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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 September 30, 2023
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)
Delaware82-1895605
(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 classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.001 par value per shareKRONThe 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 filerSmaller reporting company
Non-accelerated filerAccelerated 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 November 8, 2023 the registrant had 58,316,520 shares of common stock, $0.001 par value per share, outstanding.



TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1.Condensed Financial Statements:
Condensed Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022
Item 2.
Item 3.
Item 4.
PART II. OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 5.
Item 6.

2


PART 1. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
KRONOS BIO, INC.
Condensed Balance Sheets
(Unaudited)
(in thousands, except share and per share amounts)
September 30, 2023
December 31, 2022(1)
Assets
Current assets:
Cash and cash equivalents$57,599 $75,973 
Short-term investments129,114 162,212 
Prepaid expenses and other current assets4,850 6,106 
Total current assets191,563 244,291 
Long-term investments11,670 9,762 
Property and equipment, net11,310 12,985 
Operating lease right-of-use assets20,454 24,707 
Restricted cash2,026 2,026 
Other noncurrent assets970 1,167 
Total assets$237,993 $294,938 
Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable$4,082 $5,047 
Accrued expenses9,151 12,963 
Current portion of operating lease liabilities3,263 2,347 
Current portion of deferred revenue8,577  
Current portion of other liabilities599 1,129 
Total current liabilities25,672 21,486 
Noncurrent operating lease liabilities26,279 28,744 
Deferred revenue, net of current portion7,422  
Other noncurrent liabilities 209 
Total liabilities59,373 50,439 
Commitments and contingencies (Note 11)
Stockholders’ equity:
Common stock, $0.001 par value, 200,000,000 authorized as of September 30, 2023 and December 31, 2022; 58,180,739 and 56,967,436 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively.
58 57 
Preferred stock, $0.001 par value; 10,000,000 authorized; no shares issued and outstanding.
Additional paid-in capital662,358 641,422 
Accumulated deficit(483,541)(396,188)
Accumulated other comprehensive income (loss)(255)(792)
Total stockholders' equity178,620 244,499 
Total liabilities and stockholders’ equity$237,993 $294,938 
(1) The balance sheet as of December 31, 2022 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


KRONOS BIO, INC.
Condensed Statements of Operations and Comprehensive Loss
(Unaudited)
(in thousands, except share and per share amounts)
Three months ended September 30,Nine months ended September 30,
2023202220232022
Revenue$917 $ $4,002 $ 
Operating expenses:
Research and development25,344 23,403 67,675 70,547 
General and administrative9,398 10,135 30,813 32,886 
Total operating expenses34,742 33,538 98,488 103,433 
Loss from operations(33,825)(33,538)(94,486)(103,433)
Other income, net:
Interest and other income, net2,451 1,282 7,133 2,011 
Total other income, net2,451 1,282 7,133 2,011 
Net loss(31,374)(32,256)(87,353)(101,422)
Other comprehensive income (loss):
Net unrealized gain (loss) on available-for-sale securities214 (389)537 (1,011)
Net comprehensive loss$(31,160)$(32,645)$(86,816)$(102,433)
Net loss per share, basic and diluted$(0.54)$(0.57)$(1.52)$(1.81)
Weighted-average shares of common stock, basic and diluted58,146,306 56,318,571 57,567,489 56,093,091 
The accompanying notes are an integral part of these unaudited condensed financial statements.
4

KRONOS BIO, INC.
Condensed Statements of Stockholders’ Equity
(Unaudited)
(in thousands, except share and per share data)

Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal Stockholders’ Equity
SharesAmount
Balance at December 31, 2022
56,967,436 $57 $641,422 $(792)$(396,188)$244,499 
Issuance of common stock upon vesting and exercise of options and vesting of restricted stock386,318 — 305 — — 305 
Stock-based compensation expense— — 6,607 — — 6,607 
Net unrealized gain (loss) on available-for-sale securities— — — 432 — 432 
Net loss— — — — (26,238)(26,238)
Balance at March 31, 2023
57,353,754 $57 $648,334 $(360)$(422,426)$225,605 
Issuance of common stock upon vesting and exercise of options and vesting of restricted stock521,497 1 332 — — 333 
Stock-based compensation expense— — 6,906 — — 6,906 
Employee stock purchase plan247,048 — 348 — — 348 
Net unrealized gain (loss) on available-for-sale securities— — — (109)— (109)
Net loss— — — — (29,741)(29,741)
Balance at June 30, 2023
58,122,299 $58 $655,920 $(469)$(452,167)$203,342 
Issuance of common stock upon vesting and exercise of options and vesting of restricted stock58,440 — 142 — — 142 
Stock-based compensation expense— — 6,296 — — 6,296 
Net unrealized gain (loss) on available-for-sale securities— — — 214 — 214 
Net loss— — — — (31,374)(31,374)
Balance at September 30, 2023
58,180,739 $58 $662,358 $(255)$(483,541)$178,620 
5

KRONOS BIO, INC.
Condensed Statements of Stockholders’ Equity
(Unaudited)
(in thousands, except share and per share data)
Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal Stockholders’ Equity
SharesAmount
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 stock361,182 — 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 stock142,189 — 375 — — 375 
Stock-based compensation expense— — 8,207 — — 8,207 
Employee stock purchase plan12,539 — 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 
Issuance of common stock upon vesting and exercise of options and vesting of restricted stock220,391 — 628 — — 628 
Stock-based compensation expense— — 7,461 — — 7,461 
Net unrealized gain (loss) on available-for-sale securities— — — (389)— (389)
Net loss— — — — (32,256)(32,256)
Balance at September 30, 2022
56,439,628 $56 $633,087 $(1,050)$(364,406)$267,687 
The accompanying notes are an integral part of these unaudited condensed financial statements.

6

KRONOS BIO, INC.
Condensed Statements of Cash Flows
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
20232022
Cash flows from operating activities:
Net loss$(87,353)$(101,422)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation1,658 1,692 
Net amortization (accretion) on available-for-sale securities(4,103)185 
Change in accrued interest on available-for-sale securities363 856 
Stock-based compensation expense19,809 23,456 
Noncash lease expense1,982 1,628 
Impairment of long-lived assets2,916  
Changes in operating assets and liabilities:
Prepaid expenses and other current assets1,266 1,433 
Other noncurrent assets197  
Accounts payable(945)409 
Accrued expenses(3,812)6,161 
Right-of-use operating assets and lease liabilities, net(1,549)(1,997)
Deferred revenue15,999  
Current portion of other liabilities and other noncurrent liabilities14 (799)
Net cash provided by (used in) operating activities(53,558)(68,398)
Cash flows from investing activities:
Purchase of property and equipment(648)(525)
Purchase of available-for-sale marketable securities(170,816)(307,181)
Maturities of marketable securities206,272 243,248 
Sale of marketable securities 500 
Net cash provided by (used in) investing activities34,808 (63,958)
Cash flows from financing activities:
Proceeds from issuance of common stock upon exercise of stock options28 1,532 
Proceeds from issuance of common stock under the employee stock purchase plan348 35 
Net cash provided by (used in) financing activities376 1,567 
Net increase (decrease) in cash and cash equivalents(18,374)(130,789)
Cash, cash equivalents and restricted cash at beginning of period77,999 200,296 
Cash, cash equivalents and restricted cash at end of period$59,625 $69,507 
Supplemental disclosures of non-cash activities:
Property and equipment additions included in accounts payable and accrued expenses$ $51 
Cash and cash equivalents at end of period$57,599 $67,481 
Restricted cash at end of period2,026 2,026 
Cash, cash equivalents and restricted cash at end of period$59,625 $69,507 

The accompanying notes are an integral part of these unaudited condensed financial statements.
7

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 an integrated discovery through clinical development biopharmaceutical company, with a focus on developing therapeutics that target the dysregulated transcription that causes cancer and other serious diseases.
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.
Unaudited Interim Financial Information
The accompanying condensed balance sheet as of September 30, 2023, the condensed statements of operations and comprehensive loss for the three and nine months ended September 30, 2023 and 2022, the condensed statements of stockholders’ equity (deficit) as of September 30, 2023 and 2022, the condensed statements of cash flows for the nine months ended September 30, 2023 and 2022, and the financial data and other financial information disclosed in the notes to the condensed financial statements are unaudited. The unaudited interim condensed 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 September 30, 2023 and the results of its operations for the three and nine months ended September 30, 2023 and 2022. The results for the three and nine months ended September 30, 2023 are not necessarily indicative of results to be expected for the full year ending December 31, 2023, any other interim periods, or any future year or period. These condensed financial statements should be read in conjunction with the Company's audited financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 15, 2023 (Annual Report)
Need for Additional Capital
The Company has incurred net losses since its inception of $483.5 million as of September 30, 2023. The Company expects that its cash, cash equivalents and investments as of September 30, 2023 will be sufficient to fund its operations for a period of 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.
The Company intends to raise additional capital through the issuance of equity securities, debt financings or other sources in order to continue its operations. 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 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
8

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
Significant Accounting Policies
In 2023, the Company began to recognize revenue related to research and development services and licenses. Refer below for a description of the revenue recognition policy. There have been no additional changes to the accounting policies during the nine months ended September 30, 2023, 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 for the year ended December 31, 2022.
Use of Estimates
The preparation of condensed 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 condensed 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, revenue, the accrual of research and development expenses, the fair value of investments, the fair value of the Company’s long-lived assets, 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.
Revenue Recognition
The Company recognizes revenue in accordance with the provisions of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”). The Company recognizes revenue when the Company’s customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods and services. To determine revenue recognition for arrangements within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when or as the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration to which it is entitled in exchange for the goods or services it transfers to the customer.
The Company evaluates the promised goods or services in these agreements to determine which ones represent distinct performance obligations. These agreements may include the following types of promised goods or services: (i) grants of licenses and related transfer of know-how, (ii) performance of research and development services, and (iii) participation on joint research and/or development committees. They also may include options to obtain further research and development services and licenses to the Company’s intellectual property. The payment terms of these agreements may include nonrefundable upfront fees, payments for electing the contractual options, payments based upon the achievement of certain milestones, and royalty payments based on product sales derived from the collaboration.
The Company exercises judgment in assessing those promised goods and services that are distinct and thus representative of performance obligations. To the extent the Company identifies multiple performance obligations in a contract, the Company must develop assumptions that require judgment to determine the estimated standalone selling price for each performance obligation in order to allocate the transaction price among the identified performance obligations. The transaction is allocated on a relative standalone selling price basis.
Prior to recognizing revenue, the Company makes estimates of the transaction price, including variable consideration that is subject to a constraint. Amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will
9

