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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, 2024


☐	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: 001-40192

Longboard Pharmaceuticals, Inc.

(Exact Name of Registrant as Specified in its Charter)


Delaware	84-5009619
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
4275 Executive Square, Suite 950 La Jolla, CA	92037
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (858) 789-9283

Securities registered pursuant to Section 12(b) of the Act:

    Title of each class

    Trading
Symbol(s)

    Name of each exchange on which registered

    Common stock, par value $0.0001 per share

    LBPH

    The Nasdaq Global Market

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

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 ☐ No ☒

As of November 5, 2024, the registrant had 39,045,703 shares of common stock, $0.0001 par value per share, outstanding, comprised of 34,436,203 shares of voting common stock, $0.0001 par value per share, and 4,609,500 shares of non-voting common stock, $0.0001 par value per share.

Table of Contents


		Page
	SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS	1
	SUMMARY OF RISKS ASSOCIATED WITH OUR BUSINESS	3

PART I.	FINANCIAL INFORMATION	5
Item 1.	Financial Statements (Unaudited)	5
	Condensed Balance Sheets	5
	Condensed Statements of Operations and Comprehensive Loss	6
	Condensed Statements of Cash Flows	7
	Notes to Unaudited Condensed Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	30

PART II.	OTHER INFORMATION	31
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	79
Item 3.	Defaults Upon Senior Securities	79
Item 4.	Mine Safety Disclosures	79
Item 5.	Other Information	79
Item 6.	Exhibits	80
Signatures		81

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this Quarterly Report) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), that involve substantial risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements, which speak only as of the date they are made and are not guarantees of future performance. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “consider,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would” or the negative or plural of these words or other comparable terminology. These forward-looking statements generally relate to future events or our future financial or operating results and may include, but are not limited to, statements about:

•

the pending transaction with H. Lundbeck A/S, announced on October 14, 2024;

•

our plans to research, develop and commercialize our product candidates;

•

the initiation, progress, success, cost and timing of our clinical trials and product development activities;

•

the therapeutic potential of our product candidates, and the disease indications for which we intend to develop our product candidates;

•

our ability and timing to advance our product candidates into, and to successfully initiate, conduct, enroll and complete, clinical trials;

•

our ability to obtain approval by any regulatory authority for marketing of our product candidates;

•

our ability to manufacture our product candidates for clinical development and, if approved, for commercialization, and the timing and costs of such manufacture;

•

the performance of third parties in connection with the development and manufacture of our product candidates, including third parties conducting our clinical trials as well as third-party suppliers and manufacturers;

•

our ability to obtain funding for our operations, including funding necessary to initiate and complete clinical trials of our product candidates;

•

the size and growth of the potential markets for our product candidates and our ability to serve those markets;

•

the potential scope, duration and value of our intellectual property rights;

•

our ability, and the ability of our licensors, to obtain, maintain, defend and enforce intellectual property rights protecting our product candidates, and our ability to develop and commercialize our product candidates without infringing the proprietary rights of third parties;

•

our ability to recruit and retain key personnel; and

•

other risks and uncertainties, including those described under Part II, Item 1A, “Risk Factors” of this Quarterly Report.

Any forward-looking statements in this Quarterly Report reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. 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 report, 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 you are cautioned not to unduly rely upon these statements.

Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A, “Risk Factors” of this Quarterly Report. Given these uncertainties, you should not place undue reliance on these forward-looking statements or rely on forward-looking statements as predictions of future events. Except as required by law, we

assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

Unless the context otherwise indicates, references in this Quarterly Report to the terms, “Longboard,” “the Company,” “we,” “our” and “us” refer to Longboard Pharmaceuticals, Inc. and references to our “common stock” refer to our voting common stock.

SUMMARY OF RISKS ASSOCIATED WITH OUR BUSINESS

An investment in shares of our common stock involves a high degree of risk. Below is a list of the more significant risks associated with our business. This summary does not address all of the risks that we face. Additional discussion of the risks listed in this summary, as well as other risks that we face, are set forth under Part II, Item 1A, “Risk Factors” in this Quarterly Report. Some of the material risks associated with our business include the following:

•

We may not complete the pending transaction with Lundbeck within the timeframe we anticipate, or at all, which could have an adverse effect on our business, financial results, and/or operations;

•

We have a limited operating history, and we have incurred losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future. We may never generate any revenue or become profitable or, if we achieve profitability, we may not be able to sustain it.

•

We will need substantial additional capital to finance our operations, which may not be available on acceptable terms, or at all. The effects of macroeconomic conditions and geopolitical events, including political elections, economic slowdowns, recessions, inflation, high interest rates, bank failures and tightening of credit markets, the conflicts in Ukraine, the Middle East or elsewhere, or otherwise, may limit our access to capital. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate certain of our product development efforts or other operations.

•

All of our product candidates are in the research and development stage; our product candidates may not be approved by any regulatory authority for marketing. All of our other development efforts are in the earlier research stage. If we are unable to advance our product candidates in clinical development, obtain regulatory approval and ultimately commercialize our product candidates, or experience significant delays in doing so, our business will be materially harmed.

•

Clinical and preclinical drug development involves a lengthy and expensive process with an uncertain outcome. Topline data from a clinical trial may not accurately reflect the complete study results and remain subject to audit, and final data may differ materially from topline data. In addition, the results of prior clinical trials and preclinical studies of our product candidates are not necessarily predictive of future results.

•

Because we have multiple product candidates in our pipeline and are considering a variety of target indications, we may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.

•

The regulatory approval processes of the U.S. Food and Drug Administration (FDA) and comparable foreign authorities are lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.

•

Receiving FDA designations, including Breakthrough Therapy designation for bexicaserin for the treatment of seizures associated with developmental and epileptic encephalopathies (DEEs) and Rare Pediatric Disease and Orphan Drug designations for bexicaserin for the treatment of Dravet syndrome, may not lead to a faster development or regulatory review or approval processes, and does not mean bexicaserin will receive marketing approval for any particular indication or at all.

•

If the market opportunities for our product candidates are smaller than we estimate, even assuming approval of a product candidate, our business may suffer. Because the patient populations in the market for our product candidates may be small, we must be able to successfully identify patients and acquire a significant market share to achieve profitability and growth.

•

We currently have a limited number of personnel with marketing and sales experience and have no experience as a company in commercializing products, and we may have to invest significant resources to develop these capabilities. If we are unable to establish adequate marketing and sales capabilities or agreements with third parties to market and sell our products, we may not be able to successfully commercialize our products.

•

We intend to rely on third parties to conduct, supervise and monitor our preclinical studies and clinical trials, and if those third parties perform in an unsatisfactory manner, it may harm our business.

•

The trading price of our common stock may be volatile and impacted by sales of shares by existing stockholders or the issuances of shares by us.

•

We depend on intellectual property licensed from third parties, including Arena Pharmaceuticals, Inc. (Arena), which is now a subsidiary of Pfizer, Inc. (Pfizer), and the failure by us or our licensors to protect the licensed intellectual property or the termination of our license could result in the loss of significant rights, which would harm our business.

•

If we are unable to obtain and maintain patent protection for our current or any future product candidates, or if the scope of the patent protection obtained is not sufficiently broad, we may not be able to compete effectively in our markets.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Longboard Pharmaceuticals, Inc.

Condensed Balance Sheets

(unaudited)


	September 30,			December 31,
(in thousands, except share and per share data)	2024			2023
ASSETS
Current assets:
Cash and cash equivalents	$	27,610		$	14,331
Short-term investments		260,836			34,167
Prepaid expenses and other current assets		4,584			1,723
Total current assets		293,030			50,221
Right-of-use assets		3,731			472
Property and equipment		—			4
Other long-term assets		244			—
Total assets	$	297,005		$	50,697
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	1,132		$	1,001
Accrued research and development expenses		10,896			4,556
Accrued compensation and related expenses		4,163			3,374
Accrued other expenses		1,894			368
Right-of-use liabilities, current portion		267			475
Total current liabilities		18,352			9,774
Right-of-use liabilities, net of current portion		3,467			—
Commitments and contingencies (see Note 9)
Stockholders' equity:
Preferred stock, $0.0001 par value; authorized shares - 10,000,000 at September 30, 2024 and December 31, 2023; issued and outstanding shares - none at September 30, 2024 and December 31, 2023		—			—
Voting common stock, $0.0001 par value; authorized shares - 300,000,000 at September 30, 2024 and December 31, 2023; issued and outstanding shares - 34,419,536 and 22,096,494 at September 30, 2024 and December 31, 2023, respectively		3			2
Non-voting common stock, $0.0001 par value; authorized shares - 10,000,000 at September 30, 2024 and December 31, 2023; issued and outstanding shares - 4,609,500 and 2,420,755 at September 30, 2024 and December 31, 2023, respectively		—			—
Additional paid-in capital		476,358			181,563
Accumulated other comprehensive income (loss)		700			(78	)
Accumulated deficit		(201,875	)		(140,564	)
Total stockholders' equity		275,186			40,923
Total liabilities and stockholders' equity	$	297,005		$	50,697

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

Longboard Pharmaceuticals, Inc.

