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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, 2022

OR

☐    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)

(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 July 29, 2022 the registrant had 56,769,091 shares of common stock, $0.001 par value per share, outstanding.

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TABLE OF CONTENTS

						Page
PART I. FINANCIAL INFORMATION
Item 1.			Financial Statements:
			Condensed Balance Sheets as of June 30, 2022 (unaudited) and December 31, 2021			3
			Condensed Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2022 and 2021 (unaudited)			4
			Condensed Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2022 and 2021 (unaudited)			5
			Condensed Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021 (unaudited)			6
			Notes to Condensed Financial Statements (unaudited)			7
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
Item 3.			Quantitative and Qualitative Disclosures About Market Risk			29
Item 4.			Controls and Procedures			30
Item 5.			Other Information			31
PART II. OTHER INFORMATION
Item 1.			Legal Proceedings			32
Item 1A.			Risk Factors			33
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			92
Item 6.			Exhibits			93
			Signatures			94

2

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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, 2022						December 31, 2021
Assets									(1)
Current assets:
Cash and cash equivalents			$	86,140					$	198,270
Short-term investments			181,749						141,239
Prepaid expenses and other current assets			6,885						8,045
Total current assets			274,774						347,554
Long-term investments			24,493						—
Property and equipment, net			13,985						14,880
Operating lease right-of-use assets			25,830						26,904
Restricted cash			2,026						2,026
Other noncurrent assets			112						112
Total assets			$	341,220					$	391,476
Liabilities and stockholders' equity
Current liabilities:
Accounts payable			$	3,289					$	998
Accrued expenses			10,471						9,063
Current portion of operating lease liabilities			2,704						2,109
Current portion of other liabilities			1,766						1,456
Total current liabilities			18,230						13,626
Noncurrent operating lease liabilities			30,257						31,653
Other noncurrent liabilities			490						1,100
Total liabilities			48,977						46,379
Commitments and contingencies (Note 11)
Stockholders’ equity:
Common stock, $0.001 par value, 200,000,000 authorized as of June 30, 2022 and December 31, 2021; 56,219,237 and 55,703,327 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively.			56						56
Preferred stock, $0.001 par value; 10,000,000 authorized; no shares issued and outstanding.
Additional paid-in capital			624,998						608,064
Accumulated deficit			(332,150)						(262,984)
Accumulated other comprehensive income (loss)			(661)						(39)
Total stockholders' equity			292,243						345,097
Total liabilities and stockholders’ equity			$	341,220					$	391,476

(1) The balance sheet as of December 31, 2021 is derived from the audited financial statements as of that date.

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

3

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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,
			2022						2021						2022						2021
Operating expenses:
Research and development			$	22,706					$	19,802					$	47,142					$	37,396
General and administrative			10,824						9,339						22,752						17,923
Total operating expenses			33,530						29,141						69,894						55,319
Loss from operations			(33,530)						(29,141)						(69,894)						(55,319)
Other income (expense), net:
Interest and other income, net			627						86						728						178
Total other income (expense), net			627						86						728						178
Net loss			(32,903)						(29,055)						(69,166)						(55,141)
Other comprehensive income (loss):
Net unrealized gain (loss) on available-for-sale securities			(491)						29						(622)						25
Net comprehensive loss			$	(33,394)					$	(29,026)					$	(69,788)					$	(55,116)
Net loss per share, basic and diluted			$	(0.59)					$	(0.53)					$	(1.24)					$	(1.01)
Weighted-average shares of common stock, basic and diluted			56,116,070						54,506,195						55,978,482						54,330,402

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

4

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KRONOS BIO, INC.

Condensed Statements of Stockholders’ Equity (Deficit)

(Unaudited)

(in thousands, except share and per share data)

						Common Stock												Additional Paid-in Capital						Accumulated Other Comprehensive Income (Loss)						Accumulated Deficit						Total Stockholders’ Equity (Deficit)
						Shares						Amount
Balance at December 31, 2021						55,703,327						$	56					$	608,064					$	(39)					$	(262,984)					$	345,097
Issuance of common stock upon vesting and exercise of options and vesting of restricted stock						361,182						—						529						—						—						529
Stock-based compensation expense						—						—						7,788						—						—						7,788
Net unrealized gain (loss) on available-for-sale securities						—						—						—						(131)						—						(131)
Net loss						—						—						—						—						(36,263)						(36,263)
Balance at March 31, 2022						56,064,509						$	56					$	616,381					$	(170)					$	(299,247)					$	317,020
Issuance of common stock upon vesting and exercise of options and vesting of restricted stock						142,189						—						375						—						—						375
Stock-based compensation expense						—						—						8,207						—						—						8,207
Employee stock purchase plan						12,539						—						35						—						—						35
Net unrealized gain (loss) on available-for-sale securities						—						—						—						(491)						—						(491)
Net loss						—						—						—						—						(32,903)						(32,903)
Balance at June 30, 2022						56,219,237						$	56					$	624,998					$	(661)					$	(332,150)					$	292,243
Balance, 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 (loss) 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 (loss) 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

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

5

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KRONOS BIO, INC.