KRONOS BIO, INC.
Notes to Condensed Financial Statements
(Unaudited)
not occur and when the uncertainty associated with the variable consideration is subsequently resolved. These estimates are reassessed each reporting period as required.
The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligations when or as the performance obligations are satisfied. For performance obligations satisfied over time, the Company estimates the efforts needed to complete the performance obligations and recognizes revenue by measuring the progress towards complete satisfaction of the performance obligations using an input measure. The estimated period of performance and level of effort, including the value of the Company researchers’ time and third-party costs, are reviewed quarterly and adjusted, as needed, to reflect the Company’s current expectations. The measurement of progress is then used to calculate revenue, including any revenue adjustments as a result of the change in estimate. For arrangements that include sales-based royalties, including commercial milestone payments based on pre-specified level of sales, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligations to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). Achievement of these royalties and commercial milestones may solely depend upon the performance of the licensee. Funds received in advance are recorded as deferred revenue and are recognized as the related performance obligations are satisfied.
There are no performance, cancellation, termination, or refund provisions in any of the arrangements that contain material financial consequences to the Company.
Recent Accounting Pronouncements
The Company continues to monitor new accounting pronouncements issued by the Financial Accounting Standards Board and does not believe any accounting pronouncements issued, and not yet adopted, through the date of this report will have a material impact on the Company's consolidated 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 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.
10

KRONOS BIO, INC.
Notes to Condensed Financial Statements
(Unaudited)
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 September 30, 2023 and December 31, 2022 were as follows (in thousands):
September 30, 2023
Level 1Level 2Level 3Fair Value
Financial Assets:
Money market funds$24,864 $ $ $24,864 
Certificates of deposit975   975 
Commercial paper    
Corporate bonds 9,299  9,299 
U.S. agency securities 6,073  6,073 
U.S. treasury securities128,239   128,239 
Total financial assets$154,078 $15,372 $ $169,450 
December 31, 2022
Level 1Level 2Level 3Fair Value
Financial Assets:
Money market funds$49,003 $ $ $49,003 
Certificates of deposit490   490 
Commercial paper 1,667  1,667 
Corporate bonds 30,657  30,657 
U.S. agency securities 13,000  13,000 
U.S. treasury securities138,734   138,734 
Total financial assets$188,227 $45,324 $ $233,551 
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 September 30, 2023 and December 31, 2022 that required Level 3 inputs.
4.INVESTMENTS
The fair value and amortized cost of available-for-sale securities by major security type as of September 30, 2023 and December 31, 2022 were as follows (in thousands):
September 30, 2023
Amortized CostUnrealized GainsUnrealized LossesFair Value
Money market funds$24,864 $— $— $24,864 
Certificates of deposit980  (5)975 
Commercial paper    
Corporate bonds9,306  (7)9,299 
U.S. agency securities6,075 1 (3)6,073 
U.S. treasury securities128,480 2 (243)128,239 
Total cash equivalents and investments$169,705 $3 $(258)$169,450 

11

KRONOS BIO, INC.
Notes to Condensed Financial Statements
(Unaudited)
December 31, 2022
Amortized CostUnrealized GainsUnrealized LossesFair Value
Money market funds$49,003 $— $— $49,003 
Certificates of deposit490   490 
Commercial paper1,667   1,667 
Corporate bonds30,683 3 (29)30,657 
U.S. agency securities13,024  (24)13,000 
U.S. treasury securities139,477 4 (747)138,734 
Total cash equivalents and investments$234,344 $7 $(800)$233,551 
These available-for-sale securities were classified on the Company’s condensed balance sheets as of September 30, 2023 and December 31, 2022 as (in thousands):
Fair Value
September 30, 2023December 31, 2022
Cash equivalents$28,666 $61,577 
Short-term investments129,114 162,212 
Long-term investments11,670 9,762 
Total cash equivalents and investments$169,450 $233,551 
The fair values of available-for-sale securities by contractual maturity as of September 30, 2023 and December 31, 2022 were as follows (in thousands):
September 30, 2023December 31, 2022
Due in 1 year or less$132,917 $174,786 
Due in 1 to 2 years11,670 9,762 
Total$144,587 $184,548 

As of September 30, 2023 and December 31, 2022, 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 condensed financial statements. As of September 30, 2023 and December 31, 2022, securities with a fair value of $12.4 million and zero, respectively, were in a continuous net unrealized loss position of $44 thousand and zero, respectively, for more than 12 months. Unrealized losses on available-for-sale securities are not attributed to credit risk for any of the periods presented. The Company believes that it is more likely than not that investments in an unrealized loss position will be held until maturity and all interest and principal will be received. The Company believes that an allowance for credit losses is unnecessary because the unrealized losses on certain of the Company’s available-for-sale securities are due to market factors. To date, the Company has not recorded any impairment charges on available-for-sale securities.
12

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 September 30, 2023 and December 31, 2022 (in thousands):
 September 30, 2023December 31, 2022
Accrued interest on short-term available-for-sale securities$492 $572 
Prepaid equipment service contracts281 289 
Prepaid external research and development and outside services2,175 2,276 
Prepaid software1,117 905 
Prepaid insurance111 1,630 
Other prepaid expenses674 434 
Total prepaid expenses and other current assets$4,850 $6,106 

6.PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following as of September 30, 2023 and December 31, 2022 (in thousands):
September 30, 2023December 31, 2022
Property and equipment:
Lab equipment$9,090 $8,475 
Leasehold improvements8,703 9,348 
Furniture and fixtures619 619 
Computer equipment71 58 
Total property and equipment18,483 18,500 
Less: Accumulated depreciation(7,173)(5,515)
Total property and equipment, net$11,310 $12,985 
Depreciation expense was $0.5 million and $0.6 million for the three months ended September 30, 2023 and 2022, respectively and $1.7 million and $1.7 million for the nine months ended September 30, 2023 and 2022, respectively.
During the nine months ended September 30, 2023, the Company recognized a non-cash impairment charge of $0.6 million to Leasehold improvements. There was no charge in the three months ended September 30, 2023 and three and nine months ended September 30, 2022. Please refer to Note 12, “Leases”, section “Impairment of Operating Lease Right-of-Use Asset and Other Long-Lived Assets” for further details.
7.ACCRUED EXPENSES AND CURRENT PORTION OF OTHER LIABILITIES
Accrued expenses consisted of the following as of September 30, 2023 and December 31, 2022 (in thousands):
September 30, 2023December 31, 2022
Accrued compensation$3,702 $4,277 
External research and development4,023 7,694 
Accrued outside services1,055 945 
Accrued taxes 40 
Other accrued expenses371 7 
Total accrued expenses$9,151 $12,963 
13

KRONOS BIO, INC.
Notes to Condensed Financial Statements
(Unaudited)

Current portion of other liabilities consist of the following as of September 30, 2023 and December 31, 2022 (in thousands):
September 30, 2023December 31, 2022
Current portion of unvested early exercised share liability$350 $891 
ESPP withholdings249 238 
Total current portion of other liabilities$599 $1,129 
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 (“RSA”), restricted stock units (“RSU”), 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 September 30, 2023, the maximum number of shares of common stock that may be issued was 20,417,192 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 September 30, 2023, there were 4,260,124 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 September 30, 2023 is summarized as follows:
Number of OptionsWeighted-Average Exercise PriceWeighted-Average Remaining Contractual TermAggregate Intrinsic Value
(in years)(in thousands)
Balance, December 31, 2022
7,454,665 $11.83 7.69$54 
Granted3,200,631 1.99
Forfeited(1,471,660)10.94 
Exercised(242,379)3.21
Balance, September 30, 2023
8,941,257 $8.69 8.00$17 
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 September 30, 2023. There was no future tax benefit related to options exercised, as the Company had accumulated net operating losses as of September 30, 2023 and December 31, 2022.
The weighted-average grant-date fair value per share of stock options granted, using the Black–Scholes option pricing model, was $1.41 during the nine months ended September 30, 2023.
14

KRONOS BIO, INC.
Notes to Condensed Financial Statements
(Unaudited)
As of September 30, 2023 and December 31, 2022, there was $20.2 million and $35.4 million of unrecognized stock-based compensation related to stock options, respectively, which is expected to be recognized over a weighted-average period of 1.89 years and 2.25 years, respectively.
Restricted Stock
Restricted stock awards and restricted stock units as of September 30, 2023 are summarized as follows:
Number of Restricted StockWeighted-Average Grant Date Fair ValueWeighted-Average Remaining Vesting LifeAggregate Intrinsic Value
(in years)(in thousands)
Unvested, December 31, 2022
2,297,745 $9.18 1.58$3,722 
Granted 1,611,211 1.99 
Vested and converted to shares(723,876)8.21 
Forfeited(652,996)5.25 
Unvested, September 30, 2023
2,532,084 $5.90 1.08$3,292 
As of September 30, 2023, there was $6.6 million of unrecognized stock-based compensation related to RSUs, which is expected to be recognized over a weighted average remaining vesting life.
As of September 30, 2023, there was $0.1 million of unrecognized stock-based compensation related to RSAs, which is expected to be recognized over a weighted average remaining vesting life.
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 increased 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 did not issue any shares of common stock during both the three months ended September 30, 2023 and 2022. The Company issued 247,048 shares and 12,539 shares of common stock during the nine months ended September 30, 2023 and 2022, respectively.
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 nine months ended September 30, 2023 and 2022 is as follows (in thousands):
Three months ended September 30,Nine months ended September 30,
2023202220232022
Research and development expenses$3,237 $3,500 $9,472 $11,355 
General and administrative expenses3,059 3,961 10,337 12,101 
Total stock-based compensation expense$6,296 $7,461 $19,809 $23,456 


