted average period of 3.08 years.

Stock-Based Compensation Summary

Total stock-based compensation expense related to stock options, restricted stock units, restricted stock awards and the employee stock purchase plan for the three and six months ended June 30, 2021 and 2020 as follows:


	Three months ended June 30,				Six months ended June 30,
	2021		2020		2021		2020
	(in thousands)				(in thousands)
Research and development expenses	$	3,473	$	164	$	6,027	$	295
General and administrative expenses	2,959		129		5,643		186
Total stock-based compensation expense	$	6,432	$	293	$	11,670	$	481

Early Exercised Options

The Company allows certain of its employees and its consultants to exercise options granted under the Prior Plan prior to vesting. The shares related to early exercised stock options are subject to the Company’s lapsing repurchase right upon termination of employment or service on the Board of Directors at the lesser of the original purchase price or fair market value at the time of repurchase. In order to vest, the holders are required to provide continued service to the Company. The early exercise by an employee or consultant of a stock option is not considered to be a substantive exercise for accounting purposes, and therefore the payment received by the employer for the exercise price is recognized as a liability. For accounting purposes, unvested early exercised shares are not considered issued and outstanding and therefore not reflected as issued and outstanding in the accompanying balance sheets or the accompanying statements of convertible preferred stock and stockholders' equity (deficit) until the awards vest.

The deposits received are initially recorded in current portion of other liabilities and other noncurrent liabilities for the noncurrent portion. The liabilities are reclassified to common stock and paid-in capital as the repurchase right lapses. At June 30, 2021 and December 31, 2020, there was $2.1 million and $2.2 million recorded in current portion of other liabilities, and $1.7 million and $2.5 million recorded in other noncurrent liabilities, respectively, related to shares held by employees and nonemployees that were subject to repurchase.

9.INCOME TAXES

The Company did not record any income tax expense for the three and six months ended June 30, 2021 and 2020. The Company has incurred net operating losses for all the periods presented and has not reflected any benefit of such net operating loss carryforwards in the accompanying financial statements. The Company has recorded a full valuation allowance against all of its deferred tax assets as it is not more likely than not that such assets will be realized in the near future.

It is the Company’s policy to record penalties and interest related to income taxes as a component of income tax expense. The Company has not recorded any interest or penalties related to income taxes during the three and six months ended June 30, 2021 and 2020. The Company has not identified any new uncertain tax positions as of June 30, 2021. Unrecognized tax benefits are not expected to change during the next 12 months. The reversal of the unrecognized tax benefits would not affect the effective tax rate. The Company is subject to examination by U.S. federal and state tax authorities for all years since its inception.

KRONOS BIO, INC.

Notes to Condensed Financial Statements

(Unaudited)

10.NET LOSS PER SHARE

The following table summarizes the computation of basic and diluted net loss per share of the Company for the three and six months ended June 30, 2021 and 2020:


	Three months ended June 30,				Six months ended June 30,
	2021		2020		2021		2020
	(in thousands, except share and per share amounts)				(in thousands, except share and per share amounts)
Net loss	$	(29,055)	$	(8,579)	$	(55,141)	$	(15,574)
Weighted-average common stock outstanding, basic and diluted	54,506,195		5,833,946		54,330,402		5,764,389
Net loss per share, basic and diluted	$	(0.53)	$	(1.47)	$	(1.01)	$	(2.70)

The Company’s potentially dilutive securities, which include options to purchase shares of the Company's common stock and restricted stock subject to future vesting, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted-average number of shares of common stock outstanding used to calculate both basic and diluted net loss per share is the same. The Company excluded the following potential shares of common stock, presented based on amounts outstanding at each stated period end, from the computation of diluted net loss per share for the periods indicated because including them would have had an anti-dilutive effect:


	June 30, 2021	June 30, 2020
Stock options to purchase common stock	5,619,311	2,236,460
Early exercised stock options subject to future vesting	1,279,177	1,286,008
Restricted stock awards subject to future vesting	190,975	161,415
Restricted stock units subject to future vesting	895,071	—
Convertible preferred stock	—	22,687,625
Expected shares to be purchased under Employee Stock Purchase Plan	81,361	—
Total	8,065,895	26,371,508

11.COMMITMENTS AND CONTINGENCIES

Asset Purchase Agreement

In July 2020, the Company entered into an asset purchase agreement (Gilead Asset Purchase Agreement) with Gilead Sciences, Inc. (Gilead), pursuant to which the Company acquired certain assets from Gilead related to entospletinib (ENTO) and lanraplenib (LANRA), and patents and other intellectual property covering or related to the development, manufacture and commercialization of ENTO and LANRA.

KRONOS BIO, INC.