Condensed Statements of Cash Flows

(Unaudited)

(in thousands)

			Six Months Ended June 30,
			2022						2021
Cash flows from operating activities:
Net loss			$	(69,166)					$	(55,141)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization			1,121						908
Net amortization/accretion on available-for-sale securities			563						2,074
Change in accrued interest on available-for-sale securities			765						53
Stock-based compensation expense			15,995						11,670
Noncash lease expense			1,074						1,112
Changes in operating assets and liabilities:
Prepaid expenses and other current assets			823						(65)
Other long-term assets			—						54
Accounts payable			2,287						(1,488)
Accrued expenses			1,638						2,454
Right-of-use operating assets and liabilities, net			(801)						172
Other liabilities			(303)						(1,065)
Net cash provided by (used in) operating activities			(46,004)						(39,262)
Cash flows from investing activities:
Purchase of property and equipment			(452)						(2,856)
Purchase of available-for-sale securities			(216,117)						(141,196)
Maturities of marketable securities			149,003						118,933
Sale of marketable securities			501						—
Net cash provided by (used in) investing activities			(67,065)						(25,119)
Cash flows from financing activities:
Principal payments on finance lease			—						(5)
Proceeds from issuance of common stock upon exercise of stock options			904						1,217
Proceeds from issuance of common stock under the employee stock purchase plan			35						817
Net cash provided by (used in) financing activities			939						2,029
Net increase (decrease) in cash and cash equivalents			(112,130)						(62,352)
Cash, cash equivalents and restricted cash at beginning of period			200,296						250,036
Cash, cash equivalents and restricted cash at end of period			$	88,166					$	187,684
Supplemental disclosures of non-cash activities:
Property and equipment additions included in accounts payable and accrued expenses			$	—					$	648
Reduction of right-of-use asset due to modification			$	—					$	(1,741)
Cash and cash equivalents at end of period			$	86,140					$	185,658
Restricted cash at end of period			2,026						2,026
Cash, cash equivalents and restricted cash at end of period			$	88,166					$	187,684

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

6

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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.

Need for Additional Capital

The Company has incurred net operating losses since its inception of $332.2 million as of June 30, 2022. The Company expects that its cash, cash equivalents and investments as of June 30, 2022 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.

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 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 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.

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

7

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KRONOS BIO, INC.

Notes to Condensed Financial Statements

(Unaudited)

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, 2022, the statements of operations and comprehensive loss for the three and six months ended June 30, 2022 and 2021, the statements of stockholders’ equity (deficit) as of June 30, 2022 and 2021, the statements of cash flows for the six months ended June 30, 2022 and 2021, 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, 2022 and the results of its operations for the three and six months ended June 30, 2022 and 2021. The results for the three and six months ended June 30, 2022 are not necessarily indicative of results to be expected for the full year ending December 31, 2022, 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, 2021, filed with the SEC on February 24, 2022 (Annual Report).

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 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.

Significant Accounting Policies

There have been no significant changes to the accounting policies during the six months ended June 30, 2022, 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.

Recently Issued and Adopted Accounting Pronouncements

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 was effective for the Company in the first quarter of 2022. The effect on our financial statements and related disclosures is not material.

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.

8

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KRONOS BIO, INC.

Notes to Condensed Financial Statements

(Unaudited)

The Company measures and reports its cash equivalents and investments 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, 2022 and December 31, 2021 were as follows:

			June 30, 2022
			Level 1						Level 2						Level 3						Fair Value
									(in thousands)
Financial Assets:
Money market funds			$	65,356					$	—					$	—					$	65,356
Corporate bonds			—						39,878						—						39,878
U.S. agency securities			—						10,482						—						10,482
U.S. treasury securities			168,624						—						—						168,624
Total financial assets			$	233,980					$	50,360					$	—					$	284,340

			December 31, 2021
			Level 1						Level 2						Level 3						Fair Value
			(in thousands)
Financial Assets:
Money market funds			$	188,923					$	—					$	—					$	188,923
Corporate bonds			—						63,620						—						63,620
U.S. treasury securities			79,394						—						—						79,394
Total financial assets			$	268,317					$	63,620					$	—					$	331,937

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, 2022 and December 31, 2021 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, 2022 and December 31, 2021 were as follows:

			June 30, 2022
			Amortized Cost						Unrealized Gains						Unrealized Losses						Fair Value
									(in thousands)
Money market funds			$	65,356					$	—					$	—					$	65,356
Corporate bonds			39,928						—						(50)						39,878
U.S. agency securities			10,515						—						(33)						10,482
U.S. treasury securities			169,202						2						(580)						168,624
Total cash equivalents and investments			$	285,001					$	2					$	(663)					$	284,340

9

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KRONOS BIO, INC.

