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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

Filed by the Registrant ☑

Filed by a Party other than the Registrant o

Check the appropriate box:

Preliminary Proxy Statement
o
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
o
Definitive Proxy Statement
o
Definitive Additional Materials
o
Soliciting Material Pursuant to § 240.14a-12
NewLink Genetics Corporation
(Name of Registrant as Specified In Its Charter)
 
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box)

o
No fee required.
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
 
1.
Title of each class of securities to which transaction applies:
 
 
Common Stock of NewLink Genetics Corporation, par value $0.01 per share
 
2.
Aggregate number of securities to which transaction applies:
 
 
39,402,494 shares of common stock of NewLink Genetics Corporation (“NewLink”) to be issued or issuable pursuant to that certain Agreement and Plan of Merger and Reorganization, dated as of September 30, 2019, by and among NewLink, Cyclone Merger Sub, Inc., a wholly-owned subsidiary of NewLink, and Lumos Pharma, Inc. (“Lumos”), assuming the exchange ratios determined based on information as to equity ownership as of October 15, 2019 and other assumptions discussed in this proxy statement, including the assumption that former Lumos stockholders will own approximately 50% of the combined company’s common stock and that NewLink stockholders will own approximately 50% of the combined company’s common stock.
 
3.
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):
 
 
The maximum aggregate value was determined based upon 39,402,494 shares of NewLink’s common stock to be issued or issuable in the transaction to Lumos stockholders, multiplied by $1.52, which is the average of the high and low trading prices as reported on The Nasdaq Global Market within five business days prior to November 20, 2019. The filing fee was determined by multiplying $0.0001298 by the maximum aggregate value of the transaction as determined in accordance with the preceding sentence.
 
4.
Proposed maximum aggregate value of transaction:
 
 
$59,891,790.88
 
5.
Total fee paid:
 
 
$7,773.96
o
Fee paid previously with preliminary materials.
o
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
 
6.
Amount Previously Paid:
 
 
 
 
7.
Form, Schedule or Registration Statement No.:
 
 
 
 
8.
Filing Party:
 
 
 
 
9.
Date Filed:
 
 
 

   

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SUBJECT TO COMPLETION
PRELIMINARY PROXY STATEMENT, DATED NOVEMBER 20, 2019

NEWLINK GENETICS CORPORATION
2503 South Loop Drive
Ames, IA 50010

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON [], 2019

Dear Stockholder:

You are cordially invited to attend the Special Meeting of Stockholders (the “Special Meeting”) of NEWLINK GENETICS CORPORATION, a Delaware corporation (“NewLink” or the “Company”). The Special Meeting will be held on [•], 2019 at [•] a.m. Eastern Time at the offices of NewLink, 2503 South Loop Drive, Suite 5100, Ames, IA 50010.

As previously announced, on September 30, 2019, NewLink, Cyclone Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company (“Merger Sub”), and Lumos Pharma, Inc., a privately-held Delaware corporation (“Lumos”), entered into an Agreement and Plan of Merger and Reorganization (as amended, the “Merger Agreement”), pursuant to which, among other things, subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Lumos, with Lumos surviving as a wholly-owned subsidiary of NewLink (the “Merger”). Following the Merger, NewLink will change its name to “Lumos Pharma, Inc.” (the “combined company”) and Lumos will change to a name mutually agreed upon by the Company and Lumos.

Subject to the terms and conditions of the Merger Agreement, at the Effective Time (as defined therein and in the accompanying proxy statement) of the Merger, each share of Lumos capital stock outstanding immediately prior to the Effective Time (excluding shares of Lumos capital stock held as treasury stock or held or owned by Lumos or Merger Sub prior to the Effective Time and shares held by Lumos stockholders who have exercised and perfected appraisal rights in accordance with Delaware law) shall be automatically converted solely into the right to receive a number of shares of NewLink’s common stock equal to the amount determined pursuant to a charter amendment to Lumos’ certificate of incorporation that will be filed prior to the Effective Time, at exchange ratios applicable to each type of Lumos capital stock as set forth therein and in the accompanying proxy statement. Pursuant to such conversion, immediately following the Merger, former Lumos stockholders will own approximately 50% of the aggregate number of shares of Company common stock issued and outstanding following the effective time of the Merger (the “Post-Closing Shares”), and the stockholders of the Company as of immediately prior to the Merger will own approximately 50% of the aggregate number of Post-Closing Shares. Outstanding options to purchase Lumos common stock will be assumed by NewLink and converted into options to purchase a number of shares of NewLink’s common stock at the exchange ratio applicable to exchanging shares of Lumos common stock for NewLink’s common stock.

NewLink is holding the Special Meeting in order to obtain the stockholder approvals necessary to complete the Merger. Pursuant to rules of The Nasdaq Stock Market LLC (“Nasdaq”), the issuance of NewLink’s common stock requires NewLink stockholders’ approval because it exceeds 20% of the number of shares of NewLink’s common stock outstanding prior to the issuance and does not constitute a “public offering” as defined under Nasdaq’s rules. Furthermore, the issuance of the shares requires NewLink stockholders’ approval under Nasdaq’s rules because it will result in a “change of control” of NewLink. The Special Meeting will be held for the purposes listed below:

1.To approve the issuance of NewLink’s common stock pursuant to the Merger Agreement, as well as the resulting “change of control” of NewLink under Nasdaq rules (the “Merger Proposal”);
2.To amend NewLink’s amended and restated certificate of incorporation to effect a reverse stock split of NewLink’s common stock (the “Reverse Stock Split Proposal”);
3.To approve, on a non-binding advisory basis, certain compensation that may be paid or become payable to certain of NewLink’s named executive officers in connection with the Merger (the “Compensation Proposal”);

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4.To adjourn or postpone the Special Meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the Merger Proposal or the Reverse Stock Split Proposal (the “Adjournment Proposal”); and
5.To conduct any other business properly brought before the meeting.

These items of business are more fully described in the accompanying proxy statement.

After careful consideration, NewLink’s board of directors (the “NewLink Board”) has unanimously determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable, fair to and in the best interests of NewLink and its stockholders and recommends that you vote “FOR” the Merger Proposal (Proposal 1); “FOR” the Reverse Stock Split Proposal (Proposal 2); “FOR” the Compensation Proposal (Proposal 3); and “FOR” the Adjournment Proposal (Proposal 4) if necessary to solicit additional proxies if there are not sufficient votes to approve the Merger Proposal or the Reverse Stock Split Proposal.

The record date for the Special Meeting is [], 2019. Only stockholders of record at the close of business on that date may vote at the Special Meeting or any adjournment thereof. All NewLink stockholders are invited to attend the Special Meeting in person. Whether or not you expect to attend the Special Meeting, please vote your shares as promptly as possible using the enclosed proxy card, or via the internet or telephone as instructed in the enclosed materials, in order to ensure your representation at the Special Meeting. We encourage you to read the accompanying proxy statement and the Merger Agreement and other annexes to the proxy statement carefully and in their entirety. In particular, you should carefully consider the matters discussed under “Risk Factors” beginning on page 16 .

Your vote is very important, regardless of the number of shares of our voting securities that you own. I encourage you to vote by telephone, over the internet, or by marking, signing, dating and returning your proxy card so that your shares will be represented and voted at the Special Meeting, whether or not you plan to attend. If you attend the Special Meeting, you will, of course, have the right to revoke the proxy and vote your shares in person.

On behalf of the NewLink Board, I urge you to submit your proxy as soon as possible, even if you currently plan to attend the Special Meeting in person.

Thank you for your support of NewLink. I look forward to seeing you at the Special Meeting.

 
Sincerely,
   
 
 
On behalf of the NewLink Board
   
 
 
/s/ Carl W. Langren
 
Carl W. Langren
 
Chief Financial Officer

Ames, Iowa
[•], 2019

Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved of the Merger described in this proxy statement or NewLink’s common stock to be issued in connection with the Merger or determined if this proxy statement is accurate or adequate. Any representation to the contrary is a criminal offence.

Important Notice Regarding the Availability of Proxy Materials for the NewLink Special Meeting to be Held on [], 2019:

Our official Notice of Special Meeting of Stockholders and proxy statement are available at www.proxyvote.com.

You are cordially invited to attend the Special Meeting in person. Whether or not you expect to attend the Special Meeting, please complete, date, sign and return the enclosed proxy card, or vote over the telephone or the internet, so that your shares may be voted in accordance with your wishes and in order that the presence

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of a quorum may be assured. Even if you have voted by proxy, you may still vote in person if you attend the Special Meeting. Please note, however, that if your shares are held of record by a broker, bank or other agent and you wish to vote at the Special Meeting, you must obtain a proxy issued in your name from that record holder. Your vote is important.

You may vote by proxy by completing and mailing the enclosed proxy card. If you submit a proxy card, we will vote your shares as you direct. If you submit a proxy card without giving specific voting instructions for a particular proposal, those shares will be voted as recommended by the NewLink Board with respect to such proposal.

If you have a NewLink stock certificate or hold your shares in an account with our transfer agent, Computershare, you may also vote by proxy via the internet by going to the website www.proxyvote.com, and following the instructions provided there, or by telephone, by calling the following number: 1-800-690-6903 using a touch-tone phone and follow the recorded instructions. Have your proxy card in hand when you call and then follow the instructions. Your proxy card, internet or telephone vote must be received by 11:59 p.m., Eastern Time, on [•], 2019, to be counted.

We intend to provide definitive copies of our proxy materials to our stockholders on or about [•], 2019. We will make all of our proxy materials available on the internet at www.proxyvote.com, beginning on or about [•], 2019.

If your shares are held by a broker, bank or other agent, you are considered the beneficial owner of those shares, and your shares are held in “street name.” If you hold your shares in “street name” you will receive instructions from your broker, bank or other agent describing how to vote your shares. If you hold shares in “street name” and do not receive instructions on how to vote your shares, you should contact your broker, bank or other agent promptly and request this information.

Even if you have voted by proxy via one of the procedures listed above, you may still vote in person if you attend the Special Meeting. Please note, however, that if your shares are held of record by a broker, bank or other agent and you wish to vote at the Special Meeting, you must obtain a proxy issued in your name from that record holder.

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NEWLINK GENETICS CORPORATION
   
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Page
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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NEWLINK GENETICS CORPORATION
2503 South Loop Drive
Ames, Iowa 50010

PROXY STATEMENT
FOR THE SPECIAL MEETING OF STOCKHOLDERS
   
TO BE HELD ON [], 2019

To the Stockholders of NewLink Genetics Corporation:

A Special Meeting of Stockholders (the “Special Meeting”) of NewLink Genetics Corporation (“NewLink” or the “Company”) will be held at [•] Eastern Time, on [•], 2019, at the offices of NewLink, 2503 South Loop Drive, Suite 5100, Ames, IA 50010, to consider and act upon the following matters:

1.To approve the issuance of NewLink’s common stock pursuant to an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) entered into by and among NewLink, Cyclone Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company (“Merger Sub”), and Lumos Pharma, Inc., a privately-held Delaware corporation (“Lumos”), as well as the resulting “change of control” of NewLink under Nasdaq Stock Market rules (the “Merger Proposal”);
2.To amend NewLink’s amended and restated certificate of incorporation to effect a reverse stock split of NewLink’s common stock (the “Reverse Stock Split Proposal”);
3.To approve, on a non-binding advisory basis, certain compensation that may be paid or become payable to certain of NewLink’s named executive officers in connection with the merger (the “Merger”) contemplated by the Merger Agreement (the “Compensation Proposal”);
4.To adjourn or postpone the Special Meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the Merger Proposal or the Reverse Stock Split Proposal (the “Adjournment Proposal”); and
5.To conduct any other business properly brought before the meeting.

These items of business are more fully described in the accompanying proxy statement.

NewLink stockholders also will consider and act on any other matters as may properly come before the Special Meeting or any adjournment or postponement thereof, including any procedural matters incident to the conduct of the Special Meeting.

NewLink’s common stock is the only type of security entitled to vote at the Special Meeting. The NewLink board of directors (the “NewLink Board”) has fixed [•], 2019 as the record date for the determination of stockholders entitled to notice of, and to vote at, the Special Meeting and any adjournment or postponement thereof. Only holders of record of shares of NewLink’s common stock at the close of business on the record date are entitled to notice of, and to vote at, the Special Meeting. At the close of business on the record date, [•] shares of NewLink’s common stock were issued and outstanding and entitled to vote at the Special Meeting. Each holder of record of shares of NewLink’s common stock on the record date will be entitled to one vote for each share held on all matters to be voted upon at the Special Meeting.

Your vote is important. The affirmative vote of the majority of votes cast affirmatively or negatively is required for approval of Proposals 1, 3 and 4 (Merger Proposal, Compensation Proposal and Adjournment Proposal). The affirmative vote of holders of a majority of the outstanding shares of NewLink’s common stock entitled to vote at the Special Meeting is required for approval of Proposal 2 (Reverse Stock Split Proposal).

Whether or not you plan to attend the Special Meeting in person, please submit your proxy promptly by telephone or via the internet in accordance with the instructions on the enclosed proxy card or complete, date, sign and promptly return the accompanying proxy card in the enclosed postage paid envelope to ensure that your shares will be represented and voted at the Special Meeting. If you date, sign and return your proxy card without indicating how you wish to vote, your proxy will be counted as a vote in favor of Proposals 1 through 4. If you fail either to return your proxy card or to vote in person at the Special Meeting, your shares will not be counted for purposes of determining whether a quorum is present at the Special Meeting and will have the same effect as a vote against Proposal 2 (Reverse Stock Split Proposal), but assuming a quorum is present at the Special Meeting, will have no

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effect on the outcome of Proposal 1, 3 or 4 (Merger Proposal, Compensation Proposal or Adjournment Proposal). If you attend the Special Meeting, you may, upon your written request, withdraw your proxy and vote in person. You may revoke your proxy at any time before the polls close at the Special Meeting by sending a written notice to our Secretary at 2503 South Loop Drive, Suite 5100, Ames, IA 50010, by providing a duly executed proxy card bearing a later date than the proxy being revoked, by submitting a proxy on a later date by telephone or via the internet (only your last telephone or internet proxy will be counted) before 11:59 p.m. Eastern Time on [•], 2019 or by attending the Special Meeting and voting in person.

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SUMMARY

This summary highlights information contained elsewhere in this proxy statement and may not contain all the information that is important to you with respect to the Merger, Merger Agreement, the issuance of NewLink’s common stock pursuant to the Merger Agreement and the resulting “change of control” of NewLink under Nasdaq rules and the other matters being considered at the Special Meeting of Stockholders (the “Special Meeting”) to which this proxy statement relates. We urge you to read carefully the remainder of this proxy statement, including the attached annexes, and the other documents to which we have referred you. For additional information on NewLink, see “Where You Can Find More Information” beginning on page 160. We have included page references in this summary to direct you to a more complete description of the topics presented below.

All references in this proxy statement to:

“NewLink,” the “Company,” “we,” “us,” or “our” refer to NewLink Genetics Corporation,
“Lumos” refer to Lumos Pharma, Inc.,
“Effective Time” refer to the effective time of the Merger,
“Merger” refer to the merger subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, whereby Merger Sub will merge with and into Lumos, with Lumos surviving as a wholly-owned subsidiary of NewLink,
“Merger Sub” refer to Cyclone Merger Sub, Inc.,
the “Merger Agreement” refer to the Agreement and Plan of Merger and Reorganization, dated as of September 30, 2019, by and among NewLink, Merger Sub and Lumos, as amended on November 19, 2019,
“Nasdaq” refer to The Nasdaq Global Market or The Nasdaq Stock Market LLC, as applicable, and
the “combined company” refer to NewLink, to be renamed as Lumos Pharma, Inc., as the combined company immediately following the Effective Time.

The Companies

NewLink Genetics Corporation
2503 South Loop Drive
Ames, Iowa 50010
(515) 296-5555

NewLink is a Delaware corporation founded in 1999. Our principal executive office is located in Ames, Iowa, with additional offices located in Austin, Texas and Wayne, Pennsylvania. We are a clinical-stage immuno-oncology company that has historically focused on developing novel immunotherapeutic products for the treatment of patients with cancer. Our leading small-molecule product candidates currently in clinical development target the indoleamine-2, 3-dioxygenase (“IDO”) pathway, which is one of the key pathways for cancer immune escape. These product candidates, indoximod and NLG802 (a prodrug of indoximod), are IDO pathway inhibitors with mechanisms of action that center around breaking the immune system’s tolerance to cancer. We also have an additional small molecule product candidate, NLG207, which is a nanoparticle-drug conjugate consisting of a cyclodextrin-based polymer backbone linked to camptothecin, a topoisomerase 1 inhibitor.

After the consummation of the Merger, the combined company expects to focus its efforts on the development of Lumos’ sole product candidate, LUM-201 (ibutamoren), a potential oral therapy for pediatric growth hormone deficiency (“PGHD”) and other rare endocrine disorders. Our management does not intend to pursue further internal development of our existing pipeline upon consummation of the Merger, but will continue to evaluate our pipeline pending results of the diffuse intrinsic pontine glioma (“DIPG”) cohort of our Phase 1b clinical trial for indoximod and, depending on such results, may seek to identify potential partnerships and licensing opportunities.

In November 2014, we entered into an exclusive, worldwide license and collaboration agreement (the “Merck Agreement”), with Merck Sharp and Dohme Corp. (“Merck”) to develop and potentially commercialize our Ebola vaccine V920 product candidate and other aspects of our vaccine technology. The Ebola vaccine V920 product candidate was originally developed by the Public Health Agency of Canada and is designed to utilize the rVSV vector to induce immunity against the Ebola virus when replacing the VSV glycoprotein with corresponding glycoproteins from filoviruses. If the vaccine is approved by the U.S. Food and Drug Administration (the “FDA”), the Ebola

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vaccine V920 is eligible to receive a priority review voucher (“PRV”) and we are entitled to a substantial portion of the value of the voucher if it is granted. Merck announced in September 2019 that the FDA had accepted its biologics license application (“BLA”) filing and granted priority review for the Ebola vaccine V920. The FDA’s Prescription Drug User Fee Act, or target action date, for the Ebola vaccine V920 is set for March 14, 2020.

Our common stock is traded on The Nasdaq Global Market under the symbol “NLNK.”

Cyclone Merger Sub, Inc.
2801 Via Fortuna
Suite 520
Austin, Texas 78746

Merger Sub is a wholly-owned subsidiary of NewLink that was recently incorporated in Delaware for the purpose of the Merger. It does not conduct any business and has no material assets.

Lumos Pharma, Inc.
4200 Marathon Blvd., Suite 200
Austin, Texas 78756
(512) 215-2630

Lumos is a Delaware corporation founded in 2011. Its principal executive office is located in Austin, Texas. Lumos is a clinical-stage biopharmaceutical company focused on the identification, acquisition, in-license, development, and commercialization of novel products for the treatment of rare diseases. Lumos’ current pipeline is focused on the development of an orally administered small molecule, the growth hormone (“GH”) secretagogue ibutamoren (“LUM-201,” previously MK-0677 and L-163,191) for three rare endocrine disorders. A secretagogue is a substance that stimulates the secretion or release of another substance. LUM-201 stimulates the release of GH and is referred to as a GH secretagogue. The current targeted indications for LUM-201 are PGHD, Turner Syndrome and Children Born Small for Gestational Age (“SGA”), in each case in a certain subset of affected patients. If approved, LUM-201 has the potential to become the first approved oral GH secretagogue to treat rare endocrine disorders associated with GH deficiencies, starting with PGHD, providing an alternative to the current standard regimen of daily injections.

The Combined Company

Immediately following the Effective Time, the pre-Merger NewLink stockholders and the pre-Merger Lumos stockholders will each own approximately 50% of the outstanding common stock of the combined company as discussed in “The Merger Agreement — Exchange Ratios.” The principal executive office of the combined company is expected to be located in Austin, Texas.

Summary of the Merger

Upon the terms and subject to the conditions of the Merger Agreement, Merger Sub, a wholly-owned subsidiary of NewLink formed by NewLink in connection with the Merger, will merge with and into Lumos. The Merger Agreement provides that at the Effective Time the separate existence of Merger Sub shall cease. Lumos will continue as the surviving corporation and will be a wholly-owned subsidiary of NewLink. Immediately following the Effective Time, NewLink stockholders will own approximately 50% of the outstanding common stock of the combined company and Lumos stockholders will own approximately 50% of the outstanding common stock of the combined company. Following the Merger, NewLink will change its name to “Lumos Pharma, Inc.” and Lumos will change its name to a name that is mutually agreed upon by NewLink and Lumos.

NewLink’s Reasons for the Merger (see page 63)

The primary reason that NewLink’s board of directors (the “NewLink Board”) approved the Merger is to create a combined company that will be a clinical-stage biopharmaceutical company focused on developing novel treatments for rare diseases. The NewLink Board believes that the combined company will offer the following potential advantages to NewLink stockholders:

Clinical-Stage Specialty Biopharmaceutical Company. The combined company will be focused on advancing further Lumos’ sole product candidate, LUM-201, to potentially be, if approved, the first oral treatment for a subset of PGHD patients and developing novel treatments for other rare diseases.

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Management Team. The combined company will be led by experienced senior management from both NewLink and Lumos and a board of directors of seven members with three designated by NewLink, three designated by Lumos, and one to be designated following the Merger by the board of directors of the combined company.
Cash Resources. The combined company is expected to be sufficiently funded to enable the combined company to implement its near-term business plans, including the Phase 2b clinical trial for LUM-201.
Cost Savings. The combined company may be able to achieve cost savings and synergies from, among other things, reductions in corporate overhead and administrative costs in comparison to both companies on a stand-alone basis.

In approving the Merger, the NewLink Board considered a number of factors, including the following:

the strategic alternatives of NewLink to the Merger, including potential transactions that could have resulted from discussions that NewLink management conducted with other potential strategic partners and the belief that the Merger with Lumos would provide NewLink stockholders with a greater potential opportunity to realize a return on their investment than any other alternative reasonably available to NewLink stockholders at that time;
the opportunity for NewLink stockholders to participate in the potential increase in value that may result from the development of Lumos’ product candidate and of the combined company following the Merger;
the risks of continuing to operate NewLink on a stand-alone basis given current market sentiment toward IDO inhibitors as a class and the likelihood that market conditions for NewLink would not change for the benefit of NewLink stockholders in the foreseeable future on a stand-alone basis; and
Stifel, Nicolaus & Company, Incorporated’s (“Stifel”) opinion to the NewLink Board that the merger consideration to be paid by NewLink (the “Merger Consideration”) in the Merger pursuant to the Merger Agreement was fair, from a financial point of view, to NewLink, as more fully described below under the caption “Opinion of NewLink’s Financial Advisor.”

Lumos’ Reasons for the Merger (see page 79)

The primary reason that the board of directors of Lumos (the “Lumos Board”) approved the Merger is to create a combined company that will be a clinical-stage biopharmaceutical company focused on developing novel treatments for rare diseases. The Lumos Board believes that the combined company will offer the following potential advantages to Lumos stockholders:

Clinical-Stage Specialty Biopharmaceutical Company. Lumos will be focused on developing novel treatments for rare diseases and continuing to advance its sole product candidate, LUM-201, to potentially be, if approved, the first oral treatment for a subset of PGHD patients.
Management Team. It is expected that the combined company will be led by the experienced Chief Executive Officer from Lumos, with key executives from both NewLink and Lumos and a board of directors with representation from each of Lumos and NewLink.
Cash Resources. The combined company is expected to have, on a pro forma basis, approximately $80 million in cash and cash equivalents at December 31, 2019, after providing for restructuring and severance costs and reserves, transaction costs and potential employee bonuses which may not be fully paid out as of December 31, 2019. The Lumos Board believes such cash resources will be sufficient to enable the combined company to implement its near-term business plans. Additional cash may be obtained upon the issuance and monetization of the PRV to NewLink’s licensee, Merck, if Merck’s BLA for the licensed Ebola vaccine is approved by the FDA.