Early Exercised Options
15

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 September 30, 2023 and December 31, 2022, there was $0.4 million and $0.9 million recorded in current portion of other liabilities, respectively. At September 30, 2023 and December 31, 2022, there was zero and $0.2 million recorded in other noncurrent liabilities, respectively, related to shares held by employees and nonemployees that were subject to repurchase.
9.INCOME TAXES
The Company did not record any income tax expense for the three and nine months ended September 30, 2023 and 2022. The Company has incurred net operating losses for all the periods presented and has not reflected any benefit of such net operating loss carryforwards in the accompanying condensed financial statements. The Company has recorded a full valuation allowance against all of its deferred tax assets as it is not more likely than not that such assets will be realized in the near future.
It is the Company’s policy to record penalties and interest related to income taxes as a component of income tax expense. The Company has not recorded any interest or penalties related to income taxes during the three and nine months ended September 30, 2023 and 2022. The Company has not identified any new uncertain tax positions as of September 30, 2023. Unrecognized tax benefits are not expected to change during the next 12 months. The reversal of the unrecognized tax benefits would not affect the effective tax rate. The Company is subject to examination by U.S. federal and state tax authorities for all years since its inception.
10.NET LOSS PER SHARE
The following table summarizes the computation of basic and diluted net loss per share of the Company for the three and nine months ended September 30, 2023 and 2022 (in thousands, except share and per share amounts):
Three months ended September 30,Nine months ended September 30,
2023202220232022
Net loss$(31,374)$(32,256)$(87,353)$(101,422)
Weighted-average common stock outstanding, basic and diluted58,146,306 56,318,571 57,567,489 56,093,091 
Net loss per share, basic and diluted$(0.54)$(0.57)$(1.52)$(1.81)
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.
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:
16

KRONOS BIO, INC.
Notes to Condensed Financial Statements
(Unaudited)
September 30, 2023September 30, 2022
Stock options to purchase common stock8,843,067 7,362,762 
Early exercised stock options subject to future vesting98,190 386,862 
Restricted stock awards subject to future vesting28,577 62,870 
Restricted stock units subject to future vesting2,503,507 2,271,896 
Expected shares to be purchased under Employee Stock Purchase Plan1,502,501 829,820 
Total12,975,842 10,914,210 
In addition to the potentially dilutive securities noted above, the Company also has the option under its agreement with Tempus to issue common shares upon the achievement of specified milestones. Please refer to Note 11, “Commitment and Contingencies” for further details. Because the necessary conditions for issuance of the shares had not been met as of September 30, 2023, the Company excluded these shares from the table above.
11. COMMITMENTS AND CONTINGENCIES
Amended Research and Development Services Agreement
In October 2021, as subsequently amended in April 2023, the Company entered into an agreement for research and development services (the Amended 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 four years. The three primary services are analytical services, data licensing, and organoid services. The Company intends to utilize the services contemplated under the Amended Tempus Agreement to advance the development of KB-0742 and lanraplenib.
In consideration for the access to the services throughout the term of the Amended Tempus Agreement, the Company has agreed to pay an annual minimum commitment of $1.5 million in year one, $2.5 million in year two, $3.0 million in year three and $2.5 million in year four. Payments are made in quarterly installments. As of September 30, 2023, the Company has paid cumulatively $4.0 million under the Amended Tempus Agreement, including $2.9 million paid for the nine months ended September 30, 2023, $1.1 million paid for the year ended December 31, 2022 and null for the year ended December 31, 2021.
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 September 30, 2023 and December 31, 2022, the Company determined that achievement of the milestones is not probable and therefore no corresponding liability has been recorded.
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 payments upon successful achievement of certain regulatory and sales milestones for lanraplenib, entospletinib 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 successful completion of certain regulatory milestones in the United States, European Union and United Kingdom for lanraplenib, entospletinib 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 lanraplenib, entospletinib, and any Other Compounds combined, we would owe to Gilead potential milestone payments totaling $115.0 million.
17

KRONOS BIO, INC.
Notes to Condensed Financial Statements
(Unaudited)
Gilead is also eligible to receive (i) tiered marginal royalties ranging from high-single digits to the mid-teens on annual worldwide net sales of lanraplenib, (ii) tiered marginal royalties ranging from the very low-teens to high-teens on annual worldwide net sales of entospletinib, 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 lanraplenib and entospletinib, for any royalties paid for future licenses of third-party intellectual property required to develop or commercialize lanraplenib or entospletinib. 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 lanraplenib or entospletinib.
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 contract research organizations (CROs) for preclinical and clinical studies and other vendors for services and products. These agreements generally provide for termination or cancellation, other than for costs already incurred and certain wind down costs that may be associated with the termination of a contract or clinical trial program.
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.
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. 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 September 30, 2023, $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 $18.6 million and $21.9 million and an aggregate lease liability of $26.5 million and $28.0 million as of September 30, 2023 and December 31, 2022, respectively. The remaining lease term is 7 years and 5 months, and the estimated incremental borrowing rate is 8.50%.
18

KRONOS BIO, INC.
Notes to Condensed Financial Statements
(Unaudited)
In February 2021, the Company entered into a new lease agreement for its office space in San Mateo, California totaling 17,340 square-feet. 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 made a one-time cash security deposit in the amount of $59,000. The lease commenced in April 2021 and terminates August 31, 2026. In connection with the lease, the Company recognized an operating lease right-of-use asset of $1.9 million and $2.8 million and an aggregate lease liability of $3.1 million and $3.7 million as of September 30, 2023 and December 31, 2022, respectively. The remaining lease term is 2 years and 9 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 September 30, 2023 and December 31, 2022 (in thousands):
Balance Sheet CaptionSeptember 30, 2023December 31, 2022
Assets:
Operating lease assets$20,454 $24,707 
Liabilities:
Current portion of operating lease liabilities$3,263 $2,347 
Noncurrent operating lease liabilities26,279 28,744 
Total operating lease liabilities$29,542 $31,091 

The following table summarizes the effect of operating lease costs in the Company’s statements of operations and comprehensive loss for the three and nine months ended September 30, 2023 and 2022 (in thousands):
Statement of Operations and Comprehensive Loss CaptionThree months ended September 30,Nine months ended September 30,
2023202220232022
Research and development$897 $767 $2,431 $2,301 
General and administrative561 511 1,582 1,532 
Total operating lease cost$1,458 $1,278 $4,013 $3,833 
Under the lease agreements, the Company made cash payments of $1.3 million and $3.7 million during the three and nine months ended September 30, 2023, respectively. The Company made cash payments of $1.9 million and $4.2 million during the three and nine months ended September 30, 2022, respectively.
The undiscounted future non-cancellable lease payments under the Company's operating leases as of September 30, 2023 for the next five years and thereafter is expected to be as follows (in thousands):
Amount
Remaining three months of 2023
$1,440 
2024
5,749 
2025
5,921 
2026
5,405 
2027 and thereafter
21,298 
Total undiscounted lease payments39,813 
Less: Present value adjustment(10,271)
Present value of operating lease liabilities$29,542 
Impairment of Operating Lease Right-of-Use Asset and Other Long-Lived Assets
The Company evaluates the carrying value of long-lived assets, which include property and equipment and right-of-use assets, for impairment whenever events or changes in circumstances indicate that the carrying
19

KRONOS BIO, INC.
Notes to Condensed Financial Statements
(Unaudited)
amounts of the asset may not be fully recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset or asset group and its eventual disposition are less than its carrying amount. Impairment, if any, is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value.
As a result of the sustained decline in the Company’s stock price, the Company determined an impairment indicator was present. The Company determined all of its long-lived assets represent a single asset group for the purpose of the long-lived asset impairment assessment. The Company concluded that the carrying value of the single asset group was not recoverable as it exceeded the future net undiscounted cash flows that are expected to be generated from the use and eventual disposition of the assets within the asset group. To allocate and recognize the impairment loss, the Company, with the assistance of a third-party valuation firm, determined the fair value of the Company using the adjusted net asset method under the cost approach. The implied allocated impairment loss to any individual asset within the long-lived asset group shall not reduce the carrying amount of that asset below its fair value. To determine the fair value of the individual assets within the asset group, the Company utilized the discounted cash flow method of the income approach and the indirect cost approach.
Based on this analysis, during the nine months ended September 30, 2023, the Company recognized a non-cash impairment charge of $2.9 million, including $2.3 million for the right-of-use assets and $0.6 million for the leasehold improvements (please see Note 6, “Property and Equipment, Net” for further details). The Company recorded $1.9 million in “Research and Development” and $1.0 million in “General and Administration”, based on the relative allocation of the operating lease costs and depreciation and amortization expense. No impairment charge was recorded for the three months ended September 30, 2023 and three and nine months ended September 30, 2022.
These represent a Level 3 nonrecurring fair value measurement. Calculating the fair value of the assets involves significant estimates and assumptions. These estimates and assumptions include, among others, projected future cash flows, risk-adjusted discount rates and market conditions. Changes in the factors and assumptions used could materially affect the amount of impairment loss recognized in the period the asset was considered impaired.
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 nine months ended September 30, 2023, the Company incurred expenses of $24,000 and $72,000, respectively, for these services. During the three and nine months ended September 30, 2022, the Company incurred expenses of $30,000 and $71,000, 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. During the three and nine months ended September 30, 2023, the Company incurred expense of $6,300 and $18,900, respectively, for these services. During the three and nine months ended September 30, 2022, the Company incurred expense of $6,300 and $18,900, respectively, for these services.
14.COLLABORATION AND LICENSE AGREEMENT
On January 6, 2023, the Company entered into a Collaboration and License Agreement with Genentech, Inc., a member of the Roche Group (“Genentech”). Pursuant to the agreement, the parties have agreed to initially collaborate on two discovery research programs in oncology, each focused on a designated transcription factor, to discover small-molecule GLP-Tox-ready candidates that modulate transcription factor targets selected by Genentech. Each discovery research program primarily consists of (i) a mapping phase with the goal of identifying the transcription regulatory network for such designated transcription factor, and (ii) a screening phase having the
20