Notes to Condensed Financial Statements

(Unaudited)

In consideration for such assets, on the date of the Gilead Asset Purchase Agreement, the Company made a $3.0 million upfront cash payment and issued a $3.0 million principal amount convertible promissory note to Gilead (Gilead Note). The Company also made a $0.7 million payment to reimburse Gilead for certain liabilities assumed by the Company pursuant to the Gilead Asset Purchase Agreement. In addition, the Company is required to make milestone payments upon successful achievement of certain regulatory and sales milestones for ENTO, LANRA and other selective spleen tyrosine kinase inhibitor compounds covered by the patent rights acquired pursuant to the Gilead Asset Purchase Agreement and developed by the Company as a back-up to ENTO or LANRA (Other Compounds). Upon initiation of the Company’s planned registrational Phase 3 clinical trial of ENTO in combination with induction chemotherapy in acute myeloid leukemia patients with NPM1 mutations, the Company will be required to pay a milestone to Gilead of $29.0 million, and upon successful completion of certain other regulatory milestones in the United States, European Union and United Kingdom for ENTO, LANRA and any Other Compounds, across up to two distinct indications, the Company will be required to pay to Gilead an aggregate total of $51.3 million. Upon achieving certain thresholds for the aggregate annual net sales of ENTO, LANRA and any Other Compounds combined, the Company would owe to Gilead potential milestone payments totaling $115.0 million.

Gilead is also eligible to receive (i) tiered marginal royalties ranging from the very low-teens to high-teens on annual worldwide net sales of ENTO, (ii) tiered marginal royalties ranging from high-single digits to the mid-teens on annual worldwide net sales of LANRA and (iii) tiered marginal royalties ranging from low single digits to mid-single digits on annual worldwide net sales of any Other Compounds. The royalties in the foregoing clauses are subject to reduction, on a country-by-country basis, for products not covered by certain claims within the assigned patents, for generic entry and, in the case of ENTO and LANRA, for any royalties paid for future licenses of third party intellectual property required to develop or commercialize ENTO or LANRA. The Company’s royalty obligation with respect to a given product in a given country begins upon the first commercial sale of such product in such country and ends on the latest of (i) expiration of the last claim of a defined set of the assigned patent rights covering such product in such country; (ii) loss of exclusive data or marketing rights to such product in such country; or (iii) 10 years from the first commercial sale of such product in such country.

Under the Gilead Asset Purchase Agreement, the Company is required to use commercially reasonable efforts to develop, obtain regulatory approval for and commercialize either ENTO or LANRA.

The Gilead Note settled upon the completion of the Company’s IPO in October 2020.

Purchase Commitments

In the normal course of business, the Company enters into contracts with CROs for preclinical studies and other vendors for other services and products for operating purposes. These agreements generally provide for termination or cancellation, other than for costs already incurred.

Contingencies

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown, because it involves claims that may be made against the Company in the future, but have not yet been made. The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.

Indemnification

In accordance with the Company’s amended and restated certificate of incorporation and amended and restated bylaws, the Company has indemnification obligations to its officers and directors for certain events or occurrences, subject to certain limits, while they are serving in such capacity. There have been no claims to date, and the Company has a directors and officers liability insurance policy that may enable it to recover a portion of any amounts paid for future claims.

KRONOS BIO, INC.

Notes to Condensed Financial Statements

(Unaudited)

12.LEASES

In November 2020, the Company entered into a lease termination for its lab space in Cambridge, Massachusetts to terminate the lease as of January 31, 2021, rather than May 31, 2021. The cost for early termination was a payment of $0.1 million. The Company accounted for this change in lease term as a modification of the originally amended lease. As a result of the modification, the operating right-of-use asset and lease liability were remeasured as of the modification date. As of June 30, 2021, there was no remaining lease liability or right-of-use asset related to this lease.

In March 2020, the Company entered into an 11-year lease agreement to move its research and development operations from 21 Erie Street, Cambridge, Massachusetts, to a 40,514 square-feet facility at 301 Binney Street, Cambridge, Massachusetts (Cambridge facility). The lease commenced on February 28, 2020 with an initial annual base rent of $4.1 million. The initial rent payment was paid as of September 30, 2020, with rent payments escalating 3.0% annually after the initial 12 payments. As discussed in Note 2, the Company executed a letter of credit for $2.0 million in connection with the lease. The lease includes $3.7 million in certain tenant improvement allowances, which the Company included in its calculation of the right-of-use asset in the lease at commencement. As of June 30, 2021, $3.7 million in improvement costs incurred by the Company were reimbursed by the lessor and are now included within the total lease liability. In connection with the lease, the Company recognized an operating lease right-of-use asset of $24.3 million and $25.1 million and an aggregate lease liability of $30.1 million and $30.1 million on the June 30, 2021 and December 31, 2020 balance sheets, respectively. The remaining lease term is 9 years and 8 months, and the estimated incremental borrowing rate is 8.50%.