In approving the Merger, the Lumos Board considered a number of factors, including the following:

the process undertaken by the Lumos Board and management to ascertain alternatives to the Merger, including partnering transactions and private fundraising transactions;
the possible alternatives to the Merger, the range of possible benefits to the Lumos stockholders of such alternatives and the timing and the likelihood of completing and accomplishing the goal of any of such alternatives;

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the financial condition, historical results of operations and business and strategic objectives of Lumos, as well as the risks involved in achieving those objectives;
the amount and form of consideration to be received by the Lumos stockholders in the Merger pursuant to the Merger Agreement taking into account whether any alternatives to the Merger would reasonably likely be achievable and derive more value for the Lumos stockholders;
the expectation that the Merger will be treated as a tax-deferred reorganization for United States federal income tax purposes; and
the expected duration of the interim period between the signing of the Merger Agreement and the expected closing and whether it is advisable to proceed given current economic, industry and market conditions.

Opinion of NewLink’s Financial Advisor (see page 69 and Annex F)

At a meeting of the NewLink Board on September 30, 2019, Stifel rendered its oral opinion, subsequently confirmed in writing by delivery of a written opinion, to the NewLink Board that, as of that date and based upon and subject to the factors, limitations and assumptions set forth in its opinion, the Merger Consideration to be paid by NewLink in the Merger pursuant to the Merger Agreement was fair to NewLink from a financial point of view.

The full text of the written opinion of Stifel, dated September 30, 2019, which sets forth, among other things, the assumptions made, procedures followed, matters considered and qualifications and limitations on the opinion and review undertaken in connection with rendering its opinion, is included as Annex F to this proxy statement and is incorporated herein by reference. Stifel’s opinion is addressed to the NewLink Board, is directed only to the consideration of the financial terms of the Merger and does not constitute a recommendation to the NewLink Board as to how the NewLink Board should vote on the Merger or any stockholder of NewLink as to how such stockholder should vote with respect to the Merger or any other matter, including whether or not any NewLink or Lumos stockholder should exercise any dissenters’, appraisal or similar rights that may be available to such stockholder. The summary of Stifel’s opinion set forth in this proxy statement is qualified in its entirety by reference to the full text of such opinion. For additional information relating to Stifel’s opinion, see “The Merger — Opinion of NewLink’s Financial Advisor” beginning on page 69.

The Board of Directors Following the Merger (see page 140)

At the Effective Time, the board of directors of the combined company will consist of three members designated by NewLink, and three members designated by Lumos. One member is to be designated following the Merger by the board of directors of the combined company.

Interests of NewLink’s Directors and Executive Officers in the Merger (see page 65)

NewLink’s directors and executive officers have economic interests in the Merger that are different from, or in addition to, those of NewLink stockholders generally. These interests include:

NewLink’s executive officers are parties to employment agreements that provide for severance and change in control benefits in the event of certain qualifying terminations of employment in certain circumstances, including following the Merger;
with respect to NewLink’s executive officers, the vesting of their outstanding equity awards granted under NewLink’s 2009 Equity Incentive Plan (as amended, the “2009 Plan”) will be accelerated by 12 months upon closing of the Merger;
with respect to NewLink’s directors who will resign in connection with the Merger, the vesting of their outstanding equity awards granted under the 2009 Plan will be 100% accelerated upon closing of the Merger and the exercise period for such awards will be extended until the one-year anniversary of their respective resignations; and
Certain NewLink directors and executive officers will provide continued service as directors or executive officers of the combined company.

These interests are discussed in more detail in “The Merger — Interests of NewLink’s Directors and Executive Officers in the Merger.” The NewLink Board was aware of and considered these interests, among other matters, in reaching its decision to approve and declare advisable the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement.

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Federal Securities Law Consequences; Resale Restrictions (see page 83)

The issuance of NewLink’s common stock in the Merger to Lumos stockholders will be effected by means of a private placement, which is exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance on Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder and such shares will be “restricted securities.” The shares issued in connection with the Merger will not be registered under the Securities Act upon issuance and will not be freely transferable. Holders of such shares may not sell their respective shares unless the shares are registered under the Securities Act or an exemption is available under the Securities Act.

The Merger Agreement provides that NewLink will, within 90 days after the closing of the Merger, file a registration statement on Form S-3 (or other appropriate form) to register all such shares for resale, and to use commercially reasonable efforts to cause such registration statement to be effective for three years so long as the shares of NewLink’s common stock issued in the Merger remain outstanding without a transfer exemption under the Securities Act. See also “The Merger Agreement — Merger Consideration.”

Material U.S. Federal Income Tax Consequences of the Reverse Stock Split and the Merger (see page 100)

The reverse stock split is expected to constitute a “recapitalization” for U.S. federal income tax purposes. As a result, a U.S. Holder (as defined in “The Merger — Material U.S. Federal Income Tax Consequences of the Reverse Stock Split and the Merger” beginning on page 100 of this proxy statement) of NewLink’s common stock generally should not recognize gain or loss upon the reverse stock split, except with respect to cash received in lieu of a fractional share of NewLink’s common stock, as discussed in “The Merger — Material U.S. Federal Income Tax Consequences of the Reverse Stock Split and the Merger” beginning on page 100 of this proxy statement. For more information, see “The Merger — Material U.S. Federal Income Tax Consequences of the Reverse Stock Split and the Merger” beginning on page 100 of this proxy statement.

The Merger is intended to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”). NewLink stockholders will not sell, exchange or dispose of any shares of NewLink’s common stock as a result of the Merger. Thus, there should be no material U.S. federal income tax consequences to NewLink stockholders in respect of their NewLink stock as a result of the Merger.

Risk Factors (see page 16)

The Merger, including the possibility that the Merger may not be consummated, poses a number of risks to NewLink and its stockholders. In addition, both NewLink and Lumos are subject to various risks associated with their businesses and their industries, and the combined business will also be subject to those and other risks.

Regulatory Approvals (see page 82)

Neither NewLink nor Lumos is required to make any filings or to obtain approvals or clearances from any antitrust regulatory authorities in the United States or other countries to consummate the Merger. In the United States, NewLink must comply with applicable federal and state securities laws and Nasdaq rules and regulations in connection with the issuance of shares of NewLink’s common stock in the Merger, including the filing with the SEC of this proxy statement.

Anticipated Accounting Treatment (see page 85)

The Merger will be treated by NewLink as a reverse merger with Lumos being deemed the acquiror for accounting purposes. Further, the Merger is to be accounted for as an asset acquisition rather than a business combination because the assets acquired and liabilities assumed from NewLink do not meet the definition of a business as defined by ASC 805, Business Combinations.

Reverse Stock Split (see page 97)

At the Special Meeting, NewLink stockholders will be asked to approve the amendment (the “Charter Amendment”) to the amended and restated certificate of incorporation of NewLink to effect a reverse stock split of the issued and outstanding shares of NewLink’s common stock. Upon the effectiveness of the Charter Amendment effecting the reverse stock split, the outstanding shares of NewLink’s common stock will be combined into a lesser number of shares such that one share of NewLink’s common stock will be issued for a specified number of shares,

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which shall be between five and nine, of outstanding NewLink’s common stock, with the exact number within the range to be mutually agreed upon by NewLink and Lumos prior to the closing of the Merger. The proposed reverse stock split will not change the number of authorized shares, or the par value, of NewLink’s common stock.

No Appraisal Rights (see page 100)

No appraisal rights are available to the holders of NewLink’s common stock in connection with the Merger.

Selected Unaudited Pro Forma Condensed Combined Financial Information of NewLink and Lumos (see page 144)

The following unaudited pro forma condensed combined financial statements give effect to the Merger and were prepared in accordance with the regulations of the SEC. The unaudited pro forma condensed combined financial statements were prepared using the acquisition method of accounting under GAAP. For accounting purposes, Lumos is considered to be acquiring NewLink in the Merger. Lumos was determined to be the accounting acquirer based upon the terms of the Merger Agreement and other factors including: (i) Lumos stockholders will own approximately 50% of outstanding common stock of the combined company immediately following the closing of the Merger, (ii) the board of directors of the combined company will consist of three members designated by NewLink, three members designated by Lumos and the combined company’s board of directors will unanimously appoint a seventh member and (iii) the combined company will be led by Lumos’ current chief executive officer and other current members of senior management of both Lumos and NewLink. For the purpose of these unaudited pro forma condensed combined financial statements, management of NewLink and Lumos have determined a preliminary estimated purchase price, calculated as described in Note 2 to the unaudited pro forma condensed combined financial statements. Further, the Merger is to be accounted for as an asset acquisition rather than a business combination because the assets acquired and liabilities assumed from NewLink do not meet the definition of a business as defined by ASC 805, Business Combinations. The net assets acquired and liabilities assumed in connection with the Merger are recorded at their estimated acquisition date fair values. A final determination of these estimated fair values will be based on the actual net assets of NewLink that exist as of the date of completion of the Merger.

The unaudited pro forma condensed combined balance sheet as of September 30, 2019 assumes that the Merger took place on September 30, 2019 and combines the historical balance sheets of NewLink and Lumos as of September 30, 2019. The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2019 and for the year ended December 31, 2018 assume that the Merger took place as of January 1, 2018 and combine the historical results of NewLink and Lumos for the nine months ended September 30, 2019 and for the year ended December 31, 2018, respectively. The historical financial statements of NewLink and Lumos, which are provided (or incorporated by reference) elsewhere in this proxy statement, have been adjusted to give pro forma effect to events that are (i) directly attributable to the Merger, (ii) factually supportable, and (iii) with respect to the statements of operations, expected to have a continuing impact on the combined results.

The selected unaudited pro forma condensed combined financial data are presented for illustrative purposes only and are not necessarily indicative of the combined financial position or results of operations of future periods or the results that actually would have been realized had the entities been a single entity during these periods. The selected unaudited pro forma condensed combined financial data as of and for the nine months ended September 30, 2019 and for the year ended December 31, 2018 are derived from the unaudited pro forma condensed combined financial information and should be read in conjunction with that information. For more information, please see the section titled “Unaudited Pro Forma Condensed Combined Financial Information” in this proxy statement.

Unaudited Pro Forma Condensed Combined Balance Sheet Data

 
As of
September 30, 2019
 
(in thousands)
Cash and cash equivalents
$
106,192
 
Working capital, net
 
92,184
 
Total assets
 
151,233
 
Total liabilities
 
24,677
 
Accumulated deficit
 
(59,981
)
Total shareholders’ equity
 
138,325
 

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Unaudited Pro Forma Condensed Combined Statement of Operations

 
For the Nine
Months Ended
September 30, 2019
For the
Year Ended
December 30, 2018
 
(in thousands)
Total revenue
$
503
 
$
12,174
 
Research and development
 
22,002
 
 
54,447
 
General and administrative
 
19,865
 
 
31,751
 
Total operating expenses
 
41,867
 
 
86,198
 
Loss from operations
 
(41,364
)
 
(73,724
)
Net loss
 
(39,549
)
 
(64,757
)
Basic and diluted loss per share
$
(0.53
)
$
(0.87
)

Comparative Historical and Unaudited Pro Forma Per Share Data

The information below reflects the historical net loss and book value per share of NewLink’s common stock and the historical net loss and book value per unit of Lumos’ common stock in comparison with the unaudited pro forma net loss and book value per share after giving effect to the Merger on a pro forma basis. The unaudited pro forma net loss and book value per share does not give effect to the reverse stock split contemplated by the Reverse Stock Split Proposal.

You should read the tables below in conjunction with the audited and unaudited consolidated financial statements of NewLink and the related notes, the audited and unaudited financial statements of Lumos and the related notes, and the unaudited pro forma condensed combined financial information and notes related to such financial statements included elsewhere in or incorporated by reference into this proxy statement.

 
Nine Months Ended
September 30, 2019
NewLink Historical Per Share Data
 
 
 
Net loss per share, basic and diluted
$
(0.93
)
Book value per share
$
2.48
 
Lumos Historical Per Share Data
 
 
 
Net loss per share, basic and diluted
$
(0.94
)
Book value per share
$
(6.31
)
Combined Company Per Share Data
 
 
 
Net loss per share, basic and diluted
$
(0.53
)
Book value per share
$
1.73
 
Lumos Unaudited Pro Forma Equivalent Per Share Data
 
 
 
Net loss per share, basic and diluted
$
(0.19
)
Book value per share
$
0.17
 

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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

Except as specifically indicated, the following information and all other information contained in this proxy statement does not give effect to the reverse stock split described in Proposal 2.

The following questions and answers are intended to briefly address commonly asked questions as they pertain to the Special Meeting of Stockholders (the “Special Meeting”) of NewLink Genetics Corporation (“NewLink”, the “Company”, “we” or “us”), the Agreement and Plan of Merger and Reorganization (as amended, the “Merger Agreement”), the merger contemplated therein and the proposals to be voted on at the Special Meeting.

These questions and answers may not address all questions that may be important to you as a stockholder. Please refer to the “Summary” beginning on page 1 and the more detailed information contained elsewhere in this proxy statement and the annexes to this proxy statement, each of which you should read carefully.

What is the Merger?

NewLink, Lumos Pharma, Inc., a privately-held Delaware corporation (“Lumos”) and Cyclone Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company (“Merger Sub”), have entered into the Merger Agreement that contains the terms and conditions of the proposed business combination of NewLink and Lumos. Under the Merger Agreement, Merger Sub will merge with and into Lumos, with Lumos surviving as a wholly-owned subsidiary of NewLink (the “Merger”). Immediately following the effective time of the Merger (the “Effective Time”), NewLink stockholders will own approximately 50% of the outstanding common stock of the combined company (“combined company”) and Lumos stockholders will own approximately 50% of the outstanding common stock of the combined company. Immediately following the Merger, the combined company will be renamed as Lumos Pharma, Inc. and Lumos will be renamed to a name mutually agreed upon by NewLink and Lumos.

For a more complete description of the Merger, see “The Merger Agreement” beginning on page 86 of this proxy statement.

What will happen to NewLink if, for any reason, the Merger with Lumos does not close?

NewLink has invested significant time and incurred, and expects to continue to incur, significant expenses related to the proposed Merger with Lumos. If we do not consummate the Merger, we may be subject to certain material risks, including, the following: (i) under certain circumstances, we may be required to pay a termination fee to Lumos of $2.0 million; (ii) the price of our common stock may decline and remain volatile; and (iii) certain costs related to the Merger, such as legal and accounting fees, must be paid even if the Merger is not completed. In addition, if the Merger is not completed and NewLink’s board of directors (the “NewLink Board”) determines to seek another business combination, it may not be able to find a third party willing to provide equivalent or more attractive consideration than the consideration to be provided by each party in the Merger. In such circumstances, the NewLink Board may elect to, among other things, seek to out-license or partner with respect to our product candidates, divest all or a portion of our business, or take the steps necessary to liquidate all of our business and assets, and in any such case, the terms of which may be less attractive to us and our stockholders than the terms of the Merger Agreement.

Why is NewLink proposing to merge with Lumos?

The NewLink Board considered a number of factors that supported its decision to approve the Merger Agreement. In the course of its deliberations, the NewLink Board also considered a variety of risks and other countervailing factors related to entering into the Merger Agreement.

For a more complete discussion of our reasons for the Merger, see “The Merger—NewLink’s Reasons for the Merger” and “The Merger—Recommendations of the NewLink Board” beginning on page 64 of this proxy statement.

What is required to consummate the Merger?

To consummate the Merger, NewLink stockholders must approve the issuance of NewLink’s common stock pursuant to the Merger Agreement, as well as the resulting “change of control” of NewLink under The Nasdaq Stock Market LLC (“Nasdaq”) rules (Proposal 1 – the “Merger Proposal”), which requires the affirmative vote of a majority of the votes cast affirmatively or negatively on the Merger Proposal. Lumos stockholders have already approved of the Merger and the Merger Agreement.

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In addition to obtaining NewLink stockholder approval, each of the other closing conditions set forth in the Merger Agreement must be satisfied or waived in order to consummate the Merger.

For a more complete description of the closing conditions under the Merger Agreement, see “The Merger Agreement — Conditions to the Closing of the Merger” beginning on page 88 of this proxy statement.

What will NewLink stockholders receive in the Merger?

On a pro forma basis, based upon the number of shares of NewLink’s common stock to be issued in the Merger, NewLink stockholders as of immediately prior to the Effective Time of the Merger will own approximately 50% of the outstanding common stock of the combined company and Lumos stockholders as of immediately prior to the Effective Time of the Merger will own approximately 50% of the outstanding common stock of the combined company, as further described under “The Merger Agreement — Exchange Ratios” beginning on page 87 of this proxy statement. In addition, based on the number of outstanding equity awards and shares of capital stock of each of NewLink and Lumos as of October 15, 2019, immediately following the Effective Time (i) holders of NewLink common stock and equity awards are expected to own approximately 52.8% of the fully-diluted common stock of the combined company and (ii) holders of Lumos capital stock and equity awards are expected to own approximately 47.2% of the fully-diluted common stock of the combined company. As of October 15, 2019 and based on the closing price of the NewLink common stock on Nasdaq on October 15, 2019, outstanding NewLink options to acquire 5,699,353 shares of NewLink common stock are out-of-the-money (out of a total of outstanding NewLink options to acquire 5,700,634 shares of NewLink common stock on such date).

What are the material federal income tax consequences of the Merger to me?

The Merger is intended to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”). NewLink stockholders will not sell, exchange or dispose of any shares of NewLink’s common stock as a result of the Merger. Thus, there should be no material U.S. federal income tax consequences to NewLink stockholders with respect to their NewLink stock as a result of the Merger.

For a more complete description of the tax consequences of the Merger, see “The Merger — Material U.S. Federal Income Tax Consequences of the Reverse Stock Split and the Merger” beginning on page 83 of this proxy statement.

Why is NewLink seeking stockholder approval to issue shares of NewLink’s common stock to existing Lumos stockholders in the Merger?

Because NewLink’s common stock is listed on Nasdaq, we are subject to Nasdaq rules. Rule 5635(a) of the Nasdaq rules requires stockholder approval with respect to issuances of NewLink’s common stock, among other instances, when the shares to be issued are being issued in connection with the acquisition of the stock or assets of another company and are equal to 20% or more of the outstanding shares of NewLink’s common stock before the issuance. Rule 5635(b) of the Nasdaq rules also requires stockholder approval when any issuance or potential issuance will result in a “change of control” of the issuer. Although Nasdaq has not adopted any rule on what constitutes a “change of control” for purposes of Rule 5635(b), Nasdaq has previously indicated that the acquisition of, or right to acquire, by a single investor or affiliated investor group, as little as 20% of the common stock (or securities convertible into or exercisable for common stock) or voting power of an issuer could constitute a change of control.

Based on an assumed Merger closing date of October 15, 2019, NewLink will be issuing approximately 37.3 million shares of its common stock to Lumos stockholders, and the common stock to be issued pursuant to the Merger Agreement will represent greater than 20% of its voting stock. Accordingly, NewLink is seeking stockholder approval of this issuance under Nasdaq rules.

What is the reverse stock split and why is it necessary?

Pursuant to the Merger Agreement, NewLink will effect a reverse stock split prior to the Effective Time of the Merger, at a reverse stock split ratio to be mutually agreed upon by NewLink and Lumos within the range approved by NewLink stockholders and publicly announced by NewLink, for the purpose of maintaining compliance with Nasdaq listing standards.

According to applicable Nasdaq rules, in order for NewLink’s common stock to continue to be listed on Nasdaq following the Merger, NewLink must satisfy certain requirements established by Nasdaq, including a $4.00 per share minimum bid price. Based on NewLink’s closing price as of November 19, 2019, NewLink expects that a reverse

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stock split will be necessary in order to maintain the listing of NewLink’s common stock on Nasdaq following the Merger. The NewLink Board expects that a reverse stock split of NewLink’s common stock will increase the market price of NewLink’s common stock so that NewLink is able to maintain compliance with the relevant Nasdaq listing requirements.

Accordingly, at the Special Meeting, NewLink stockholders will be asked to approve an amendment (the “Charter Amendment”) to our amended and restated certificate of incorporation (the “Charter”) to effect a reverse stock split of the issued and outstanding shares of NewLink’s common stock (Proposal 2 – the “Reverse Stock Split Proposal”). For additional information, see “Proposal 2: Approval of the Reverse Stock Split Proposal” beginning on page 97.

What are the material federal income tax consequences of the reverse stock split to me?

The reverse stock split is expected to constitute a “recapitalization” for U.S. federal income tax purposes. As a result, a U.S. Holder (as defined in “The Merger — Material U.S. Federal Income Tax Consequences of the Reverse Stock Split and the Merger” beginning on page 83 of this proxy statement) of NewLink’s common stock generally should not recognize gain or loss upon the reverse stock split, except with respect to cash received in lieu of a fractional share of NewLink’s common stock, as discussed in “The Merger — Material U.S. Federal Income Tax Consequences of the Reverse Stock Split and the Merger” beginning on page 83 of this proxy statement. A U.S. Holder’s aggregate tax basis in the shares of NewLink’s common stock received pursuant to the reverse stock split should equal the aggregate tax basis of the shares of NewLink’s common stock surrendered (excluding any portion of such basis that is allocated to any fractional share of NewLink’s common stock), and such U.S. Holder’s holding period in the shares of NewLink’s common stock received should include the holding period in the shares of NewLink’s common stock surrendered. U.S. Holders of shares of NewLink’s common stock acquired on different dates and at different prices should consult their tax advisors regarding the allocation of the tax basis and holding period of such shares. For more information, see “The Merger — Material U.S. Federal Income Tax Consequences of the Reverse Stock Split and the Merger” beginning on page 83 of this proxy statement.

Why am I being asked to consider and cast a non-binding advisory vote to approve the compensation that may be paid or become payable to NewLink’s named executive officers that is based on or otherwise relates to the Merger?

In July 2010, the SEC adopted rules that require companies to seek a non-binding advisory vote to approve certain compensation that may be paid or become payable to their named executive officers that is based on or otherwise relates to corporate transactions such as the Merger. In accordance with the rules promulgated under Section 14A of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), NewLink is providing its holders of common stock with the opportunity to cast a non-binding advisory vote on compensation that may be paid or become payable to NewLink’s named executive officers in connection with the Merger (Proposal 3 – the “Compensation Proposal”). For additional information, see “Proposal 3: Approval of the Compensation Proposal” beginning on page 101.

What will happen if NewLink stockholders do not approve the non-binding Compensation Proposal?

The vote to approve the non-binding Compensation Proposal is a vote separate and apart from the other proposals. Approval of the non-binding Compensation Proposal is not a condition to completion of the Merger, and it is advisory in nature only, meaning that it will not be binding on NewLink, Merger Sub or Lumos. Accordingly, if the Merger Proposal and the Reverse Stock Split Proposal are approved by NewLink stockholders and the Merger is completed, the compensation that is based on or otherwise relates to the Merger will be payable to NewLink’s named executive officers even if this proposal is not approved.

Why am I receiving this proxy statement?

You are receiving this proxy statement because you have been identified as a holder of our common stock as of the record date.

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How do I attend the Special Meeting?

The Special Meeting will be held on [•], 2019 at [•] a.m. Eastern Time at the principal executive offices of NewLink at 2503 South Loop Drive, Suite 5100, Ames, IA 50010. Information on how to vote in person at the Special Meeting is discussed below. However, you do not need to attend the Special Meeting to vote your shares. Instead, you may simply complete, sign and return the enclosed proxy card, or follow the instructions below or on the proxy card to submit your proxy via the telephone or the internet.