KRONOS BIO, INC.
Notes to Condensed Financial Statements
(Unaudited)
goal of identifying and characterizing multiple screening hits suitable for nomination as a preclinical development program.
The Company leads discovery and research activities under the discovery research programs and uses its proprietary drug discovery platform, including the small molecule microarray (SMM), for hit finding. Following the completion of initial discovery and research activities, Genentech will have the exclusive right to pursue further preclinical and clinical development and commercialization of compounds identified in the discovery research programs and designated by Genentech (each, a “Hit Program”).
Pursuant to the agreement, the Company received an upfront payment of $20.0 million from Genentech. In addition, the Company is eligible for additional milestone payments upon achievement of certain preclinical, clinical and regulatory (including first-sale) milestones, totaling up to $177 million for the first development candidate per Hit Program, and is eligible to receive net sales milestones of up to $100 million for the first licensed product per Hit Program. The Company is also eligible to receive tiered royalties in the low- to high-single digits on any products that are commercialized by Genentech as a result of the collaboration.
The term of the discovery research programs under the agreement is up to 24 months, which may be extended by six months at the Company’s option subject to satisfying certain conditions.
Unless earlier terminated, the agreement will remain in effect for each product licensed under the agreement until expiration of the royalty term for such licensed product. Genentech has the right to terminate this agreement in its entirety, or with respect to a particular discovery research program or Hit Program, in its sole discretion, at any time by providing 60 days’ advance written notice to the Company. Each party may also terminate the agreement upon the other party’s material breach that remains uncured for 90 days (or 45 days in the event of nonpayment), or in the event of certain insolvency events involving the other party.
The Company evaluated the agreement and determined it was within the scope of ASC 606. The Company determined there were performance obligations to perform research and development services. Each consists of various exclusive and non-exclusive licenses to use the Company’s intellectual property and know-how, initial discovery activities, and substitution of the designated transcription factor. The Company also identified customer options contained within the contract to perform further research and development services and the renewal of the licenses that were deemed a material right as these involved a discount to Genentech that they would not have otherwise received. As a result, the material rights for various options were recognized as separate performance obligations and the transaction price was allocated to the material rights based on the relative standalone selling price, the identified discount and the probability that the customer will exercise the option or the option is cancelled. Amounts allocated to a material right are not recognized as revenue until the option is exercised. The transaction price was determined to consist of the upfront payment of $20.0 million. Potential development and regulatory milestones have been fully constrained. The Company is expected to perform research and development services for each selected target up until a defined point at which time Genentech will decide whether or not to exercise an option to nominate a development candidate and take over future development and commercialization. The Company concluded this is not a material right. Any consideration related to sales-based milestones (including royalties) will be recognized when the related sales occur as these amounts have been determined to relate predominantly to the license granted to Genentech.
The Company determined that the performance obligations to perform research and development services are satisfied over time, and therefore, the related revenue will be recognized as services are provided. The Company recognized $0.9 million and $4.0 million in revenue during the three and nine months ended September 30, 2023, respectively, using the cost-based input model related to the research and development activities associated with the identified performance obligations. The remaining $16.0 million of the upfront payment is included in short and long-term deferred revenue as of September 30, 2023 and will be recognized as the performance obligations are satisfied.

15.    SUBSEQUENT EVENT
21

KRONOS BIO, INC.
Notes to Condensed Financial Statements
(Unaudited)
On October 30, 2023, the Board of Directors of the Company approved an approximately 19% reduction of its workforce as part of a strategic resource allocation, restructuring and cost containment plan. The workforce reduction was completed on November 2, 2023.
In connection with the reduction in workforce, the Company expects to incur charges of approximately $1.8 million associated with cash severance payments in the fourth quarter of 2023, and up to approximately $0.3 million in charges associated with cash payments for COBRA reimbursement over as much as the next six months.
22


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, 2022 included in our Annual Report on Form 10-K, as filed with the SEC on March 15, 2023.
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 clinical development biopharmaceutical company, with a focus on developing therapeutics that target the dysregulated transcription that causes cancer and other serious diseases. We are enrolling patients in clinical trials for two compounds. Our product engine, which includes our proprietary 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 ability to discover and optimize clinical development candidates. In addition to our own internal preclinical programs, we have entered into a collaboration agreement with Genentech, Inc., a member of the Roche Group (Genentech).
We are developing KB-0742, our internally discovered, orally-administered, cyclin dependent kinase 9 (CDK9) inhibitor, for the treatment of MYC-amplified and other transcriptionally addicted solid tumors. We have initiated the Phase 2 portion of our Phase 1/2 clinical trial. KB-0742 was generated from our optimization of a compound that was identified using our SMM platform.
We are also developing lanraplenib, our selective, orally administered spleen tyrosine kinase (SYK) inhibitor, and are in the dose escalation stage of our Phase 1b/2 clinical trial. This clinical trial evaluates lanraplenib in combination with gilteritinib in patients with relapsed or refractory FLT3-mutated acute myeloid leukemia (AML).

23


The following chart summarizes our pipeline by stage, including development programs, KB-0742 and lanraplenib, and discovery programs.
https://cdn.kscope.io/68c90ed032652d8a0cfa81f32e4400b9-231107 pipeline 2.jpg
In our research efforts, we are leveraging our product engine to drive multiple oncology discovery programs targeting dysregulated transcription factors and their associated TRNs. Some of the most powerful oncogenes in all of human cancer encode transcription factors: proteins that bind to specific DNA sequences on the genome and control how sets of genes are turned on and off. Transcription factors historically have been difficult to target in drug development because they are typically intrinsically disordered, adopting a functional structure only when assembled with a complex of cofactors in the nucleus on the genome. Transcription factors with aberrant expression or activity result in dysregulated TRNs, which are frequently responsible for reprogramming healthy cells into cancerous tumor cells. Therapeutically modulating dysregulated transcription factors requires a sophisticated and holistic approach due to their complexity and their regulation of complex TRNs in a context-dependent manner.
In January 2023, we entered into a research collaboration with Genentech, focused on discovering and developing small-molecule drugs that modulate transcription factor targets selected by Genentech. Under the collaboration, we are leveraging our proprietary drug discovery platform, including the small molecule microarray, for hit finding, to build upon research conducted by Genentech.
In November 2023, we announced corporate restructuring plans designed to optimize our resource allocation and contain costs in light of the positive preliminary safety and efficacy clinical data from our Phase 1/2 clinical trial of KB-0742. We believe this plan positions us to optimize the development of KB-0742 while continuing to advance the development of lanraplenib, and also enables us to focus our discovery efforts on maturing projects and our Genentech collaboration activities. We expect that these restructuring efforts, which include a 19% reduction in workforce, will extend our cash runway into 2026. In connection with the reduction in workforce, the Company expects to incur charges of approximately $1.8 million associated with cash severance payments in the fourth quarter of 2023, and up to approximately $0.3 million in charges associated with cash payments for COBRA reimbursement over as much as the next six months.
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 $31.4 million and $32.3 million for the three months ended September 30, 2023 and 2022, respectively. As of September 30, 2023, we had an accumulated deficit of $483.5 million. As of September 30, 2023, we had $198.4 million of cash, cash equivalents and investments. We expect to continue to incur net losses for the foreseeable future, and we expect to continue to make significant investments in our research and development and general and administrative functions.

24


Strategic Agreements
Genentech Collaboration Agreement
On January 6, 2023, we entered into a Collaboration and License Agreement with Genentech, a member of the Roche Group. Pursuant to the agreement, the parties have agreed to initially collaborate on two discovery research programs in oncology, each focused on a designated transcription factor, to discover small-molecule GLP-Tox-ready candidates that modulate transcription factor targets selected by Genentech. Each discovery research program primarily consists of (i) a mapping phase with the goal of identifying the transcription regulatory network for such designated transcription factor, and (ii) a screening phase having the goal of identifying and characterizing multiple screening hits suitable for nomination as a preclinical development program.
We lead discovery and research activities under the discovery research programs and use our proprietary drug discovery platform, including our SMM, for hit finding. Following the completion of initial discovery and research activities, Genentech will have the exclusive right to pursue further preclinical and clinical development and commercialization of compounds identified in the discovery research programs and designated by Genentech (each, a Hit Program).
In connection with the agreement, we received an upfront payment of $20.0 million from Genentech. In addition, we are eligible for additional milestone payments upon achievement of certain preclinical, clinical and regulatory (including first-sale) milestones, totaling up to $177.0 million for the first development candidate per Hit Program, and are eligible to receive net sales milestones of up to $100.0 million for the first licensed product per Hit Program. We are also eligible to receive tiered royalties in the low- to high-single digits on any products that are commercialized by Genentech as a result of the collaboration.
The term of the discovery research programs is up to 24 months, which may be extended by six months at our option subject to satisfying certain conditions.
Tempus Research and Development Services Agreement
In October 2021, as subsequently amended in April 2023, we entered into an agreement for research and development services (the Amended 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 four years. The three primary services are analytical services, data licensing, and organoid services. We intend to utilize the services contemplated under the Amended Tempus Agreement to advance the development of KB-0742 and lanraplenib.
In consideration for the access to the services throughout the term of the Amended Tempus Agreement, we have agreed to pay an annual minimum commitment of $1.5 million in year one, $2.5 million in year two, $3.0 million in year three and $2.5 million in year four. Payments are made in quarterly installments. As of September 30, 2023, we have paid $4.0 million under the Amended Tempus Agreement.
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 and assumed certain liabilities of Gilead related to lanraplenib or entospletinib, and patents and other intellectual property covering or related to the development, manufacture and commercialization of lanraplenib or entospletinib.
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, which was settled in exchange for 188,567 shares of common stock in connection with the closing of our IPO at a settlement price of $16.15 per share. 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 lanraplenib, entospletinib and other SYK inhibitor compounds covered by the patent rights acquired pursuant to the Gilead Asset Purchase
25


Agreement and developed by us as a back-up to entospletinib or lanraplenib (Other Compounds). Upon successful completion of certain regulatory milestones in the United States, European Union and United Kingdom for lanraplenib, entospletinib 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 lanraplenib, entospletinib, 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 high-single digits to the mid-teens on annual worldwide net sales of lanraplenib, (ii) tiered marginal royalties ranging from the very low-teens to high-teens on annual worldwide net sales of entospletinib, 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 lanraplenib and entospletinib, for any royalties paid for future licenses of third-party intellectual property required to develop or commercialize lanraplenib or entospletinib. 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 lanraplenib or entospletinib.