Notes to Condensed Financial Statements

(Unaudited)

			December 31, 2021
			Amortized Cost						Unrealized Gains						Unrealized Losses						Fair Value
			(in thousands)
Money market funds			$	188,923					$	—					$	—					$	188,923
Corporate bonds			63,647						2						(29)						63,620
U.S. treasury securities			79,406						—						(12)						79,394
Total cash equivalents and investments			$	331,976					$	2					$	(41)					$	331,937

These available-for-sale securities were classified on the Company’s balance sheets as of June 30, 2022 and December 31, 2021 as:

			Fair Value
			June 30, 2022						December 31, 2021
			(in thousands)
Cash equivalents			$	78,098					$	190,698
Short-term investments			181,749						141,239
Long-term investments			24,493						—
Total cash equivalents and investments			$	284,340					$	331,937

The fair values of available-for-sale securities by contractual maturity as of June 30, 2022 and December 31, 2021 were as follows:

			June 30, 2022						December 31, 2021
			(in thousands)
Due in 1 year or less			$	259,847					$	143,014
Due in 1 to 2 years			24,493						—
Instruments not due at a single maturity date			—						188,923
Total cash equivalents and investments			$	284,340					$	331,937

As of June 30, 2022 and December 31, 2021, the remaining contractual maturities of available-for-sale securities were less than two years. 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, 2022 and December 31, 2021 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, 2022 and December 31, 2021, 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.

10

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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, 2022 and December 31, 2021:

			June 30, 2022						December 31, 2021
			(in thousands)
Accrued interest on short-term available-for-sale securities			$	544					$	816
Prepaid equipment service contracts			395						360
Prepaid external research and development and outside services			3,198						3,074
Prepaid software			914						624
Prepaid insurance			969						2,644
Prepaid rent and other			865						527
Total prepaid expenses and other current assets			$	6,885					$	8,045

6.PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following as of June 30, 2022 and December 31, 2021:

			June 30, 2022						December 31, 2021
			(in thousands)
Property and equipment:
Lab equipment			$	8,352					$	8,164
Leasehold improvements			9,348						9,335
Furniture and fixtures			608						596
Computer equipment			58						44
Total property and equipment			18,366						18,139
Less: Accumulated depreciation and amortization			(4,381)						(3,259)
Total property and equipment, net			$	13,985					$	14,880

Depreciation and amortization expense was $0.6 million and $0.5 million for the three months ended June 30, 2022 and 2021, respectively and $1.1 million and $0.9 million for the six months ended June 30, 2022 and 2021, respectively..

7.ACCRUED EXPENSES AND CURRENT PORTION OF OTHER LIABILITIES

Accrued expenses consisted of the following as of June 30, 2022 and December 31, 2021:

			June 30, 2022						December 31, 2021
			(in thousands)
Accrued compensation			$	2,562					$	4,570
External research and development			7,046						2,655
Accrued outside services			843						1,598
Other accrued expenses			20						240
Total accrued expenses			$	10,471					$	9,063

11

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KRONOS BIO, INC.

Notes to Condensed Financial Statements

(Unaudited)

Current portion of other liabilities consist of the following as of June 30, 2022 and December 31, 2021:

			June 30, 2022						December 31, 2021
			(in thousands)
Current portion of unvested early exercised share liability			1,220						1,364
ESPP withholdings			546						92
Total current portion of other liabilities			$	1,766					$	1,456

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 number 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, 2022, the maximum number of shares of common stock that may be issued was 17,568,821 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. Options shall not have an exercise price less than 100% of the fair market value of the Company’s common stock on the grant date. 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, 2022, there were 4,626,909 shares reserved by the Company under the 2020 Plan for the future issuance of equity awards.

Stock Options

Stock option activity under the 2020 Plan as of June 30, 2022 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, 2021						6,590,400						$	14.33
Granted						2,189,700						6.90
Forfeited						(164,853)						13.07
Exercised						(379,645)						2.37
Balance, June 30, 2022						8,235,602						$	12.93					8.58						$	2,164

The aggregate intrinsic values of options outstanding was 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, 2022. There was no future tax benefit related to options exercised, as the Company had accumulated net operating losses as of June 30, 2022 and December 31, 2021.

The weighted-average grant-date fair value per share of stock options granted, using the Black-Scholes option pricing model, was $4.69 during the six months ended June 30, 2022.

12

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KRONOS BIO, INC.