Condensed Statements of Operations and Comprehensive Loss

(unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except share and per share data)	2024			2023			2024			2023
Operating expenses:
Research and development	$	21,450		$	10,488		$	55,065		$	31,554
General and administrative		6,674			3,094			16,812			9,632
Total operating expenses		28,124			13,582			71,877			41,186
Loss from operations		(28,124	)		(13,582	)		(71,877	)		(41,186	)
Interest income, net		3,655			662			10,693			1,838
Other expense		(71	)		(14	)		(127	)		(41	)
Net loss	$	(24,540	)	$	(12,934	)	$	(61,311	)	$	(39,389	)

Net loss per share, basic and diluted	$	(0.63	)	$	(0.55	)	$	(1.63	)	$	(1.77	)

Weighted-average shares outstanding, basic and diluted		38,957,524			23,487,457			37,724,402			22,299,998

Comprehensive loss:
Net loss	$	(24,540	)	$	(12,934	)	$	(61,311	)	$	(39,389	)
Unrealized gain on short-term investments		1,175			109			778			511
Comprehensive loss	$	(23,365	)	$	(12,825	)	$	(60,533	)	$	(38,878	)

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

Longboard Pharmaceuticals, Inc.

Condensed Statements of Cash Flows

(unaudited)


	Nine Months Ended September 30,
(in thousands)	2024			2023
Cash flows from operating activities:
Net loss	$	(61,311	)	$	(39,389	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		7,934			2,394
Depreciation		4			4
Accretion of premiums on investments, net		(7,332	)		(575	)
Changes in operating assets and liabilities:
Prepaid expenses and other assets		(2,985	)		(185	)
Accounts payable		131			(946	)
Accrued research and development expenses		6,340			(516	)
Accrued compensation and related expenses		789			(620	)
Accrued other expenses		1,527			(5	)
Operating right-of-use assets and lease liabilities, net		—			(2	)
Net cash used in operating activities		(54,903	)		(39,840	)
Cash flows from investing activities:
Purchases of short-term investments		(415,959	)		(53,056	)
Maturities of short-term investments		197,400			78,850
Net cash provided by (used in) investing activities		(218,559	)		25,794
Cash flows from financing activities:
Proceeds from issuance of common stock		301,350			28,960
Payments for offering costs		(15,029	)		(2,001	)
Proceeds from exercise of stock options		664			222
Net cash provided by financing activities		286,985			27,181
Net increase in cash, cash equivalents and restricted cash		13,523			13,135
Cash, cash equivalents and restricted cash at the beginning of the period		14,331			10,775
Cash, cash equivalents and restricted cash at the end of the period	$	27,854		$	23,910

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

Longboard Pharmaceuticals, Inc.

Notes to Unaudited Financial Statements

Note 1. Organization and Basis of Presentation

Description of Business

Longboard Pharmaceuticals, Inc. (the Company), formerly Arena Neuroscience, Inc., was incorporated in the state of Delaware on January 3, 2020, and is based in La Jolla, California. The Company was organized and initially wholly owned by Arena Pharmaceuticals, Inc. (Arena), until the closing of its Series A convertible preferred stock (Series A Preferred Stock) financing in October 2020. The Company is a clinical-stage biopharmaceutical company focused on developing novel, transformative medicines for neurological diseases. The Company’s most advanced product candidate, bexicaserin (LP352), is a serotonin receptor superagonist that is being developed for the treatment of seizures associated with developmental and epileptic encephalopathies (DEEs) and is currently in a global Phase 3 program, the DEEp Program. The FDA has granted the Company Breakthrough Therapy designation for bexicaserin for the treatment of seizures associated with DEEs for patients two years of age or older and Rare Pediatric Disease and Orphan Drug designations for bexicaserin for the treatment of Dravet syndrome.

Agreement and Plan of Merger

On October 14, 2024, the Company entered into an Agreement and Plan of Merger (the Merger Agreement) with H. Lundbeck A/S (Parent), Lundbeck LLC, an indirect wholly owned subsidiary of Parent (Payor), and Langkawi Corporation, a wholly owned subsidiary of Payor (Purchaser, and together with Parent and Payor, Lundbeck). Refer to Note 11, Subsequent Events, for more information.

Basis of Presentation

The Company’s unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and applicable regulations of the U.S. Securities and Exchange Commission (SEC). Accordingly, the accompanying unaudited condensed financial statements do not include all of the information and notes required by GAAP for complete financial statements. The unaudited condensed financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results for the periods presented. All such adjustments are of a normal and recurring nature. The balance sheet as of December 31, 2023 has been derived from the audited financial statements at that date but does not include all information and notes required by GAAP for complete financial statements. The operating results presented in these unaudited condensed financial statements are not necessarily indicative of the results that may be expected for any future periods. The Company’s unaudited condensed financial statements should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed on March 12, 2024.

Liquidity and Capital Resources

Since its inception, the Company has devoted substantially all of its resources to research and development (R&D) activities, organizing and staffing, business planning, raising capital, in-licensing intellectual property rights and establishing its intellectual property portfolio, and providing general and administrative (G&A) support for these operations, and has funded its operations primarily with the net proceeds from the issuance of equity. The Company has incurred losses and negative cash flows from operations since commencement of its operations. The Company had an accumulated deficit of $201.9 million and $140.6 million as of September 30, 2024 and December 31, 2023, respectively.

Management expects the Company will incur substantial operating losses for the foreseeable future in order to complete preclinical studies and clinical trials, seek regulatory approval, and launch and commercialize any product candidates for which it receives regulatory approval. The Company will need to raise additional capital through public or private equity or debt financings or other capital sources, including potential collaborations, licenses and other similar arrangements.

As of September 30, 2024, the Company had available cash, cash equivalents and short-term investments of $288.4 million and working capital of $274.7 million to fund future operations. Management believes that its capital resources as of September 30, 2024 will be sufficient to fund the Company’s operations for at least 12 months after the date these unaudited condensed financial statements are issued.

Note 2. Summary of Significant Accounting Policies

Use of Estimates

The Company’s financial statements are prepared in accordance with GAAP. The preparation of the Company’s financial statements requires the Company to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in the financial statements and accompanying notes. Such estimates include the accrual of R&D expenses and stock-based compensation. Management evaluates its estimates on an ongoing basis. Estimates are based on the Company’s historical experience, knowledge of current events and actions it may undertake in the future, and actual results may materially differ from these estimates and assumptions.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to significant concentration of credit risk consist of cash, cash equivalents and short-term investments. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits and invests in short-term investments with the primary objectives of seeking to preserve principal, achieve liquidity requirements and safeguard funds. Management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held and the nature, including the credit-ratings, of its short-term investments, but we have not eliminated all credit risk.

Comprehensive Loss

Comprehensive loss is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources, including unrealized gains and losses on short-term investments.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. Cash and cash equivalents include cash in readily available checking accounts, money market funds, corporate debt securities, and obligations of U.S. government-sponsored enterprises. The carrying amounts reported in the unaudited condensed balance sheets for cash and cash equivalents are valued at cost, which approximates fair value. The following table provides a reconciliation of the components of cash, cash equivalents and restricted cash reported in the condensed balance sheets to the total of the amount presented in the condensed statements of cash flows:


	September 30,		December 31,
(in thousands)	2024		2023
Cash and cash equivalents	$	27,610	$	14,331
Restricted cash included in other long-term assets		244		—
Total cash, cash equivalents and restricted cash presented in the condensed statements of cash flows	$	27,854	$	14,331

The restricted cash relates to deposits for the Company’s office lease. The deposit will be reduced to $90,000 on January 1, 2027 as long as there are no defaults under the lease, and the remaining restriction will lapse when the lease expires on December 31, 2030.

Short-Term Investments

Short-term investments primarily consist of commercial paper, corporate debt securities, and government and agency bonds. The Company has classified these investments as available-for-sale securities, as the sale of such investments may be required prior to maturity to implement management strategies, and therefore has classified all investments with maturity dates beyond three months at the date of purchase as current assets in the accompanying unaudited balance sheets. Any premium or discount arising at purchase is amortized and/or accreted to interest income as an adjustment to yield using the straight-line method over the life of the instrument. Investments are reported at their estimated fair value. Unrealized gains and losses are included in accumulated other comprehensive loss as a component of stockholders' equity until realized.

R&D Expenses

R&D expenses are expensed in the periods in which they are incurred. External expenses consist primarily of payments to contract research organizations, outside consultants and other third parties in connection with the Company’s research, preclinical and clinical activities, process development, manufacturing activities, regulatory and other services. Certain R&D external expenses are recognized based on an evaluation of the progress to completion of specific tasks using information provided to the Company by its

service providers or the estimate of the level of service that has been performed at each reporting date. R&D expenses amounted to $21.5 million, $55.1 million, $10.5 million and $31.6 million for the three and nine months ended September 30, 2024 and 2023, respectively.

Stock-Based Compensation

Stock-based awards are measured at fair value and compensation expense is recognized over the requisite service period. Forfeitures are accounted for in the period they occur. The Company determines the fair value of each stock-based award on the date of grant using the Black-Scholes option pricing model which requires the input of subjective assumptions, including price volatility of the underlying stock, risk-free interest rate, dividend yield, and expected term of the option.