26



Components of Our Results of Operations
Revenues
As of September 30, 2023, our revenue has been exclusively generated from our collaboration and license agreement with Genentech. We received a $20.0 million upfront payment from Genentech in February 2023 and are eligible for additional milestone payments upon achievement of certain preclinical, clinical and regulatory (including first-sale) milestones. See Note 14 to our financial statements appearing elsewhere in this Quarterly Report for more information related to our recognition of revenue and the Genentech agreement.
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 condensed 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, 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;
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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;
potential additional safety monitoring requested by regulatory agencies;
the duration of patient participation in the trials and follow-up;
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; 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 to continue to make significant investments into research and development 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.
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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 to maintain the general and administrative function for the foreseeable future to support personnel in research and development and to support our operations generally as we execute on our research and development activities. We also expect to continue to incur 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 September 30, 2023 and 2022
The following table summarizes our results of operations for the three months ended September 30, 2023 and 2022 (in thousands):
Three Months Ended September 30,
20232022Change
Revenue$917 $— $917 
Operating expenses:
Research and development$25,344 $23,403 $1,941 
General and administrative9,398 10,135 (737)
Total operating expenses34,742 33,538 1,204 
Loss from operations(33,825)(33,538)(287)
Other income, net:
Interest and other income, net2,451 1,282 1,169 
Total other income, net2,451 1,282 1,169 
Net loss$(31,374)$(32,256)$882 
Revenue
Revenue was $0.9 million for the three months ended September 30, 2023 and zero for the three months ended September 30, 2022. The increase of $0.9 million was due to revenue recognized under the Collaboration and License Agreement entered into with Genentech in January 2023.
Research and Development Expenses
The following table summarizes our research and development expenses for the three months ended September 30, 2023 and 2022 (in thousands):
Three Months Ended September 30,
20232022Change
Direct Costs$14,915 $12,894 $2,021 
Indirect Costs:
Personnel8,108 8,445 (337)
Facilities, depreciation and other expenses2,321 2,064 257 
Total research and development expenses$25,344 $23,403 $1,941 
Research and development expenses were $25.3 million for the three months ended September 30, 2023 compared with $23.4 million for the three months ended September 30, 2022. The increase of $1.9 million was due to an increase in consulting and outside services attributable to increased enrollment and site start-up for the KB-0742 study.
General and Administrative Expenses
General and administrative expenses were $9.4 million for the three months ended September 30, 2023 compared with $10.1 million for the three months ended September 30, 2022. The decrease of $0.7 million was primarily due to a decrease in stock-based compensation of $0.9 million and a decrease of $0.4 million in professional fees primarily attributable to insurance and legal services. These decreases were partially offset by an increase of $0.8 million in personnel expenses.
Comparison of Nine Months Ended September 30, 2023 and 2022
The following table summarizes our results of operations for the nine months ended September 30, 2023 and 2022 (in thousands):
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Nine Months Ended September 30,
20232022Change
Revenue$4,002 $— $4,002 
Operating expenses:
Research and development$67,675 $70,547 $(2,872)
General and administrative30,813 32,886 (2,073)
Total operating expenses98,488 103,433 (4,945)
Loss from operations(94,486)(103,433)8,947 
Other income, net:
Interest and other income, net7,133 2,011 5,122 
Total other income, net7,133 2,011 5,122 
Net loss$(87,353)$(101,422)$14,069 
Revenue was $4.0 million for the nine months ended September 30, 2023 and zero for the nine months ended September 30, 2022. The increase was due to the revenue recognized under the Collaboration and License Agreement entered into with Genentech in January 2023.
Research and Development Expenses
The following table summarizes our research and development expenses for the nine months ended September 30, 2023 and 2022 (in thousands):
Nine months ended September 30,
20232022Change
Direct Costs$34,892 $37,738 $(2,846)
Indirect Costs:
Personnel24,222 26,876 (2,654)
Facilities, depreciation and other expenses8,561 5,933 2,628 
Total research and development expenses$67,675 $70,547 $(2,872)
Research and development expenses were $67.7 million for the nine months ended September 30, 2023, compared with $70.5 million for the nine months ended September 30, 2022. The decrease of $2.9 million was primarily due to a decrease of $3.1 million in consulting and other outside research expenses related to the discontinuation of our Phase 3 entospletinib trial in the three months ended December 31, 2022, a decrease in stock-based compensation of $1.9 million and a decrease of $0.8 million in personnel costs both primarily attributable to the decreased headcount. These decreases were partially offset by a $2.5 million increase in facilities, depreciation and other expenses, primarily consisting of the non-cash impairment charge of $1.9 million, and an increase in lab costs of $0.4 million. Please refer to Part 1. Financial Information, Note 12, “Leases”, section “Impairment of Operating Lease Right-of-Use Asset and Other Long-Lived Assets” for further details.
General and Administrative Expenses
General and administrative expenses were $30.8 million for the nine months ended September 30, 2023 compared with $32.9 million for the nine months ended September 30, 2022. The decrease of $2.1 million was primarily due to a decrease of $1.9 million in professional fees primarily attributable to insurance and other professional services and a $1.8 million decrease in stock-based compensation primarily attributable to the $1.0 million reversal of expense in connection with equity award forfeitures upon the departure of our Chief Financial Officer in September 2023. These decreases were partially offset by an increase of $0.8 million in facilities, depreciation and other expenses primarily contributed by the non-cash impairment charge of $1.0 million, and an increase of $0.8 million in personnel expenses primarily attributable to increased headcount. Please refer to Part 1. Financial Information, Note 12, “Leases”, section “Impairment of Operating Lease Right-of-Use Asset and Other Long-Lived Assets” for further details.
Liquidity and Capital Resources
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Sources of Liquidity
To date, we have incurred significant operating losses and negative cash flows from operations. We have not yet commercialized any products and we do not expect to generate revenue from sales of any product candidates for several years, if ever. Prior to our IPO, our operations were financed primarily by net proceeds from the sale and issuance of our convertible preferred stock and convertible notes, totaling aggregate gross proceeds of $278.2 million. Upon completion of our IPO on October 14, 2020, we sold an aggregate of 15,131,579 shares of our common stock including 1,973,684 shares of common stock sold pursuant to the full exercise of the underwriters’ option to purchase additional shares at a price of $19.00 per share and received approximately $263.7 million in net proceeds after deducting underwriting discounts and commissions and offering expenses.
As of September 30, 2023, we had cash, cash equivalents and investments of $198.4 million. We expect that our cash, cash equivalents and investments as of September 30, 2023, will enable us to fund our planned operating expenses and capital expenditure requirements into 2026.
Material Cash Requirements
Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures related to our therapeutic discovery efforts, KB-0742 and lanraplenib, and to a lesser extent, general and administrative expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.
Our product candidates are still in the early stages of clinical and preclinical development, and the outcomes of these efforts are uncertain. Accordingly, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates or whether, or when, we may achieve profitability. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity or debt financings and collaboration agreements. If we do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our existing stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to raise capital when needed, we will need to delay, reduce or terminate planned activities to reduce costs. Doing so will likely harm our ability to execute our business plans.
Contractual Obligations and Commitments
In March 2020, we entered into a lease agreement for our research and development operations facility at 301 Binney Street, Cambridge, Massachusetts (Cambridge facility). The initial annual base rent was $4.1 million with rent payments escalating 3.0% annually after the initial 12 payments. We executed a letter of credit for $2.0 million in connection with the lease. The remaining lease term is 7 years and 5 months.
In February 2021, the Company entered into a new lease agreement for its office space in San Mateo, California totaling 17,340 square-feet. 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 made a one-time cash security deposit in the amount of $59,000. The lease commenced in April 2021 and terminates August 31, 2026.
Pursuant to the Gilead Asset Purchase Agreement, we are obligated to make milestone payments upon the achievement of specified regulatory and clinical milestones as well as royalty payments. The payment obligations under this agreement are contingent upon future events, such as our achievement of specified milestones or generating product sales. We are currently unable to estimate the timing or likelihood of achieving these milestones or generating future product sales. See the subsection titled “—Strategic Agreements—Gilead Asset Purchase Agreement” above.
Pursuant to the Amended Tempus Agreement, we are obligated to make milestone payments upon the achievement of specified regulatory milestones as well as annual minimum commitments in quarterly installments. Some payment obligations under this agreement are contingent upon future events, such as our achievement of specified milestones. We are currently unable to estimate the timing or likelihood of achieving these milestones.
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See the subsection titled “—Strategic Agreements—Amended Tempus Research and Development Services Agreement” above.
We enter into contracts in the ordinary course of business with CROs for clinical trials, preclinical and clinical research studies and testing, manufacturing and other services and products for operating purposes. These contracts do not contain any minimum purchase commitments and are generally terminable by us upon prior notice. Payments due upon termination generally consist only of payments for services provided and expenses incurred up to the date of termination and certain wind down costs that may be associated with the termination of a contract or clinical trial program.
Cash Flows
The following table summarizes our sources and uses of cash for each of the periods presented (in thousands):
Nine Months Ended September 30,
20232022
Cash used in operating activities$(53,558)$(68,398)
Cash provided by (used in) investing activities34,808 (63,958)
Cash provided by financing activities376 1,567 
Net decrease in cash and cash equivalents$(18,374)$(130,789)
Operating Activities
During the nine months ended September 30, 2023, cash used in operating activities was $53.6 million and consisted of our net loss of $87.4 million, adjusted for non-cash charges of $22.6 million and an increase in operating assets and operating liabilities, net, of $11.2 million. The non-cash charges primarily consisted of $19.8 million in stock-based compensation, impairment of long-lived assets of $2.9 million, depreciation and amortization of $1.7 million, non-cash lease expense of $2.0 million, accrued interest on investment securities of $0.4 million partially offset by a decrease related to net amortization and accretion of investment securities of $4.1 million.
During the nine months ended September 30, 2022, cash used in operating activities was $68.4 million, which was primarily attributable to our net loss of $101.4 million, partially offset by non-cash charges of $27.8 million and changes in operating assets and operating liabilities, net, of $5.2 million. The non-cash charges primarily consisted of $23.5 million in stock-based compensation, depreciation and amortization of $1.7 million, noncash lease expense of $1.6 million, and change in accrued interest on investment securities of $0.9 million.
Investing Activities
During the nine months ended September 30, 2023, cash provided by investing activities was $34.8 million, consisting of $170.8 million in purchases of available-for-sale securities and $0.6 million for the purchase of property and equipment, partially offset by $206.3 million in maturities of marketable securities.
During the nine months ended September 30, 2022, cash used in investing activities was $64.0 million, consisting of $307.2 million in purchases of marketable securities partially offset by $243.2 million in maturities of marketable securities.
Financing Activities
During the nine months ended September 30, 2023, net cash provided by financing activities was $0.4 million, consisting of proceeds from issuance of common stock under the employee stock purchase plan of $0.3 million and proceeds from issuance of common stock upon exercise of stock options of $28,000.
During the nine months ended September 30, 2022, net cash provided by financing activities was $1.6 million, consisting of proceeds from the exercise of stock options of $1.5 million.
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Critical Accounting Policies and Estimates
Our management’s discussion and analysis of financial condition and results of operations is based on our condensed financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of our condensed financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses and the disclosure of contingent assets and liabilities in our condensed financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
We consider the assumptions and estimates associated with revenues, accrued research and development expenditures, and stock-based compensation to have the most significant impact on our condensed financial statements and therefore we consider these to be our critical accounting policies and estimates.
Revenue Recognition