Notes to Condensed Financial Statements

(Unaudited)

As of June 30, 2022 and December 31, 2021, there was $48.8 million and $49.9 million of unrecognized stock-based compensation related to stock options, respectively, which is expected to be recognized over a weighted-average period of 2.68 and 2.93 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 continues to increase 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 12,539 shares of common stock during both the three and six months ended June 30, 2022 and 50,569 shares of common stock during both the three and six months ended June 30,2021, under the ESPP. The Company has 1,705,871 shares reserved for future issuance as of June 30, 2022.

Restricted Stock

Restricted stock awards and units as of June 30, 2022 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, 2021						787,719						$	26.88
Granted						874,511						6.95
Vested and converted to shares						(123,726)						25.62
Forfeited						(49,693)						13.89
Unvested, June 30, 2022						1,488,811						$	15.85					2.39						$	5,419

As of June 30, 2022, there was $18.3 million of unrecognized stock-based compensation related to RSUs, which is expected to be recognized over a weighted average period of 1.82 years.

As of June 30, 2022, there was $0.3 million of unrecognized stock-based compensation related to RSAs, which is expected to be recognized over a weighted average period of 2.08 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, 2022 and 2021 as follows:

			Three months ended June 30,												Six months ended June 30,
			2022						2021						2022						2021
			(in thousands)												(in thousands)
Research and development expenses			$	4,051					$	3,473					$	7,855					$	6,027
General and administrative expenses			4,156						2,959						8,140						5,643
Total stock-based compensation expense			$	8,207					$	6,432					$	15,995					$	11,670

Early Exercised Options

13

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KRONOS BIO, INC.

Notes to Condensed Financial Statements

(Unaudited)

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 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, 2022 and December 31, 2021, there was $1.2 million and $1.4 million recorded in current portion of other liabilities, and $0.5 million and $1.1 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, 2022 and 2021. 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, 2022 and 2021. The Company has not identified any new uncertain tax positions as of June 30, 2022. 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.

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, 2022 and 2021:

			Three months ended June 30,												Six months ended June 30,
			2022						2021						2022						2021
			(in thousands, except share and per share amounts)												(in thousands, except share and per share amounts)
Net loss			$	(32,903)					$	(29,055)					$	(69,166)					$	(55,141)
Weighted-average common stock outstanding, basic and diluted			56,116,070						54,506,195						55,978,482						54,330,402
Net loss per share, basic and diluted			$	(0.59)					$	(0.53)					$	(1.24)					$	(1.01)

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:

14

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KRONOS BIO, INC.

Notes to Condensed Financial Statements

(Unaudited)

			June 30, 2022						June 30, 2021
Stock options to purchase common stock			7,766,205						5,619,311
Early exercised stock options subject to future vesting			469,397						1,279,177
Restricted stock awards subject to future vesting			71,443						190,975
Restricted stock units subject to future vesting			1,417,368						895,071
Expected shares to be purchased under Employee Stock Purchase Plan			—						81,361
Total			9,724,413						8,065,895

11.COMMITMENTS AND CONTINGENCIES

R&D Services Agreement

In October 2021, the Company entered into an agreement for research and development services (Tempus Agreement) with Tempus Labs, Inc. (Tempus), pursuant to which Tempus agreed to provide the Company with research and development services for a period of three years. The three primary services are analytical services, data licensing, and organoid services. The Company intends to utilize the services contemplated under the Tempus Agreement to advance the development of KB-0742 and lanraplenib.

In consideration for the access to the services throughout the term of the Tempus Agreement, the Company has agreed to pay an annual minimum commitment of $1.5 million in year one, $2.0 million in year two, and $2.5 million in year three. Payments are made in quarterly installments.

In addition, the Company is required to make milestone payments upon successful achievement of certain regulatory milestones for KB-0742, lanraplenib, and other discovery pipeline compounds up to a combined maximum of $22.4 million. For each milestone payment that becomes due, the Company has the right to pay up to 50% of such milestone payment amount in shares of its common stock as long as certain regulatory requirements are met. As of June 30, 2022, there were no milestone payments due.

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 and lanraplenib, and patents and other intellectual property covering or related to the development, manufacture and commercialization of entospletinib and lanraplenib. Under the agreement, the Company is required to make milestone and royalty payments upon successful achievement of certain regulatory and sales milestones for the acquired assets. Upon initiation of our registrational Phase 3 clinical trial of entospletinib in combination with induction chemotherapy in acute myeloid leukemia patients with NPM1 mutations in December 2021, we paid a milestone to Gilead of $29.0 million. We are currently unable to estimate the timing or likelihood of achieving remaining milestones or generating future product sales.

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.

15

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KRONOS BIO, INC.

Notes to Condensed Financial Statements

(Unaudited)

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.