Leases

The Company determines if an arrangement is a lease or contains lease components at inception. Lease terms are determined at the commencement date by considering whether renewal options and termination options, if any, are reasonably assured of exercise. For long-term operating leases, the Company recognizes a lease liability and a right-of-use (ROU) asset on its balance sheets and recognizes lease expense on a straight-line basis over the lease term. The lease liability is determined as the present value of future lease payments using the discount rate implicit in the lease or, if the implicit rate is not readily determinable, an estimate of the Company’s incremental borrowing rate. The ROU asset is based on the lease liability, adjusted for any prepaid or deferred rent. The Company only has operating leases and does not have any financing leases.

Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock and potentially dilutive securities outstanding for the period. Since the Company had a net loss in each of the periods presented, basic and diluted net loss per share of common stock are the same.

The table below provides potentially dilutive securities not included in the calculation of the diluted net loss per share as it would be anti-dilutive:


	Nine Months Ended September 30,
	2024		2023
Options to purchase common stock		6,114,166		3,888,920
Restricted stock awards, issued but unvested		201,370		—
Total		6,315,536		3,888,920

Recent Accounting Pronouncements

The Company does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on our condensed financial statements.

Note 3. Fair Value Measurements

The accounting guidance 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 defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. 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. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1 — Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2 — Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 — Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

The following table summarizes the Company's financial instruments measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023.


			Fair Value Measurements at Reporting Date Using
(in thousands)	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
As of September 30, 2024
Assets:
Money market funds	$	24,408	$	24,408	$	—	$	—

Commercial paper	$	30,112	$	—	$	30,112	$	—
Corporate debt securities		94,407		—		94,407		—
Government and agency securities		136,317		131,289		5,028		—
Total assets measured at fair value	$	285,244	$	155,697	$	129,547	$	—

As of December 31, 2023
Assets:
Money market funds	$	11,196	$	11,196	$	—	$	—

Commercial paper	$	16,806	$	—	$	16,806	$	—
Corporate debt securities		4,256		—		4,256		—
Government and agency securities		13,105		13,105		—		—
Total assets measured at fair value	$	45,363	$	24,301	$	21,062	$	—

Note 4. Short-Term Investments

The following table summarizes short-term investments:


	As of September 30, 2024
			Unrealized
(in thousands)	Amortized Cost		Gains		Losses			Estimated Fair Value
Commercial paper	$	30,106	$	17	$	(11	)	$	30,112
Corporate debt securities		94,089		332		(14	)		94,407
Government and agency securities		135,941		382		(6	)		136,317
Total short-term investments	$	260,136	$	731	$	(31	)	$	260,836

	As of December 31, 2023
			Unrealized
(in thousands)	Amortized Cost		Gains		Losses			Estimated Fair Value
Commercial paper	$	16,813	$	—	$	(7	)	$	16,806
Corporate debt securities		4,277		—		(21	)		4,256
Government and agency securities		13,155		2		(52	)		13,105
Total short-term investments	$	34,245	$	2	$	(80	)	$	34,167

The following table summarizes the maturities of the Company's short-term investments at September 30, 2024:


(in thousands)	Amortized Cost		Estimated Fair Value
Due in one year or less	$	241,737	$	242,272
Due in one to two years		18,399		18,564
Total short-term investments	$	260,136	$	260,836

The following table shows the Company’s available-for-sale investments’ gross unrealized losses and fair value aggregated by investment category and length of time that individual securities have been in a continuous loss position, at September 30, 2024 and December 31, 2023:


	As of September 30, 2024
	Less than 12 months							More than 12 months							Total
(in thousands)	Count		Fair Value		Unrealized Losses			Count		Fair Value		Unrealized Losses			Count		Fair Value		Unrealized Losses
Commercial paper		5	$	16,809	$	(11	)		—	$	—	$	—			5	$	16,809	$	(11	)
Corporate debt securities		4		13,860		(14	)		—		—		—			4		13,860		(14	)
Government and agency securities		1		5,028		(6	)		—		—		—			1		5,028		(6	)
		10	$	35,697	$	(31	)		—	$	—	$	—			10	$	35,697	$	(31	)

	As of December 31, 2023
	Less than 12 months							More than 12 months							Total
(in thousands)	Count		Fair Value		Unrealized Losses			Count		Fair Value		Unrealized Losses			Count		Fair Value		Unrealized Losses
Commercial paper		8	$	16,806	$	(7	)		—	$	—	$	—			8	$	16,806	$	(7	)
Corporate debt securities		—		—		—			3		4,256		(21	)		3		4,256		(21	)
Government and agency securities		—		—		—			2		3,149		(52	)		2		3,149		(52	)
		8	$	16,806	$	(7	)		5	$	7,405	$	(73	)		13	$	24,211	$	(80	)

The Company reviews its investments to identify and evaluate investments that have an indication of possible other-than-temporary impairment. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, any changes to the underlying credit risk of the investment, and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. The unrealized losses in the Company’s investments were caused by changes in interest rates caused by changing economic conditions, and not from a decline in credit of their underlying issuers. The Company does not generally intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before recovery of their amortized cost basis which may be at maturity. As such, the Company has classified these losses as temporary in nature.

Note 5. Accrued Other Expenses

Accrued other expenses consisted of the following:


	As of
(in thousands)	September 30, 2024		December 31, 2023
Accrued consulting fees	$	685	$	218
Accrued legal and accounting fees		934		40
Accrued travel expenses		133		43
Accrued taxes		30		40
Accrued computer related expenses		46		15
Accrued other		66		12
Total	$	1,894	$	368

Note 6. Stockholders’ Equity

Private Placement

In March 2024, the Company entered into a Non-Voting Common Stock Purchase Agreement (the Agreement) with an investment fund (the Investor) affiliated with Farallon Capital Management, L.L.C. (Farallon), pursuant to which the Company sold and issued 2,850,000 shares of its non-voting common stock to the Investor at a purchase price of $21.00 per share, for aggregate gross proceeds of $59.9 million, in a private placement transaction. Funds affiliated with Farallon have been and continue to be a greater than 5% stockholder in the Company. No discounts, commissions or placement agent fees were payable in connection with the foregoing private placement.

Follow-On Public Offerings

In January 2024, the Company raised $241.5 million in a follow-on public offering. The Company issued and sold 11,500,000 shares of common stock which included 1,500,000 shares of common stock sold pursuant to the full exercise by the underwriters of their option to purchase additional shares, at a public offering price of $21.00 per share. The Company raised $226.5 million in net proceeds from the follow-on public offering after deducting underwriters' commissions of $14.5 million and other expenses of $0.5 million.

In February 2023, the Company raised $23.0 million in a follow-on public offering. The Company issued and sold 5,750,000 shares of common stock which included 750,000 shares of common stock issued pursuant to the over-allotment option granted to the underwriters to purchase additional shares of common stock, at a public offering price of $4.00 per share. The Company raised $21.2 million in net proceeds from the follow-on public offering after deducting underwriters' commissions of $1.4 million and issuance costs of $0.4 million.

Sales Agreement

In September 2022, the Company entered into a Controlled Equity OfferingSM Sales Agreement (the Sales Agreement) with Cantor Fitzgerald & Co., as sales agent (Cantor Fitzgerald), pursuant to which it may issue and sell its common stock from time to time through an “at the market offering” (ATM) program under the Sales Agreement. The Company has no obligation to sell any shares of common stock under the Sales Agreement and may at any time suspend sales under the Sales Agreement. Cantor Fitzgerald will be entitled to compensation in an amount of 3% of the gross proceeds of any shares of common stock sold under the Sales Agreement. In August 2023, the Company filed a prospectus supplement providing for the sale of up to $75.0 million of shares of common stock under the Sales Agreement. The Company sold 1,422,250 shares of its common stock for gross proceeds of $8.8 million during 2023. In March 2024, the Company filed a sales agreement prospectus providing for the sale of up to $150.0 million of

shares of common stock under the Sales Agreement (exclusive of shares sold previously). As of September 30, 2024, no shares of common stock had been sold pursuant to the most recent sales agreement prospectus.

Amended and Restated Certificate of Incorporation

In March 2021, the Company amended and restated the Company’s certificate of incorporation to, among other things, increase the authorized shares of voting common stock, non-voting common stock and preferred stock to 300,000,000 shares, 10,000,000 shares and 10,000,000 shares, respectively.

Voting Common Stock and Non-Voting Common Stock

As of September 30, 2024, the Company had 34,419,536 shares of voting common stock outstanding and 4,609,500 shares of non-voting common stock outstanding. As of December 31, 2023, the Company had 22,096,494 shares of voting common stock outstanding and 2,420,755 shares of non-voting common stock outstanding.