We recognize revenue in accordance with the provisions of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”). We recognize revenue when the customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods and services. To determine revenue recognition for arrangements within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when or as the Company satisfies a performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration to which it is entitled in exchange for the goods or services it transfers to the customer.
We evaluate the promised goods or services in these agreements to determine which ones represent distinct performance obligations. These agreements may include the following types of promised goods or services: (i) grants of licenses, (ii) performance of research and development services, and (iii) participation on joint research and/or development committees. They also may include options to obtain further research and development services and licenses to our intellectual property. The payment terms of these agreements may include nonrefundable upfront fees, payments for electing the contractual options, payments based upon the achievement of certain milestones, and royalty payments based on product sales derived from the collaboration.
We exercise judgment in assessing those promised goods and services that are distinct and thus representative of performance obligations. To the extent we identify multiple performance obligations in a contract, the Company must develop assumptions that require judgment to determine the estimated standalone selling price for each performance obligation in order to allocate the transaction price among the identified performance obligations. The transaction price is allocated on a relative standalone selling price basis.
Prior to recognizing revenue, we make estimates of the transaction price, including variable consideration that is subject to a constraint. Amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur and when the uncertainty associated with the variable consideration is subsequently resolved. These estimates are re-assessed each reporting period as required.
We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligations when or as the performance obligations are satisfied. For performance obligations satisfied over time, we estimate the efforts needed to complete the performance obligations and recognizes revenue by measuring the progress towards complete satisfaction of the performance obligations using an input measure. The estimated period of performance and level of effort, including the value of our researchers’ time and third-party costs, are reviewed quarterly and adjusted, as needed, to reflect our current expectations. The measurement of progress is then used to calculate revenue, including any revenue adjustments as a result of the change in estimate. For arrangements that include sales-based royalties, including commercial milestone payments based on pre-specified level of sales, we recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligations to which some or all of the royalty has been allocated has been
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satisfied (or partially satisfied). Achievement of these royalties and commercial milestones may solely depend upon the performance of the licensee. Funds received in advance are recorded as deferred revenue and are recognized as the related performance obligations are satisfied.
There are no performance, cancellation, termination, or refund provisions in any of the arrangements that contain material financial consequences to us.
Accrued Research and Development Expenses
As part of the process of preparing our condensed financial statements, we are required to estimate our accrued research and development and manufacturing expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs. The majority of our service providers invoice us in arrears for services performed on a pre-determined schedule or when contractual milestones are met; however, some require advanced payments. We make estimates of our accrued expenses as of each balance sheet date in our condensed financial statements based on facts and circumstances known to us at that time. Examples of estimated accrued research and development expenses include fees paid to:
CROs in connection with performing research activities on our behalf and conducting preclinical studies and clinical trials on our behalf;
investigative sites or other service providers in connection with clinical trials;
vendors in connection with preclinical and clinical development activities; and
vendors related to product manufacturing and development and distribution of preclinical and clinical supplies.
We base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple CROs that conduct and manage preclinical studies and clinical trials on our behalf. The financial terms of these agreements are subject to negotiation and vary from contract to contract, which may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. Payments under some of these contracts depend on factors such as the completion of scientific milestones. In accruing fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or amount of prepaid expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low in any particular period. To date, we have not made any material adjustments to our prior estimates of accrued research and development expenses.
Stock-Based Compensation
We measure stock options and other stock-based awards granted to employees, directors, and non-employees based on their fair value on the date of grant and recognize stock-based compensation expense of those awards over the requisite service period, which is generally the vesting period of the respective award. We recognize the impact of forfeitures on stock-based compensation expense as forfeitures occur. We apply the straight-line method of expense recognition to all awards with only service-based vesting conditions.
We estimate the fair value of each stock option grant on the date of grant using the Black-Scholes option-pricing model. This model requires the use of highly subjective assumptions to determine the fair value of stock-based awards, including:
Fair Value of Common Stock—For grants before the completion of our IPO in October 2020 when we were a privately held company with no public market for our common stock, the fair value of our common stock underlying share-based awards was estimated on each grant date by our Board of Directors. In order to determine the fair value of our common stock underlying option grants, our Board of Directors considered, among other things, valuations of our common stock prepared by an unrelated third-party valuation firm in accordance
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with the guidance provided by the American Institute of Certified Public Accounts Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. For all grants subsequent to our IPO in October 2020, the fair value of common stock was determined by taking the closing price per share of common stock as reported on the Nasdaq Stock Market.
Expected Term—The expected term represents the period that the stock-based awards are expected to be outstanding. We use the simplified method to determine the expected term, which is based on the average of the time-to-vesting and the contractual life of the options.
Expected Volatility—We use an average historical stock price volatility of comparable public companies within the biotechnology and pharmaceutical industry that were deemed to be representative of future stock price trends, in addition to some consideration to our own stock price volatility. We continue to utilize comparable public companies as part of this process as we do not have sufficient trading history for our common stock. We will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available.
Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero-coupon U.S. Treasury notes with maturities approximately equal to the expected term of the awards.
Expected Dividend—We have never paid dividends on our common stock and have no plans to pay dividends on our common stock. Therefore, we used an expected dividend yield of zero.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Our cash equivalents and investments as of September 30, 2023 consist of money market funds and available-for-sale securities. Such interest-earning instruments carry a degree of interest rate risk; however, historical fluctuations in interest income have not been significant for us. A one percent change in the interest rates in effect on September 30, 2023 would not have had a material effect on the fair market value of our cash equivalents and investments.
Foreign Currency Exchange Risk
All of our employees and our operations are currently located in the United States and our expenses are generally denominated in U.S. dollars. However, we have entered into a limited number of contracts with vendors for research and development services that permit us to satisfy our payment obligations in U.S. dollars (at prevailing exchange rates) but have underlying payment obligations denominated in foreign currencies, primarily including the Euro and GBP. We are subject to foreign currency transaction gains or losses on our contracts denominated in foreign currencies. To date, foreign currency transaction gains and losses have not been material to our condensed financial statements, and we have not had a formal hedging program with respect to foreign currency. A one percent increase or decrease in exchange rates at September 30, 2023 would not have had a material effect on our condensed financial statements.
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ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our periodic and current reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based, in part, upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Our management, with the participation and supervision of our Chief Executive Officer and our Chief Financial Officer, has evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-15(f) of the Exchange Act. An evaluation was also performed under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of any change in our internal control over financial reporting that occurred during our last fiscal quarter and that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. That evaluation did not identify any change in our internal control over financial reporting that occurred during our latest fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may become involved in litigation or other legal proceedings. While the outcome of any such proceedings cannot be predicted with certainty, as of September 30, 2023, we were not a party to any litigation or legal proceedings that, in the opinion of our management, are probable to have a material effect on our business.
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ITEM 1A. RISK FACTORS
RISK FACTOR SUMMARY
Below is a summary of material factors that make an investment in our common stock speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under the heading “Risk Factors” and should be carefully considered, together with other information in this Quarterly Report on Form 10-Q and our other filings with the SEC before making investment decisions regarding our common stock.
We have incurred significant net losses since inception and we expect to incur significant losses over the next several years and may not be able to achieve or sustain revenues or profitability in the future.
We will need substantial additional funding. If we are unable to raise capital when needed, we may be compelled to delay, reduce, or eliminate our product development programs or commercialization efforts.
We have a limited operating history and face significant challenges and will incur substantial expenses as we build our capabilities.
Our discovery and development activities are primarily focused on novel cancer therapeutics for patients with genetically-defined cancers and it is difficult to predict the time and cost of developing our product candidates and obtaining regulatory approval.
We have encountered and may continue to encounter delays and difficulties initiating clinical trial sites and enrolling patients in our clinical trials, and, as a result, our clinical development activities could be delayed or otherwise adversely affected.
Our approach to the discovery and development of product candidates is unproven, and we may not be successful in our efforts to use and further develop our product engine to expand our pipeline of product candidates with commercial value.
We may attempt to secure approval for our product candidates from the U.S. Food and Drug Administration (FDA) or comparable regulatory authorities through the use of accelerated approval pathways, which is uncertain.
If the market opportunities for our product candidates are smaller than we estimate or if any regulatory approval that we obtain is based on a narrower definition of the patient population, it will adversely affect our revenue potential and ability to achieve profitability.
Our success depends in part on our ability to protect our intellectual property and our proprietary products and technologies and obtain, maintain and enforce our intellectual property, as well as our ability to operate without infringing the patents and other proprietary rights of third parties.
We rely, and expect to rely in the future, on third parties, including independent clinical investigators, developers of companion diagnostics, and contract research organizations to conduct certain aspects of our preclinical studies and ongoing and planned clinical trials. We also rely, and expect to rely in the future, on contract manufacturing organizations for the manufacture of our product candidates for preclinical and clinical testing, as well as manufacture of any products that we may commercialize.
Our success is highly dependent on our ability to attract and retain highly-skilled executive officers and employees.
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RISK FACTORS
We have identified the following material factors that make an investment in our common stock speculative or risky. You should carefully consider the risks described below, as well as the other information in this Quarterly Report on Form 10-Q, including our condensed financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before making investment decisions regarding our common stock. The occurrence of any of the events or developments described below could harm our business, financial condition, results of operations and growth prospects. In such an event, the market price of our common stock could decline and you may lose all or part of your investment. The risks described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. We have marked with an asterisk (*) those risk factors that were not included as separate risk factors in, or reflect changes from the similarly titled risk factors included in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the Securities and Exchange Commission (SEC) on March 15, 2023.
Risks Related to Our Financial Condition and Capital Requirements
We have incurred significant net losses since inception, and we expect to incur significant losses over the next several years and may not be able to achieve or sustain revenues or profitability in the future.*