12.LEASES

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, 2022, $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 $25.8 million and $23.6 million and an aggregate lease liability of $28.9 million and $29.7 million as of June 30, 2022 and December 31, 2021, respectively. The remaining lease term is 8 years and 8 months, and the estimated incremental borrowing rate is 8.50%.

In February 2021, the Company entered into a new lease agreement for its office space in San Mateo, California to move from its 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.

The new 17,340 square foot suite was treated as a separate lease for accounting purposes. The initial annual base rent for the new space was $1.2 million, and such amount increases 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 $3.0 million and $3.3 million and an aggregate lease liability of $4.1 million and $4.1 million as of June 30, 2022 and December 31, 2021, respectively. The remaining lease term is 4 years and 0 months, 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, 2022 and December 31, 2021:

Balance Sheet Caption						June 30, 2022						December 31, 2021
						(in thousands)
Assets:
Operating lease assets						$	25,830					$	26,904
Liabilities:
Current portion of operating lease liabilities						$	2,704					$	2,109
Noncurrent operating lease liabilities						30,257						31,653
Total operating lease liabilities						$	32,961					$	33,762

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KRONOS BIO, INC.

Notes to Condensed Financial Statements

(Unaudited)

The effect of finance lease costs in the Company’s statements of operations and comprehensive loss was immaterial for the three and six months ended June 30, 2022 and 2021.

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, 2022 and 2021:

Statement of Operations and Comprehensive Loss Caption						Three months ended June 30,												Six months ended June 30,
						2022						2021						2022						2021
						(in thousands)												(in thousands)
Research and development						$	767					$	767					$	1,534					$	1,775
General and administrative						511						613						1,021						989
Total operating lease cost						$	1,278					$	1,380					$	2,555					$	2,764

The Company made cash payments of $1.2 million, $2.3 million, $1.2 million, and $2.3 million under the lease agreements during the three and six months ended June 30, 2022 and 2021, respectively.

The undiscounted future non-cancellable lease payments under the Company's operating leases as of June 30, 2022 for the next five years and thereafter is expected to be as follows:

Period Ending December 31,						Amount
						(in thousands)
Remaining six months of 2022						$	2,734
2023						1,792
2024						5,749
2025						5,921
2026 and thereafter						26,709
Total undiscounted lease payments						42,905
Less: Present value adjustment						(9,944)
Present value of operating lease liabilities						$	32,961

13.RELATED PARTIES

On December 1, 2017, the Company entered into a services agreement with Two River Consulting, LLC (Two River) to provide various clinical development, operational, managerial, accounting and financial, and administrative services to the Company. Arie Belldegrun, M.D., FACS, the Chairman of the Board of Directors, is the Chairman of Two River. Mr. Joshua Kazam and Mr. David Tanen, each a director of the Company, are each partners of Two River. Mr. Christopher Wilfong, a strategic advisor to the Company, is an Operating Partner of Two River and Mr. Sean Algeo, serving as a financial consultant to the Company, is the Chief Financial Officer of Two River. During the three and six months ended June 30, 2022 and 2021, the Company incurred expense of $18,000, $41,000, $0.1 million and $0.3 million, respectively, for these services.

In 2019, the Company entered into a consulting agreement with Bellco Capital, LLC (Bellco) to provide various executive services to the Company. Arie Belldegrun, M.D., FACS, the Chairman of the Board of Directors, is the Chairman of Bellco. Rebecka Belldegrun, M.D., who served as a director of the Company through January 25, 2021, is the President and Chief Executive Officer of Bellco. During the three and six months ended June 30, 2022 and 2021, the Company incurred expense of $6,300, $6,300, $12,600, and $12,600, respectively, for these services.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with the condensed financial statements and related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and with the audited financial statements and related notes as of and for the fiscal year ended December 31, 2021 included in our Annual Report on Form 10-K, as filed with the SEC on February 24, 2022.

Forward Looking Statements

This discussion and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations, and intentions. In some cases, you could identify forward-looking statements by terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potentially,” “predict,” “should,” “will,” or the negative of these terms or similar expressions. As a result of many factors, including those factors set forth under “Risk Factors” included in Item 1A of Part II of this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

Overview

We are an integrated discovery through late-stage clinical development biopharmaceutical company, with a focus on developing therapeutics that target the dysregulated transcription that causes cancer and other serious diseases. We have three investigational compounds. We are actively conducting clinical trials with two of these compounds, including a pivotal Phase 3 trial, and have opened clinical trial sites for the third. Our product engine, which includes our propriety small molecule microarray (SMM) screening platform, provides us with the capability to map and target transcription regulatory networks (TRNs) in a differentiated manner to enable discovery of novel compounds and improve our translational capabilities.