In July 2018, the Company entered into a lease agreement for a 4,661 square-foot office space to be used for general and administrative activities in San Mateo, California. The lease commenced on August 1, 2018 and had a 37-month initial term expiring on August 31, 2021. The lease also contained an option for the Company to extend the lease upon its initial expiration. In connection with the lease, the Company made a one-time cash security deposit in the amount of $28,000. In May 2020, the Company amended its agreement to extend the lease for its office in San Mateo, California through April 2025. The initial annual base rent was $0.3 million, and such amount was to increase by 3% annually on each anniversary of the commencement date. As of June 30, 2021, there was no remaining lease liability or right-of-use asset related to this lease. The operating lease right-of-use asset and aggregate lease liability for this suite were $1.1 million and $1.1 million, respectively, as of December 31, 2020.

In July 2020, the Company expanded to an adjacent suite in the San Mateo, California office space, which was treated as a separate lease for accounting purposes. The additional space was approximately 3,414 square feet and was similarly to be used for general and administrative activities. The lease commenced on July 1, 2020 and had an initial expiration date of April 30, 2025. In connection with the additional space leased, the Company made a one-time additional cash security deposit in the amount of $25,000. The initial annual base rent for the expansion was $0.2 million, and such amount will increase by 3% annually on each anniversary of the commencement date. In connection with the lease of the 3,414 square foot suite, as of June 30, 2021, there was no remaining lease liability or right-of-use asset related to this lease. The operating lease right-of-use asset and aggregate lease liability for this suite were $0.8 million and $0.8 million, respectively, as of December 31, 2020.

In February 2021, the Company entered into a new lease agreement for its office space in San Mateo, California to move from its current suites, totaling 8,075 square-feet, to a larger suite totaling 17,340 square-feet, and relocated in the third quarter of 2021. The Company accounted for this change in lease term of the original suites as a modification of the originally amended lease. As a result of the modification, the operating right-of-use asset and lease liability were remeasured as of the modification date.

KRONOS BIO, INC.

Notes to Condensed Financial Statements

(Unaudited)

The new 17,340 square foot suite will be treated as a separate lease for accounting purposes. The initial annual base rent for the new space will be $1.2 million, and such amount will increase by 3% annually on each anniversary of the new premises commencement date. In connection with the larger space leased, the Company has also made an additional one-time cash security deposit in the amount of $59,000. The new lease commenced in April 2021 and the new lease agreement extends the termination date from April 30, 2025 to August 31, 2026. In connection with the lease, the Company recognized an operating lease right-of-use asset of $3.6 million and an aggregate lease liability of $3.9 million as of June 30, 2021. The Company did not recognize any right-of-use asset or aggregate lease liability as of December 31, 2020. The remaining lease term is 5 years, and the estimated incremental borrowing rate is 11.18%.

The following table summarizes the presentation of the Company’s operating leases in its balance sheets as of June 30, 2021 and December 31, 2020:


Balance Sheet Caption	June 30, 2021		December 31, 2020
	(in thousands)
Assets:
Operating lease assets	$	27,957	$	27,322
Liabilities:
Current portion of operating lease liabilities	$	1,133	$	937
Noncurrent operating lease liabilities	32,843		31,120
Total operating lease liabilities	$	33,976	$	32,057

The following table summarizes the effect of finance lease costs in the Company’s statements of operations and comprehensive loss for the three and six months ended June 30, 2021 and 2020:


Statement of Operations and Comprehensive Loss Caption	Three months ended June 30,				Six months ended June 30,
	2021		2020		2021		2020
	(in thousands)				(in thousands)
Research and development	$	—	$	5	$	3	$	10
Interest expense, net	—		—		—		1
Total finance lease cost	$	—	$	5	$	3	$	11

The following table summarizes the effect of operating lease costs in the Company’s statements of operations and comprehensive loss for the three and six months ended June 30, 2021 and 2020:


Statement of Operations and Comprehensive Loss Caption	Three months ended June 30,				Six months ended June 30,
	2021		2020		2021		2020
	(in thousands)				(in thousands)
Research and development	$	767	$	1,190	$	1,775	$	1,446
General and administrative	613		338		989		501
Total operating lease cost	$	1,380	$	1,528	$	2,764	$	1,947

The Company made cash payments of $1.2 million, $2.3 million, $0.5 million and $0.6 million under the lease agreements during the three and six months ended June 30, 2021 and 2020, respectively.

KRONOS BIO, INC.

Notes to Condensed Financial Statements

(Unaudited)

The undiscounted future non-cancellable lease payments under the Company's operating leases as of June 30, 2021 for the next five years and thereafter is expected to be as follows:


Period Ending December 31,	Amount
	(in thousands)
Remaining six months of 2021	$	2,055
2022	5,020
2023	5,581
2024	5,749
2025 and thereafter	32,625
Total undiscounted lease payments	51,030
Less: Present value adjustment	(17,054)
Less: Tenant improvement allowance	—
Present value of operating lease liabilities	$	33,976

13.RELATED PARTIES

On December 1, 2017, the Company entered into a three-year services agreement with Two River Consulting, LLC (Two River) to provide various clinical development, operational, manageria