Reconciliation of Changes in Stockholders’ Equity

The following tables document the changes in stockholders' equity for the three and nine months ended September 30, 2024 and 2023 (unaudited):


	Voting Common Stock				Non-Voting Common Stock
(in thousands, except shares)	Number of Shares		Amount		Number of Shares			Amount		Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders' Equity
Balance at December 31, 2023		22,096,494	$	2		2,420,755		$	—	$	181,563		$	(78	)	$	(140,564	)	$	40,923
Issuance of common stock in follow-on public offering		11,500,000		1		—			—		241,499			—			—			241,500
Issuance of non-voting common stock in PIPE financing		—		—		2,850,000			—		59,850			—			—			59,850
Financing related fees		—		—		—			—		(15,088	)		—			—			(15,088	)
Stock-based compensation		—		—		—			—		1,749			—			—			1,749
Stock option exercises		10,996		—		—			—		48			—			—			48
Unrealized loss on short-term investments, net		—		—		—			—		—			(288	)		—			(288	)
Net loss		—		—		—			—		—			—			(14,986	)		(14,986	)
Balance at March 31, 2024		33,607,490	$	3		5,270,755		$	—	$	469,621		$	(366	)	$	(155,550	)	$	313,708
Financing related fees		—		—		—			—		(48	)		—			—			(48	)
Stock-based compensation		—		—		—			—		2,809			—			—			2,809
Stock option exercises		5,809		—		—			—		25			—			—			25
Unrealized loss on short-term investments, net		—		—		—			—		—			(109	)		—			(109	)
Net loss		—		—		—			—		—			—			(21,785	)		(21,785	)
Balance at June 30, 2024		33,613,299	$	3		5,270,755		$	—	$	472,407		$	(475	)	$	(177,335	)	$	294,600
Financing related fees		—		—		—			—		(16	)		—			—			(16	)
Conversion of non-voting common stock to voting common stock		661,255		—		(661,255	)		—		—			—			—			—
Stock-based compensation		—		—		—			—		3,376			—			—			3,376
Stock option exercises		144,982		—		—			—		591			—			—			591
Unrealized gain on short-term investments, net		—		—		—			—		—			1,175			—			1,175
Net loss		—		—		—			—		—			—			(24,540	)		(24,540	)
Balance at September 30, 2024		34,419,536	$	3		4,609,500		$	—	$	476,358		$	700		$	(201,875	)	$	275,186

	Voting Common Stock				Non-Voting Common Stock
(in thousands, except shares)	Number of Shares		Amount		Number of Shares			Amount		Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total Stockholders' Equity
Balance at December 31, 2022		13,585,950	$	1		3,629,400		$	—	$	148,303		$	(692	)	$	(86,142	)	$	61,470
Issuance of common stock in follow-on public offering		5,750,000		1		—			—		21,187			—			—			21,188
Conversion of non-voting common stock to voting common stock		1,208,645		—		(1,208,645	)		—		—			—			—			—
Financing related fees		—		—		—			—		(37	)		—			—			(37	)
Stock-based compensation		—		—		—			—		697			—			—			697
Unrealized gain on short-term investments, net		—		—		—			—		—			271			—			271
Net loss		—		—		—			—		—			—			(11,456	)		(11,456	)
Balance at March 31, 2023		20,544,595	$	2		2,420,755		$	—	$	170,150		$	(421	)	$	(97,598	)	$	72,133
Financing related fees											(46	)								(46	)
Stock-based compensation		—		—		—			—		841			—			—			841
Exercise of stock options		10,014		—		—			—		48			—			—			48
Unrealized gain on short-term investments, net		—		—		—			—		—			131			—			131
Net loss		—		—		—			—		—			—			(14,999	)		(14,999	)
Balance at June 30, 2023		20,554,609	$	2		2,420,755		$	—	$	170,993		$	(290	)	$	(112,597	)	$	58,108
Issuance of common stock in at the market offering		822,250		—		—			—		5,960			—			—			5,960
Financing related fees		—		—		—			—		(229	)		—			—			(229	)
Stock-based compensation		—		—		—			—		856			—			—			856
Exercise of stock options		49,340									174			—			—			174
Unrealized gain on short-term investments, net		—		—		—			—		—			109			—			109
Net loss		—		—		—			—		—			—			(12,934	)		(12,934	)
Balance at September 30, 2023		21,426,199	$	2		2,420,755		$	—	$	177,754		$	(181	)	$	(125,531	)	$	52,044

Note 7. License Agreement with Arena Pharmaceuticals, Inc.

The Company entered into a license agreement (Arena License Agreement), a services agreement, and a royalty purchase agreement in October 2020 with Arena. Arena was purchased by Pfizer in March 2022. The following section summarizes the Arena License Agreement.

Arena License Agreement

Pursuant to the Arena License Agreement, the Company has obtained an exclusive, royalty bearing, sublicensable, worldwide license under certain know-how and patents of Arena to develop and commercialize bexicaserin (LP352) for any use in humans, LP659 for the treatment of developmental, degenerative and autoimmune disease, disorders or conditions of the CNS or peripheral nervous system in humans, and certain other compounds for the treatment of CNS indication in humans (pharmaceutical products containing any such compounds, Licensed Products). Arena has a right of first negotiation to acquire certain development and commercial rights to LP659 products. As consideration for the rights granted to the Company under the Arena License Agreement, the Company will be required to pay to Arena a mid-single digit royalty on net sales of Licensed Products of LP352, and a low single digit royalty on net sales of all other Licensed Products, by the Company, its affiliates or its sublicensees, subject to standard reductions. The Company’s royalty obligations continue on a Licensed Product-by-Licensed Product and country-by-country basis until the later of the (i) tenth anniversary of the first commercial sale of such product in such country or (ii) expiration of the last-to-expire valid claim of the patents licensed by the Company under the Arena License Agreement covering the manufacture, use or sale of such product in such country.

Note 8. Stock-Based Compensation

Equity Incentive Plan

In October 2020, the Company’s board of directors and stockholders approved the 2020 Equity Incentive Plan (2020 Plan), which provided for the grant of incentive stock options, nonstatutory stock options, restricted stock awards, restricted stock unit awards, and stock appreciation rights to its employees, members of its board of directors, and consultants. The Company’s board of directors determined the exercise price, vesting and expiration period of the grants under the 2020 Plan.

The Company's board of directors adopted the 2021 Equity Incentive Plan (2021 Plan) in February 2021 and the Company's stockholders approved the 2021 Plan in March 2021. The 2021 Plan became effective on March 11, 2021. The 2021 Plan is the successor and continuation of the 2020 Plan. No additional awards may be granted under the 2020 Plan and all outstanding awards under the 2020 Plan remain subject to the terms of the 2020 Plan.

In October 2023, the compensation committee of the Company’s board of directors amended the 2021 Plan to incorporate an additional pool of 1,000,000 shares that the Company is authorized to issue to individuals who satisfy the standards for inducement grants under Nasdaq Marketplace Rule 5635(c)(4) and the related guidance under Nasdaq IM 5635-1, including individuals who were not previously an employee or director of the Company or are following a bona fide period of non-employment, in each case as an inducement material to such individual entering into employment with the Company. In May 2024, the compensation committee of the Company’s board of directors further amended the 2021 Plan to increase the inducement grant pool to 2,000,000 shares.

As of September 30, 2024, the 2021 Plan authorizes and provides for the issuance of up to 7,490,192 shares of common stock, which consists of 6,114,166 shares of common stock subject to outstanding options, 201,370 shares of common stock subject to outstanding restricted stock units and 1,174,656 shares of common stock available for grant. The number of shares of common stock reserved for issuance under the 2021 Plan automatically increases on January 1 of each calendar year, through January 1, 2031, in an amount equal to (i) 5% of the total number of shares of common stock outstanding on December 31 of the fiscal year before the date of each automatic increase (determined on an as-converted to voting common stock basis, without regard to any limitations on the conversion of the non-voting common stock), or (ii) a lesser number of shares determined by the Company’s board of directors prior to the applicable January 1. Recipients of stock options are eligible to purchase shares of the Company’s common stock at an exercise price equal to no less than the estimated fair market value of such stock on the date of grant. The maximum term of options granted under the 2020 and 2021 Plans (or collectively, the Equity Plans) is ten years and, in general, the options issued under the Equity Plans vest over a one to four year period from the vesting commencement date.

Stock Award Grants under the Equity Plans

A summary of the Company’s stock option activity is as follows:


	Number of Options Outstanding			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in Years)		Aggregate Intrinsic Value (in thousands)
Balance at December 31, 2023		3,856,819		$	5.10		8.3	$	5,678
Options granted		2,489,014			22.03
Options exercised		(161,787	)		4.10
Options forfeited/cancelled		(69,880	)		16.05
Balance at September 30, 2024		6,114,166		$	11.89		8.3	$	131,625

Vested and expected to vest at September 30, 2024		6,114,166		$	11.89		8.3	$	131,625
Options exercisable at September 30, 2024		2,479,725		$	6.58		7.3	$	66,341

Options exercisable at September 30, 2024 included 2,465,206 vested stock options and 14,519 stock options that are subject to an early exercise provision.

The following table presents the weighted-average assumptions used for the stock option grants for the three and nine months ended September 30, 2024 and 2023, along with the related grant date fair value:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2024			2023			2024			2023
Stock price	$	35.26		$	6.00		$	22.03		$	4.64
Risk-free interest rate		3.76	%		4.41	%		4.17	%		3.83	%
Dividend yield		0.00	%		0.00	%		0.00	%		0.00	%
Expected volatility		83.09	%		78.27	%		83.70	%		77.60	%
Expected life (years)		6.1			6.1			6.0			6.0
Estimated grant date fair value per share of award granted	$	25.66		$	4.25		$	16.11		$	3.22

Determination of Fair Value of Common Stock. The Company utilizes the closing stock price of the common stock on the Nasdaq Global Market as both the exercise price and an input to the Black Scholes option pricing model to determine stock-based compensation expense.

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 similar to the expected term of the awards.