Investment in biopharmaceutical product development is a highly speculative undertaking and entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate efficacy or an acceptable safety profile, gain regulatory approval and become commercially viable. We have no products approved for commercial sale and have not generated any revenue from product sales to date, and we will continue to incur significant research and development and other expenses related to our ongoing operations. We have financed our operations primarily through our IPO and, before that, private placements of our convertible preferred stock and convertible notes.
We have incurred significant net losses in each period since we commenced operations in June 2017. For the three months ended September 30, 2023 and 2022, we reported net losses of $31.4 million and $32.3 million, respectively. As of September 30, 2023, we had an accumulated deficit of $483.5 million. We expect to continue to incur significant losses for the foreseeable future, and we expect these losses to increase substantially if and as we:
conduct preclinical studies and clinical trials for our current and future product candidates;
continue our research and development efforts, submit INDs and clinically develop our product candidates;
seek marketing approvals for any product candidates that successfully complete clinical trials;
experience any delays or encounter any issues with any of the above, including but not limited to failed studies, negative or mixed clinical trial results, safety issues or other regulatory challenges, the risk of which in each case may be exacerbated by a health epidemic or pandemic;
establish a sales, marketing and distribution infrastructure and establish manufacturing capabilities, whether alone or with third parties, to commercialize product candidates for which we may obtain regulatory approval, if any;
obtain, expand, maintain, enforce and protect our intellectual property portfolio; and
hire additional clinical, regulatory and scientific personnel.
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Because of the numerous risks and uncertainties associated with biopharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses we will incur or when, if ever, we will be able to achieve profitability. Even if we succeed in commercializing one or more of our product candidates, we will continue to incur substantial research and development and other expenditures to develop, seek regulatory approval for and potentially market our product candidates. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability, if ever, to generate revenue from our product candidates. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders’ equity (deficit) and working capital.
We have not generated any revenue from our product candidates and may never be profitable.
Our ability to become profitable depends upon our ability to generate revenue. To date, we have not generated any revenue from any of our product candidates. We do not expect to generate significant revenue unless or until we successfully complete clinical development and obtain regulatory approval of, and then successfully commercialize, our product candidates. Lanraplenib and KB-0742 are our only product candidates in the clinical stage of development. In addition, all of our product candidates will require additional clinical development, regulatory review and approval, substantial investment, access to sufficient commercial manufacturing capacity and significant marketing efforts before we can generate any revenue from product sales. Our ability to generate revenue from our product candidates depends on a number of factors, including, but not limited to:
timely completion of our preclinical studies and ongoing and planned clinical trials, which may be significantly slower or cost more than we currently anticipate and will depend substantially upon the performance of third-party contractors;
our ability to complete IND-enabling studies and successfully submit and receive authorizations to proceed under INDs or comparable applications;
whether we are required by the FDA or similar foreign regulatory authorities to conduct additional clinical trials or other studies beyond those planned to support the potential approval and commercialization of our product candidates or of any future product candidates;
our ability to demonstrate to the satisfaction of the FDA and similar foreign regulatory authorities the safety, potency, purity, efficacy and acceptable risk-benefit profile of our product candidates or any future product candidates and such regulatory authorities’ acceptance of our biomarker-driven development strategy (i.e., our pursuit of approval based on a biomarker rather than a specific cancer indication);
the prevalence, duration and severity of potential side effects or other safety issues experienced with our product candidates or future product candidates, if any;
the timely receipt of necessary marketing approvals from the FDA and similar foreign regulatory authorities;
the willingness of physicians, operators of clinics and patients to utilize or adopt any of our product candidates or future product candidates over or to use in combination with alternative or more established therapies, such as intensive chemotherapy and hypomethylating agents (HMAs), to treat AML and MYC-amplified solid tumors and other transcriptionally addicted cancers;
the actual and perceived availability, cost, risk profile and side effects and efficacy of our product candidates, if approved, relative to existing and future alternative cancer therapies and competitive product candidates and technologies;
our ability and the ability of third parties with whom we contract to manufacture adequate clinical and commercial supplies of our product candidates or any future product candidates, remain in good standing with regulatory authorities and develop, validate and maintain commercially viable manufacturing processes that are compliant with current good manufacturing practices (cGMPs);
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our ability to successfully develop a commercial strategy and thereafter commercialize our product candidates or any future product candidates in the United States and internationally, if approved for marketing, reimbursement, sale and distribution in such countries and territories, whether alone or in collaboration with others;
patient demand for our product candidates and any future product candidates, if approved; and
our ability to establish and enforce intellectual property rights in and to our product candidates or any future product candidates.
Many of the factors listed above are beyond our control and could cause us to experience significant delays or prevent us from obtaining regulatory approvals or commercializing any of our product candidates. Even if we are able to commercialize our product candidates, we may not achieve profitability soon after generating product sales, if ever. If we are unable to generate sufficient revenue through the sale of our product candidates or any future product candidates, we may be unable to continue operations without continued funding.
We will need substantial additional funding. If we are unable to raise capital when needed, we would be compelled to delay, reduce or eliminate our product development programs or commercialization efforts.*
We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we progress our ongoing clinical trials and commence our planned clinical trials and any other future clinical trials, and continue our discovery and preclinical development activities to identify new product candidates, and seek marketing approval for, our product candidates. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations, and we may need to raise additional funding sooner than expected if we choose to expand more rapidly than we presently anticipate. We cannot be certain that additional funding will be available on acceptable terms, or at all. Further, geopolitical events such as the war between Russia and Ukraine (and responses by the United States and certain other countries, including significant sanctions and trade actions against Russia), the war between Israel and Hamas and risk of larger conflict, inflation, high interest rates, bank failures, or a health epidemic or pandemic, could adversely affect the economy and financial markets in general and our ability to raise additional capital. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of public or private equity offerings, debt financings, collaborations, strategic partnerships and alliances or marketing, distribution or licensing arrangements with third parties. If we are unable to raise capital when needed or on acceptable terms, we would be forced to delay, reduce or eliminate our discovery, preclinical and clinical development programs or any future commercialization efforts.
We had cash, cash equivalents, and investments of $198.4 million as of September 30, 2023. We believe that, based upon our current operating plan, our existing capital resources will enable us to fund our planned operating expenses and capital expenditure requirements into 2026. However, we have based this estimate on our current development plans and assumptions that may prove to be wrong. Additionally, changing circumstances may cause us to consume capital significantly faster than we currently anticipate, and we may need to spend more money than currently expected because of circumstances beyond our control, including as a result of global supply chain issues, inflation, high interest rates, bank failures, or a health epidemic or pandemic. In any event, our future capital requirements will depend on many factors, including:
the scope, progress, results and costs of our ongoing Phase 1/2 clinical trial of KB-0742;
the scope, progress, results and costs of our ongoing Phase 1b/2 clinical trial of lanraplenib;
the scope, progress, results and costs of discovery, preclinical development and clinical trials for our other product candidates;
the costs, timing and outcome of regulatory review of our product candidates and any required companion diagnostic;
the extent to which we develop, in-license or acquire other pipeline product candidates or technologies;
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the costs of future commercialization activities, including product sales, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval;
the costs associated with completing any post-marketing studies or trials required by the FDA or other regulatory authorities;
revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval;
the costs of preparing, filing and prosecuting patent applications, obtaining, maintaining, enforcing and protecting our intellectual property rights and defending intellectual property-related claims; and
to the extent we pursue strategic collaborations, including collaborations to commercialize any of our product candidates or any companion diagnostic collaborations, our ability to establish and maintain collaborations on favorable terms, if at all.
We will require additional capital to complete our clinical development programs for our current product candidates to obtain regulatory approval. Any additional capital-raising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our current and future product candidates, if approved.
Our recently announced corporate restructuring to optimize our resource allocation and contain costs may not have the benefits we expect.*
In November 2023, we announced corporate restructuring plans designed to optimize our resource allocation and contain costs. In connection with the restructuring plans, we reduced our workforce by approximately 19%. The reduction in workforce may yield unintended consequences and costs, such as the loss of institutional knowledge and expertise, attrition beyond our intended workforce reduction, a decrease in morale among our remaining employees, and the risk that we may not achieve the anticipated benefits, all of which may have an adverse effect on our results of operations or financial condition. In addition, while positions have been eliminated, certain functions necessary to our reduced operations will remain, and we may be unsuccessful in distributing the duties and obligations of departed employees among our remaining employees. We may also discover that the reductions in workforce and cost cutting measures will make it difficult for us to pursue new opportunities, hire new employees, complete initiatives and require us to hire qualified replacement personnel, which may result in us incurring additional and unanticipated costs and expenses. Our failure to successfully accomplish any of the above activities and goals may have a material adverse impact on our business, financial condition, results of operations and ability to successfully develop our current and future product candidates.
Risks Related to the Discovery and Development of our Product Candidates
We have a limited operating history and face significant challenges and will incur substantial expenses as we build our capabilities.*
We were incorporated in June 2017 and acquired certain rights to lanraplenib and other orally bioavailable small molecule SYK inhibitors from Gilead in July 2020. We have a limited operating history and are subject to the risks inherent in a growing company, including, among other things, risks that we may not be able to hire sufficient qualified personnel and establish operating controls and procedures. We currently do not have complete in-house resources to enable our operations. As we continue to build our capabilities, we expect to encounter risks and uncertainties frequently experienced by growing companies in new and rapidly evolving fields. If we are unable to continue to build our capabilities, our operating and financial results could differ materially from our expectations, and our business could suffer.
We cannot be certain that the clinical trials of our product candidates, including our ongoing Phase 1/2 clinical trial of KB-0742, our only internally generated product candidate, and our Phase 1b/2 clinical trial of lanraplenib will be completed when we currently expect, or at all.
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We may not realize the benefits of our asset acquisition from Gilead or any future acquisitions or strategic transactions.*
In the third quarter of 2020, we completed the transfer from Gilead of a portfolio of selective, orally bioavailable small molecule SYK inhibitors, including entospletinib and lanraplenib. After a review of enrollment, we made the decision to close our Phase 3 trial of entospletinib to further enrollment in the fourth quarter of 2022. In this assessment, we projected significant delays due to several factors, including the operational challenges we faced enrolling a genetically defined subset of patients in the frontline setting, the impacts of COVID-19 on clinical trial site staffing and the loss of access to planned clinical trial sites in Ukraine and Russia. Patients who had already enrolled in the Phase 3 study were able to complete their course of treatment.