Our lead product candidate, entospletinib, is an orally administered, selective spleen tyrosine kinase (SYK) inhibitor that has been previously tested in more than 1,300 people, including more than 200 patients with acute myeloid leukemia (AML). Based on clinical results in a biomarker-defined subset of patients and following discussions as part of an End-of-Phase 2 meeting with the FDA, we are conducting our randomized, double-blinded, placebo-controlled registrational Phase 3 AGILITY clinical trial of entospletinib in combination with intensive chemotherapy in approximately 180 patients with newly diagnosed NPM1-mutated AML. In addition, we are developing KB-0742, our internally discovered, oral cyclin dependent kinase 9 (CDK9) inhibitor, for the treatment of MYC-amplified and other transcriptionally addicted solid tumors. We are in the dose escalation stage of a Phase 1/2 clinical trial. We are also developing lanraplenib, our next generation orally-administered SYK inhibitor, and have opened trial sites for a Phase 1b/2 clinical trial. This clinical trial will evaluate lanraplenib in combination with gilteritinib in patients with relapsed or refractory FLT3- mutated AML. In our research efforts, we are leveraging our product engine to drive multiple oncology discovery programs targeting dysregulated transcription factors and their associated TRNs. In November 2021, we announced the advancement of two programs, one focused on the MYC TRN and one focused on the androgen receptor (AR) TRN, based on this work, which are ongoing.

We also are executing on robust discovery programs across multiple TRNs, which focus on four cancer types where dysregulated transcription plays a central role: hematologic malignancies, prostate cancer, MYC-driven cancers, and small cell/neuroendocrine cancers. We continue to work toward the submission of an IND for a drug candidate arising from one of these programs, although we may not be successful in identifying product candidates that can selectively modulate the specific oncogenic TRNs associated with these malignancies.

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The following chart summarizes the current stages of our development programs, including our lead product candidate, entospletinib, as well as KB-0742 and lanraplenib, and our next anticipated milestones:

The ongoing COVID-19 pandemic has presented substantial public health and economic challenges around the world. We cannot at this time predict the specific extent, duration or impact that COVID-19 will have on our financial condition and operations, including ongoing research activities, ongoing and planned clinical trials and our financial results. While we are currently conducting a pivotal Phase 3 clinical trial for entospletinib, and a Phase 1/2 clinical trial for KB-0742 and have opened clinical trial sites for an additional clinical trial, COVID-19 precautions may directly or indirectly impact their timelines and interrupt clinical enrollment.

Since our formation in June 2017, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, identifying, acquiring and developing our product candidates, building our product engine, establishing our intellectual property portfolio, and providing general and administrative support for these operations. We have principally financed our operations to date through our IPO, and, before that, private placements of our convertible preferred stock and convertible notes.

Since our formation, we have incurred significant operating losses, primarily from costs incurred in connection with research and development activities and general and administrative costs associated with our operations. Our net loss was $32.9 million and $29.1 million for the three months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, we had an accumulated deficit of $332.2 million. As of June 30, 2022, we had $292.4 million of cash, cash equivalents and investments. We expect to continue to incur net losses for the foreseeable future, and we expect our research and development expenses, general and administrative expenses, and capital expenditures will continue to increase.

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Strategic Agreements

Tempus R&D Services Agreement

In October 2021, we entered into an agreement for research and development services (Tempus Agreement) with Tempus Labs, Inc. (Tempus), pursuant to which Tempus has agreed to provide us with research and development services for a period of three years. The three primary services are analytical services, data licensing, and organoid services. We intend to utilize the services contemplated under the Tempus Agreement to advance the development of KB-0742 and lanraplenib.

In consideration for the access to the services throughout the term of the Tempus Agreement, we have agreed to pay an annual minimum commitment of $1.5 million in year one, $2.0 million in year two, and $2.5 million in year three. Payments are made in quarterly installments.

In addition, we are required to make milestone payments upon successful achievement of certain regulatory milestones for KB-0742, lanraplenib, and other discovery pipeline compounds up to a combined maximum of $22.4 million. For each milestone payment that becomes due, we have the right to pay up to 50% of such milestone payment amount in shares of our common stock as long as certain regulatory requirements are met.

Gilead Asset Purchase Agreement

In July 2020, we entered into the Gilead Asset Purchase Agreement, pursuant to which we acquired certain assets from Gilead related to entospletinib and lanraplenib, and patents and other intellectual property covering or related to the development, manufacture and commercialization of entospletinib and lanraplenib.