Expected dividend yield. The Company bases the expected dividend yield assumption on the fact that it has never paid cash dividends and has no present intention to pay cash dividends and, therefore, used an expected dividend yield of zero.

Expected volatility. Since the Company is a newly public company and does not have a trading history for its common stock, the expected volatility assumption is based on volatilities of a peer group of similar companies whose share prices are publicly available. The peer group was developed based on companies in the biotechnology industry. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available.

Expected life. The expected life represents the period of time that options are expected to be outstanding. Because the Company does not have historical exercise behavior, it determines the expected life assumption using the simplified method, for employees, which is an average of the contractual term of the option and its vesting period. The expected term for nonemployee options is equal to the contractual term.

A summary of the Company’s restricted stock unit (RSU) activity is as follows:


	Number of RSUs Outstanding			Weighted-Average Grant Date Fair Value
Balance at December 31, 2023		—		$	—
RSUs granted		203,900			22.92
RSUs vested		—			—
RSUs forfeited/cancelled		(2,530	)		19.32
Balance at September 30, 2024		201,370		$	22.97

RSUs vest annually over four years from the grant date.

Stock-Based Compensation Expense

Stock-based compensation expense recognized for all equity awards has been reported in the statements of operations and comprehensive loss as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2024		2023		2024		2023
Research and development	$	1,777	$	388	$	4,007	$	1,130
General and administrative		1,599		468		3,927		1,264
Total	$	3,376	$	856	$	7,934	$	2,394

Total stock-based compensation expense for the three and nine months ended September 30, 2024 included $0.2 million and $0.5 million of expense related to the vesting of RSUs. There was no such expense for the three and nine months ended September 30, 2023. As of September 30, 2024, unrecognized stock-based compensation expense related to outstanding unvested stock option awards and outstanding unvested RSUs was $38.7 million and $4.2 million, respectively, which is expected to be recognized over a remaining weighted-average period of approximately 2.8 years and 3.5 years, respectively.

Employee Stock Purchase Plan

The Company's board of directors adopted the 2021 Employee Stock Purchase Plan (ESPP) in February 2021, the Company's stockholders approved the ESPP in March 2021 and it became effective on March 11, 2021. As of September 30, 2024, the ESPP authorizes the issuance of 942,817 shares of common stock under purchase rights granted to our employees. The number of shares of common stock reserved for issuance automatically increases on January 1 of each calendar year, through January 1, 2031, by the lesser of (i) 1% of the total number of shares of common stock outstanding on the last day of the fiscal year before the date of the automatic increase (determining on an as-converted to voting common stock basis, without regard to any limitations on the conversion of the non-voting common stock); and (ii) such number of shares of common stock that would cause the aggregate number of shares of common stock then reserved for issuance under the ESPP to equal 1,060,017 shares; provided that before the date of any such increase, the Company’s board of directors may determine that such increase will be for a lesser amount of shares. The ESPP permits eligible employees, who elect to participate in an offering under the ESPP, to contribute up to 15% of their eligible earnings (as defined in the ESPP) towards the purchase of shares of common stock. Unless otherwise determined by the Company's board of directors, the price at which stock is purchased under the ESPP is equal to 85% of the fair market value of the Company’s common stock on the commencement date of each offering period or the relevant purchase date, whichever is lower. There are certain service requirements for an employee to be eligible to participate in the ESPP, and no employee may purchase shares under the ESPP at a rate in excess of $25,000 worth of common stock (as determined in accordance with the ESPP). Offering durations under the ESPP may not be longer than 27 months, and the Company may specify shorter purchase periods within each offering. The ESPP is considered a compensatory plan as defined by the authoritative guidance for stock-based compensation. As of September 30, 2024, the ESPP had not yet been implemented.

Note 9. Commitments and Contingencies

Leases

The Company has a lease agreement for office space located at 4275 Executive Square, Suite 950, La Jolla, California 92037 where it was occupying 11,266 square feet. The lease had an expiration date of December 31, 2024. Monthly rent payments for this space under the lease agreement are approximately $44,000.

In February 2024, the Company further amended its lease so that it would occupy all 15,960 square feet on the 9th floor of the building, effective October 1, 2024. The lease expiration was extended from December 31, 2024 to December 31, 2030. Commencing

October 1, 2024, monthly rent payments are approximately $62,000 per month and will increase by approximately 4.5% each year, starting in 2026. The Company has rent abatement for months 2 and 3 of the new lease amendment. A security deposit of approximately $244,000 is included in other long-term assets on the unaudited condensed balance sheet as of September 30, 2024.

For the three and nine months ended September 30, 2024 and 2023, the Company recorded approximately $152,000, $407,000, $103,000 and $309,000, respectively, in rent expense.

The below table provides supplemental cash flow information related to leases as follows (in thousands):


		Nine Months Ended
		September 30, 2024
Cash paid for amounts included in the measurement of lease liabilities:
	Operating cash flows from operating leases	$	364
Right-of-use assets obtained in exchange for lease obligations:
	Operating leases	$	3,603

Supplemental balance sheet information related to leases is as follows (in thousands, except lease term and discount rate):


		September 30, 2024
Operating leases
	Right-of-use assets	$	3,731

	Right-of-use lease liabilities, current		267
	Right-of-use lease liabilities, noncurrent		3,467
	Total operating lease liabilities	$	3,734

Weighted-average remaining lease term
	Operating leases	6.0 years

Weighted-average discount rate
	Operating leases		10.0	%

Future minimum lease commitments are as follows as of September 30, 2024 (in thousands):


		Operating Leases
Year Ending December 31,
	2024	$	150
	2025		662
	2026		785
	2027		820
	2028		856
	Thereafter		1,829
	Total lease payments		5,102
	Less imputed interest		(1,368	)
	Total	$	3,734

Contingencies

From time to time, the Company may become subject to claims or suits arising in the ordinary course of business. The Company will accrue a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. As of September 30, 2024 and December 31, 2023, the Company is not a party to any litigation.

Note 10. Employment Benefits

Effective in June 2021, the Company established a 401(k) salary deferral plan for its employees. Employee contributions are voluntary and are determined on an individual basis, limited to the maximum amount allowable under federal tax regulations. The Company provides a safe harbor contribution of up to 4% of the employee's compensation, not to exceed eligible limits, and subject to employee participation. For the three and nine months ended September 30, 2024 and 2023, the Company incurred approximately $159,000, $510,000, $75,000 and $259,000, respectively, in expenses related to the safe harbor contribution.

Note 11. Subsequent Events

Merger Agreement

On October 14, 2024, the Company entered into the Merger Agreement with Lundbeck. Pursuant to the Merger Agreement, upon the terms and subject to the conditions thereof, Purchaser commenced a cash tender offer (the Offer) within 15 business days after the date of the Merger Agreement. The Offer consists of an offer to purchase all of the outstanding shares (Shares) of voting common stock and non-voting common stock of the Company at a price of $60 per share, in cash, without interest and subject to any applicable withholding of taxes. If Shares of voting common stock representing one Share of voting common stock more than 50% of:

(a)

the total number of shares of voting common stock outstanding at the time of the expiration of the Offer, plus

(b)

the total number of shares of voting common stock that the Company is required to issue upon conversion, settlement, exchange or exercise of all non-voting common stock, options, warrants, rights or other securities for which the holder has, by the time of the expiration of the Offer, elected to convert, settle, exchange or exercise or for which the conversion, settlement, exchange or exercise date has already occurred by the time of the expiration of the Offer (but without duplication)

are tendered, and subject to additional customary closing conditions, the Company will be merged with and into Payor (the Merger), with the Company surviving the Merger as a wholly owned subsidiary of Payor.

At the effective time of the Merger (Effective Time), each Share then outstanding (other than Shares (a) held by the Company (or in the Company’s treasury), Parent, Purchaser, any other direct or indirect wholly owned subsidiary of Parent, or by stockholders of the Company who have properly exercised and perfected their statutory rights of appraisal under Delaware law, or (b) irrevocably accepted for purchase in the Offer) will be converted into the right to receive the Offer Price (Merger Consideration), without interest and subject to any applicable withholding of taxes.

Each of the Company’s stock options (Options), to the extent unvested, that is outstanding as of immediately prior to the Effective Time will accelerate and become fully vested and exercisable effective immediately prior to, and contingent upon the occurrence of, the Effective Time. As of the Effective Time, each Option that is then outstanding and unexercised will be cancelled and converted into the right to receive cash, without interest, equal to the product of (a) the total number of Shares subject to such Option immediately prior to the Effective Time, multiplied by (b) the excess of the Merger Consideration over the exercise price payable per Share under such Option.

Generally, each restricted stock unit award (RSU) outstanding as of immediately prior to the Effective Time, whether vested or unvested, will be cancelled and converted into the right to receive an amount in cash, without interest, equal to the product of (a) the total number of Shares issuable in settlement of such RSU immediately prior to the Effective Time, multiplied by (b) the Merger Consideration.

The Merger Agreement includes representations, warranties and covenants of the parties customary for a transaction of this nature. From the date of the Merger Agreement until the earlier of the Effective Time and the termination of the Merger Agreement, the Company has agreed, subject to certain exceptions, to operate its business in the ordinary course consistent with past practice and has agreed to certain other operating covenants, as set forth more fully in the Merger Agreement.