Who can vote at the Special Meeting?

Only stockholders of record as of [•], or the record date, will be entitled to vote at the Special Meeting. On the record date, there were [•] shares of NewLink’s common stock outstanding and entitled to vote.

Stockholder of Record: Shares Registered in Your Name

If on [•] your shares were registered directly in your name with our transfer agent, Computershare Shareowner Services LLC, then you are a stockholder of record. As a stockholder of record, you may vote in person at the Special Meeting or vote by proxy. Whether or not you plan to attend the Special Meeting, we urge you to vote by proxy over the telephone or on the internet as instructed below, or to fill out and return the enclosed proxy card to ensure your vote is counted.

Beneficial Owner: Shares Registered in the Name of a Broker or Bank

If on [•], 2019 your shares were held not in your name with our transfer agent, but rather in an account at a brokerage firm, bank, dealer or other similar organization, then you are the beneficial owner of shares held in “street name.” The organization holding your account is considered to be the stockholder of record for purposes of voting at the Special Meeting. As a beneficial owner, you have the right to direct your broker, bank or other agent regarding how to vote the shares in your account in accordance with the instructions you have received from them. You are also invited to attend the Special Meeting. However, since you are not the stockholder of record, you may not vote your shares in person at the Special Meeting unless you request and obtain a valid proxy from your broker, bank or other agent that is the stockholder of record.

What am I voting on?

There are four matters scheduled for a vote:

1.The Merger Proposal
2.The Reverse Stock Split Proposal
3.The Compensation Proposal
4.To adjourn or postpone the Special Meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the Merger Proposal or the Reverse Stock Split Proposal (the “Adjournment Proposal”)

What if another matter is properly brought before the meeting?

We know of no other matters that will be presented for consideration at the Special Meeting. If any other matters are properly brought before the meeting, it is the intention of the persons named in the accompanying proxy to vote on those matters in accordance with their best judgment.

How do I vote?

For each of the proposal to be voted on, you may vote “FOR” or “AGAINST” or abstain from voting.

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The procedures for voting are:

Stockholder of Record: Shares Registered in Your Name

If you are a stockholder of record, you may vote in person at the Special Meeting, vote by proxy over the telephone, vote by proxy through the internet, or vote by proxy using the enclosed proxy card. Whether or not you plan to attend the Special Meeting, we urge you to vote by proxy to ensure that your vote is counted. You may still attend the Special Meeting and vote in person even if you have already voted by proxy.

To vote in person, come to the Special Meeting and we will give you a ballot when you arrive.
To vote using the proxy card, simply complete, sign and date the enclosed proxy card and return it promptly in the envelope provided. If you return your signed proxy card to us before the meeting, we will vote your shares as you direct.
To vote over the telephone, dial toll-free 1-800-690-6903 using a touch-tone phone and follow the recorded instructions. You will be asked to provide the control number from the enclosed proxy card. Your telephone vote must be received by 11:59 p.m., Eastern Time, on [•], 2019 to be counted.
To vote through the internet, go to www.proxyvote.com to complete an electronic proxy card. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. Your internet vote must be received by 11:59 p.m., Eastern Time, on [•], 2019 to be counted.

Beneficial Owner: Shares Registered in the Name of Broker or Bank

If you are a beneficial owner of shares registered in the name of your broker, bank or other agent, you should have received a voting instruction form accompanying the proxy materials containing voting instructions from that organization rather than from us. Simply follow the voting instructions in the voting instruction form to ensure that your vote is counted. To vote in person at the Special Meeting, you must obtain a valid proxy from your broker, bank or other agent. Follow the instructions from your broker or bank included with these proxy materials, or contact your broker or bank to request a proxy form.

Internet proxy voting may be provided to allow you to vote your shares online, with procedures designed to ensure the authenticity and correctness of your proxy vote instructions. However, please be aware that you must bear any costs associated with your internet access, such as usage charges from internet access providers and telephone companies.

How many votes do I have?

On each matter to be voted upon, you have one vote for each share of common stock you own as of [•], 2019, the record date. Common stock is the only class of voting securities currently outstanding and entitled to vote.

What happens if I do not vote?

Stockholder of Record: Shares Registered in Your Name

If you are a stockholder of record and do not vote (1) by completing and returning your proxy card, (2) by telephone, (3) through the internet or (4) in person at the Special Meeting, your shares will not be voted.

Beneficial Owner: Shares Registered in the Name of Broker or Bank

If you are a beneficial owner and do not instruct your broker, bank, or other agent how to vote your shares, the question of whether your broker, bank or other agent will still be able to vote your shares depends on whether the New York Stock Exchange (NYSE) deems the particular proposal to be a “routine” matter. Brokers, banks and other agents can use their discretion to vote “uninstructed” shares with respect to matters that are considered to be “routine,” but not with respect to “non-routine” matters. Under the rules and interpretations of the New York Stock Exchange, “non-routine” matters are matters that may substantially affect the rights or privileges of stockholders, such as mergers, shareholder proposals, elections of directors (even if not contested), executive compensation (including any advisory shareholder votes on executive compensation and on the frequency of shareholder votes on

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executive compensation), and certain corporate governance proposals, even if management-supported. These rules apply to brokers holding our shares even though our common stock is traded on The Nasdaq Global Market. Accordingly, your broker, bank or other agent may not vote your shares on Proposals 1 or 3 (Merger Proposal or Compensation Proposal), without your instructions, but may vote your shares on Proposals 2 or 4 (Reverse Stock Split Proposal or Adjournment Proposal) even in the absence of your instruction.

What if I return a proxy card or otherwise vote but do not make specific choices?

If you return a signed and dated proxy card or otherwise vote without marking voting selections, your shares will be voted, as applicable, “FOR” the Merger Proposal, “FOR” the Reverse Stock Split Proposal, “FOR” the Compensation Proposal, and “FOR” the Adjournment Proposal. If any other matter is properly presented at the meeting, your proxyholder (one of the individuals named on your proxy card) will vote your shares using his or her best judgment.

Who is paying for this proxy solicitation?

We will pay for the entire cost of soliciting proxies. In addition to these proxy materials, our directors and employees may also solicit proxies in person, by telephone, or by other means of communication. Directors and employees will not be paid any additional compensation for soliciting proxies. We have engaged The Proxy Advisory Group, LLC to assist in the solicitation of proxies and provide related advice and information support for a services fee and customary disbursements, which are not expected to exceed $25,000 in total. We may also reimburse brokerage firms, banks and other agents for the cost of forwarding proxy materials to beneficial owners.

What does it mean if I receive more than one set of proxy materials?

If you receive more than one set of proxy materials, your shares may be registered in more than one name or in different accounts. For example, you may own some shares directly as a stockholder of record and other shares through a broker, or you may own shares through more than one broker. In these situations, you will receive multiple sets of proxy materials. You must complete, sign, date and return all of the proxy cards or follow the instructions for any alternative voting procedures on each of the proxy cards you receive in order to vote all of the shares you own. Each proxy card you receive will come with its own postage-paid return envelope; if you vote by mail, make sure you return each proxy card in the return envelope that accompanied that proxy card.

Can I change my vote after submitting my proxy?

Stockholder of Record: Shares Registered in Your Name

Yes. You can revoke your proxy at any time before the final vote at the Special Meeting. If you are the record holder of your shares, you may revoke your proxy in any one of the following ways:

You may submit another properly completed proxy card with a later date;
You may grant a subsequent proxy by telephone or through the internet;
You may send a timely written notice that you are revoking your proxy to our Secretary at 2503 South Loop Drive, Suite 5100, Ames, IA 50010; or
You may attend the Special Meeting and vote in person (simply attending the meeting will not, by itself, revoke your proxy).

Your most current proxy card or telephone or internet proxy is the one that is counted.

Beneficial Owner: Shares Registered in the Name of Broker or Bank

If your shares are held by your broker or bank as a nominee or agent, you should follow the instructions provided by your broker or bank.

When are stockholder proposals due for next year’s annual meeting?

To be considered for inclusion in next year’s proxy materials, your proposal must be submitted in writing and received by December 7, 2019 to Corporate Secretary, NewLink Genetics Corporation, 2503 South Loop Drive, Ames, Iowa 50010. If you wish to submit a director nomination or a proposal at next year’s annual meeting that is not to be included in next year’s proxy materials, you must do so by no later than the close of business on February 8, 2020, nor earlier than the close of business on January 9, 2020, and you must comply with the

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requirements of Section 5(b) in our amended and restated bylaws (the “Bylaws”), including submitting written notice to our Corporate Secretary as set forth above. However, if the date of next year’s annual meeting is more than 30 days before or more than 30 days after May 9, 2020, then we must receive your notice no earlier than the close of business on the one hundred twentieth (120th) day prior to such meeting and no later than the close of business on the later of the ninetieth (90th) day prior to such meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made. You are also advised to review our Bylaws, which contain additional requirements regarding advance notice of stockholder proposals and director nominations.

What happens if I do not provide instructions on how to vote or if other matters are presented for determination at the Special Meeting?

If you are a stockholder of record and return your proxy card without instructions, the persons named as proxy holders on the proxy card will vote in accordance with the recommendations of the NewLink Board.

If you are a beneficial owner as noted above you generally cannot vote your shares directly and must instead instruct your broker, bank or other agent how to vote your shares using the voting instructions form provided by that intermediary. If you do not provide voting instructions, whether your shares can be voted by your broker, bank or other agent depends on the type of item being considered.

Non-Discretionary Items. If you do not provide voting instructions for any of the non-discretionary items at the Special Meeting, your broker, bank or other agent cannot vote your shares, resulting in a “broker non-vote.” Proposals 1 and 3 (Merger Proposal and Compensation Proposal) are non-discretionary items. Shares constituting broker non-votes will be counted as present for the purpose of determining a quorum at the Special Meeting, but generally are not counted or deemed to be present in person or by proxy for the purpose of voting on any of the non-discretionary items.
Discretionary Items. Even if you do not provide voting instructions, your broker, bank or other agent may vote in its discretion on Proposals 2 and 4 (Reverse Stock Split Proposal and Adjournment Proposal) because they are discretionary items.

What items are being voted upon, how does the NewLink Board recommend that you vote, and what are the standards for determining whether an item has been approved?

Proposal
Number
Proposal Description
NewLink Board
Recommendation
Vote Required for Approval
Effect of
Abstentions
Effect of Broker
Non-Vote
1
Merger Proposal
FOR
“FOR” votes from a majority of the votes cast
None
None
2
Reverse Stock Split Proposal
FOR
“FOR” votes from a majority of the outstanding shares entitled to vote
Against
Not
Applicable
3
Compensation Proposal
FOR
“FOR” votes from a majority of the votes cast
None
None
4
Adjournment Proposal
FOR
“FOR” votes from a majority of the votes cast
None
Not
Applicable

What is the quorum requirement?

A quorum of stockholders is necessary to hold a valid meeting. A quorum will be present if stockholders holding a majority of the outstanding shares entitled to vote are present at the meeting in person or represented by proxy. On the record date, there were [•] shares outstanding and entitled to vote. Thus, the holders of [•] shares must be present in person or represented by proxy at the meeting to have a quorum.

Your shares will be counted toward the quorum only if you submit a valid proxy (or one is submitted on your behalf by your broker, bank or other agent) or if you vote in person at the Special Meeting. Abstentions and broker non-votes will be counted towards the quorum requirement. If there is no quorum, the holders of a majority of shares present at the meeting in person or represented by proxy may adjourn the meeting to another date.

How can I find out the results of the voting at the Special Meeting?

Preliminary voting results will be announced at the Special Meeting. In addition, final voting results will be published in a current report on Form 8-K that we expect to file within four business days after the Special Meeting. If final voting results are not available to us in time to file a Form 8-K within four business days after the Special Meeting, we intend to file a Form 8-K to publish preliminary results and, within four business days after the final results are known to us, file an additional Form 8-K to publish the final results.

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MARKET AND DIVIDEND INFORMATION

NewLink’s common stock is listed on the Nasdaq under the symbol “NLNK.”

Lumos is a private company and its capital stock is not publicly traded. There has never been, nor is there expected to be in the future, a public market for Lumos’ capital stock. As of October 15, 2019, there were 30,104,338 shares of Lumos’ common stock outstanding and held of record by 14 stockholders.

Following the Effective Time, and subject to successful application for initial listing with Nasdaq, NewLink’s common stock will continue to be listed on Nasdaq, but will trade under the symbol “LUMO” and under the combined company’s new name, “Lumos Pharma, Inc.”

NewLink has never declared or paid and has no intention to declare or pay any cash dividends on its capital stock.

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RISK FACTORS

You should consider the following factors in evaluating the Merger and whether to approve the proposals to be voted on at the Special Meeting. These factors should be considered in conjunction with the other information included or incorporated by reference by NewLink in this proxy statement.

Risks Related to the Merger

If the proposed Merger with Lumos is not consummated, our business could suffer materially, and our stock price could decline.

The consummation of the proposed Merger with Lumos is subject to a number of closing conditions, including the approval by NewLink stockholders and other customary closing conditions. We are targeting a closing of the Merger by the first quarter of 2020.

If the proposed Merger is not consummated, we may be subject to a number of material risks, and our business and stock price could be materially adversely affected, as follows:

we may not be able to continue to operate NewLink on a stand-alone basis given current market sentiment toward indoleamine-2, 3-dioxygenase (“IDO”) inhibitors as a class and the likelihood that market conditions for NewLink would not change for the benefit of NewLink stockholders in the foreseeable future on a stand-alone basis;
we have incurred and expect to continue to incur significant expenses related to the proposed Merger with Lumos even if the Merger is not consummated;
the Merger Agreement contains covenants relating to our solicitation of competing acquisition proposals and the conduct of our business between the date of signing the Merger Agreement and the closing of the Merger. Accordingly, we may be unable to pursue business opportunities that would otherwise be in our best interest as a standalone company;
we may be obligated to pay Lumos a $2.0 million termination fee in connection with the termination of the Merger Agreement;
our customers, manufacturers, partners and other investors in general may view the failure to consummate the Merger as a poor reflection on our business or prospects;
some of our manufacturers and other business partners may seek to change or terminate their relationships with us as a result of the proposed Merger;
as a result of the proposed Merger, current and prospective employees could experience uncertainty about their future roles within the combined company. This uncertainty may adversely affect our ability to retain our key employees, who may seek other employment opportunities;
our workforce reduction costs may be greater than anticipated and our recent workforce reduction may have an adverse impact on our development activities;
our management team may be distracted from day to day operations as a result of the proposed Merger; and
the market price of our common stock may decline to the extent that the current market price reflects a market assumption that the proposed Merger will be completed.

In addition, if the Merger Agreement is terminated and the NewLink Board determines to seek another business combination, it may not be able to find a third party willing to provide equivalent or more attractive consideration than the consideration to be provided by each party in the Merger. In such circumstances, the NewLink Board may elect to, among other things, seek to out-license or partner with respect to our product candidates, divest all or a portion of our business, or take the steps necessary to liquidate all of our business and assets, and in either such case, the consideration that we receive may be less attractive than the consideration to be received by us pursuant to the Merger Agreement.

The exchange ratios are not adjustable based on the market price of NewLink’s common stock so the merger consideration at the closing may have a greater or lesser value than at the time the Merger Agreement was signed.

Pursuant to the Merger Agreement, the applicable exchange ratios are included in Lumos’ amended and restated certificate of incorporation (“Lumos’ Charter”), which does not include a price-based termination right and there will

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be no adjustment to the total number of shares of NewLink’s common stock that Lumos stockholders and optionholders will be entitled to receive for changes in the market price of NewLink’s common stock. Any changes in the market price of NewLink’s common stock before the completion of the Merger will not affect the number of shares Lumos stockholders will be entitled to receive pursuant to the Merger Agreement. See also “The Merger Agreement — Exchange Ratios.” Therefore, if before the completion of the Merger the market price of NewLink’s common stock increases from the market price on the date of the Merger Agreement, then Lumos stockholders could receive merger consideration with substantially more value for their shares of Lumos capital stock than the parties had negotiated for in the establishment of the exchange ratios.

Failure to complete the Merger may result in NewLink paying a termination fee or expenses to Lumos and could harm the common stock price of NewLink and future business and operations of NewLink.

If the Merger is not completed, we are subject to the following risks:

if the Merger Agreement is terminated under certain circumstances, we may be required to pay a termination fee to Lumos of $2,000,000;
the price of our stock may decline and remain volatile; and
significant costs related to the Merger, such as legal and accounting fees, which must be paid even if the Merger is not completed.

In addition, if the Merger Agreement is terminated and the NewLink Board determines to seek another business combination, there can be no assurance that we will be able to find a partner willing to provide equivalent or more attractive consideration than the consideration to be provided by Lumos.

If the conditions to the Merger are not met, the Merger may not occur.

Even if the Merger is approved by the NewLink stockholders, specified conditions must be satisfied or waived to complete the Merger. These conditions are set forth in the Merger Agreement and described in “The Merger Agreement — Conditions to the Closing of the Merger” beginning on page 88 of this proxy statement. We cannot assure you that all of the conditions will be satisfied or waived. If the conditions are not satisfied or waived, the Merger may not occur or will be delayed, and we may lose some or all of the intended benefits of the Merger.

Some of NewLink’s officers and directors have conflicts of interest that may influence them to support or approve the Merger.

Our officers and directors participate in arrangements that provide them with interests in the Merger, including, among others, their continued service as an officer or a director of the combined company, if applicable, retention and severance benefits, the acceleration of equity awards and continued indemnification. These interests, among others, may influence the officers and directors of NewLink to support or approve the Merger. For a more detailed discussion see “The Merger — Interests of NewLink’s Directors and Executive Officers in the Merger” beginning on page 65 of this proxy statement.

The Merger may be completed even though material adverse changes may result from the announcement of the Merger, industry-wide changes and other causes.

In general, either party can refuse to complete the Merger if there is a material adverse effect that has occurred between September 30, 2019, the date of the Merger Agreement, and the closing. However, some types of changes do not permit either party to refuse to complete the Merger, even if such changes would have a material adverse effect on NewLink or Lumos, to the extent they resulted from the following and do not have a materially disproportionate effect on NewLink or Lumos, as the case may be:

changes in general business, economic or political conditions affecting the industry in which the parties operate generally;
changes caused by any natural disaster or any acts of war, armed hostilities or terrorism;
changes in financial, banking or securities markets;
changes caused by the failure to meet internal or analysts’ expectations or projections or the results of operations;

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changes resulting from any clinical trial programs or studies, including any adverse data, event or outcome arising out of or related to any such programs or studies;
changes in, or compliance with or actions taken for the purpose of complying with, any law or U.S. generally accepted accounting principles (“GAAP”) (or interpretations of any law or GAAP);
changes resulting from the announcement or pendency of the Merger;
changes resulting from the taking of any action, or failure to take any action, that is required to be taken by the Merger Agreement; or
with respect to NewLink, a change in NewLink’s stock price or trading volume.

If adverse effects occur but NewLink and Lumos must still complete the Merger, the combined company’s stock price may suffer.

The market price of the combined company’s common stock may decline as a result of the Merger.

The market price of the combined company’s common stock may decline as a result of the Merger for a number of reasons including if:

the combined company does not achieve the perceived benefits of the Merger as rapidly or to the extent anticipated by financial or industry analysts;
the effect of the Merger on the combined company’s business and prospects is not consistent with the expectations of financial or industry analysts; or
investors react negatively to the effect on the combined company’s business and prospects from the Merger.

NewLink stockholders may not realize a benefit from the Merger commensurate with the ownership dilution they will experience in connection with the Merger.

If the combined company is unable to realize the strategic and financial benefits currently anticipated from the Merger, NewLink stockholders will have experienced substantial dilution of their ownership interest without receiving any commensurate benefit. Significant management attention and resources will be required to integrate the two companies. Delays in this process could adversely affect the combined company’s business, financial results, financial condition and stock price following the Merger. Even if the combined company were able to integrate the business operations successfully, there can be no assurance that this integration will result in the realization of the full benefits of synergies, innovation and operational efficiencies that may be possible from this integration and that these benefits will be achieved within a reasonable period of time.

During the pendency of the Merger, NewLink may not be able to enter into a business combination with another party and will be subject to contractual limitations on certain actions because of restrictions in the Merger Agreement.

Covenants in the Merger Agreement impede the ability of NewLink to make acquisitions or complete other transactions that are not in the ordinary course of business pending completion of the Merger. As a result, if the Merger is not completed, NewLink may be at a disadvantage to its competitors. In addition, while the Merger Agreement is in effect and subject to limited exceptions, each party is prohibited from soliciting, initiating, encouraging or taking actions designed to facilitate any inquiries or the making of any proposal or offer that could lead to the entering into certain extraordinary transactions with any third party, such as a sale of assets, an acquisition of NewLink’s common stock, a tender offer for NewLink’s common stock or a merger or other business combination outside the ordinary course of business. Any such transactions could be favorable to NewLink stockholders.

Because the lack of a public market for Lumos’ capital stock makes it difficult to evaluate the fairness of the Merger, the value of NewLink’s common stock to be issued in connection with the Merger may be greater than the fair market value of Lumos.

The outstanding share capital of Lumos is privately held and is not traded in any public market. The lack of a public market makes it extremely difficult to determine the fair market value of Lumos. Since the percentage of NewLink’s equity to be issued to Lumos stockholders was determined based on negotiations between the parties, it is possible that the value of NewLink’s common stock to be issued in connection with the Merger will be greater than the fair market value of Lumos.

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The combined company will incur significant transaction costs as a result of the Merger, including investment banking, legal and accounting fees. In addition, the combined company will incur significant consolidation and integration expenses which cannot be accurately estimated at this time. Actual transaction costs may substantially exceed our estimates and may have an adverse effect on the combined company’s financial condition and operating results.

Our ability to use our net operating loss carryforwards and certain other tax attributes is limited by Sections 382 and 383 of the Code and the Merger is expected to result in a further limitation on our ability to utilize our net operating loss carryforwards and other tax attributes.

Sections 382 and 383 of the Code limit a corporation’s ability to utilize its net operating loss carryforwards (“NOLs”) and certain other tax attributes (including research credits) to offset any future taxable income or tax if the corporation experiences a cumulative ownership change of more than 50% over any rolling three-year period. State NOLs (and certain other tax attributes) may be similarly limited. A Section 382 ownership change can, therefore, result in significantly greater tax liabilities than a corporation would incur in the absence of such a change, and any increased liabilities could adversely affect the corporation’s business, results of operations, financial condition and cash flow.

Based on Section 382 ownership change analyses, we believe that, from our inception through June 30, 2019, we experienced Section 382 ownership changes in September 2001 and March 2003, and our subsidiary, BioProtection Systems Corporation, experienced Section 382 ownership changes in January 2006 and January 2011. Furthermore, we will experience an ownership change as a result of the Merger and therefore our ability to utilize our NOLs and certain tax credit carryforwards remaining at the Effective Time will be limited. The limitation will be determined by the fair market value of our common stock outstanding prior to the ownership change, multiplied by the applicable federal rate.

These ownership changes limit our ability to utilize federal NOLs and certain other tax attributes that accrued prior to the respective ownership changes of us and our subsidiaries and may continue to limit our and our subsidiaries’ ability to utilize such attributes in the future. Limitations imposed on our ability to utilize NOLs could cause U.S. federal and state income taxes to be paid earlier than would be paid if such limitations were not in effect and could cause such NOLs to expire unused, in each case reducing or eliminating the benefit of such NOLs.