In addition, we may acquire other businesses, products or technologies as well as pursue joint ventures or investments in complementary businesses. The success of our SYK portfolio acquisition from Gilead, and any future acquisitions or strategic transactions depends on the risks and uncertainties involved including, but not limited to, the following:
unanticipated liabilities related to acquired assets, companies or joint ventures;
difficulties integrating acquired personnel, technologies and operations into our existing business;
retention of key employees;
diversion of management time and focus from operating our business to management of strategic alliances or joint ventures or acquisition integration challenges;
increases in our expenses and reductions in our cash available for operations and other uses;
disruption in our relationships with collaborators or suppliers as a result of such a transaction; and
possible write-offs or impairment charges relating to acquired assets, businesses or joint ventures.
If any of these risks or uncertainties occur, we may not realize the anticipated benefit of any acquisition or strategic transaction. Additionally, foreign acquisitions and joint ventures are subject to additional risks, including those related to integration of operations across different cultures and languages, currency risks, potentially adverse tax consequences of overseas operations and the particular economic, political and regulatory risks associated with specific countries.
Future acquisitions or dispositions could also result in potentially dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities or amortization expenses or write-offs of goodwill, any of which could harm our financial condition.
Our discovery and development activities are focused on novel cancer therapeutics for patients with genetically-defined cancers and it is difficult to predict the time and cost of product candidate development and the likelihood of obtaining regulatory approval.*
The discovery and development of novel cancer therapeutics by targeting dysregulated transcription using a biomarker-driven precision medicine strategy is an emerging field, and the scientific discoveries that form the basis for our efforts to discover and develop product candidates are relatively new. The scientific evidence to support the feasibility of developing product candidates based on these discoveries is both preliminary and limited. Although we believe, based on our preclinical work, and the data for lanraplenib and entospletinib generated in clinical trials conducted by Gilead, the TRNs targeted by our programs drive oncogenic activity, future clinical results may not confirm this hypothesis or may only confirm it for certain mutations or certain tumor types. The patient populations for our product candidates are limited to those with cancers that exhibit specific target mutations that we believe serve as a genomic biomarker of transcription factor dysregulation, and may not be completely defined but are substantially smaller than the general treated cancer population. We will need to screen and identify those patients who have the targeted mutations. Successful identification of patients is dependent on several factors, including achieving certainty as to how specific genetic alterations respond to our product candidates and developing or otherwise obtaining access to satisfactory companion diagnostics to identify such genetic alterations. Furthermore, even if we are successful in identifying patients, we cannot be certain that the resulting patient populations for each mutation will be large enough to allow us to successfully obtain approval
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for each mutation type and commercialize our products and achieve profitability. In any event, we do not know if our approach of treating patients with genetically defined cancers will be successful, and if our approach is unsuccessful, our business will suffer and you may lose all or part of your investment.
In addition, in some of our development programs, we are pursuing a biomarker-driven development strategy (i.e., pursuing regulatory approval based on efficacy of our product candidates in a biomarker-defined subset of patients with a specific cancer indication, rather than all such patients who suffer from a specific cancer indication). There are currently a limited number of approved biomarker-specific therapies. We may not receive approval for a biomarker-specific indication or may be delayed in receiving biomarker-specific approval.
We may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.*
We are unable to predict when or if our products candidates will prove effective or safe in humans or will obtain marketing approval. Before obtaining marketing approval from regulatory authorities for the sale of any product candidate, we must complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain. A failure of one or more clinical trials can occur at any stage of testing. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim or preliminary results of a clinical trial do not necessarily predict final results. It is not uncommon to observe results in clinical trials that are unexpected based on preclinical studies and early clinical trials, and many product candidates fail in clinical trials despite very promising early results. Moreover, preclinical and clinical data may be susceptible to varying interpretations and analyses. A number of companies in the biopharmaceutical and biotechnology industries have suffered significant setbacks in clinical development even after achieving promising results in earlier studies.
We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to obtain marketing approval or commercialize our product candidates, including:
regulators or institutional review boards (IRBs)/ethics committees (ECs) may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
we may experience delays in reaching, or fail to reach, agreement on acceptable clinical trial contracts with prospective trial sites;
clinical trials for our product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials, delay clinical trials or abandon product development programs;
the number of patients required for clinical trials for our product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate, participants may drop out of these clinical trials at a higher rate than we anticipate or the duration of these clinical trials may be longer than we anticipate;
competition for clinical trial participants from investigational and approved therapies may make it more difficult to enroll patients in our clinical trials;
third-party collaborators may undergo a change of control, thus delaying progression of a clinical trial;
we or potential future third-party collaborators may fail to obtain the clearance or approval of any required companion diagnostic on a timely basis, or at all;
our third-party contractors, including those developing companion diagnostic tests, may fail to meet their contractual obligations to us in a timely manner, or at all, or may fail to comply with regulatory requirements;
we may have to suspend or terminate clinical trials for our product candidates for various reasons, including a finding that the participants are being exposed to unacceptable health risks;
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our product candidates may have undesirable or unexpected side effects or other unexpected characteristics, causing us or our investigators, regulators or IRBs/ECs to suspend or terminate the trials;
the cost of clinical trials for our product candidates may be greater than we anticipate;
the supply or quality of our product candidates or other materials necessary to conduct clinical trials for our product candidates may be insufficient or inadequate and result in delays or suspension of our clinical trials; and
we or potential future third-party collaborators may fail to receive regulatory approval of a companion diagnostic for one or more of our product candidates, or for use with a marketed product.
Our product development costs will increase if we experience delays in preclinical studies or clinical trials or in obtaining marketing approvals. We do not know whether any of our planned preclinical studies or clinical trials will begin on a timely basis or at all, will need to be restructured or will be completed on schedule, or at all. The FDA has substantial discretion in the approval process and may decide that our data is insufficient for approval or insufficient to proceed to a pivotal clinical trial, and the FDA may require additional preclinical, clinical or other studies. Furthermore, we may encounter delays or rejections based upon changes in policy, which could cause delays in the clinical development of our product candidates. For example, the FDA launched Project Optimus as an initiative to reform the dose optimization and dose selection paradigm in oncology drug development. Project Optimus was driven by the FDA’s concerns that the current paradigm for dose selection may result in doses and schedules of molecularly targeted therapies that are inadequately characterized before initiating pivotal trials. In support of this initiative, the FDA may request sponsors of oncology product candidates to conduct dose optimization studies or may request other data or studies pre- or post-approval. If the FDA does not believe we have sufficiently demonstrated that the selected doses for our product candidates maximize, not only the efficacy of the product candidate, but the safety and tolerability as well, our ability to complete existing trials or initiate new trials may be delayed. Even if we conduct any additional studies or generate any additional information requested by the FDA, the FDA could disagree that we have satisfied their requirements, all of which could cause significant delays and expense to our programs.
Significant preclinical or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our product candidates and may harm our business and results of operations.
Any delays in the commencement or completion, or termination or suspension, of our planned or future clinical trials could result in increased costs to us, delay or limit our ability to generate revenue and adversely affect our commercial prospects.*
Before we can initiate clinical trials of a product candidate in any indication, we must submit the results of preclinical studies to the FDA along with other information, including information about the product candidate’s chemistry, manufacturing and controls and our proposed clinical trial protocol, as part of an IND or similar regulatory submission under which we must receive authorization to proceed with clinical development.
Before obtaining marketing approval from the FDA of any product candidate in any indication, we must conduct extensive clinical studies to demonstrate safety and efficacy. Clinical testing is expensive, time consuming and uncertain as to outcome. In addition, we expect to rely in part on preclinical, clinical and quality data generated by our CROs and other third parties for regulatory submissions for our product candidates. While we have or will have agreements governing these third parties’ services, we have limited influence over their actual performance. If these third parties do not make data available to us, or, if applicable, make regulatory submissions in a timely manner, in each case pursuant to our agreements with them, our development programs may be significantly delayed and we may need to conduct additional studies or collect additional data independently. In either case, our development costs would increase. We are required to submit an IND to the FDA, which must be cleared prior to initiating any clinical trials in the United States, for our preclinical product candidates.
The FDA may require us to conduct additional preclinical studies for any product candidate before it allows us to initiate clinical trials under any IND, which may lead to additional delays and increase the costs of our preclinical development programs.
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Any delays in the commencement or completion of our planned or future clinical trials could significantly affect our product development costs. We do not know whether our planned trials will begin on time or be completed on schedule, if at all. The commencement and completion of clinical trials can be delayed for a number of reasons, including delays related to:
obtaining FDA or foreign regulatory authority authorization to commence a clinical trial or reaching a consensus with the FDA or a foreign regulatory authority on clinical trial design;
failing to obtain regulatory clearance or approval of companion diagnostics we may use to identify patients for enrollment in or test the possible effects of our product candidates in patients enrolled in our clinical trials;
any failure or delay in reaching an agreement with CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
obtaining approval from one or more IRBs/ECs;
IRBs/ECs refusing to approve, suspending or terminating the trial at an investigational site, precluding enrollment of additional subjects, or withdrawing their approval of the trial;
changes to clinical trial protocol;
clinical sites deviating from trial protocol or dropping out of a trial;
failing to manufacture or obtain sufficient quantities of product candidate or, if applicable, combination therapies for use in clinical trials;
patients failing to enroll or remain in our trial at the rate we expect, or failing to return for post-treatment follow-up, including patients failing to remain in our trials due to movement restrictions, health reasons or contraction of or concerns associated with an infectious disease;
patients choosing an alternative treatment, or participating in competing clinical trials;
lack of adequate funding to continue the clinical trial;
patients experiencing severe or unexpected drug-related adverse effects;
occurrence of serious adverse events in trials of the same class of agents conducted by other companies;
selecting or being required to use clinical end points that require prolonged periods of clinical observation or analysis of the resulting data;
a facility manufacturing our product candidates or companion diagnostics or any of their components being ordered by the FDA or applicable foreign regulatory authorities to temporarily or permanently shut down due to violations of cGMP regulations or other applicable requirements, or infections or cross-contaminations of product candidates in the manufacturing process;
interruptions to operations of clinical sites, manufacturers, suppliers, or other vendors from geopolitical events, such as the war between Russia and Ukraine, or from the war between Israel and Hamas and risk of a larger conflict.
any changes to our manufacturing process that may be necessary or desired;
third-party clinical investigators losing the licenses or permits necessary to perform our clinical trials, not performing our clinical trials on our anticipated schedule or consistent with the clinical trial protocol, good clinical practices (GCP) or other regulatory requirements;
us, or our third-party contractors not performing data collection or analysis in a timely or accurate manner or improperly disclosing data prematurely or otherwise in violation o