The Company has also agreed to customary “no shop” restrictions on its ability to solicit discussions or negotiations with third parties regarding alternative acquisition proposals. Notwithstanding these restrictions, the Company may under certain circumstances provide, pursuant to an acceptable confidentiality agreement, information to and engage in or otherwise participate in discussions or negotiations with third parties with respect to an unsolicited bona fide alternative acquisition proposal that the board of directors of the Company has determined in good faith, after consultation with its financial advisors and outside legal counsel, constitutes or would reasonably be expected to lead to a superior acquisition proposal. The Merger Agreement also requires that the Company’s board of directors recommend that the stockholders of the Company accept the Offer and tender their Shares pursuant to the Offer (the

Company Board Recommendation) and not, among other things, (i) withdraw (or modify, change or qualify in a manner adverse to Parent or Purchaser), or publicly propose to withdraw (or modify, change or qualify in a manner adverse to Parent or Purchaser), the Company Board Recommendation, (ii) adopt, approve, recommend or declare advisable, or publicly propose to approve, recommend or declare advisable, any alternative acquisition proposal or (iii) (1) fail to recommend against acceptance of certain competing tender or exchange offers commenced by a third party or (2) fail to reaffirm the Company Board Recommendation upon request of Parent (any such action in (i), (ii) or (iii), a Company Adverse Change Recommendation). Notwithstanding these restrictions, the board of directors of the Company is permitted, subject to the terms and conditions set forth in the Merger Agreement, to make a Company Adverse Change Recommendation (or terminate the Merger Agreement to enter into a definitive agreement with respect to a superior acquisition proposal) to accept a superior acquisition proposal or in response to a Change in Circumstance (as defined in the Merger Agreement), subject in each case to certain matching rights in favor of Parent and payment of the termination fee described below.

The Merger Agreement includes a remedy of specific performance for the Company, Parent, Payor and Purchaser. The Merger Agreement also includes customary termination provisions for both the Company and Parent and provides that, in connection with the termination of the Merger Agreement under specified circumstances, including, among others, (i) termination by the Company to accept and enter into a definitive agreement with respect to an unsolicited superior acquisition proposal or (ii) termination by Parent due to a Company Adverse Change Recommendation, a failure to include the Company Board Recommendation in the Schedule 14D 9 or a failure to recommend against certain competing tender or exchange offers or acquisition proposals commenced by a third party, the Company will be required to pay to Parent a termination fee of an amount in cash equal to $86.1 million. Any such termination of the Merger Agreement by the Company is subject to certain conditions, including the Company’s compliance with certain procedures set forth in the Merger Agreement.

The Merger Agreement further provides that Parent will be required to pay the Company a reverse termination fee of $158.9 million in cash in the event the Merger Agreement is terminated under certain specified circumstances related to antitrust laws. Specifically, this reverse termination fee is payable by Parent to the Company if the Merger Agreement is terminated by Parent or the Company either (i) due to the existence of a permanent legal restraint on the consummation of the transactions contemplated by the Merger Agreement under antitrust laws or (ii) due to the Offer not being consummated by July 14, 2025 (or such later date as may be extended pursuant to the Merger Agreement) and certain conditions related to antitrust laws having not been satisfied.

RSU Grant

On October 25, 2024, the Company granted a total of 200,000 RSUs to employees. The RSUs will vest on the earlier of the one-year anniversary of the grant date or the date the employee is involuntarily terminated. At the Effective Time, the RSUs will convert into a right to receive a cash payment on the vesting date in an amount equal to the number of RSUs granted, multiplied by $60 per share.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed financial statements and related notes included elsewhere in this Quarterly Report and our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (SEC) on March 12, 2024 (our 2023 Annual Report).

Forward-Looking Statements

Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Quarterly Report, 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. You should carefully read Part II, Item 1A, “Risk Factors” of this Quarterly Report to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements.

Overview and Recent Developments

We are a clinical-stage biopharmaceutical company focused on developing novel, transformative medicines for neurological diseases. We were formed in January 2020 by Arena Pharmaceuticals, Inc. (Arena) to advance a portfolio of centrally acting product candidates designed to be highly selective for specific G protein-coupled receptors (GPCRs). Our small molecule product candidates were discovered out of the same platform at Arena that represents a culmination of more than 20 years of world-class GPCR research. Arena was purchased by Pfizer, Inc. (Pfizer) on March 11, 2022, and is now a wholly owned subsidiary of Pfizer.

We are currently focused on developing the following product candidates in our pipeline, both of which are licensed from Arena:

•

Bexicaserin (LP352) is an oral, centrally acting, 5-hydroxytryptamine 2C receptor subtype (5-HT2C) superagonist. In the first quarter of 2024, we announced topline data from a Phase 1b/2a clinical trial, the PACIFIC Study, evaluating participants ages 12 to 65 years old with a broad range of developmental and epileptic encephalopathies (DEEs), including Dravet syndrome (DS), Lennox-Gastaut syndrome (LGS), and other DEEs. The FDA has granted us Breakthrough Therapy designation for bexicaserin for the treatment of seizures associated with DEEs for patients two years of age or older and Rare Pediatric Disease and Orphan Drug designations for bexicaserin for the treatment of Dravet syndrome. In the third quarter of 2024, we announced the initiation of our global Phase 3 program for bexicaserin, the DEEp Program.

•

LP659 is a centrally acting, sphingosine-1-phosphate, or S1P, receptor subtypes 1 and 5 modulator. We initiated a Phase 1 single-ascending dose (SAD) clinical trial for LP659 in healthy volunteers in November 2023 and completed the study in June 2024. The FDA has placed the proposed Phase 1 multiple-ascending dose (MAD) study for LP659 on full clinical hold, and we are evaluating options for LP659 pending additional discussion with the FDA.

Since our inception, we have devoted substantially all of our resources to research and development activities, organizing and staffing our company, business planning, raising capital, in-licensing intellectual property rights and establishing our intellectual property portfolio, and providing general and administrative support for these operations. We have principally financed our operations to date through the private placement of convertible preferred stock and the completion of our initial public offering (IPO) of our common stock in March 2021. To date, we have raised gross proceeds of approximately $56.0 million from the issuance of our convertible preferred stock, $84.8 million from our IPO, $23.0 million and $241.5 million from our February 2023 and January 2024 follow-on public offerings, respectively, $59.9 million from our March 2024 private placement of non-voting common stock, and $8.8 million from our at-the-market offering. As of September 30, 2024, we had cash, cash equivalents and short-term investments of $288.4 million.

We have incurred net losses since our inception. Our net losses were $24.5 million, $61.3 million, $12.9 million and $39.4 million, respectively, for the three and nine months ended September 30, 2024 and 2023. As of September 30, 2024, we had an accumulated deficit of $201.9 million. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and preclinical studies and our expenditures on other research and development activities. We expect that our expenses and operating losses will increase substantially as product candidates advance through preclinical studies and clinical trials, and as we expand our clinical, regulatory, quality and manufacturing capabilities, incur more significant commercialization expenses for marketing, sales, manufacturing and distribution leading up to and, if ever, after we obtain marketing approval for any of our product candidates, and incur additional costs associated with operating as a public company. We expect that our existing cash, cash equivalents and short-term investments will be sufficient to fund our operations for at least the next 12 months. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a

forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We base our estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect.

We do not expect to generate any revenues from product sales unless and until we successfully complete development and obtain regulatory approval for one or more product candidates, which will not be for many years, if ever. Accordingly, until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our cash needs through a combination of public or private equity offerings, debt financings or other capital sources, including potential collaborations, licenses and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our research and development programs, future commercialization efforts or other operations, or grant rights to develop and market our product candidates that we would otherwise prefer to develop and market ourselves, which would have a negative impact on our financial condition.

Agreement and Plan of Merger

On October 14, 2024, we entered into the Merger Agreement. See Note 11 to the condensed financial statements included in this report for additional information.

Components of Our Results of Operations

Operating Expenses

Our operating expenses consist of (i) research and development expenses and (ii) general and administrative expenses.

Research and Development

Our research and development expenses consist primarily of direct and indirect costs incurred in connection with the preclinical and clinical development of our product candidates.

Direct costs include:

•

external research and development expenses incurred under agreements with CROs, investigative sites, consultants and other third parties to conduct our preclinical studies and clinical trials; and

•

costs related to manufacturing our product candidates for preclinical studies and clinical trials, including fees paid to third-party manufacturers.

Indirect costs include:

•

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

•

other various expenses.

Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received. We track direct costs by stage of program, clinical or preclinical and other early stage research. However, we do not track indirect costs on a program specific or stage of program basis because these costs are deployed across multiple programs and, as such, are not separately classified.

We expect that our research and development expenses will increase substantially for the foreseeable future as we continue the development of our product candidates, particularly as product candidates in later stages of development generally have higher development costs than those in earlier stages of development. We cannot determine with certainty the timing of the initiation, duration or completion costs of future clinical trials and preclinical studies of our product candidates due to the inherently unpredictable nature of clinical and preclinical development. Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations.

We anticipate that we will make determinations as to which product candidates and development programs to pursue and how much funding to direct to each product candidate or program on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments and our ongoing assessments as to each product candidate’s commercial potential. We will need to raise substantial additional capital in the future. In addition, we cannot forecast which product candidates may be subject to future collaborations, when such arrangements may occur, if at all, and to what degree such arrangements would affect our development plans and capital requirements.