The opinion received by the NewLink Board from Stifel has not been, and is not expected to be, updated to reflect changes in circumstances that may have occurred since the date of the opinion.

At a meeting of the NewLink Board on September 30, 2019, NewLink’s financial advisor, Stifel, Nicolaus & Company, Incorporated (“Stifel”), rendered its oral opinion, subsequently confirmed in writing by delivery of a written opinion, to the NewLink Board that, as of that date and based upon and subject to the factors, limitations and assumptions set forth in its opinion, the merger consideration to be paid by NewLink (the “Merger Consideration”) in the Merger pursuant to the Merger Agreement was fair to NewLink from a financial point of view. The opinion does not speak as of the time the Merger will be completed or any date other than the date of such opinion. The opinion does not reflect changes that may occur or may have occurred after the date of the opinion, including changes to the operations and prospects of NewLink or Lumos, changes in general market and economic conditions or regulatory or other factors. Any such changes may materially alter or affect the relative values of NewLink and Lumos. Stifel does not have any obligation to update, revise or reaffirm its opinion to reflect subsequent developments and has not done so. See “The Merger — Opinion of NewLink’s Financial Advisor” beginning on page 69 and Annex F to this proxy statement.

Certain stockholders could attempt to influence changes within us that could adversely affect our operations, financial condition and the value of our common stock.

Our stockholders may from time to time seek to acquire a controlling stake in NewLink, engage in proxy solicitations, advance stockholder proposals or otherwise attempt to effect changes. Campaigns by stockholders to effect changes at publicly-traded companies are sometimes led by investors seeking to increase short-term stockholder value through actions such as financial restructuring, increased debt, special dividends, stock repurchases or sales of assets or the entire company. Responding to proxy contests and other actions by activist stockholders can be costly and time-consuming, and could disrupt our operations and divert the attention of the NewLink Board and senior management from the pursuit of the proposed Merger transaction. These actions could adversely affect our operations, financial condition, ability to consummate the Merger and the value of our common stock.

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We may become involved in securities litigation or stockholder derivative litigation in connection with the Merger, and this could divert the attention of management and harm the combined company’s business, and insurance coverage may not be sufficient to cover all related costs and damages.

Securities litigation or stockholder derivative litigation frequently follows the announcement of certain significant business transactions, such as the sale of a business division or announcement of a business combination transaction. We may become involved in this type of litigation in connection with the Merger, and the combined company may become involved in this type of litigation in the future. Litigation often is expensive and diverts management’s attention and resources, which could adversely affect the business of NewLink and the combined company.

Risks Related to the Reverse Stock Split

The reverse stock split may not increase our stock price over the long term.

The principal purpose of the reverse stock split is to increase the per-share market price of our common stock. It cannot be assured, however, that the reverse stock split will accomplish this objective for any meaningful period of time. While it is expected that the reduction in the number of outstanding shares of our common stock will proportionally increase the market price of our common stock, it cannot be assured that the reverse stock split will increase the market price of our common stock by a multiple of the reverse stock split ratio to be mutually agreed upon by us and Lumos, or result in any permanent or sustained increase in the market price of our common stock, which is dependent upon many factors, including our business and financial performance, general market conditions, and prospects for future success. Thus, while the stock price of the combined company might meet the continued listing requirements for Nasdaq initially, it cannot be assured that it will continue to do so.

The reverse stock split may decrease the liquidity of our common stock.

Although the NewLink Board believes that the anticipated increase in the market price of our common stock could encourage interest in its common stock and possibly promote greater liquidity for its stockholders, such liquidity could also be adversely affected by the reduced number of shares outstanding after the reverse stock split. The reduction in the number of outstanding shares may lead to reduced trading and a smaller number of market makers for our common stock.

The reverse stock split may lead to a decrease in our overall market capitalization.

Should the market price of our common stock decline after the reverse stock split, the percentage decline may be greater, due to the smaller number of shares outstanding, than it would have been prior to the reverse stock split. A reverse stock split is often viewed negatively by the market and, consequently, can lead to a decrease in our overall market capitalization. If the per share market price does not increase in proportion to the reverse stock split ratio, then the value of the combined company, as measured by its stock capitalization, will be reduced. In some cases, the per-share stock price of companies that have effected reverse stock splits subsequently declined back to pre-reverse split levels, and accordingly, it cannot be assured that the total market value of our common stock will remain the same after the reverse stock split is effected, or that the reverse stock split will not have an adverse effect on our stock price due to the reduced number of shares outstanding after the reverse stock split.

Risks Related to NewLink

NewLink is, and will continue to be, subject to the risks described in “Risk Factors” contained in our most recent annual report on Form 10-K and our most recent quarterly report on Form 10-Q, as well as any amendments thereto reflected in subsequent filings with the SEC, which are incorporated by reference into this proxy statement. See “Where You Can Find More Information,” beginning on page 160.

Risks Related to Lumos’ Financial Condition and Capital Requirements

Lumos has a limited operating history and has incurred significant losses since its inception, and Lumos anticipates that it will continue to incur substantial and increasing losses for the foreseeable future. Lumos has only one product candidate and no commercial sales, which, together with its limited operating history, makes it difficult to evaluate its business and assess its future viability.

Lumos is a clinical-stage biopharmaceutical company with a limited operating history. Lumos does not have any products approved for sale, and is currently focused on developing its only product candidate, the growth hormone (“GH”) secretagogue ibutamoren (“LUM-201,” previously MK-0677 and L-163,191). Evaluating Lumos’

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performance, viability or future success will be more difficult than if it had a longer operating history or approved products on the market. Lumos continues to incur significant research and development and general and administrative expenses related to its operations. Investment in biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatory approval or become commercially viable. Lumos has incurred significant operating losses in each year since its inception and expects to incur substantial and increasing losses for the foreseeable future. As of September 30, 2019, Lumos had an accumulated deficit of $56.5 million.

To date, Lumos has financed its operations primarily through private placements of its convertible preferred stock. Lumos has devoted substantially all of its efforts to research and development, including clinical studies, but has not completed development of any product candidate. Lumos anticipates that its expenses will increase substantially as it:

continues the research and development of its only product candidate, LUM-201, and any future product candidates;
continues clinical studies of LUM-201, including the Phase 2b clinical trial of LUM-201 (the “Phase 2b Trial”) that it expects to initiate in mid-2020;
seeks to in-license additional product candidates;
seeks regulatory approvals for LUM-201 and any future product candidates that successfully complete clinical studies;
establishes a sales, marketing and distribution infrastructure and scales-up manufacturing capabilities to commercialize LUM-201 or other future product candidates if they obtain regulatory approval, including process improvements in order to manufacture LUM-201 or other future product candidates at commercial scale; and
enhances operational, financial and information management systems and hires more personnel, including personnel to support development of LUM-201 and any future product candidates and, if a product candidate is approved, its commercialization efforts.

To be profitable in the future, Lumos must succeed in developing and eventually commercializing LUM-201 as well as other products with significant market potential. This will require Lumos to be successful in a range of activities, including advancing LUM-201 and any future product candidates, completing clinical studies of these product candidates, obtaining regulatory approval for these product candidates and manufacturing, marketing and selling those products for which it may obtain regulatory approval. Lumos is only in the preliminary stages of some of these activities. Lumos may not succeed in these activities and may never generate revenue that is sufficient to be profitable in the future. Even if Lumos is profitable, it may not be able to sustain or increase profitability on a quarterly or annual basis. Lumos’ failure to achieve sustained profitability would depress the value of Lumos and could impair its ability to raise capital, expand its business, diversify its product candidates, market its product candidates, if approved, or continue its operations.

Lumos currently has no source of product revenue and may never become profitable.

To date, Lumos has not generated any revenues from commercial product sales, or otherwise. Even if Lumos is able to successfully achieve regulatory approval for LUM-201 or any future product candidates, Lumos does not know when any of these products will generate revenue from product sales. Lumos’ ability to generate revenue from product sales and achieve profitability will depend upon its ability, alone or with any future collaborators, to successfully commercialize products, including LUM-201 or any product candidates that it may develop, in-license or acquire in the future. Lumos’ ability to generate revenue from product sales from LUM-201 or any future product candidates also depends on a number of additional factors, including Lumos’ or any future collaborators’ ability to:

complete development activities, including its planned Phase 2b and Phase 3 clinical trials of LUM-201, successfully and on a timely basis;
demonstrate the safety and efficacy of LUM-201 to the satisfaction of the U.S. Food and Drug Administration (the “FDA”) and obtain regulatory approval for LUM-201 and future product candidates, if any, for which there is a commercial market;

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complete and submit applications to, and obtain regulatory approval from, foreign regulatory authorities;
set a commercially viable price for Lumos’ products;
establish and maintain supply and manufacturing relationships with reliable third parties, and ensure adequate and legally compliant manufacturing of bulk drug substances and drug products to maintain that supply;
develop a commercial organization capable of sales, marketing and distribution of any products for which it obtains marketing approval in markets where it intends to commercialize independently;
find suitable distribution partners to help it market, sell and distribute its approved products in other markets;
obtain coverage and adequate reimbursement from third-party payors, including government and private payors;
achieve market acceptance of its approved products, if any;
establish, maintain and protect its intellectual property rights and avoid third-party patent interference or patent infringement claims; and
attract, hire and retain qualified personnel.

In addition, because of the numerous risks and uncertainties associated with pharmaceutical product development, including that LUM-201 or any future product candidates may not advance through development or achieve the endpoints of applicable clinical trials, Lumos is unable to predict the timing or amount of increased expenses, or when or if it will be able to achieve or maintain profitability. In addition, Lumos’ expenses could increase beyond expectations if it decides to or is required by the FDA or foreign regulatory authorities to perform studies or trials in addition to those that it currently anticipates. Even if Lumos is able to complete the development and regulatory process for LUM-201 or any future product candidates, it anticipates incurring significant costs associated with commercializing these products.

Even if Lumos is able to generate revenues from the sale of LUM-201 or any future product candidates that may be approved, Lumos may not become profitable and may need to obtain additional funding to continue operations. If Lumos fails to become profitable or is unable to sustain profitability on a continuing basis, then it may be unable to continue its operations at planned levels and be forced to reduce or shut down its operations.

Lumos’ operating results may fluctuate significantly, which makes its future operating results difficult to predict and could cause its operating results to fall below expectations or its guidance.

Lumos’ quarterly and annual operating results may fluctuate significantly in the future, which makes it difficult for Lumos to predict its future operating results. From time to time, Lumos may enter into collaboration agreements with other companies that include development funding and significant upfront and milestone payments and/or royalties. Accordingly, Lumos’ revenue may depend on development funding and the achievement of development and clinical milestones under any potential future collaboration and license agreements and sales of its product candidates, if approved. These upfront and milestone payments may vary significantly from period to period and any such variance could cause a significant fluctuation in its operating results from one period to the next. In addition, Lumos measures compensation cost for stock-based awards made to employees at the grant date of the award, based on the fair value of the award as determined by its board of directors, and recognizes the cost as an expense over the employee’s requisite service period. As the variables that Lumos uses as a basis for valuing these awards change over time, the magnitude of the expense that it must recognize may vary significantly. Furthermore, Lumos’ operating results may fluctuate due to a variety of other factors, many of which are outside of its control and may be difficult to predict, including the following:

the timing and cost of, and level of investment in, research and development activities relating to LUM-201 and any future product candidates, which will change from time to time;
its ability to enroll patients in clinical trials and the timing of enrollment;
the cost of manufacturing LUM-201 and any future product candidates, which may vary depending on FDA guidelines and requirements, the quantity of production and the terms of its agreements with manufacturers;
expenditures that it will or may incur to acquire or develop additional product candidates and technologies;
the timing and outcomes of clinical studies for LUM-201 and any future product candidates or competing product candidates;
changes in the competitive landscape of its industry, including consolidation among its competitors or partners;

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any delays in regulatory review or approval of LUM-201 or any of its future product candidates;
the level of demand for LUM-201 and any future product candidates, should they receive approval, which may fluctuate significantly and be difficult to predict;
the risk/benefit profile, cost and reimbursement policies with respect to its products candidates, if approved, and existing and potential future drugs that compete with its product candidates;
competition from existing and potential future drugs that compete with LUM-201 or any of its future product candidates;
its ability to commercialize LUM-201 or any future product candidate inside and outside of the United States, either independently or working with third parties;
its ability to establish and maintain collaborations, licensing or other arrangements;
its ability to adequately support future growth;
potential unforeseen business disruptions that increase its costs or expenses;
future accounting pronouncements or changes in its accounting policies; and
the changing and volatile global economic environment.

The cumulative effects of these factors could result in large fluctuations and unpredictability in Lumos’ quarterly and annual operating results. As a result, comparing the operating results of Lumos on a period-to-period basis may not be meaningful. Investors should not rely on Lumos’ past results as an indication of its future performance.

Lumos will need additional funds to support its operations, and such funding may not be available to it on acceptable terms, or at all, which would force it to delay, reduce or suspend its research and development programs and other operations or commercialization efforts. Raising additional capital may subject Lumos to unfavorable terms, cause dilution to its existing stockholders, restrict its operations or require it to relinquish rights to its product candidates and technologies.

The completion of the development and the potential commercialization of LUM-201 and any future product candidates, should they receive approval, will require substantial funds. Lumos’ future financing requirements will depend on many factors, some of which are beyond its control, including the following:

the rate of progress and cost of its clinical studies;
the timing of, and costs involved in, seeking and obtaining approvals from the FDA and other regulatory authorities;
the extent of any required post-marketing approval commitments to applicable regulatory authorities;
developing an efficient, cost-effective, and scalable manufacturing process for LUM-201 and any future product candidates, including establishing and maintaining commercially viable supply and manufacturing relationships with third parties to obtain finished products that are appropriately packaged for sale;
the costs of commercialization activities if LUM-201 or any future product candidate is approved, including product sales, marketing, manufacturing and distribution;
the degree and rate of market acceptance of any products launched by Lumos or future partners;
a continued acceptable safety profile following any marketing approval;
the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;
Lumos’ ability to enter into additional collaboration, licensing, commercialization or other arrangements and the terms and timing of such arrangements;
the emergence of competing technologies or other adverse market developments; and
the costs of attracting, hiring and retaining qualified personnel.

Lumos does not have any material committed external source of funds or other support for its development efforts. Until Lumos can generate a sufficient amount of product revenue to finance its cash requirements, which it

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may never do, it expects to finance future cash needs through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. Additional financing may not be available to Lumos when it needs it or such additional financing may not be available on favorable terms. If Lumos raises additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, it may have to relinquish certain valuable rights to LUM-201 or potential future product candidates, technologies, future revenue streams or research programs, or grant licenses on terms that may not be favorable to Lumos. If Lumos raises additional capital through public or private equity offerings, the ownership interest of its existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect its stockholders’ rights. If Lumos raises additional capital through debt financing, it may be subject to covenants limiting or restricting its ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If Lumos is unable to obtain adequate financing when needed, it may have to delay, reduce the scope of, or suspend one or more of its clinical studies or research and development programs or its commercialization efforts.

Risks Related to the Development and Commercialization of Lumos’ Product Candidate

Lumos’ success depends heavily on the successful development, regulatory approval and commercialization of its only product candidate, LUM-201.

Lumos does not have any products that have gained regulatory approval. Lumos’ current clinical-stage product candidate is LUM-201 an orally-formulated GH stimulating therapeutic for a subset of pediatric growth hormone deficiency (“PGHD”) patients and potentially other endocrine disorders. As a result, Lumos’ near-term prospects, including its ability to finance its operations and generate revenue, are substantially dependent on its ability to obtain regulatory approval for and, if approved, to successfully commercialize LUM-201 in a timely manner.

Lumos cannot commercialize LUM-201 or any future product candidates in the United States without first obtaining regulatory approval for the product from the FDA, nor can it commercialize LUM-201 or any future product candidates outside of the United States without obtaining regulatory approval from comparable foreign regulatory authorities. The FDA review process typically takes years to complete and approval is never guaranteed. Before obtaining regulatory approvals for the commercial sale of LUM-201 for a target PGHD indication or Lumos’ future product candidates, Lumos generally must demonstrate with substantial evidence gathered in preclinical and well-controlled clinical studies that the product candidate is safe and effective for use for that target indication and that the manufacturing facilities, processes and controls are adequate. Lumos is pursuing the same regulatory pathway for LUM-201 followed by most of the approved recombinant human growth hormone (“rhGH”) products and long-acting GH products under development for a subset of PGHD patients. Lumos intends to study treatment naïve and previously-treated patients by conducting studies including a six-month Phase 2b dose-finding trial and a Phase 3 clinical trial with a primary endpoint of 12 month mean height velocity that is intended to support regulatory approval. If Lumos must conduct additional or different trials than prior rhGH products were required to complete, this could increase the amount of time and expense required for regulatory approval of LUM-201, if any. In addition, while the available growth data from published studies of approved rhGH therapy products suggest that six and 12 months mean height velocities are well correlated, it is possible that LUM-201, due to its unique properties, will produce different results. If the six months mean height velocities that Lumos observes for LUM-201 in the planned Phase 2b Trial do not correlate to 12 month mean height velocities that it ultimately observes in any Phase 3 clinical trial that it may conduct, LUM-201 may not achieve the required primary endpoint in the Phase 3 clinical trial, and LUM-201 may not receive regulatory approval. Moreover, obtaining regulatory approval for marketing of LUM-201 in one country does not ensure Lumos will be able to obtain regulatory approval in other countries, while a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in other countries.

Even if LUM-201 or any of Lumos’ future product candidates were to successfully obtain approval from the FDA and comparable foreign regulatory authorities, any approval might contain significant limitations related to use restrictions for specified age groups, warnings, precautions or contraindications, or may be subject to burdensome post-approval study or risk management requirements. If Lumos is unable to obtain regulatory approval for LUM-201 in one or more jurisdictions, or any approval contains significant limitations, it may not be able to obtain sufficient

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funding or generate sufficient revenue to continue to fund its operations. Also, any regulatory approval of LUM-201 or its future product candidates, once obtained, may be withdrawn. Furthermore, even if Lumos obtains regulatory approval for LUM-201, the commercial success of LUM-201 will depend on a number of factors, including the following:

development of Lumos’ own commercial organization or establishment of a commercial collaboration with a commercial infrastructure;
establishment of commercially viable pricing and obtaining approval for adequate reimbursement from third-party and government payors;
the ability of Lumos’ third-party manufacturers to manufacture quantities of LUM-201 using commercially viable processes at a scale sufficient to meet anticipated demand and reduce its cost of manufacturing, and that are compliant with the FDA’s current Good Manufacturing Practices (“cGMP”);
Lumos’ success in educating physicians and patients about the benefits, administration and use of LUM-201;
the availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing treatments;
the effectiveness of Lumos’ own or its potential strategic collaborators’ marketing, sales and distribution strategy and operations;
acceptance of LUM-201 as safe and effective by patients, caregivers and the medical community;
a continued acceptable safety profile of LUM-201 following approval; and
continued compliance with Lumos’ obligations in its intellectual property licenses with third parties upon favorable terms.

Many of these factors are beyond Lumos’ control. If Lumos or its commercialization collaborators are unable to successfully commercialize LUM-201, Lumos may not be able to earn sufficient revenues to continue its business.

The analysis that supports Lumos’ basis for pursuing development of LUM-201 for PGHD is derived from data from three clinical trials conducted by Merck in the 1990s, and a post-hoc analysis of one of the trials. Various issues relating to such trials and analysis could materially adversely impact Lumos’ LUM-201 clinical trial design and its future development plans.

The probability of the Phase 2b Trial succeeding is highly dependent on the adequacy of the Phase 2b Trial design. In designing such trial, Lumos reviewed data and analysis from three studies on LUM-201 completed by Merck in the 1990s (the “Merck Trials”) and Lumos incorporated the results of Merck’s analysis into the design of the Phase 2b Trial. However, Lumos could have misinterpreted or performed a flawed analysis of such data. Factors that could have affected Lumos’ interpretation and analysis of the Merck Trials include:

clinical trial procedures and statistical analysis methods may have changed since the 1990s when the Merck Trials were conducted, which limits Lumos’ ability to effectively predict how changes to trial design might affect the Phase 2b Trial results;
two of the Merck Trials were discontinued prior to completion due to lack of efficacy;
one of the Merck Trials changed the formulation of the drug part way through the treatment naïve patient trial and for the other previously-treated patient trial the formulation change was for the entire trial, and the changed formulation was subsequently determined to have 30% to 40% less bioavailability;
certain relevant information from the Merck Trials, including the source documentation for the Merck Trials, is not available and so could not be referenced for Lumos’ analysis and Phase 2b Trial design; and
bias in small sample size and other limitations inherent in the post-hoc analysis of the Merck Trials upon which Lumos has relied for its Phase 2b Trial design that could have caused such post-hoc analysis to be unreliable.

As a result of such factors, among others, there could be flaws in the design of the Phase 2b Trial that could cause it to fail, which would materially adversely impact Lumos’ business, future development plans, and prospects.

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Because the results of preclinical testing or earlier clinical trials are not necessarily predictive of future results, LUM-201 may not have favorable results in later clinical trials or receive regulatory approval.

Success in preclinical testing and early clinical trials does not ensure that later clinical trials will generate adequate data to demonstrate the efficacy and safety of an investigational drug. A number of companies in the pharmaceutical and biotechnology industries, including those with greater resources and experience, have suffered significant setbacks in clinical trials, even after seeing promising results in earlier clinical trials. Lumos does not know whether the clinical trials it is conducting, or may conduct, will demonstrate adequate efficacy and safety to result in regulatory approval to market LUM-201. Even if Lumos believes that it has adequate data to support an application for regulatory approval to market its product candidates, the FDA, the European Medicines Agency (the “EMA”), or other applicable foreign regulatory authorities may not agree and may require that Lumos conducts additional clinical trials. If later-stage clinical trials do not produce favorable results, Lumos’ ability to achieve regulatory approval for LUM-201 may be adversely impacted.

There can be no assurance that LUM-201 will not exhibit new or increased safety risks in the Phase 2b Trial compared to the previously conducted Merck Trials, or, if it completes the Phase 2b Trial, in the planned Phase 3 clinical trial. In addition, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many other companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain regulatory approval for the marketing of their products.

In addition, Lumos has not yet established the optimal dose for LUM-201. There can be no guarantee that the three dose levels currently being planned in the Phase 2b Trial will be efficacious or, if they are, whether any one will be the optimal dose. The Phase 2b Trial may not be successful in determining a dose or dose regimen of LUM-201 suitable for future development and potential marketing approval.

As an organization, Lumos has never conducted a Phase 2b or a Phase 3 clinical trial or submitted a New Drug Application (an “NDA”) before, and may be unsuccessful in doing so for LUM-201.

Lumos is currently planning to conduct the Phase 2b Trial and it may need to conduct additional clinical trials before initiating its planned Phase 3 clinical trial. If the Phase 2b Trial is successful, Lumos intends to independently conduct a Phase 3 clinical trial of LUM-201. To conduct a Phase 3 clinical trial and submit a successful NDA is a complicated process. As an organization, Lumos has never conducted a Phase 3 clinical trial, has limited experience in preparing, submitting and prosecuting regulatory filings, and has not submitted an NDA before. Lumos also has had limited interactions with the FDA and has not discussed any proposed clinical trial designs or implementations with the FDA. Consequently, even if the Phase 2b Trial is successful, Lumos may be unable to successfully and efficiently execute and complete necessary clinical trials in a way that leads to an NDA submission and approval of LUM-201. Failure to commence or complete, or delays in, Lumos’ planned clinical trials would prevent Lumos from or delay it in commercializing LUM-201.

Delays in the enrollment of patients in any of Lumos’ clinical studies could increase its development costs and delay completion of the study.