In consideration for such assets, on the date of the Gilead Asset Purchase Agreement, we made a $3.0 million upfront cash payment and issued a $3.0 million principal amount convertible promissory note to Gilead (Gilead Note). We also made a $0.7 million payment to reimburse Gilead for certain liabilities we assumed pursuant to the Gilead Asset Purchase Agreement. In addition, we are required to make milestone payments upon successful achievement of certain regulatory and sales milestones for entospletinib, lanraplenib and other SYK inhibitor compounds covered by the patent rights acquired pursuant to the Gilead Asset Purchase Agreement and developed by us as a back-up to entospletinib or lanraplenib (Other Compounds). Upon initiation of our registrational Phase 3 clinical trial of entospletinib in combination with induction chemotherapy in acute myeloid leukemia patients with NPM1 mutations in December 2021, we paid a milestone to Gilead of $29.0 million. Upon successful completion of certain other regulatory milestones in the United States, European Union and United Kingdom for entospletinib, lanraplenib and any Other Compounds, across up to two distinct indications, we 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 entospletinib, lanraplenib and any Other Compounds combined, we 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 entospletinib, (ii) tiered marginal royalties ranging from high-single digits to the mid-teens on annual worldwide net sales of lanraplenib and (iii) tiered marginal royalties ranging from the 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 entospletinib and lanraplenib, for any royalties paid for future licenses of third party intellectual property required to develop or commercialize entospletinib or lanraplenib. Our 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, we are required to use commercially reasonable efforts to develop, obtain regulatory approval for and commercialize either entospletinib or lanraplenib.

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Harvard License Agreement

In January 2018, we entered into a license agreement with President and Fellows of Harvard College (Harvard), pursuant to which Harvard granted us a non-exclusive, worldwide, royalty-free license to certain intellectual property for the purpose of commercializing products relating to our SMM platform. We paid a one-time license fee in the amount of $10,000 on the date of the agreement and an annual license maintenance fee of $20,000 on each of the first two anniversaries and an annual license fee of $25,000 on each subsequent anniversary until the last to expire of any valid claim included in the licensed patents.

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Components of Our Results of Operations

Operating Expenses

Our operating expenses consisted of research and development expenses and general and administrative expenses.

Research and Development Expenses

Our research and development expenses consist primarily of direct and indirect costs incurred in connection with our therapeutic discovery efforts and the preclinical and clinical development of our product candidates, as well as the development of our product engine.

Direct costs include:

•expenses incurred under agreements with contract research organizations (CROs) and other vendors that conduct our clinical trials and preclinical activities;

•costs of outside consultants, including their fees, stock-based compensation and related travel expenses;

•costs of acquiring, developing, and manufacturing clinical trial materials and lab supplies; and

•payments made under third-party strategic agreements.

Indirect costs include:

•personnel costs, which include salaries, benefits, and other employee related costs, including stock-based compensation, for personnel engaged in research and development functions;

•costs related to compliance with regulatory requirements; and

•facilities costs, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and other supplies.

We expense research and development costs as the services are performed or the goods are received. We recognize costs for certain development activities based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors and our internal management. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our financial statements as prepaid or accrued research and development expenses.

Because we are working on multiple research and development programs at any one time, we intend to track our direct costs by the stage of program, clinical or preclinical. However, our internal costs, employees and infrastructure are not directly tied to any one program and are deployed across multiple programs. As such, we do not track indirect costs on a specific program basis.

Our research and development expenses may vary significantly based on a variety of factors, such as:

•the scope, rate of progress, expense and results of our preclinical development activities;

•per patient trial costs;

•the number of trials required for approval; the number of sites included in the trials;

•the number of patients that participate in the trials;

•the countries in which the trials are conducted;

•uncertainties in clinical trial design and patient enrollment or drop out or discontinuation rates, particularly in light of the current COVID-19 pandemic environment;

•potential additional safety monitoring requested by regulatory agencies;

•the duration of patient participation in the trials and follow-up;

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•the safety and efficacy of our product candidates;

•the timing, receipt, and terms of any approvals from applicable regulatory authorities including the FDA and non-U.S. regulators;

•significant and changing government regulation and regulatory guidance;

•potential additional trials requested by regulatory agencies;

•establishing clinical and commercial manufacturing capabilities or making arrangements with third-party manufacturers in order to ensure that we or our third-party manufacturers are able to make product successfully;

•the extent to which we establish additional strategic collaborations or other arrangements;

•the impact of any business interruptions to our operations or to those of the third parties with whom we work, particularly in light of the current COVID-19 pandemic environment;

•the expense of filing, prosecuting, defending, and enforcing any patent claims and other intellectual property rights; and

•maintaining a continued acceptable safety profile of our product candidates following approval, if any, of our product candidates.

A change in the outcome of any of these variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate.

We expect that our research and development expenses will continue to increase substantially for the foreseeable future as we continue to identify and develop additional product candidates and as more of our product candidates move into later stages of clinical development, which typically have higher development costs than those in earlier stages of clinical development due to the increased size and duration of later-stage clinical trials.