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

•

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

•

the phase of development of our product candidates;

•

per participant clinical trial costs;

•

the number of clinical trials required for approval;

•

the number of sites included in our ongoing and planned clinical trials;

•

the number of patients that participate in our ongoing and planned clinical trials;

•

the countries in which our clinical trials are conducted;

•

uncertainties in clinical trial design and participant enrollment or drop out or discontinuation rates;

•

potential additional safety monitoring requested by regulatory agencies;

•

the duration of patient participation in our ongoing and planned clinical trials and follow-up;

•

the efficacy and safety profile of our product candidates;

•

the timing, receipt and terms of any approvals from applicable regulatory authorities, including the FDA and foreign regulatory authorities;

•

significant and changing government regulation and regulatory guidance;

•

potential additional trials requested by regulatory agencies;

•

the cost and timing of manufacturing our product candidates;

•

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 or other 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.

General and Administrative

General and administrative expenses consist primarily of personnel-related costs, which include salaries, payroll taxes, employee benefits and other employee-related costs, including stock-based compensation, for personnel in executive, finance and other administrative functions. Other significant costs include legal fees relating to corporate matters, professional fees for accounting and consulting services and facility-related costs.

With the exception of our expenses in the third and fourth quarters of 2024 which include or are expected to include significant merger related expenses, we expect that our ongoing general and administrative expenses will increase modestly for the foreseeable future to support our increased research and development activities and increased costs of operating as a public company and in building our internal resources. These increased costs will include increased expenses related to audit and legal services associated with maintaining compliance with exchange listing and SEC requirements, prosecuting and maintaining our patent portfolio, and investor and public relations activities associated with operating as a public company.

Financial Operations Overview

Results of Operations

The following table summarizes our results of operations for the three and nine months ended September 30, 2024 and 2023:


	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2024			2023			2024			2023
Operating expenses:
Research and development	$	21,450		$	10,488		$	55,065		$	31,554
General and administrative		6,674			3,094			16,812			9,632
Total operating expenses		28,124			13,582			71,877			41,186
Loss from operations		(28,124	)		(13,582	)		(71,877	)		(41,186	)
Interest income, net		3,655			662			10,693			1,838
Other expense		(71	)		(14	)		(127	)		(41	)
Net loss	$	(24,540	)	$	(12,934	)	$	(61,311	)	$	(39,389	)

Research and Development Expenses

The following table summarizes our research and development expenses for the three and nine months ended September 30, 2024 and 2023:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2024		2023		2024		2023
Direct costs:
Bexicaserin (LP352)	$	12,399	$	6,543	$	30,805	$	18,416
LP659		894		926		4,938		3,557
Preclinical programs and other early stage research		585		25		1,543		575
Indirect costs:
Personnel-related		6,790		2,648		15,801		7,885
All other		782		346		1,978		1,121
Total research and development expenses	$	21,450	$	10,488	$	55,065	$	31,554

Research and development expenses were $21.5 million for the three months ended September 30, 2024, an increase of $11.0 million, or 105%, compared to $10.5 million for the three months ended September 30, 2023. The net increase of $11.0 million is primarily related to increases of $5.9 million in clinical trial and preclinical expenses related to bexicaserin, $0.6 million in preclinical programs and other early stage research, $4.1 million in personnel-related expenses and $0.4 million in other miscellaneous research and development related expenses.

Research and development expenses were $55.1 million for the nine months ended September 30, 2024, an increase of $23.5 million, or 75%, compared to $31.6 million for the nine months ended September 30, 2023. The net increase of $23.5 million is primarily related to increases of $12.4 million in clinical trial and preclinical expenses related to bexicaserin, $1.4 million in clinical trial and preclinical expenses related to LP659, $1.0 million in preclinical programs and other early stage research, $7.9 million in personnel-related expenses and $0.8 million in other miscellaneous research and development related expenses.

General and Administrative Expenses

General and administrative expenses were $6.7 million for the three months ended September 30, 2024, an increase of $3.6 million, or 116%, compared to $3.1 million for the three months ended September 30, 2023. The net increase of $3.6 million is primarily related to increases of $2.1 million in personnel-related expenses, $1.2 million in consulting and professional fees (which includes $0.7 of merger related expenses), and $0.3 million of miscellaneous expenses.

General and administrative expenses were $16.8 million for the nine months ended September 30, 2024, an increase of $7.2 million, or 75%, compared to $9.6 million for the nine months ended September 30, 2023. The net increase of $7.2 million is primarily related to increases of $4.8 million in personnel-related expenses, $2.1 million in consulting and professional fees (which includes $0.7 million of merger related expenses) and $0.3 million of miscellaneous expenses.

Liquidity and Capital Resources

As of September 30, 2024, we had cash, cash equivalents and short-term investments of $288.4 million and working capital of $274.7 million to fund future operations. As of December 31, 2023, we had cash, cash equivalents and short-term investments of $48.5 million and working capital of $40.4 million to fund future operations.

Sources of Liquidity

We have funded our operations primarily through available cash, cash equivalents and short-term investments, and the sale and issuance of common stock and convertible preferred stock.

In October 2020, we completed a $56.0 million private placement of our Series A convertible preferred stock.

In connection with our IPO in March 2021, we issued and sold 5,298,360 shares of common stock, which included 298,360 shares of our common stock issued pursuant to the over-allotment option granted to the underwriters to purchase additional shares of common stock, at a public offering price of $16.00 per share. We raised $76.2 million in net proceeds from the IPO after deducting underwriters’ discounts and commissions of $5.9 million and issuance costs of $2.6 million.

In February 2023, we raised $23.0 million in a follow-on public offering. We issued and sold 5,750,000 shares of common stock which included 750,000 shares of our common stock issued pursuant to the over-allotment option granted to the underwriters to purchase additional shares of common stock, at a public offering price of $4.00 per share. We raised $21.2 million in net proceeds from the follow-on public offering after deducting underwriters' commissions of $1.4 million and issuance costs of $0.4 million.

In January 2024, we raised $241.5 million in a follow-on public offering. We issued and sold 11,500,000 shares of common stock which included 1,500,000 shares of common stock sold pursuant to the full exercise by the underwriters of their option to purchase additional shares, at a public offering price of $21.00 per share. We raised $226.5 million in net proceeds from the follow-on public offering after deducting underwriters' commissions of $14.5 million and other expenses of $0.5 million.

In March 2024, we completed a $59.9 million private placement of our non-voting common stock.

Sales Agreement

In September 2022, we entered into a Controlled Equity OfferingSM Sales Agreement (the Sales Agreement) with Cantor Fitzgerald & Co., as sales agent (Cantor Fitzgerald), pursuant to which we may issue and sell our common stock from time to time through an “at the market offering” (ATM) program under the Sales Agreement. We have no obligation to sell any shares of common stock under the Sales Agreement and may at any time suspend sales under the Sales Agreement. Cantor Fitzgerald will be entitled to compensation in an amount of 3% of the gross proceeds of any shares of common stock sold under the Sales Agreement. In August 2023, we filed a prospectus supplement to offer up to $75.0 million of shares of common stock under the Sales Agreement. During 2023 we sold 1,422,250 shares of our common stock under the Sales Agreement for gross proceeds of $8.8 million. In March 2024, we filed a sales agreement prospectus to offer up to $150.0 million of shares of common stock under the Sales Agreement (exclusive of shares sold previously). As of September 30, 2024, we had not sold any shares of common stock pursuant to the most recent sales agreement prospectus.

During the pendency of the Merger, we are prohibited from selling shares pursuant to the Sales Agreement.

Material Cash Requirements

The following discussion assumes that the Merger with Lundbeck is not consummated and we continue to operate as an independent company. During the pendency of the Merger, we are prohibited from raising capital through equity or debt financing and are subject to other restrictions that generally prohibit transactions and operations outside the ordinary course.

We have incurred net losses and negative cash flows from operations since our inception and anticipate we will continue to incur net losses for the foreseeable future.

We expect that our existing cash, cash equivalents and short-term investments will be sufficient to fund our operations for at least the next 12 months. We believe we will meet longer-term expected future cash requirements and obligations beyond the next 12 months by utilizing our existing cash, cash equivalents and short-term investments and through a combination of equity offerings, debt financings, collaborations, licenses and other similar arrangements. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based our estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. Additionally, the process of testing product candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain. Our ability to fund longer-term operating needs will depend on our ability to commercialize product candidates for which we may obtain regulatory approval, our ability to access the capital markets and other factors, including those discussed in Part II, Item 1A, “Risk Factors” of this Quarterly Report.

Our future capital requirements will depend on many factors, including:

•

the type, number, scope, progress, expansions, results, costs and timing of our research programs, preclinical studies and clinical trials for our current and any future product candidates and the potential indications which we are pursuing or may choose to pursue in the future;

•

the outcome, timing and costs of regulatory review of our product candidates;

•

the costs and timing of manufacturing for our product candidates, including commercial manufacturing;

•

our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company, including enhanced internal controls over financial reporting;

•

the costs associated with hiring additional personnel and consultants as our preclinical and clinical activities increase;

•

the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements;

•

the costs of obtaining, expanding, maintaining and enforcing our patent and other intellectual property rights;

•

the costs and timing of establishing or securing sales and marketing and distribution capabilities, whether alone or with third parties, to commercialize product candidates for which we may obtain regulatory approval, if any;

•

the timing and amount of the payments we are obligated to make under the Arena License Agreement;

•

our ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products;

•

patients’ willingness to pay out-of-pocket for any approved products in the absence of coverage and/or adequate reimbursement from third-party payors;

•

costs associated with any product candidates, products or technologies that we may in-license or acquire; and

•

if we experience any delays or encounter any issues with any of the above.