Lumos may not be able to initiate or continue clinical studies for LUM-201 or any future product candidates if it is unable to locate and enroll a sufficient number of eligible patients to participate in these studies. Even if Lumos is able to enroll a sufficient number of patients in its clinical studies, if the pace of enrollment is slower than it expects, the development costs for its product candidates may increase and the completion of its studies may be delayed or its studies could become too expensive to complete.

There may be concurrent competing PGHD clinical trials that will inhibit or slow Lumos’ enrollment in the planned Phase 2b and Phase 3 clinical trials. If Lumos experiences delays in enrollment, its ability to complete its planned clinical trials could be impaired and the costs of conducting such studies could increase, either of which could have a material adverse effect on its business.

If clinical studies of LUM-201 and any future product candidates fail to demonstrate safety and efficacy to the satisfaction of the FDA or similar regulatory authorities outside the United States or do not otherwise produce positive results, Lumos may incur additional costs, experience delays in completing or ultimately fail in completing the development and commercialization of LUM-201 or Lumos’ future product candidates.

Before obtaining regulatory approval for the sale of any product candidate, Lumos must conduct extensive clinical studies to demonstrate the safety and efficacy of its product candidates in humans. Clinical studies are

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expensive, difficult to design and implement, can take many years to complete and are uncertain as to outcome. A failure of one or more of Lumos’ clinical studies could occur at any stage of testing.

Lumos has identified several aspects of the Phase 2b Trial protocols that could potentially delay or prevent its ability to receive regulatory approval or commercialize LUM-201. For example, Lumos may be administering LUM-201 at dose levels that are not as efficacious and/or safe as other rhGH therapies. The Phase 2b Trial will test doses of LUM-201 that are equal to, and two and four times higher than, the highest doses tested in the multiple dose Merck Trials. These higher doses were never tested in adults or children in a multiple dose trial in the Merck Trials and, even if the trials are able to show that such higher doses increase efficacy, such higher doses may not be as safe as the doses tested in the Merck Trials. As a result, Lumos may be required to test such higher doses in adults prior to being used in the Phase 2b Trial in children and frequent safety assessments may be required during the trial. Also, the Phase 2b Trial includes parallel dosing, a critical component in the trial design in order to identify optimal dosing, which may not be allowed by the FDA. The FDA may request staggered cohorts or staggered sentinel dosing, which could increase the duration and cost of the trial. In addition, the active pharmaceutical ingredient to be used in the Phase 2b Trial was manufactured by Merck approximately 15 years prior to the planned start of the trial and may not be approved for use by the FDA, even if it meets all necessary stability and other requirements or parents of patients to be included in the trial may have concerns about the age of the material. Also, the lack of source documentation from the Merck Trials may be a factor that delays approval of the FDA’s Investigational New Drug program (the “IND”) for the Phase 2b Trial.

In addition to trial design factors, Lumos may experience numerous unforeseen events during, or as a result of, clinical studies that could delay or prevent its ability to receive regulatory approval or commercialize LUM-201 or any future product candidates, including the following:

clinical studies may produce negative or inconclusive results, and Lumos may decide, or regulators may require it, to conduct additional clinical studies or abandon product development programs;
the number of patients required for clinical studies may be larger than Lumos anticipates, enrollment of subjects who meet Lumos’ inclusion criteria in these clinical studies may be insufficient or slower than Lumos anticipates, or patients may drop out of these clinical studies at a higher rate than Lumos anticipates;
the cost of clinical studies or the manufacturing of Lumos’ product candidates may be greater than it anticipates;
Lumos’ third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to Lumos in a timely manner, or at all;
Lumos might have to suspend or terminate clinical studies of its product candidates for various reasons, including a finding that its product candidates have unanticipated serious adverse events or other unexpected characteristics or that the patients are being exposed to unacceptable health risks;
regulators may not approve Lumos’ proposed clinical development plans;
regulators or institutional review boards may not authorize Lumos or its investigators to commence a clinical study or conduct a clinical study at a prospective study site;
regulators or institutional review boards may require that Lumos or its investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements; and
the supply or quality of Lumos’ product candidates or other materials necessary to conduct clinical studies of its product candidates may be insufficient or inadequate.

If Lumos is required to conduct additional clinical studies or other testing of LUM-201 or any future product candidates beyond those that it contemplates, if Lumos is unable to successfully complete clinical studies or other testing, or if the results of these studies or tests are not positive or are only modestly positive or if there are safety concerns, Lumos may:

be materially delayed in obtaining marketing approval for LUM-201 or other product candidates;
not obtain marketing approval at all;
obtain approval for indications that are not as broad as intended or targeted;
have the product removed from the market after obtaining marketing approval;

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be subject to additional post-marketing testing requirements; or
be subject to restrictions on how the product is distributed or used.

Lumos’ product development costs will also increase if it experiences delays in testing or approvals. Lumos does not know whether any clinical studies will begin as planned, will need to be restructured or will be completed on schedule, or at all.

Significant clinical study delays also could shorten any periods during which Lumos may have the exclusive right to commercialize its product candidates or allow its competitors to bring products to market before it does, which would impair Lumos’ ability to commercialize its product candidates and harm its business and results of operations.

Even if Lumos obtains marketing approval for LUM-201, certain factors may limit the market for LUM-201, which could materially impair Lumos’ ability to generate revenue from such product.

Even if Lumos receives regulatory approval for LUM-201, certain factors may limit the market for LUM-201 or put the product at a competitive disadvantage relative to alternative therapies. For instance, Lumos believes that the treatment will only be effective for approximately 50% to 60% of PGHD patients, and the actual percentage could be substantially lower. Certain jurisdictions such as Australia and the European Union have different diagnostic criteria for diagnosing PGHD and as a result, the market for LUM-201 in those jurisdictions is smaller. In addition, there are a number of challenges that LUM-201 would face to obtain acceptance and use by physicians. Physicians will need to conduct additional testing to identify their patients who would be eligible for LUM-201 treatment. Approved products that would compete with LUM-201 have been used for many years or decades with an excellent safety profile. It will take a number of years of results of LUM-201 to provide the comfort level that may be necessary to satisfy some physicians and patient families. Some physicians may feel the benefits of an oral product do not outweigh limitations. For example, the mean annual growth velocity for LUM-201 treated patients included in the trial (PEM positive) may be substantially lower, despite meeting non-inferiority study requirements, than such mean for all rhGH treated PGHD patients. These factors could limit the size of the market LUM-201 intends to address and the rate of market acceptance, which could materially impair Lumos’ ability to generate revenue.

LUM-201 or Lumos’ future product candidates may cause serious adverse events or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label or result in significant negative consequences following any marketing approval.

Lumos’ product candidate, LUM-201, has not completed clinical development. The risk of failure of clinical development is high. It is impossible to predict when or if this or any future product candidates will prove safe enough to receive regulatory approval. Undesirable adverse events caused by LUM-201 or any future product candidates could cause Lumos or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign regulatory authority.

At the doses tested previously in the Merck Trials, LUM-201 was generally well-tolerated in children with the most commonly reported adverse events being digestive systems events, including appetite increase. Mild elevations in liver enzymes without accompanying changes in bilirubin were also reported. To the knowledge of Lumos, no serious drug-related adverse events have been reported in children treated with LUM-201 to date. However, Lumos cannot assure you that adverse events from LUM-201 in current or future clinical trials will not prompt the discontinuation of the development of LUM-201. Similarly, Lumos’ future product candidates may cause serious adverse events or have other properties that could delay or prevent their regulatory approval. As a result of these adverse events or further safety or toxicity issues that Lumos may experience in its clinical trials in the future, it may not receive approval to market LUM-201 or any future product candidates, which could prevent Lumos from ever generating revenue or achieving profitability. Results of Lumos’ trials could reveal an unacceptably high severity or prevalence of adverse events. In such an event, Lumos’ trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order it to cease further development of or deny approval of its product candidates for any or all targeted indications. Any drug-related adverse events could affect patient recruitment or the ability of enrolled subjects to complete the trial or result in potential product liability claims. Any of these occurrences may have a material adverse effect on Lumos’ business, results of operations, financial condition, cash flows and future prospects.

Additionally, if LUM-201 or any of Lumos’ future product candidates receive marketing approval, and Lumos or others later identify undesirable adverse events caused by such product, a number of potentially significant negative consequences could result, including:

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Lumos may be forced to suspend the marketing of such product;
regulatory authorities may withdraw their approvals of such product;
regulatory authorities may require additional warnings on the label that could diminish the usage or otherwise limit the commercial success of such products;
the FDA or other regulatory bodies may issue safety alerts, Dear Healthcare Provider letters, press releases or other communications containing warnings about such product;
the FDA may require the establishment or modification of Risk Evaluation Mitigation Strategies (“REMS”), or a comparable foreign regulatory authority may require the establishment or modification of a similar strategy that may, for instance, restrict distribution of Lumos’ products and impose burdensome implementation requirements on Lumos;
Lumos may be required to change the way the product is administered or conduct additional clinical trials;
Lumos could be sued and held liable for harm caused to subjects or patients;
Lumos may be subject to litigation or product liability claims; and
Lumos’ reputation may suffer.

Any of these events could prevent Lumos from achieving or maintaining market acceptance of the particular product candidate, if approved.

Even if Lumos’ clinical trials demonstrate acceptable safety and efficacy of LUM-201 for growth in PGHD patients based on a once daily oral dosing regimen, the FDA or similar regulatory authorities outside the United States may not approve LUM-201 for marketing or may approve it with restrictions on the label, which could have a material adverse effect on Lumos’ business, financial condition, results of operations and growth prospects.

Assuming the success of Lumos’ clinical trials, it anticipates seeking regulatory approval for LUM-201 initially in the United States and the European Union for treatment of a subset of PGHD patients based on a once daily weight-based dosing regimen. Lumos may subsequently seek regulatory approval in other jurisdictions including China and Japan. It is possible that the FDA, the EMA, or regulatory agencies in other countries may not consider the results of Lumos’ clinical trials to be sufficient for approval of LUM-201 for this indication. In general, the FDA suggests that sponsors complete two adequate and well-controlled clinical studies to demonstrate effectiveness because a conclusion based on two persuasive studies will be more compelling than a conclusion based on a single study. Even if Lumos achieves favorable results in the Phase 2b Trial and its planned Phase 3 clinical trial and considering that LUM-201 is a new chemical entity, the FDA may nonetheless require that Lumos conduct additional clinical studies, possibly using a different clinical study design.

Moreover, even if the FDA or other regulatory authorities approve LUM-201 for treatment of a subset of PGHD patients based on a once daily weight-based dosing regimen, the approval may include additional restrictions on the label that could make LUM-201 less attractive to physicians and patients compared to other products that may be approved for broader indications, which could limit potential sales of LUM-201.

If Lumos fails to obtain FDA or other regulatory approval of LUM-201 or if the approval is narrower than what it seeks, it could have a material adverse effect on Lumos’ business, financial condition, results of operations and growth prospects.

Even if LUM-201 or any future product candidates receive regulatory approval, they may fail to achieve the degree of market acceptance by physicians, patients, caregivers, healthcare payors and others in the medical community necessary for commercial success.

If LUM-201 or any future product candidates receive regulatory approval, they may nonetheless fail to gain sufficient market acceptance by physicians, hospital administrators, patients, healthcare payors and others in the medical community. The degree of market acceptance of Lumos’ product candidates, if approved for commercial sale, will depend on a number of factors, including the following:

the prevalence and severity of any adverse events;
their efficacy and potential advantages compared to alternative treatments;

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the price Lumos charges for its product candidates;
the willingness of physicians to change their current treatment practices;
convenience and ease of administration compared to alternative treatments;
the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
the strength of marketing and distribution support; and
the availability of third-party coverage or adequate reimbursement.

For example, a number of companies offer therapies for treatment of PGHD patients based on a daily injection based regimen, and physicians, patients or their families may not be willing to change their current treatment practices in favor of LUM-201 even if it is able to eliminate daily injection dosing. If LUM-201 or any future product candidates, if approved, do not achieve an adequate level of acceptance, Lumos may not generate significant product revenue and it may not become profitable on a sustained basis or at all.

In addition, several companies, including large worldwide pharmaceutical companies are developing products that provide weekly injection-based treatment for PGHD. If one or more of such products are approved, physicians, patients and their families may prefer a once weekly treatment option over LUM-201’s daily treatment.

LUM-201 has never been manufactured on a commercial scale, and there are risks associated with scaling up manufacturing to commercial scale. Lumos is in the process of arranging for production of LUM-201 to a third-party manufacturer, which may not be successful, and this could delay regulatory approval and commercialization of LUM-201.

Lumos has an existing supply of the LUM-201 active pharmaceutical ingredient (“API”) obtained in connection with the APA (as defined below) and the Lumos Merck Agreement (as defined below) that it believes will be sufficient for its Phase 2b Trial, subject to FDA review. The LUM-201 API has never been manufactured on a commercial scale, and there are risks associated with scaling up manufacturing to commercial scale including, among others, cost overruns, potential problems with process scale-up, process reproducibility, stability issues, lot consistency, and timely availability of raw materials. Even if Lumos could otherwise obtain regulatory approval for LUM-201, there is no assurance that any manufacturer it arranges will be able to manufacture the approved product to specifications acceptable to the FDA or other regulatory authorities, to produce it in sufficient quantities to meet the requirements for the potential launch of the product or to meet potential future demand. If any manufacturer is unable to begin production in a timely and efficient manner or produce sufficient quantities of the approved product for commercialization, the commercialization efforts of Lumos would be impaired, which would have an adverse effect on its business, financial condition, results of operations and growth prospects.

Lumos’ failure to successfully identify, acquire, develop and commercialize additional products or product candidates could impair its ability to grow.

Although a substantial amount of Lumos’ efforts will focus on the continued clinical testing and potential approval of its product candidate, LUM-201, a key element of its long-term growth strategy is to acquire, develop, and/or market additional products and product candidates. Research programs to identify product candidates require substantial technical, financial and human resources, whether or not any product candidates are ultimately identified. Because Lumos’ internal research capabilities are limited, it may be dependent upon pharmaceutical and biotechnology companies, academic scientists and other researchers to sell or license products or technology to Lumos. The success of this strategy depends partly upon Lumos’ ability to identify, select and acquire promising pharmaceutical product candidates and products. The process of proposing, negotiating and implementing a license or acquisition of a product candidate or approved product is lengthy and complex. Other companies, including some with substantially greater financial, marketing and sales resources, may compete with Lumos for the license or acquisition of product candidates and approved products. Lumos has limited resources to identify and execute the acquisition or in-licensing of third-party products, businesses and technologies and integrate them into its current infrastructure. Moreover, Lumos may devote resources to potential acquisitions or in-licensing opportunities that are never completed, or Lumos may fail to realize the anticipated benefits of such efforts. Any product candidate that Lumos acquires may require additional development efforts prior to commercial sale, including extensive clinical testing and approval by the FDA and applicable foreign regulatory authorities. All product candidates are prone to

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risks of failure typical of pharmaceutical product development, including the possibility that a product candidate will not be shown to be sufficiently safe and effective for approval by regulatory authorities. In addition, Lumos cannot provide assurance that any products that it develops or approved products that it acquires will be manufactured profitably or achieve market acceptance.

Lumos currently has no sales or distribution personnel and only limited marketing capabilities. If Lumos is unable to develop a sales and marketing and distribution capability on its own or through collaborations or other marketing partners, it will not be successful in commercializing LUM-201 or other future products.

Lumos does not have sales or marketing infrastructure and has no experience in the sale, marketing or distribution of therapeutic products. To achieve commercial success for any approved product, Lumos must either develop a sales and marketing organization or outsource these functions to third parties. If LUM-201 is approved, Lumos currently initially intends to commercialize it with its own specialty sales force in the United States, the European Union, and potentially other geographies.

There are risks involved with both establishing Lumos’ own sales and marketing capabilities and entering into arrangements with third parties to perform these services. For example, recruiting and training a sales force is expensive and time-consuming and could delay any product launch. If the commercial launch of a product candidate for which Lumos recruits a sales force and establishes marketing capabilities is delayed or does not occur for any reason, Lumos would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and Lumos’ investment would be lost if it cannot retain or reposition its sales and marketing personnel.

Lumos also may not be successful entering into arrangements with third parties to sell and market its product candidates or may be unable to do so on terms that are favorable to it. Lumos likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market Lumos’ products effectively and could damage Lumos’ reputation. If Lumos does not establish sales and marketing capabilities successfully, either on its own or in collaboration with third parties, it will not be successful in commercializing its product candidates.

Lumos faces substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than it does.

The development and commercialization of new therapeutic products is highly competitive. Lumos faces competition with respect to LUM-201 and will face competition with respect to any product candidates that it may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. There are several large pharmaceutical and biotechnology companies that currently market and sell rhGH therapies to Lumos’ target patient group. These companies typically have a greater ability to reduce prices for their competing drugs to gain or retain market share and undermine the value proposition that Lumos might otherwise be able to offer to payors. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization, as well as manufacturers and sellers of the LUM-201 compound that may sell the compound illegally or for other indications. Many of these competitors are attempting to develop therapeutics for Lumos’ target indications.

Lumos is developing its sole product candidate, LUM-201, for treatment of a subset of PGHD patients based on a once daily weight-based oral dosing regimen. The current standard of care for growth therapies for patients in the United States is a daily subcutaneous injection of rhGH. There are a variety of currently marketed daily rhGH therapies administered by daily subcutaneous injection and used for the treatment of Growth Hormone Deficiency (“GHD”), principally Norditropin® (Novo Nordisk A/S (“Novo Nordisk”)), Humatrope® (Eli Lilly and Company (“Eli Lilly”)), Nutropin-AQ® (F. Hoffman-La Roche Ltd./Genentech, Inc.), Genotropin® (Pfizer Inc.), Saizen® (Merck Serono S.A.), Tev-tropin® (Teva Pharmaceuticals Industries Ltd.), Omnitrope® (Sandoz GmbH), Valtropin® (LG Life Science and Biopartners GmbH), and Zomacton® (Ferring Pharmaceuticals, Inc.). These rhGH drugs, apart from Valtropin, are well-established therapies and are widely accepted by physicians, patients, caregivers, third-party payors and pharmacy benefit managers (“PBMs”), as the standard of care for the treatment of GHD. Physicians, patients, third-party payors and PBMs may not accept the addition of LUM-201 to their current treatment regimens for a variety of potential reasons, including concerns about incurring potential additional costs related to LUM-201, the perception that the use of LUM-201 will be of limited additional benefit to patients, or limited long-term safety data compared to currently available rhGH treatments.

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In addition to the currently approved and marketed daily rhGH therapies, there are a variety of experimental therapies and devices that are in various stages of clinical development by companies already participating in the rhGH market as well as potential new entrants, principally Ascendis Pharma A/S (“Ascendis”), Novo Nordisk, Genexine Inc. (“Genexine”) and OPKO Health, Inc. (“OPKO”) (in collaboration with Pfizer).

Many of Lumos’ competitors, including a number of large pharmaceutical companies that compete directly with it, have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than Lumos does. Mergers and acquisitions in the pharmaceutical, biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of Lumos’ competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with Lumos in recruiting and retaining qualified scientific and management personnel, establishing clinical study sites and patient registration for clinical studies, as well as in acquiring technologies complementary to, or necessary for, Lumos’ programs.

Lumos may form strategic alliances in the future, and it may not realize the benefits of such alliances.

Lumos may form strategic alliances, create joint ventures or collaborations or enter into licensing arrangements with third parties that it believes will complement or augment its business. These relationships or those like them may require Lumos to incur non-recurring and other charges, increase its near- and long-term expenditures, issue securities that dilute its existing stockholders or disrupt its management and business. In addition, Lumos faces significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex. Moreover, Lumos may not be successful in its efforts to establish a strategic partnership or other alternative arrangements for LUM-201 or any future product candidates and programs because its research and development pipeline may be insufficient, its product candidates and programs may be deemed to be at too early of a stage of development for collaborative effort and third parties may not view its product candidates and programs as having the requisite potential to demonstrate safety and efficacy. If Lumos licenses products or businesses, it may not be able to realize the benefit of such transactions if it is unable to successfully integrate them with its existing operations and company culture. Lumos cannot be certain that, following a strategic transaction or license, it will achieve the revenues or specific net income that justifies such transaction. Any delays in entering into new strategic partnership agreements related to Lumos’ product candidates could also delay the development and commercialization of its product candidates and reduce their competitiveness even if they reach the market.

If Lumos is able to commercialize LUM-201 or any future product candidates, the products may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, thereby harming Lumos’ business.

The regulations that govern marketing approvals, pricing and reimbursement for new therapeutic products vary widely from country to country. Some countries require approval of the sale price of a product before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, Lumos might obtain regulatory approval for a product in a particular country, but then be subject to price regulations that delay its commercial launch of the product and negatively impact the revenue it is able to generate from the sale of the product in that country. Adverse pricing limitations may hinder Lumos’ ability to recoup its investment in one or more product candidates, even if its product candidates obtain regulatory approval.

Lumos’ ability to commercialize LUM-201 or any future products successfully also will depend on the extent to which reimbursement for these products and related treatments becomes available from government health administration authorities, private health insurers and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. A primary trend in the United States healthcare industry and elsewhere is cost containment. Government authorities and these third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. Lumos cannot be sure that reimbursement will be available for any product that it commercializes and, if reimbursement is available, what the level of reimbursement will be. Reimbursement may impact the demand for, or the price of, any product for which Lumos obtains marketing approval. Obtaining reimbursement for Lumos’

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products may be particularly difficult because of the higher prices often associated with products administered under the supervision of a physician. If reimbursement is not available or is available only to limited levels, Lumos may not be able to successfully commercialize any product candidate that it successfully develops.

There may be significant delays in obtaining reimbursement for approved products, and coverage may be more limited than the purposes for which the product is approved by the FDA or regulatory authorities in other countries. Moreover, eligibility for reimbursement does not imply that any product will be paid for in all cases or at a rate that covers Lumos’ costs, including research, development, manufacture, sale and distribution. Interim payments for new products, if applicable, may also not be sufficient to cover Lumos’ costs and may not be made permanent. Payment rates may vary according to the use of the product and the clinical setting in which it is used, may be based on payments allowed for lower cost products that are already reimbursed and may be incorporated into existing payments for other services. Net prices for products may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of products from countries where they may be sold at lower prices than in the United States. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Lumos’ inability to promptly obtain coverage and profitable payment rates from both government funded and private payors for new products that it develops could have a material adverse effect on its operating results, its ability to raise capital needed to commercialize products and its overall financial condition. In some foreign countries, including major markets in the European Union and Japan, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take nine to 12 months or longer after the receipt of regulatory marketing approval for a product. To obtain reimbursement or pricing approval in some countries, Lumos may be required to conduct a clinical trial that compares the cost-effectiveness of its product to other available therapies. Lumos’ business could be materially harmed if reimbursement of its approved products, if any, is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels.

Product liability lawsuits against Lumos could cause it to incur substantial liabilities and to limit commercialization of any products that it may develop.

Lumos faces an inherent risk of product liability exposure related to the testing of LUM-201 and any future product candidates in human clinical studies and will face an even greater risk if it commercially sells any products that it may develop. If Lumos cannot successfully defend itself against claims that its product candidates or products caused injuries, it will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

decreased demand for any product candidates or products that Lumos may develop;
injury to Lumos’ reputation and significant negative media attention;
withdrawal of patients from clinical studies or cancellation of studies;
significant costs to defend the related litigation;
substantial monetary awards to patients;
loss of revenue; and
the inability to commercialize any products that Lumos may develop.