The process of conducting the necessary preclinical and clinical research to obtain regulatory approval is costly and time-consuming. The actual probability of success for our product candidates may be affected by a variety of factors. We may never succeed in achieving regulatory approval for any of our product candidates. Further, a number of factors, including those outside of our control, could adversely impact the timing and duration of our product candidates’ development, which could increase our research and development expenses.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel costs, which include salaries, benefits and other employee related costs, such as stock-based compensation, for personnel in our executive, finance, corporate and business development, and administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters; professional fees for accounting, auditing, tax and consulting services; insurance costs; recruiting costs; travel expenses; and facilities-related costs.

We expect that our general and administrative expenses will continue to increase substantially for the foreseeable future as we continue to increase our general and administrative personnel headcount to support personnel in research and development, and to support our operations generally as we increase our research and development activities and activities related to the potential commercialization of our product candidates. We also expect to continue to incur significant expenses associated with operating as a public company, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance costs, and investor and public relations costs.

Interest and Other Income, Net

Interest and other income, net primarily consists of interest earned on our cash, cash equivalents and investments.

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Results of Operations

Comparison of Three Months Ended June 30, 2022 and 2021

The following table summarizes our results of operations for the three months ended June 30, 2022 and 2021:

			Three Months Ended June 30,
			2022						2021						Change
			(in thousands)
Operating expenses:
Research and development			$	22,706					$	19,802					$	2,904
General and administrative			10,824						9,339						1,485
Total operating expenses			33,530						29,141						4,389
Loss from operations			(33,530)						(29,141)						(4,389)
Other income (expense), net:
Interest and other income, net			627						86						541
Total other income (expense), net			627						86						541
Net loss			$	(32,903)					$	(29,055)					$	(3,848)

Research and Development Expenses

The following table summarizes our research and development expenses for the three months ended June 30, 2022 and 2021:

			Three Months Ended June 30,
			2022						2021						Change
			(in thousands)
Direct Costs			$	11,642					$	8,451					$	3,191
Indirect Costs:
Personnel			9,067						7,798						1,269
Facilities, depreciation and other expenses			1,998						3,553						(1,555)
Total research and development expenses			$	22,707					$	19,802					$	2,905

Research and development expenses were $22.7 million for the three months ended June 30, 2022, compared to $19.8 million for the three months ended June 30, 2021. The increase of $2.9 million was primarily due to an increase of $3.3 million in consulting and other outside research expenses and an increase of $1.3 million in personnel costs primarily attributable to increased research and development personnel headcount, including an increase in stock-based compensation of $0.6 million. These increases were partially offset by a decreases of $0.1 million in lab supplies and $1.6 million in facilities, depreciation and other expenses.

General and Administrative Expenses

General and administrative expenses were $10.8 million for the three months ended June 30, 2022 compared to $9.3 million for the three months ended June 30, 2021. The increase of $1.5 million was primarily due to an increase in stock-based compensation of $1.2 million and an increase of $1.0 million in personnel costs, primarily attributable to increased general and administrative personnel headcount to support the growth of our research and development organization. These increases were partially offset by a decrease of $0.3 million in professional fees primarily attributable to insurance and other professional services, a decrease of $0.2 million in facilities and depreciation and a decrease of $0.2 million in other general and administrative expenses.

Interest and Other Income, Net

Interest and other income, net primarily consists of interest earned on our cash, cash equivalents, and investments.

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Comparison of Six Months Ended June 30, 2022 and 2021

The following table summarizes our results of operations for the six months ended June 30, 2022 and 2021:

			Six Months Ended June 30,
			2022						2021						Change
			(in thousands)
Operating expenses:
Research and development			$	47,142					$	37,396					$	9,746
General and administrative			22,752						17,923						4,829
Total operating expenses			69,894						55,319						14,575
Loss from operations			(69,894)						(55,319)						(14,575)
Other income (expense), net:
Interest and other income, net			728						178						550
Total other income (expense), net			728						178						550
Net loss			$	(69,166)					$	(55,141)					$	(14,025)

Research and Development Expenses

The following table summarizes our research and development expenses for the six months ended June 30, 2022 and 2021:

			Three Months Ended June 30,
			2022						2021						Change
			(in thousands)
Direct Costs			$	20,332					$	18,215					$	2,117
Indirect Costs:
Personnel			18,431						13,869						4,562
Facilities, depreciation and other expenses			8,381						5,312						3,069
Total research and development expenses			$	47,144					$	37,396					$	9,748

Research and development expenses were $47.1 million for the six months ended June 30, 2022, compared to $37.4 million for the six months ended June 30, 2021. The increase of $9.7 million was primarily due to an increase of $2.4 million in consulting and other outside research expenses and an increase of $4.6 million in personnel costs primarily attributable to increased research and development personnel headcount, including an increase in stock-based compensation of $1.8 million, and an increase in facilities, depreciation and other expenses of $3.1 million. These increases were partially offset by a decrease in lab costs of $0.3 million.