Developing pharmaceutical products, including conducting research, preclinical studies and clinical trials, is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval for any product candidates or generate revenue from the sale of any product candidate for which we may obtain marketing approval. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for at least several years, if ever. As a result, we will need substantial additional financing to support our continuing operations and further the development of and commercialize our product candidates.

Until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our cash needs through a combination of public or private equity offerings, debt financings or other capital sources, including potential collaborations, licenses and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and disruptions to, and volatility in, the credit and financial markets in the United States and worldwide. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, or other similar arrangements with third parties, we may have to relinquish valuable rights to our product candidates, future revenue streams or research programs or may have to grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our research and development programs, future commercialization efforts or other operations, or grant rights to develop and market our product candidates that we would otherwise prefer to develop and market ourselves, which would have a negative impact on our financial condition.

Cash Flows

The following table sets forth a summary of our cash flows for the nine months ended September 30, 2024 and 2023:


	Nine Months Ended September 30,
(in thousands)	2024			2023
Net cash used in operating activities	$	(54,903	)	$	(39,840	)
Net cash provided by (used in) investing activities		(218,559	)		25,794
Net cash provided by financing activities		286,985			27,181
Net increase in cash, cash equivalents and restricted cash	$	13,523		$	13,135

Operating Activities

Net cash used in operating activities was $54.9 million and $39.8 million for the nine months ended September 30, 2024 and 2023, respectively. Net cash used in operating activities for the nine months ended September 30, 2024 was primarily due to our net loss of $61.3 million and $7.3 million of accretion of premiums on investments, adjusted for $7.9 million of stock-based compensation expense and $5.8 million from changes in operating assets and liabilities. Net cash used in operating activities for the nine months ended September 30, 2023 was primarily due to our net loss of $39.4 million, adjusted for $2.4 million of stock-based compensation expense and $2.3 million from changes in operating assets and liabilities.

Investing Activities

Net cash used in investing activities was $218.6 million for the nine months ended September 30, 2024 and net cash provided by investing activities was $25.8 million for the nine months ended September 30, 2023. Net cash used in investing activities for the nine months ended September 30, 2024 was related to $416.0 million of short-term investment purchases, which was offset by $197.4 million in short-term investment maturities. Net cash provided by investing activities for the nine months ended September 30, 2023 was related to $53.1 million of short-term investment purchases, which was offset by $78.9 million in short-term investment maturities.

Financing Activities

Net cash provided by financing activities was $287.0 million and $27.2 million for the nine months ended September 30, 2024 and 2023, respectively. Net cash provided by financing activities during the nine months ended September 30, 2024 was primarily comprised of net proceeds of $226.5 million from our January 2024 follow-on offering, $59.9 million from our March 2024 private placement and $0.7 million in stock option exercises. Net cash provided by financing activities during the nine months ended September 30, 2023 was primarily comprised of net proceeds of $21.2 million from our follow-on public offering and $5.8 million from our at-the-market offering.

Critical Accounting Estimates

Our financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of our financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our 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 a periodic basis. Our actual results may differ from these estimates.

While our significant accounting policies are described in more detail in the notes to our financial statements appearing in our 2023 Annual Report, we believe that the following accounting policies are critical to understanding our historical and future performance, as the policies relate to the more significant areas involving management’s judgments and estimates used in the preparation of our financial statements. There have been no significant changes in our critical accounting policies and estimates during the three months ended June 30, 2024, as compared to the critical accounting policies and estimates disclosed in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2023 Annual Report.

Accrued Research and Development Expenses

As part of the process of preparing our financial statements, we are required to estimate our accrued research and development expenses as of each balance sheet date. 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 cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice us in arrears for services performed, based on a pre-determined schedule or when contractual milestones are met, but some require advance payments. We make estimates of our accrued expenses as of each balance sheet date in the financial statements based on facts and circumstances known to us at that time. If timelines or contracts are modified based upon changes in the protocol or scope of work to be performed, we modify our estimates and accruals accordingly on a prospective basis.

We base our expenses related to external research and development services on our estimates of the services received and efforts expended pursuant to quotes and contracts with vendors that conduct research and development on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and 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. In accruing service 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 the estimate, we adjust the accrual or the amount of prepaid expenses 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 reporting amounts that are too high or too low in any particular period. To date, there have not been any material differences between our estimates of such expenses and the amounts actually incurred.

As of September 30, 2024, a hypothetical 10.0 percent increase in our liability for accrued research and development expenses would have resulted in an increase to our net loss of approximately $1.1 million.

Emerging Growth Company and Smaller Reporting Company Status

We are an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (JOBS Act), and as such, we can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of accounting standards that have different effective dates for public and private companies until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards, and therefore we will not be subject to the same requirements to adopt new or revised accounting standards as other public companies that are not emerging growth companies.

We are also a “smaller reporting company” as defined in the Exchange Act. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.

As of June 30, 2024, the market value of our common stock held by non-affiliates exceeded $700.0 million. As a result, we will be a large accelerated filer and thus will cease to be an emerging growth company effective December 31, 2024. Additionally, we will no longer qualify as a smaller reporting company beginning with our first Quarterly Report on Form 10-Q for the quarterly period ending March 31, 2025.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Under SEC rules and regulations, as a smaller reporting company we are not required to provide the information required by this item.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their control objectives.

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2024, the end of the period covered by this Quarterly Report. Based upon such evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of such date.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(d) and 15d-15(d) under the Exchange Act) during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, we may become involved in legal proceedings arising in the ordinary course of our business activities. There are no material legal proceedings to which we are a party or of which any of our property is the subject. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, negative publicity, reputational harm and other factors.

Item 1A. Risk Factors.

An investment in shares of our common stock is speculative and involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this Quarterly Report, including our unaudited condensed financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” before deciding whether to purchase, hold or sell shares in our common stock. The occurrence of any of the risks described below could harm our business, financial condition, results of operations, growth prospects and/or stock price, or cause our actual results to differ materially from those contained in forward-looking statements we have made in this Quarterly Report and those we may make from time to time. You should consider all of the risk factors described when evaluating our business. We have marked with an asterisk (*) those risk factors that are new risk factors or ones containing substantive changes from the similarly titled risk factors included in our 2023 Annual Report.

Risks Related to Our Pending Acquisition by Lundbeck

We may not complete the pending transaction with Lundbeck within the timeframe we anticipate, or at all, which could have an adverse effect on our business, financial results, and/or operations.*

On October 14, 2024, the Company announced it entered into the Merger Agreement with Lundbeck, providing for the merger of the Company with Payor, with the Company surviving the Merger as a wholly owned subsidiary of Payor.

Consummation of the Merger is subject to customary closing conditions, including, without limitation, the absence of certain legal restraints preventing or otherwise making illegal the consummation of the Merger, no material adverse effect with respect to the Company having occurred since the signing of the Merger Agreement, the expiration or termination of any waiting periods under the HSR Act applicable to the Merger, the obtainment of any clearance or affirmative approvals applicable to the Merger under the antitrust and foreign direct investment laws of other applicable jurisdictions, and the tender of sufficient shares of the Company’s voting common stock by stockholders. In addition, the Merger Agreement may be terminated under certain specified circumstances, including, but not limited to, a change in the recommendation of our Board of Directors or a termination of the Merger Agreement by us to enter into an agreement for a “Superior Proposal,” as defined in the Merger Agreement. As a result, we cannot assure you that the transaction with Lundbeck will be completed, or that, if completed, it will be exactly on the terms set forth in the Merger Agreement or within the expected timeframe.

If the transaction is not completed within the expected timeframe or at all, we may be subject to a number of material risks. The price of our common stock may decline to the extent that current market prices of our common stock reflect a market assumption that the transaction will be completed. We could be required to pay Lundbeck a termination fee of $86.1 million if the Merger Agreement is terminated under specific circumstances described in the Merger Agreement. The failure to complete the transaction also may result in negative publicity and negatively affect our relationship with our stockholders, employees, regulators, and other business partners. We may also be required to devote significant time and resources to litigation related to any failure to complete the Merger or related to any enforcement proceeding commenced against us to perform our obligations under the Merger Agreement.

The pendency of the transaction with Lundbeck could adversely affect our business, financial results and/or operations.*

Our efforts to complete the transaction could cause substantial disruptions in, and create uncertainty surrounding, our business, which may materially adversely affect our results of operation and our business. Uncertainty as to whether the transaction will be completed may affect our ability to recruit prospective employees or to retain and motivate existing employees. Employee retention or focus may be particularly challenging while the transaction is pending because employees may experience uncertainty about their roles following consummation of the transaction. A substantial amount of our management’s and certain employees’ attention is being directed toward the completion of the transaction and thus is being diverted from our day-to-day operations. Uncertainty as to our f

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

Longboard Pharmaceuticals, Inc. 10-Q