Any product liability insurance coverage Lumos may obtain in the future may not be adequate to cover all liabilities that it may incur. Insurance coverage is increasingly expensive. Lumos may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.

Lumos has agreed not to develop or seek to commercialize any products in the dermatological field, or the fields of Parkinson’s, Huntington’s and ALS diseases.

Pursuant to the terms of Lumos’ settlement agreement with The Avicena Group, Inc. and its Chief Executive Officer, Lumos has agreed not to, among other things, develop, commercialize, market, sell, license, transfer or otherwise exploit any substance, therapeutic, diagnostic or other methodology in the dermatological field or the fields of Parkinson’s, Huntington’s and ALS diseases for a period of 25 years, beginning on November 19, 2012. As a result, Lumos may be limited in its ability to develop or collaborate on products in those fields, and Lumos could miss valuable future opportunities thus potentially adversely affecting Lumos’ financial results, business and business prospects.

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Risks Related to the Operation of Lumos’ Business

Lumos’ future success depends on its ability to retain its chief executive officer and other key members of its management team and to attract, retain and motivate qualified personnel.

Lumos is highly dependent on its chief executive officer and the other members of its management team. Under the terms of their employment, Lumos’ executives may terminate their employment with Lumos at any time. The loss of the services of any of these people could impede the achievement of Lumos’ research, development and commercialization objectives.

Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel will also be critical to Lumos’ success. Lumos may not be able to attract and retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. Lumos also experiences competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, Lumos relies on consultants and advisors, including scientific and clinical advisors, to assist it in formulating its research and development and commercialization strategy. Lumos’ consultants and advisors may be employed by employers other than Lumos and may have commitments under consulting or advisory contracts with other entities that may limit their availability to Lumos.

Lumos expects to expand its development, regulatory and sales and marketing capabilities, and as a result, Lumos may encounter difficulties in managing its growth, which could disrupt its operations.

As of September 30, 2019, Lumos had seven employees. Over the next several years, Lumos expects to experience significant growth in the number of its employees and the scope of its operations, particularly in the areas of drug development, regulatory affairs, commercial development and sales and marketing. To manage Lumos’ anticipated future growth, it must continue to implement and improve its managerial, operational and financial systems, expand its facilities and continue to recruit and train additional qualified personnel. Lumos may not be able to effectively manage the expansion of its operations or recruit and train additional qualified personnel. The physical expansion of Lumos’ operations may lead to significant costs and may divert its management and business development resources. Future growth would impose significant added responsibilities on members of management, including:

managing its clinical trials effectively, which it anticipates being conducted at numerous clinical sites;
identifying, recruiting, maintaining, motivating and integrating additional employees with the expertise and experience Lumos will require;
managing its internal development efforts effectively while complying with its contractual obligations to licensors, licensees, contractors and other third parties;
managing additional relationships with various strategic partners, suppliers and other third parties;
improving its managerial, development, operational and finance reporting systems and procedures; and
expanding its facilities.

Lumos’ failure to accomplish any of these tasks could prevent it from successfully growing. Any inability to manage growth could delay the execution of Lumos’ business plans or disrupt its operations.

Business disruptions could seriously harm Lumos’ future revenue and financial condition and increase its costs and expenses.

Lumos’ operations could be subject to earthquakes, power shortages, telecommunications failures, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or manmade disasters or business interruptions. The occurrence of any of these business disruptions could seriously harm Lumos’ operations and financial condition and increase its costs and expenses.

If Lumos obtains approval to commercialize LUM-201 outside the United States, it will be subject to additional risks.

If Lumos obtains approval to commercialize any approved products outside of the United States, a variety of risks associated with international operations could materially adversely affect its business, including:

different regulatory requirements for drug approvals and pricing and reimbursement regimes in foreign countries;

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reduced protection for intellectual property rights;
unexpected changes in tariffs, trade barriers and regulatory requirements;
economic weakness, including inflation or political instability in particular foreign economies and markets;
compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
foreign taxes, including withholding of payroll taxes;
foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country;
potential liability under the U.S. Foreign Corrupt Practices Act (“FCPA”) or comparable foreign regulations;
workforce uncertainty in countries where labor unrest is more common than in the United States;
production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods and fires.

Lumos’ internal computer systems, or those of its contract research organizations (“CROs”) or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of its drug development programs.

Despite the implementation of security measures, Lumos’ internal computer systems and those of its CROs and other contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While Lumos has not experienced any such system failure, accident or security breach to date, if such an event were to occur and cause interruptions in its operations, it could result in a material disruption of its drug development programs. For example, the loss of clinical study data from completed or ongoing clinical studies for a product candidate could result in delays in Lumos’ regulatory approval efforts and significantly increase its costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of or damage to Lumos’ data or applications, or inappropriate disclosure of confidential or proprietary information, Lumos could incur liability and the further development of any product candidates could be delayed.

Lumos’ employees, independent contractors and consultants, principal investigators, CROs, contract manufacturing organizations (“CMOs”) and other vendors, and any future commercial partners may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could cause significant liability for Lumos and harm its reputation.

Lumos is exposed to the risk that its employees, independent contractors and consultants, principal investigators, CROs, CMOs and other vendors, and any future commercial partners may engage in fraudulent conduct or other misconduct, including intentional failures to comply with FDA regulations or similar regulations of comparable foreign regulatory authorities, to provide accurate information to the FDA or comparable foreign regulatory authorities, to comply with manufacturing standards required by cGMP or Lumos’ standards, to comply with federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established and enforced by comparable foreign regulatory authorities, and to report financial information or data accurately or disclose unauthorized activities to them. The misconduct of its employees and other Lumos service providers could involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to Lumos’ reputation. Lumos intends to adopt a code of business ethics and conduct, but it is not always possible to identify and deter such misconduct, and the precautions Lumos takes to detect and prevent this activity, such as the implementation of a quality system which entails vendor audits by quality experts, may not be effective in controlling unknown or unmanaged risks or losses or in protecting Lumos from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against them, and Lumos is not successful in defending itself or asserting its rights, those actions could have a significant impact on its business and results of operations, including the imposition of significant fines or other sanctions. For example, if one of Lumos’ manufacturing partners was placed under a consent decree, Lumos may be hampered in its ability to manufacture clinical or commercial supplies.

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If Lumos fails to fulfill its obligations under its contractual commitments, its counterparties could terminate the applicable agreements or make claims against Lumos, which could have a materially adverse effect on Lumos.

Under Lumos’ license agreement with Merck and its Asset Purchase Agreement (the “APA”) with Ammonett Pharma LLC (“Ammonett”), Lumos is obligated to use commercially reasonable and diligent efforts to develop and commercialize LUM-201. Lumos is also obligated to make substantial milestone payments and royalties to both Merck and Ammonett, which may limit the future profitability of Lumos and the ability of Lumos to enter into marketing partnership agreements. If Lumos fails to fulfill its obligations under its contractual commitments to Merck, Ammonett, or any other counterparty, the counterparties could terminate the exclusive, worldwide license and collaboration agreement entered into in November 2014 (the “Lumos Merck Agreement”) with or make claims against Lumos under both agreements, which could have a materially adverse effect on Lumos’ business, results of operations and prospects.

Lumos relies on third parties to conduct its clinical studies, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such studies.

Lumos does not independently conduct clinical studies. Lumos relies on third parties, such as CROs, clinical data management organizations, medical institutions and clinical investigators, to perform this function. Lumos’ reliance on these third parties for clinical development activities reduces its control over these activities but does not relieve it of its responsibilities. Lumos remains responsible for ensuring that each of its clinical studies is conducted in accordance with the general investigational plan and protocols for the study. Moreover, the FDA requires Lumos to comply with standards, commonly referred to as good clinical practices (“GCP”), for conducting, recording and reporting the results of clinical studies to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of patients in clinical studies are protected. Furthermore, these third parties may also have relationships with other entities, some of which may be Lumos’ competitors. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct Lumos’ clinical studies in accordance with regulatory requirements or Lumos’ stated protocols, Lumos will not be able to obtain, or may be delayed in obtaining, regulatory approvals for its product candidates and will not be able to, or may be delayed in its efforts to, successfully commercialize its product candidates.

Lumos also relies on other third parties to store and distribute supplies for its clinical studies. Any performance failure on the part of Lumos’ existing or future distributors could delay clinical development or regulatory approval of its product candidates or commercialization of its products, producing additional losses and depriving Lumos of potential product revenue.

Lumos currently relies and may continue to rely on a single third-party CMO to manufacture and supply LUM-201. If Lumos’ manufacturer and supplier fails to perform adequately or fulfill its needs, Lumos may be required to incur significant costs and devote significant efforts to find a new supplier or manufacturer. Lumos may also face delays in the development and commercialization of its product candidates.

Lumos currently has limited experience in, and it does not own facilities for, clinical-scale manufacturing of its sole product candidate, LUM-201, and it currently relies and may continue to rely upon a single third-party CMO to manufacture and supply drug product for its clinical studies of LUM-201. The manufacture of pharmaceutical products in compliance with the FDA’s cGMP requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of pharmaceutical products often encounter difficulties in production, including difficulties with production costs and yields, quality control, including stability of the product candidate and quality assurance testing, shortages of qualified personnel, as well as compliance with strictly enforced cGMP requirements, other federal and state regulatory requirements and foreign regulations. If any manufacturer contracted by Lumos were to encounter any of these difficulties or otherwise fail to comply with its obligations to Lumos or under applicable regulations, Lumos’ ability to provide study drugs in its clinical studies would be jeopardized. Any delay or interruption in the supply of clinical study materials could delay the completion of Lumos’ clinical studies, increase the costs associated with maintaining its clinical study programs and, depending upon the period of delay, require Lumos to commence new studies at significant additional expense or terminate the studies completely.

All manufacturers of Lumos’ product candidates must comply with cGMP requirements enforced by the FDA through Lumos’ facilities inspection program. These requirements include, among other things, quality control, quality assurance and the maintenance of records and documentation. Manufacturers of Lumos’ product candidates may be unable to comply with these cGMP requirements and with other FDA, state and foreign regulatory

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requirements. The FDA or similar foreign regulatory agencies may also implement new standards at any time, or change their interpretation and enforcement of existing standards for manufacture, packaging or testing of products. Lumos has little control over its manufacturers’ compliance with these regulations and standards. A failure to comply with these requirements may result in fines and civil penalties, suspension of production, suspension or delay in clinical trial and product approval, product seizure or recall or withdrawal of product approval. If the safety of any product supplied is compromised due to Lumos’ manufacturers’ failure to adhere to applicable laws or for other reasons, Lumos may not be able to obtain regulatory approval for or successfully commercialize its products and it may be held liable for any injuries sustained as a result. Any of these factors could cause a delay of clinical studies, regulatory submissions, approvals or commercialization of Lumos’ product candidates, entail higher costs or impair its reputation.

The number of third-party manufacturers with the necessary manufacturing and regulatory expertise and facilities is limited, and it could be expensive and take a significant amount of time to arrange for alternative suppliers, which could have a material adverse effect on Lumos’ business. New manufacturers of any product candidate would be required to qualify under applicable regulatory requirements and would need to have sufficient rights under applicable intellectual property laws to the method of manufacturing the product candidate. Obtaining the necessary FDA approvals or other qualifications under applicable regulatory requirements and ensuring non-infringement of third-party intellectual property rights could result in a significant interruption of supply and could require the new manufacturer to bear significant additional costs that may be passed on to Lumos.

Any future collaboration agreements Lumos may enter into for LUM-201 or any other product candidate may place the development of LUM-201 or other product candidates outside Lumos’ control, may require Lumos to relinquish important rights or may otherwise be on terms unfavorable to Lumos.

Lumos may enter into collaboration agreements with third parties with respect to LUM-201 for the commercialization of this candidate in or outside the United States, or with respect to future product candidates for commercialization in or outside the United States. Lumos’ likely collaborators for any distribution, marketing, licensing or other collaboration arrangements include large and mid-size pharmaceutical companies, regional and national pharmaceutical companies and biotechnology companies. Lumos will have limited control over the amount and timing of resources that its collaborators dedicate to the development or commercialization of its product candidates. Lumos’ ability to generate revenue from these arrangements will depend on its collaborators’ abilities to successfully perform the functions assigned to them in these arrangements.

Collaborations involving Lumos’ product candidates are subject to numerous risks, which may include the following:

collaborators have significant discretion in determining the efforts and resources that they will apply to any such collaborations;
collaborators may not pursue development and commercialization of Lumos’ product candidates or may elect not to continue or renew development or commercialization programs based on clinical study results, changes in their strategic focus due to the acquisition of competitive products, availability of funding or other external factors, such as a business combination that diverts resources or creates competing priorities;
collaborators may delay clinical studies, provide insufficient funding for a clinical study program, stop a clinical study, abandon a product candidate, repeat or conduct new clinical studies or require a new formulation of a product candidate for clinical testing;
collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with Lumos’ products or product candidates;
a collaborator with marketing and distribution rights to one or more products may not commit sufficient resources to their marketing and distribution;
collaborators may not properly maintain or defend Lumos’ intellectual property rights or may use its intellectual property or proprietary information in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate its intellectual property or proprietary information or expose Lumos to potential liability;

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disputes may arise between Lumos and a collaborator, including related to Lumos’ loss of licensing rights it might have sublicensed to collaborators, that causes the delay or termination of the research, development or commercialization of Lumos’ product candidates or that results in costly litigation or arbitration that diverts management’s attention and resources;
Lumos’ right to sublicense patent and other rights to third party collaborators is subject to obtaining the prior written consent of Lumos’ licensor for sublicenses in the United States, major European countries and Japan (such consent not to be unreasonably withheld);
collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product candidates; and
collaborators may own or co-own intellectual property covering Lumos’ products that results from Lumos’ collaborating with them, and in such cases, Lumos would not have the exclusive right to commercialize such intellectual property.

Any termination or disruption of collaborations could result in delays in the development of product candidates, increases in Lumos’ costs to develop the product candidates or the termination of development of a product candidate.

Risks Related to Lumos’ Intellectual Property

Lumos’ ability to successfully commercialize its technology and products may be materially adversely affected if it is unable to obtain and maintain effective intellectual property rights for its technologies and product candidates, or if the scope of the intellectual property protection is not sufficiently broad.

Lumos’ success depends on its ability to obtain and maintain patent and other intellectual property protection in the United States and in other countries with respect to its proprietary technology and products.

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain and involves complex legal and factual questions for which legal principles remain unresolved. In recent years patent rights have been the subject of significant litigation. As a result, the issuance, scope, validity, enforceability and commercial value of the patent rights Lumos relies on are highly uncertain. Pending and future patent applications may not result in patents being issued which protect Lumos’ technology or products or which effectively prevent others from commercializing competitive technologies and products. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of the patents Lumos relies on or narrow the scope of Lumos’ patent protection. The laws of foreign countries may not protect Lumos’ rights to the same extent as the laws of the United States. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, Lumos cannot be certain that the inventors of the key patents Lumos has acquired with respect to LUM-201 were the first to make the inventions claimed in Lumos’ licensed patents or pending patent applications, or that Lumos was the first to file for patent protection of such inventions. Assuming the other requirements for patentability are met, prior to March 16, 2013, in the United States, the first to make the claimed invention is entitled to the patent, while outside the United States, the first to file a patent application is entitled to the patent.

Even if the pending patent applications Lumos relies on issue as patents, they may not issue in a form that will provide Lumos with any meaningful protection, prevent competitors from competing with Lumos or otherwise provide it with any competitive advantage. Lumos’ competitors may be able to circumvent its patents by developing similar or alternative technologies or products in a non-infringing manner. The issuance of a patent is not conclusive as to its scope, validity or enforceability, and the patents Lumos relies on may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in patent claims being narrowed, invalidated or held unenforceable, which could limit Lumos’ ability to stop or prevent others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of Lumos’ technology and products. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, Lumos’ patent portfolio may not provide it with sufficient rights to exclude others from commercializing products similar or identical to Lumos’ or otherwise provide it with a competitive advantage.

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Lumos does not have composition of matter patent protection with respect to LUM-201.

Lumos owns certain patents and patent applications with claims directed to specific methods of using LUM-201 and it may obtain marketing exclusivity from the FDA and the EMA for a period of seven and a half and 12 years, respectively, because LUM-201 has not been approved in these markets and has received Orphan Drug Designation (“ODD”) for treatment of GHD. However, Lumos does not have composition of matter protection in the United States and elsewhere covering LUM-201. Lumos may be limited in its ability to list its patents in the FDA’s Orange Book if the use of its product, consistent with its FDA-approved label, would not fall within the scope of Lumos’ patent claims. Also, Lumos’ competitors may be able to offer and sell products so long as these competitors do not infringe any other patents that Lumos (or third parties) hold, including patents with claims for method of use patents. In general, method of use patents are more difficult to enforce than composition of matter patents because, for example, of the risks that the FDA may approve alternative uses of the subject compounds not covered by the method of use patents, and others may engage in off-label sale or use of the subject compounds. Physicians are permitted to prescribe an approved product for uses that are not described in the product’s labeling. Although off-label prescriptions may infringe its method of use patents, the practice is common across medical specialties and such infringement is difficult to prevent or prosecute. FDA approval of uses that are not covered by Lumos’ patents would limit Lumos’ ability to generate revenue from the sale of LUM-201, if approved for commercial sale.

Lumos may become involved in legal proceedings to protect or enforce its intellectual property rights, which could be expensive, time-consuming and unsuccessful.

Competitors may infringe or otherwise violate the patents Lumos relies on, or Lumos’ other intellectual property rights. To counter infringement or unauthorized use, Lumos may be required to file infringement claims, which can be expensive and time-consuming. Any claims that Lumos asserts against perceived infringers could also provoke these parties to assert counterclaims against it alleging that it infringed their intellectual property rights. In addition, in an infringement proceeding, a court may decide that a patent Lumos is asserting is invalid or unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that the patents Lumos is asserting do not cover the technology in question. An adverse result in any litigation proceeding could put one or more patents at risk of being invalidated or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of Lumos’ confidential information could be compromised by disclosure during this type of litigation.

Interference or derivation proceedings provoked by third parties or brought by the United States Patent and Trademark Office (the “USPTO”) or any foreign patent authority may be necessary to determine the priority of inventions or other matters of inventorship with respect to patents and patent applications. Lumos or its licensers may become involved in proceedings, including oppositions, interferences, derivation proceedings inter partes reviews, patent nullification proceedings, or re-examinations, challenging its patent rights or the patent rights of others, and the outcome of any such proceedings are highly uncertain. An adverse determination in any such proceeding could reduce the scope of, or invalidate, important patent rights, allow third parties to commercialize Lumos’ technology or products and compete directly with it, without payment to it, or result in its inability to manufacture or commercialize products without infringing third-party patent rights. Lumos’ business could be harmed if the prevailing party does not offer it a license on commercially reasonable terms, if any license is offered at all. Litigation or other proceedings may fail and, even if successful, may result in substantial costs and distract Lumos’ management and other employees. Lumos may also become involved in disputes with others regarding the ownership of intellectual property rights. For example, data which form the basis of Lumos’ key patent and patent applications were the result of certain clinical trials conducted by Merck, and disagreements may therefore arise as to the ownership or validity of any intellectual property developed pursuant to such relationship. If Lumos is unable to resolve these disputes, it could lose valuable intellectual property rights.

Even if resolved in Lumos’ favor, litigation or other legal proceedings relating to intellectual property claims may cause Lumos to incur significant expenses and could distract its technical and/or management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the market price of Lumos’ common stock. Such litigation or proceedings could substantially increase Lumos’ operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. Uncertainties resulting from the initiation and continuation of intellectual property litigation or other proceedings could have a material adverse effect on Lumos’ ability to compete in the marketplace.

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Third parties may initiate legal proceedings alleging that Lumos is infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of Lumos’ business.

Lumos’ commercial success depends upon its ability and the ability of its collaborators to develop, manufacture, market and sell its product candidates and use its proprietary technologies without infringing, misappropriating or otherwise violating the proprietary rights or intellectual property of third parties. Lumos may become party to, or be threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to its products and technology. Third parties may assert infringement claims against Lumos based on existing or future intellectual property rights. If Lumos is found to infringe a third-party’s intellectual property rights, Lumos could be required to obtain a license from such third-party to continue developing and marketing Lumos’ products and technology. Lumos may also elect to enter into such a license in order to settle pending or threatened litigation. However, Lumos may not be able to obtain any required license on commercially reasonable terms or at all. Even if Lumos was able to obtain a license, it could be non-exclusive, thereby giving Lumos’ competitors access to the same technologies licensed to Lumos, and could require Lumos to pay significant royalties and other fees. Lumos could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, Lumos could be found liable for monetary damages. A finding of infringement could prevent Lumos from commercializing its product candidates or force it to cease some of its business operations, which could materially harm its business. Certain Lumos employees and consultants were previously employed at universities or other biotechnology or pharmaceutical companies, including its competitors or potential competitors. Although Lumos tries to ensure that its employees do not use the proprietary information or know-how of others in their work for Lumos, Lumos may be subject to claims that it or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. These and other claims that Lumos has misappropriated the confidential information or trade secrets of third parties can have a similar negative impact on its business to the infringement claims discussed above.

Even if Lumos is successful in defending against intellectual property claims, litigation or other legal proceedings relating to such claims may cause Lumos to incur significant expenses, and could distract its technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of Lumos’ common stock. Such litigation or proceedings could substantially increase Lumos’ operating losses and reduce its resources available for development activities. Lumos may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of Lumos’ competitors may be able to sustain the costs of such litigation or proceedings more effectively than Lumos can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of litigation or other intellectual property related proceedings could have a material adverse effect on Lumos’ ability to compete in the marketplace.

If Lumos is unable to protect the confidentiality of its trade secrets, the value of its technology could be materially adversely affected, harming its business and competitive position.

In addition to Lumos’ products and patented technology, it relies upon confidential proprietary information, including trade secrets, unpatented know-how, technology and other proprietary information, to develop and maintain its competitive position. Any disclosure to or misappropriation by third parties of Lumos’ confidential proprietary information could enable competitors to quickly duplicate or surpass its technological achievements, thus eroding its competitive position in the market. Lumos seeks to protect its confidential proprietary information, in part, by confidentiality agreements with its employees and its collaborators and consultants. Lumos also has agreements with its employees and selected consultants that obligate them to assign their inventions to Lumos. These agreements are designed to protect Lumos’ proprietary information; however, Lumos cannot be certain that its trade secrets and other confidential information will not be disclosed or that competitors will not otherwise gain access to its trade secrets, or that technology relevant to its business will not be independently developed by a person that is not a party to such an agreement. Furthermore, if the employees, consultants or collaborators that are parties to these agreements breach or violate the terms of these agreements, Lumos may not have adequate remedies for any such breach or violation, and Lumos could lose its trade secrets through such breaches or violations. Further, Lumos’ trade secrets could be disclosed, misappropriated or otherwise become known or be independently discovered by its competitors. In addition, intellectual property laws in foreign countries may not protect trade secrets and confidential information to the same extent as the laws of the United States. If Lumos is unable to prevent disclosure of the intellectual property related to its technologies to third parties, it may not be able to establish or maintain a competitive advantage in its market, which would harm its ability to protect its rights and have a material adverse effect on its business.

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Lumos may not be able to protect and/or enforce its intellectual property rights throughout the world.

Filing, prosecuting and defending the intellectual property rights of Lumos throughout the world may be prohibitively expensive to Lumos and to its licensors. Competitors may use Lumos’ technologies in jurisdictions where Lumos or its licensors have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where Lumos has patent protection but where enforcement is not as strong as in the United States. These products may compete with Lumos’ products in jurisdictions where it or its licensors do not have any issued patents and its patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing. Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to pharmaceuticals and biopharmaceuticals, which could make it difficult for Lumos to stop the infringement of its patents or marketing of competing products in violation of its proprietary rights generally. Proceedings to enforce Lumos’ patent rights in foreign jurisdictions could result in substantial cost and divert its efforts and attention from other aspects of its business.

Lumos is dependent on licensed intellectual property. If Lumos were to lose its rights to licensed intellectual property, Lumos would not be able to continue developing its sole product candidate, LUM-201. If Lumos breaches the agreement under which Lumos licenses the use, development and commercialization rights to its sole product candidate or technology from third parties or, in certain cases, Lumos fails to meet certain development or payment deadlines, Lumos could lose license rights that are important to its business.

In connection with the APA, Lumos was assigned the Lumos Merck Agreement under which Lumos is granted rights to intellectual properties that are important to its business, and Lumos may need to enter into additional license agreements in the future. Lumos’ existing license agreement imposes, and Lumos expects that future license agreements will impose, various development, regulatory and/or commercial diligence obligations, payment of fees, milestones and/or royalties and other obligations. If Lumos fails to comply with its obligations under the agreement, Merck, the licensor, may have the right to terminate the license, in which event Lumos would not be able to develop or market products, which could be covered by the license. Lumos’ business could suffer, for example, if any current or future licenses terminate, if the licensors fail to abide by the terms of the license, if the licensed patents or other rights are found to be invalid or unenforceable, or if Lumos is unable to enter into necessary licenses on acceptable terms.

As Lumos has done previously, Lumos may need to obtain licenses from third parties to advance its research or allow commercialization of sole product candidate, and Lumos cannot provide any assurances that third-party patents do not exist that might be enforced against LUM-201 or future products in the absence of such a license. Lumos may fail to obtain any of these licenses on commercially reasonable terms, if at all. Even if Lumos is able to obtain a license, it may be non-exclusive, thereby giving competitors access to the same technologies licensed to Lumos. In that event, Lumos may be required to expend significant time and resources to develop or license replacement technology. If Lumos is unable to do so, Lumos may be unable to develop or commercialize the affected product candidates, which could materially harm Lumos’ business and the third parties owning such intellectual property rights could seek either an injunction prohibiting Lumos’ sales, or, with respect to Lumos’ sales, an obligation to pay royalties and/or other forms of compensation.

Licensing of intellectual property is of critical importance to Lumos’ business and involves complex legal, business and scientific issues. Disputes may arise between Lumos and its licensors regarding intellectual property subject to a license agreement, including:

the scope of rights granted under the license agreement and other interpretation-related issues;
whether and the extent to which Lumos’ technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;
Lumos’ right to sublicense patent and other rights to third parties under collaborative development relationships;
Lumos’ diligence obligations with respect to the use of the licensed technology in relation to development and commercialization of Lumos’ product candidates, and what activities satisfy those diligence obligations; and

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the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by Lumos’ licensors and Lumos and Lumos’ partners.

If disputes over intellectual property that Lumos has licensed prevent or impair Lumos’ ability to maintain Lumos’ current licensing arrangements on acceptable terms, Lumos may be unable to successfully develop and commercialize the affected product candidates. Lumos may enter into additional license(s) to third-party intellectual property that are necessary or useful to Lumos’ business.

Lumos’ current license for LUM-201 and any future licenses that Lumos may enter into impose various royalty payments, milestone, and other obligations. For example, the licensor may retain control over patent prosecution and maintenance under a license agreement, in which case, Lumos may not be able to adequately influence patent prosecution or prevent inadvertent lapses of coverage due to failure to pay maintenance fees. If Lumos fails to comply with any of its obligations under a current or future license agreement, Lumos’ licensor(s) may allege that Lumos has breached Lumos’ license agreement and may accordingly seek to terminate the license. In addition, future licensor(s) may decide to terminate Lumos’ license at will. Termination of any current or future licenses could result in Lumos’ loss of the right to use the licensed intellectual property, which could materially adversely affect Lumos’ ability to develop and commercialize a product candidate or product, if approved, as well as harm Lumos’ competitive business position and business prospects.

Intellectual property rights do not necessarily address all potential threats to Lumos’ competitive advantage.

The degree of future protection afforded by Lumos’ intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect Lumos’ business or permit it to maintain its competitive advantage. The following examples are illustrative:

others may be able to make and/or use products that are similar to Lumos’ product candidates but that are not covered by the claims of the patents that Lumos owns;
inventors of patents that Lumos owns might not have been the first to make the inventions covered by an issued patent or pending patent application and/or might not have been the first to file patent applications covering an invention;
others may independently develop similar or alternative technologies or duplicate any of Lumos’ or its licensors’ technologies without infringing its intellectual property rights;
pending patent applications may not lead to issued patents, including in the key market of China;
issued patents may not provide Lumos with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by Lumos’ competitors;
Lumos’ competitors might conduct research and development activities in countries where Lumos does not have patent rights and then use the information learned from such activities to develop competitive products for sale in its major commercial markets;
Lumos may not develop or in-license additional proprietary technologies that are patentable; and
the patents of others may have an adverse effect on Lumos’ business.

Should any of these events occur, they could significantly harm Lumos’ business, results of operations and prospects.

Obtaining and maintaining patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and Lumos’ or its licensors’ patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to be paid by Lumos and/or its licensors to the USPTO and various governmental patent agencies outside of the United States in several stages over the lifetime of the licensed patents and/or applications. The USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. In many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent

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application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, Lumos’ competitors might be able to use Lumos’ technologies and those technologies licensed to it and this circumstance would have a material adverse effect on Lumos’ business.

Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of Lumos’ issued patents.

In March 2013, under the America Invents Act (the “AIA”), the United States moved to a first-to-file system and made certain other changes to its patent laws. The full extent of these changes are still not completely clear as, for example, the courts have yet to address many of the provisions of the AIA. Thus, the applicability of the act and new regulations on specific patents and patent applications discussed herein have not been determined and would need to be reviewed. Accordingly, it is not yet clear what, if any, impact the AIA will have on the operation of Lumos’ business. However, the AIA and its implementation could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents, all of which could have a material adverse effect on Lumos’ business and financial condition.

If Lumos is unable to obtain a patent term extension in the United States under the Hatch-Waxman Act and in foreign countries under similar legislation, thereby potentially extending the term of its marketing exclusivity for its product candidates, its business may be materially harmed.

Depending upon the timing, duration and specifics of FDA marketing approval of Lumos’ product candidates, if any, one or more of the United States patents covering its approved product(s) or the use thereof may be eligible for up to five years of patent term restoration under the Hatch-Waxman Act. The Hatch-Waxman Act allows a maximum of one patent to be extended per FDA approved product. Patent term extension also may be available in certain foreign countries upon regulatory approval of Lumos’ product candidates. Nevertheless, Lumos may not be granted patent term extension either in the United States or in any foreign country because of, for example, it or its licensors failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable statutory requirements. Moreover, the term of extension, as well as the scope of patent protection during any such extension, afforded by the governmental authority could be less than Lumos requests.

If Lumos is unable to obtain patent term extension or restoration, or the term of any such extension is less than requested, the period during which Lumos will have the right to exclusively market its product will be shortened and its competitors may obtain approval of competing products following its patent expiration, and Lumos’ revenue could be reduced, possibly materially.

Risks Related to Government Regulation of Lumos

The regulatory approval process is expensive, time consuming and uncertain and may prevent Lumos or its collaboration partners from obtaining approvals for the commercialization of its product candidates.

The research, testing, manufacturing, labeling, approval, selling, import, export, marketing and distribution of drug products are subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries, which regulations differ from country to country. Neither Lumos nor its collaboration partners are permitted to market Lumos’ product candidates in the United States until Lumos receives approval of an NDA from the FDA. Neither Lumos nor its collaboration partners have submitted an application or received marketing approval for LUM-201 or any future product candidates. Obtaining approval of an NDA can be a lengthy, expensive and uncertain process. In addition, failure to comply with the FDA and other applicable United States and foreign regulatory requirements may subject Lumos to administrative or judicially imposed sanctions, including the following:

warning letters;
civil or criminal penalties and fines;
injunctions;
suspension or withdrawal of regulatory approval;
suspension of any ongoing clinical studies;
voluntary or mandatory product recalls and publicity requirements;

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refusal to accept or approve applications for marketing approval of new drugs filed by Lumos;
restrictions on operations, including costly new manufacturing requirements; and
seizure or detention of Lumos’ products or import bans.

Prior to receiving approval to commercialize any of Lumos’ product candidates in the United States or abroad, Lumos and its collaboration partners must demonstrate with substantial evidence from well-controlled clinical studies, and to the satisfaction of the FDA and other foreign regulatory authorities, that such product candidates are safe and effective for their intended uses. Results from preclinical studies and clinical studies can be interpreted in different ways. Even if Lumos and its collaboration partners believe the preclinical or clinical data for its product candidates are promising, such data may not be sufficient to support approval by the FDA and other regulatory authorities. Administering any of Lumos’ product candidates to humans may produce undesirable adverse events, which could interrupt, delay or cause suspension of clinical studies of Lumos’ product candidates and result in the FDA or other regulatory authorities denying approval of its product candidates for any or all targeted indications.

Regulatory approval of an NDA is not guaranteed, and the approval process is expensive and may take several years. The FDA also has substantial discretion in the approval process. Despite the time and expense exerted, failure can occur at any stage, and Lumos could encounter problems that cause it to abandon or repeat clinical studies, or perform additional preclinical studies and clinical studies. The number of preclinical studies and clinical studies that will be required for FDA approval varies depending on the product candidate, the disease or condition that the product candidate is designed to address and the regulations applicable to any particular product candidate. The FDA can delay, limit or deny approval of a product candidate for many reasons, including, but not limited to, the following:

a product candidate may not be deemed safe or effective, only moderately effective or have undesirable or unintended adverse events, toxicities or other characteristics that preclude Lumos’ obtaining marketing approval or prevent or limit commercial use;
FDA officials may not find the data from preclinical studies and clinical studies sufficient, or may disagree with Lumos’ interpretation of data from preclinical studies or clinical trials;
the FDA might not approve Lumos’ or its third-party manufacturer’s processes or facilities;
the FDA may disagree with the design, implementation or results of Lumos’ clinical trials;
the population studied in the clinical trial may not be sufficiently broad or representative to assure efficacy and safety in the full population for which Lumos seeks approval;
data collected from clinical trials of Lumos’ drug candidates may not be sufficient to support the submission of an NDA; and
Lumos may be unable to demonstrate to the FDA a drug candidate’s risk-benefit ratio for its proposed indication is acceptable.

If LUM-201 or any future product candidates fail to demonstrate safety and efficacy in clinical studies or do not gain regulatory approval, Lumos’ business and results of operations will be materially and adversely harmed.

Even if Lumos receives regulatory approval for a product candidate, Lumos will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense and subject it to penalties if it fails to comply with applicable regulatory requirements.

Once regulatory approval has been granted, the approved product and its manufacturer are subject to continual review by the FDA and/or non-U.S. regulatory authorities. Any regulatory approval that Lumos or any future collaboration partners receive for LUM-201 or any future product candidates may be subject to limitations on the indicated uses for which the product may be marketed or contain requirements for potentially costly post-marketing follow-up studies to monitor the safety and efficacy of the product. In addition, if the FDA and/or non-U.S. regulatory authorities approve LUM-201 or any future product candidates, Lumos will be subject to extensive and ongoing regulatory requirements by the FDA and other regulatory authorities with regard to the labeling, packaging, adverse event reporting, storage, advertising, promotion and recordkeeping for its products.

Regulatory authorities closely regulate the post-approval marketing and promotion of drugs to ensure drugs are marketed only for the approved indications and in accordance with the provisions of the approved labeling. Regulatory authorities impose stringent restrictions on manufacturers’ communications regarding off-label use, and

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if regulatory authorities believe that Lumos is in violation of these restrictions, Lumos may be subject to enforcement action for off-label marketing. Violations of the Federal Food, Drug, and Cosmetic Act in the United States, and other comparable regulations in foreign jurisdictions, relating to the promotion of prescription drugs may lead to enforcement actions and investigations by the FDA, Department of Justice, State Attorney Generals and other foreign regulatory agencies alleging violations of United States federal and state health care fraud and abuse laws, as well as state consumer protection laws and comparable laws in foreign jurisdictions.

In addition, manufacturers of Lumos’ drug products are required to comply with cGMP regulations, which include requirements related to quality control and quality assurance as well as the corresponding maintenance of records and documentation. Further, regulatory authorities must approve these manufacturing facilities before they can be used to manufacture Lumos’ drug products, and these facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMP regulations. If Lumos or a third party discover previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory authority may impose restrictions on that product, the manufacturer or Lumos, including requiring withdrawal of the product from the market or suspension of manufacturing. If Lumos, its product candidates or the manufacturing facilities for its product candidates fail to comply with regulatory requirements of the FDA and/or other non-U.S. regulatory authorities, Lumos could be subject to administrative or judicially imposed sanctions, including the following:

warning letters;
civil or criminal penalties and fines;
injunctions;
suspension or withdrawal of regulatory approval;
suspension of any ongoing clinical studies;
voluntary or mandatory product recalls and publicity requirements;
refusal to accept or approve applications for marketing approval of new drugs or biologics or supplements to approved applications filed by it;
restrictions on operations, including costly new manufacturing requirements; and
seizure or detention of its products or import bans.

The regulatory requirements and policies may change and additional government regulations may be enacted with which Lumos may also be required to comply. Lumos cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or in other countries. If Lumos is not able to maintain regulatory compliance, it may not be permitted to market its future products and its business may suffer.

Failure to obtain regulatory approvals in foreign jurisdictions will prevent Lumos from marketing its products internationally.

Lumos intends to seek a distribution and marketing partner for LUM-201 outside the United States and may market future products in international markets. In order to market Lumos’ future products in regions such as the European Economic Area (the “EEA”), Asia Pacific, and many other foreign jurisdictions, it must obtain separate regulatory approvals.

For example, in the EEA, medicinal products can only be commercialized after obtaining a Marketing Authorization (an “MA”). Before granting the MA, the EMA or the competent authorities of the member states of the EEA make an assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy. In Japan, the Pharmaceuticals and Medical Devices Agency, of the Ministry of Health Labour and Welfare, must approve an application under the Pharmaceutical Affairs Act before a new drug product may be marketed in Japan.

Lumos has had limited interactions with foreign regulatory authorities. The approval procedures vary among countries and can involve additional clinical testing, and the time required to obtain approval may differ from that required to obtain FDA approval. Moreover, clinical studies conducted in one country may not be accepted by regulatory authorities in other countries. Approval by the FDA does not ensure approval by regulatory authorities in

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other countries, and approval by one or more foreign regulatory authorities does not ensure approval by regulatory authorities in other foreign countries or by the FDA. However, a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval. Lumos may not obtain foreign regulatory approvals on a timely basis, if at all. Lumos may not be able to file for regulatory approvals and even if it files it may not receive necessary approvals to commercialize its products in any market.

Healthcare reform measures could hinder or prevent Lumos’ product candidates’ commercial success.

In the United States, there have been and Lumos expects there will continue to be a number of legislative and regulatory changes to the healthcare system in ways that could affect its future revenue and profitability and the future revenue and profitability of its potential customers. Federal and state lawmakers regularly propose and, at times, enact legislation that would result in significant changes to the healthcare system, some of which are intended to contain or reduce the costs of medical products and services. For example, one of the most significant healthcare reform measures in decades, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act (collectively, the “PPACA”), was enacted in 2010. The PPACA contains a number of provisions, including those governing enrollment in federal healthcare programs, reimbursement changes and fraud and abuse measures, all of which will impact existing government healthcare programs and will result in the development of new programs. The PPACA, among other things:

imposes a non-deductible annual fee on pharmaceutical manufacturers or importers who sell “branded prescription drugs”;
increases the minimum level of Medicaid rebates payable by manufacturers of brand-name drugs from 15.1% to 23.1%, effective 2011;
could result in the imposition of injunctions;
requires collection of rebates for drugs paid by Medicaid managed care organizations;
requires manufacturers to participate in a coverage gap discount program, under which they now must agree to offer 70% point-of-sale discounts off negotiated prices of applicable branded drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D; and
creates a process for approval of biologic therapies that are similar or identical to approved biologics.

While the United States Supreme Court upheld the constitutionality of most elements of the PPACA in June 2012, other legal challenges are still pending final adjudication in several jurisdictions. For example, on December 14, 2018, a Texas U.S. District Court Judge ruled that the PPACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Cuts and Jobs Act of 2017. Although the Texas U.S. District Court Judge, as well as the presidential administration and the Centers for Medicare & Medicaid Services (“CMS”) have stated that the ruling will have no immediate effect pending appeal of the decision. On July 10, 2019, the Court of Appeals for the Fifth Circuit heard oral argument in this case. Some of the provisions of the PPACA have yet to be implemented, and there have been judicial and Congressional challenges to certain aspects of the PPACA, as well as recent efforts by the Trump administration to repeal or replace certain aspects of the PPACA. Lumos cannot assure you that the PPACA, as currently enacted or as amended in the future, will not adversely affect its business and financial results and Lumos cannot predict how future federal or state legislative or administrative changes relating to healthcare reform will affect its business.

In addition, other legislative changes have been proposed and adopted since the PPACA was enacted. For example, the Budget Control Act of 2011, among other things, created the Joint Select Committee on Deficit Reduction to recommend proposals for spending reductions to Congress. The Joint Select Committee did not achieve a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, which triggered the legislation’s automatic reduction to several government programs, including aggregate reductions to Medicare payments to providers of up to two percent per fiscal year, starting in 2013. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012 (the “ATRA”), which delayed for another two months the budget cuts mandated by the sequestration provisions of the Budget Control Act of 2011. The ATRA, among other things, also reduced Medicare payments to several providers, including hospitals, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. In March 2013, the President

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signed an executive order implementing sequestration, and in April 2013, the two percent Medicare reductions went into effect. Lumos cannot predict whether any additional legislative changes will affect its business. There have been several recent Congressional inquiries and proposed and enacted legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. The Trump administration’s budget proposals for fiscal years 2019 and 2020 contain further drug price control measures that could be enacted during the budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid, and to eliminate cost sharing for generic drugs for low-income patients. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.

There likely will continue to be legislative and regulatory proposals at the federal and state levels directed at containing or lowering the cost of health care. Lumos cannot predict the initiatives that may be adopted in the future or their full impact. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of health care may adversely affect:

Lumos’ ability to set a price that it believes is fair for its products;
Lumos’ ability to generate revenue and achieve or maintain profitability; and
the availability of capital.

Further, changes in regulatory requirements and guidance may occur and Lumos may need to amend clinical study protocols to reflect these changes. Amendments may require Lumos to resubmit its clinical study protocols to institutional review boards (“IRBs”) for reexamination, which may impact the costs, timing or successful completion of a clinical study. In light of widely publicized events concerning the safety risk of certain drug products, regulatory authorities, members of Congress, the Governmental Accounting Office, medical professionals and the general public have raised concerns about potential drug safety issues. These events have resulted in the recall and withdrawal of drug products, revisions to drug labeling that further limit use of the drug products and establishment of risk management programs that may, for instance, restrict distribution of drug products or require safety surveillance and/or patient education. The increased attention to drug safety issues may result in a more cautious approach by the FDA to clinical studies and the drug approval process. Data from clinical studies may receive greater scrutiny with respect to safety, which may make the FDA or other regulatory authorities more likely to terminate or suspend clinical studies before completion or require longer or additional clinical studies that may result in substantial additional expense and a delay or failure in obtaining approval or approval for a more limited indication than originally sought.

Given the serious public health risks of high-profile adverse safety events with certain drug products, the FDA may require, as a condition of approval, costly REMS, which may include safety surveillance, restricted distribution and use, patient education, enhanced labeling, special packaging or labeling, expedited reporting of certain adverse events, preapproval of promotional materials and restrictions on direct-to-consumer advertising.

Lumos’ relationships with healthcare professionals, clinical investigators, CROs and third party payors in connection with its current and future business activities may be subject to federal and state healthcare fraud and abuse laws, false claims laws, transparency laws, government price reporting, and health information privacy and security laws, which could expose Lumos to, among other things, criminal sanctions, civil penalties, contractual damages, exclusion from governmental healthcare programs, reputational harm, administrative burdens and diminished profits and future earnings. If Lumos fails to comply with healthcare regulations, it could face substantial penalties and its business, operations and financial condition could be adversely affected.

Healthcare providers and third-party payors play a primary role in the recommendation and prescription of any drug candidates for which Lumos obtains marketing approval. Lumos’ current and future arrangements with healthcare professionals, clinical investigators, CROs, third-party payors and customers may expose Lumos to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which Lumos markets, sells and distributes its products for which it obtains marketing approval. Restrictions under applicable federal and state healthcare laws and regulations include the following, without limitation, are:

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the federal healthcare program Anti-Kickback Statute, which prohibits, among other things, any person from knowingly and willfully offering, soliciting, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal healthcare programs, such as the Medicare and Medicaid programs;
the federal False Claims Act, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented, false claims, or knowingly using false statements, to obtain payment from the federal government, and which may apply to entities like Lumos which provide coding and billing advice to customers;
federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;
the federal transparency requirements under the Sunshine Act requires manufacturers of drugs, devices, biologics and medical supplies to report to the CMS information related to certain payments and other transfers of value, including physician ownership and investment interests, made to physicians and teaching hospitals;
the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), prohibits, among other things, executing or attempting to execute a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and their implementing regulations, also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information; and
analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers.

Some state laws require biotechnology companies to comply with the biotechnology industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures. Some state laws require biotechnology companies to report information on the pricing of certain drug products, and certain state and local laws require the registration of pharmaceutical sales representatives. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts. For instance, the collection and use of health data in the European Union is governed by the General Data Protection Regulation (the “GDPR”), which extends the geographical scope of European Union data protection law to non-European Union entities under certain conditions, tightens existing European Union data protection principles, creates new obligations for companies and new rights for individuals. Failure to comply with the GDPR may result in substantial fines and other administrative penalties. The GDPR may increase Lumos’ responsibility and liability in relation to personal data that it processes, and it may be required to put in place additional mechanisms ensuring compliance with the GDPR. This may be onerous and if Lumos’ efforts to comply with GDPR or other applicable European Union laws and regulations are not successful, it could adversely affect its business in the European Union.

Efforts to ensure that Lumos’ current and future business arrangements with third parties will comply with applicable healthcare laws and regulations will involve on-going substantial costs. It is possible that governmental authorities will conclude that Lumos’ business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If Lumos’ operations are found to be in violation of any of these laws or any other governmental regulations that may apply to it, it may be subject to significant penalties, including civil, criminal and administrative penalties, damages, fines, disgorgement, individual imprisonment, exclusion from participation in government funded healthcare programs, such as Medicare and Medicaid, integrity oversight and reporting obligations, contractual damages, reputational harm, diminished profits and future earnings and the curtailment or restructuring of its operations. Defending against any such actions can be costly, time-consuming and may require significant financial and personnel resources. Therefore, even if Lumos is successful in defending against any such actions that may be brought against it, its business may be

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impaired. Further, if any of the physicians or other healthcare providers or entities with whom Lumos expects to do business is found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

Risks Related to the Combined Company

If any of the events described in “Risks Related to the Reverse Stock Split,” “Risks Related to NewLink,” “Risks Related to Lumos’ Financial Condition and Capital Requirements,” “Risks Related to the Development and Commercialization of Lumos’ Product Candidate,” “Risks Related to the Operation of Lumos’ Business,” “Risks Related to Lumos’ Intellectual Property” or “Risks Related to Government Regulation of Lumos” occur, those events could cause potential benefits of the Merger not to be realized.

Following completion of the Merger, the combined company will be susceptible to many of the risks described in “Risks Related to the Reverse Stock Split,” “Risks Related to NewLink,” “Risks Related to Lumos’ Financial Condition and Capital Requirements,” “Risks Related to the Development and Commercialization of Lumos’ Product Candidate,” “Risks Related to the Operation of Lumos’ Business,” “Risks Related to Lumos’ Intellectual Property” and “Risks Related to Government Regulation of Lumos.” To the extent any of the events in the risks described in those sections occur, those events could cause the potential benefits of the Merger not to be realized and the market price of the combined company’s common stock to decline.

The historical financial information of NewLink and Lumos presented herein may not be representative of their respective results or financial condition if they had been operated as a combined company, and as a result may not be representative of the combined company’s results or financial condition after the Merger.

The historical financial information of NewLink and Lumos included elsewhere in this proxy statement reflects assumptions and allocations made by NewLink and Lumos, respectively. The historical results and financial condition of NewLink and Lumos presented herein may be different from those that would have resulted had NewLink and Lumos been operated together as a combined company during the applicable periods or at the applicable dates. As a result, the historical financial information of NewLink and Lumos is not indicative of future operating results or financial position of the combined company.

The unaudited pro forma condensed combined financial information presented herein may not be representative of the combined companies’ results after the Merger.

The unaudited pro forma condensed combined financial information included elsewhere in this proxy statement has been presented for informational purposes only and is not necessarily indicative of the financial position or results of operations that actually would have occurred had the Merger been completed as of the date indicated, nor is it indicative of future operating results or financial position. The unaudited pro forma condensed combined financial information has been derived from the historical financial statements of NewLink and Lumos and adjustments and assumptions have been made regarding the combined company after giving effect to the Merger. The information upon which these adjustments and assumptions have been made is preliminary, and these kinds of adjustments and assumptions are difficult to make with accuracy. Moreover, the unaudited pro forma condensed combined financial information does not reflect all costs that are expected to be incurred by the combined company in connection with the Merger. The assumptions used in preparing the unaudited pro forma condensed combined financial information may not ultimately be accurate, and other factors may affect the combined company’s results and financial condition following consummation of the Merger. The unaudited pro forma condensed combined financial information does not reflect the costs of integration activities or transaction-related costs or incremental expenditures associated with the Merger. Accordingly, the unaudited pro forma condensed combined financial information included elsewhere in this proxy statement does not reflect what NewLink’s or Lumos’ results or financial condition would have been had NewLink and Lumos been a consolidated entity during all periods presented.

NewLink and Lumos do not anticipate that the combined company will pay any cash dividends in the foreseeable future.

The current expectation is that the combined company will retain its future earnings, if any, to fund the development and growth of the combined company’s business. As a result, capital appreciation, if any, of the common stock of the combined company will be your sole source of gain, if any, for the foreseeable future.

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The combined company’s business and operations would suffer in the event of system failures, security breaches or cyber-attacks.

The combined company’s computer systems, as well as those of various third parties on which the combined company will rely, including CROs and other contractors, consultants, and law and accounting firms, may sustain damage from computer viruses, unauthorized access, data breaches, phishing attacks, cybercriminals, natural disasters, terrorism, war and telecommunication and electrical failures. Incompatibilities or difficulties with the integration of NewLink’s and Lumos’ computer systems following the closing of the Merger may exacerbate such effects. The combined company will rely on third-party providers to implement effective security measures and identify and correct for any such failures, deficiencies or breaches. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. The combined company may in the future experience material system failures or security breaches that could cause interruptions in the combined company’s operations or result in a material disruption of the combined company’s drug development programs. For example, the loss of nonclinical or clinical trial data from completed, ongoing or planned trials could result in delays in the combined company’s regulatory approval efforts and significantly increase costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of or damage to the data or applications of the combined company, or inappropriate disclosure of personal, confidential or proprietary information, the combined company could incur liability and the further development of its product candidates could be delayed.

Failure by the combined company upon completion of the Merger to comply with the initial listing standards of Nasdaq will prevent its stock from being listed on Nasdaq.

Upon completion of the Merger, we, under the new name “Lumos Pharma, Inc.,” will be required to meet the initial listing requirements to maintain the listing and continued trading of our shares on Nasdaq. These initial listing requirements are more difficult to achieve than the continued listing requirements. Pursuant to the Merger Agreement, we agreed to use our commercially reasonable efforts to cause the shares of our common stock being issued in the Merger to be approved for listing on Nasdaq. Based on information currently available to us, we anticipate that our stock will be unable to meet the $4.00 minimum bid price initial listing requirement at the closing of the Merger unless we effect a reverse stock split. Pursuant to the Merger Agreement and subject to NewLink stockholder approval, the NewLink Board intends to effect a reverse stock split of the shares of our common stock at a ratio of between one-for-five to one-for-nine, with such specific ratio to be mutually agreed upon by us and Lumos. In addition, often times a reverse stock split will not result in a trading price for the affected common stock that is proportional to the ratio of the split. Following the Merger, if we are unable to satisfy Nasdaq listing requirements, Nasdaq may notify the combined company that our shares of common stock will not be listed on Nasdaq.

Upon a potential delisting from Nasdaq, if the combined company common stock is not then eligible for quotation on another market or exchange, trading of the shares could be conducted in the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board. In such event, it is likely that there would be significantly less liquidity in the trading of the combined company’s common stock; decreases in institutional and other investor demand for the shares, coverage by securities analysts, market making activity and information available concerning trading prices and volume; and fewer broker dealers willing to execute trades in the combined company common stock. Also, it may be difficult for the combined company to raise additional capital if the combined company’s common stock is not listed on a major exchange. The occurrence of any of these events could result in a further decline in the market price of the combined company’s common stock and could have a material adverse effect on the combined company.

The Merger will result in changes to the NewLink Board and the combined company may pursue different strategies than either NewLink or Lumos may have pursued independently.

If NewLink and Lumos complete the Merger, the composition of the NewLink Board will change in accordance with the Merger Agreement. The combined company will be led by experienced senior management from both NewLink and Lumos and a board of directors of seven members with three designated by NewLink, three designated by Lumos, and one to be designated following the Merger by the board of directors of the combined company. Currently, it is anticipated that the combined company will initially continue to advance the product and development efforts and business strategies of Lumos. However, because the composition of the board of directors of the combined company will consist of directors from both NewLink and Lumos, the combined company may determine to pursue certain business strategies that neither NewLink nor Lumos would have pursued independently.

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Future sales of shares by existing stockholders could cause the combined company’s stock price to decline.

If existing NewLink stockholders and Lumos stockholders sell, or indicate an intention to sell, substantial amounts of the combined company’s common stock in the public market after legal restrictions on resale discussed in this proxy statement lapse, the trading price of the common stock of the combined company could decline. Based on an assumed closing date of October 15, 2019, the combined company is expected to have outstanding a total of approximately 74.6 million shares of common stock (prior to giving effect to the proposed reverse stock split) immediately following the closing of the Merger. All of our and Lumos’ executive officers and directors and certain principal stockholders are subject to lock-up agreements that restrict their ability to transfer shares of the combined company’s capital stock during the period ending on, and including, the 180th day after the date of the closing of the Merger, subject to specified exceptions. After the lock-up agreements expire, approximately 42.4 million shares of common stock (prior to giving effect to the proposed reverse stock split) held by the combined company’s directors, executive officers and principal stockholders will be subject to volume limitations under Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”) and various vesting agreements.

In addition, at the Effective Time, outstanding options to purchase Lumos common stock will be assumed by NewLink and converted into options to purchase a number of shares of NewLink’s common stock at the exchange ratio applicable to exchanging shares of Lumos common stock for NewLink’s common stock (“Common Stock Exchange Ratio”). NewLink expects to assume outstanding Lumos options to acquire approximately 2.0 million shares of common stock (on an as-converted to NewLink’s common stock basis and prior to giving effect to the proposed reverse stock split). The combined company intends to register all of the shares of common stock issuable upon exercise of outstanding Lumos options, and upon the exercise of any options or other equity incentives the combined company may grant in the future, for public resale under the Securities Act. Accordingly, these shares will be able to be freely sold in the public market upon issuance as permitted by any applicable vesting requirements, subject to the lock-up agreements described above and Rule 144 to the extent applicable.

The combined company’s management will be required to devote substantial time to comply with public company regulations.

As a public company, the combined company will incur significant legal, accounting and other expenses that Lumos did not incur as a private company. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act as well as rules implemented by the SEC and Nasdaq, impose various requirements on public companies, including those related to corporate governance practices. The combined company’s management and other personnel will need to devote a substantial amount of time to these requirements. In addition, there has been a significant reduction in staff of NewLink in recent years that has left fewer personnel available to devote time to these requirements. Certain members of Lumos’ management, who will continue as a part of the management team of the combined company, do not have significant experience in addressing these requirements. Moreover, these rules and regulations will increase the combined company’s legal and financial compliance costs relative to those of Lumos and will make some activities more time consuming and costly.

The Sarbanes-Oxley Act requires, among other things, that the combined company maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, the combined company must perform system and process evaluation and testing of its internal control over financial reporting to allow management to report on the effectiveness of its internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. The combined company’s compliance with these requirements will require that it incur substantial accounting and related expenses and expend significant management efforts. The combined company may need to hire additional accounting and financial staff to satisfy the ongoing requirements of Section 404 of the Sarbanes-Oxley Act. The costs of hiring such staff may be material and there can be no assurance that such staff will be immediately available to the combined company. Moreover, if the combined company is not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act, or if the combined company or its independent registered public accounting firm identifies deficiencies in its internal control over financial reporting that are deemed to be material weaknesses, investors could lose confidence in the accuracy and completeness of the combined company’s financial reports, the market price of the combined company’s common stock could decline and the combined company could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities.

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The sale or availability for sale of a substantial number of shares of common stock of the combined company after the Merger and after expiration of the lock-up period could adversely affect the market price of such shares after the Merger.

Sales of a substantial number of shares of common stock of the combined company in the public market after the Merger or after expiration of the lock-up period and other legal restrictions on resale, or the perception that these sales could occur, could adversely affect the market price of such shares and could materially impair the combined company’s ability to raise capital through equity offerings in the future.

NewLink is unable to predict what effect, if any, market sales of securities held by significant stockholders, directors or officers of the combined company or the availability of these securities for future sale will have on the market price of the combined company’s common stock after the Merger.

Some provisions of the combined company’s charter documents and Delaware law may have antitakeover effects that could discourage an acquisition of the combined company by others, even if an acquisition would be beneficial to the combined company’s stockholders, and may prevent attempts by the combined company’s stockholders to replace or remove the combined company’s management.

Provisions in the combined company’s amended and restated certificate of incorporation and amended and restated bylaws as well as provisions of the Delaware General Corporation Law (“DGCL”) could make it more difficult for a third party to acquire the combined company or increase the cost of acquiring the combined company, even if doing so would benefit stockholders, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions include:

establishing a classified board of directors such that not all members of the board are elected at one time;
allowing the authorized number of the combined company’s directors to be changed only by resolution of the board of directors;
authorizing the issuance of “blank check” preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval;
eliminating the ability of stockholders to call a special meeting of stockholders; and
establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at stockholder meetings.

These provisions may frustrate or prevent any attempts by the combined company stockholders to replace or remove management by making it more difficult for stockholders to replace members of the combined company’s board of directors, which will be responsible for appointing the members of the combined company’s management. In addition, the combined company will be subject to Section 203 of the DGCL, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with an interested stockholder for a period of three years following the date on which the stockholder became an interested stockholder, unless such transactions are approved by the board of directors. This provision could have the effect of delaying or preventing a change of control, whether or not it is desired by or beneficial to the combined company stockholders.

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement and the documents to which we refer you to in this proxy statement include certain “forward-looking statements” within the meaning of, and subject to the safe harbor created by, Section 27A of the Securities Act, Section 21E of the Exchange Act and the Private Securities Litigation Reform Act of 1995, which are referred to as the safe harbor provisions with respect to the businesses, strategies and plans of us, our expectations relating to the Merger and the combined company’s future financial condition and performance. Statements included in or incorporated by reference into this proxy statement that are not historical facts are forward-looking statements, including statements about the beliefs and expectations of the management of each of NewLink and Lumos. Words such as “believe,” “continue,” “could,” “expect,” “anticipate,” “intends,” “estimate,” “forecast,” “project,” “should,” “may,” “will,” “would” or the negative thereof and similar expressions are intended to identify such forward-looking statements that are intended to be covered by the safe harbor provisions.

We caution investors that any forward-looking statements are subject to known and unknown risks and uncertainties, many of which are outside our control, and which may cause actual results and future trends to differ materially from those matters expressed in, or implied or projected by, such forward-looking statements, which speak only as of the date of this proxy statement. Investors are cautioned not to place undue reliance on these forward-looking statements.

These forward-looking statements include, among others, results of clinical trials for product candidates; timing of release of data from ongoing clinical studies; plans related to execution of clinical trials; plans related to moving additional indications into clinical development; the expected focus of the combined company; the development plan for LUM-201; the development plan for NewLink’s existing pipeline; potential partnership and out-licensing opportunities; the timing of and the ability to obtain and maintain regulatory approvals for product candidates; the clinical utility of the existing and future product candidates; the intellectual property position; the potential benefits of strategic collaboration agreements and the ability to enter into strategic arrangements; plans and expectations related to continued listing on Nasdaq; NewLink’s, Lumos’ or the combined company’s future financial performance, the impact of management changes, organizational restructuring, results of operations, cash position and sufficiency of capital resources to fund its operating requirements; expectations regarding the composition of the board of directors and management, capitalization, resources and ownership structure of the combined company; expectations regarding the sufficiency of the combined company’s resources to fund the advancement of any development program or the completion of any clinical trial; the potential benefits of the Merger; the expected completion and timing of the Merger and other information relating to the Merger; expected costs associated with termination benefits and financial impact of the reduction in force; the potential timing and impact of the proposed reverse stock split; and any other statements other than statements of historical fact.

Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that NewLink or Lumos makes due to a number of important factors, including:

the risk that the Merger may not be completed in a timely manner or at all, which may adversely affect NewLink’s business and the price of the common stock of NewLink;
the failure to satisfy any of the conditions to the consummation of the Merger, including approval of the issuance of shares of NewLink’s common stock in the Merger and the resulting “change of control” of NewLink under Nasdaq rules or the contemplated reverse stock split;
the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement;
the risk that the Merger Agreement may be terminated in circumstances that require NewLink to pay a termination fee to Lumos;
risks related to the ability to realize the anticipated benefits of the Merger, including the risk that the businesses will not be integrated successfully;
the effect of the announcement or pendency of the Merger on NewLink’s, Lumos’ or the combined company’s business relationships, operating results and business generally;
risks that the Merger disrupts current plans and operations of NewLink, Lumos or the combined company;
risks related to diverting management’s attention from NewLink’s ongoing business operations;

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other business effects, including the effects of industry, market, economic, political or regulatory conditions, future exchange and interest rates, and changes in tax and other laws, regulations, rates and policies;
the uncertainties inherent in research and development, including the ability to meet anticipated clinical endpoints, commencement and/or completion dates for clinical trials, regulatory submission dates, regulatory approval dates and/or launch dates, as well as the possibility of unfavorable new clinical data and further analyses of existing clinical data;
the risk that clinical trial data are subject to differing interpretations and assessments by regulatory authorities;
risks that NewLink or the combined company will fail to satisfy Nasdaq listing requirements;
risks related to cost reduction efforts;
NewLink’s workforce reduction costs may be greater than anticipated and the workforce reduction may have an adverse impact on NewLink’s development activities; and
the outcome of any legal proceedings that may be instituted against NewLink, Lumos or the combined company related to the Merger Agreement or the Merger.

For further discussion of these and other risks, contingencies and uncertainties applicable to us, see “Risk Factors” beginning on page 16 and in our other filings with the SEC incorporated by reference into this proxy statement. See also “Where You Can Find More Information” beginning on page 160 for more information about the SEC filings incorporated by reference into this proxy statement.

All subsequent written or oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We are not under any obligation, and we expressly disclaim any obligation, to update, alter, or otherwise revise any forward-looking statements, whether written or oral, that may be made from time to time, whether as a result of new information, future events or otherwise, except as may be required by law.

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THE SPECIAL MEETING

Date, Time, Place

The Special Meeting will be held on [•], 2019 at [•] a.m. Eastern Time at the offices of NewLink, 2503 South Loop Drive, Suite 5100, Ames, IA 50010.

Purposes of the NewLink Special Meeting

At our Special Meeting, stockholders will act upon the matters outlined in the accompanying notice, including the following:

the Merger Proposal;
the Reverse Stock Split Proposal;
the Compensation Proposal; and
the Adjournment Proposal.

Other than the proposals noted above, we do not expect a vote to be taken on any other matters at the Special Meeting or any adjournment or postponement thereof. However, if any other matters are properly presented at the Special Meeting or any adjournment or postponement thereof for consideration, the holders of the proxies solicited by this proxy statement will have discretion to vote on such matters in accordance with applicable law and their judgment.

Recommendation of the NewLink Board

The NewLink Board unanimously recommends that stockholders vote “FOR” the Merger Proposal, “FOR” the Reverse Stock Split Proposal, “FOR” the Compensation Proposal and “FOR” the Adjournment Proposal. In reaching its decision to approve the Merger, the Merger Agreement, the issuance of NewLink’s common stock pursuant to the Merger Agreement and the resulting “change of control” of NewLink under Nasdaq rules and the transactions contemplated by the Merger and to recommend that you vote in the manner noted above, the NewLink Board considered a wide range of material factors relating to the Merger and consulted with management and outside financial and legal advisors. For more information on these factors see “The Merger — NewLink’s Reasons for the Merger” and “— Recommendations of the NewLink Board” beginning on pages 63 and 64, respectively.

Record Date and Voting Power

Holders of our common stock as of the close of business on the record date, [•], 2019, are entitled to notice of, and to vote at, the Special Meeting and any postponements or adjournments of the Special Meeting. At the close of business on the record date, there were [•] shares of our common stock outstanding and entitled to vote at the Special Meeting. No other shares of capital stock were outstanding on the record date.

Each share of our common stock issued and outstanding as of the close of business on the record date is entitled to one vote.

Quorum

The presence, in person or by proxy, of the holders of a majority of the shares of the stock entitled to vote at the Special Meeting is necessary to constitute a quorum to transact business. There must be a quorum for business to be conducted at the Special Meeting. However, even if a quorum does not exist, the chair of the Special Meeting may adjourn the Special Meeting to another place, date and time.

Once a share is represented in person or by proxy at the Special Meeting, it will be counted for purposes of determining whether a quorum exists at the Special Meeting and any adjournment or postponement of the Special Meeting. However, if a new record date is set for the adjourned or postponed Special Meeting, a new quorum will have to be established. For purposes of determining the presence of a quorum, abstentions will be counted as present at the Special Meeting.

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Required Vote

Proposal 1: Merger Proposal

The approval of the Merger Proposal requires the affirmative vote of the majority of the votes cast affirmatively or negatively on the Merger Proposal.

Holders of our common stock may vote “FOR,” “AGAINST” or “ABSTAIN” with respect to the Merger Proposal.

Proposal 2: Reverse Stock Split Proposal

The approval of the Reverse Stock Split Proposal requires the affirmative vote of the majority of the outstanding shares of NewLink’s common stock entitled to vote at the Special Meeting.

Holders of our common stock may vote “FOR,” “AGAINST” or “ABSTAIN” with respect to the Reverse Stock Split Proposal.

Proposal 3: Compensation Proposal

The approval of the Compensation Proposal requires the affirmative vote of the majority of the votes cast affirmatively or negatively on the Compensation Proposal.

Holders of our common stock may vote “FOR,” “AGAINST” or “ABSTAIN” with respect to the Compensation Proposal.

Proposal 4: Adjournment Proposal

The approval of the Adjournment Proposal requires the affirmative vote of a majority of the votes cast affirmatively or negatively on the Adjournment Proposal.

Holders of our common stock may vote “FOR,” “AGAINST” or “ABSTAIN” with respect to the Adjournment Proposal.

Voting and Revocation of Proxies

Voting by Stockholders

Your vote is very important to us and we hope that you will attend the Special Meeting. However, whether or not you plan to attend the Special Meeting, please vote by proxy in accordance with the instructions on your proxy card or voting instruction card (from your broker, bank or other agent). There are three convenient ways of submitting your vote:

By Telephone or Internet — All record holders can vote by touchtone telephone from the United States using the toll free telephone number on the proxy card, or over the internet, using the procedures and instructions described on the proxy card. “Street name” holders may vote by telephone or internet if their bank, broker or other agent makes those methods available, in which case the bank, broker or other agent will enclose the instructions with the proxy materials. The telephone and internet voting procedures are designed to authenticate stockholders’ identities, to allow stockholders to vote their shares, and to confirm that their instructions have been recorded properly.
In Person — All record holders may vote in person at the Special Meeting. If you hold your shares in “street name” you will receive instructions from your broker, bank or other agent describing how to vote your shares. If you hold shares in “street name” and do not receive instructions on how to vote your shares, you should contact your broker, bank or other agent promptly and request this information. You will need to bring the broker, bank or other agent issued proxy with you to the Special Meeting and hand it in with a signed ballot that will be provided to you at the Special Meeting. You will not be able to vote your shares without an agent issued proxy. Note that a broker letter that identifies you as a stockholder is not the same as an agent issued proxy.
By Written Proxy — All record holders can vote by written proxy card. If you are a “street name” holder, you will receive a voting instruction form from your bank, broker or other agent.

The NewLink Board has appointed Carl W. Langren, Bradley J. Powers and Ryan D. Trytten, or any of them, to serve as the proxies for the Special Meeting.

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Even if you currently plan to attend the Special Meeting, we recommend that you vote by telephone or internet or return your proxy card or voting instruction form as described above so that your votes will be counted if you later decide not to attend the Special Meeting or are unable to attend.

Abstentions

Assuming a quorum is present, abstentions will have no effect on the outcome of the Merger Proposal (Proposal 1), the Compensation Proposal (Proposal 3) or the Adjournment Proposal (Proposal 4).

Abstentions will have the same effect as a vote “AGAINST” the Reverse Stock Split Proposal (Proposal 2).

For purposes of determining the presence of a quorum, abstentions will be counted as present at the Special Meeting.

Broker Non-Votes

Brokers, banks or other agents who hold shares in “street name” for their customers have authority to vote those shares on “routine” proposals when they have not received instructions from the beneficial owners of such shares. However, brokers, banks or other agents do not have the authority to vote shares they hold for their customers on “non-routine” proposals when they have not received instructions from the beneficial owners of such shares.

Broker non-votes occur when shares are held in “street name” through a broker, bank or other agent on behalf of a beneficial owner, and the broker submits a proxy but does not vote for a matter because the broker has not received voting instructions from the beneficial owner and the broker does not have discretionary voting authority on the matter. Under applicable stock exchange rules, brokers are permitted to exercise discretionary voting authority only on “routine” matters when voting instructions have not been timely received from a beneficial owner. The Reverse Stock Split Proposal and the Adjournment Proposal are considered “routine” matters. Therefore, if you do not provide voting instructions to your broker regarding any of these proposals, your broker will be permitted to exercise discretionary voting authority to vote your shares on such proposals. The Merger Proposal and the Compensation Proposal are considered “non-routine” matters. Therefore, if you do not provide voting instructions to your broker regarding any of these proposals, your broker will not be permitted to exercise voting authority to vote your shares on such proposals and will result in a broker non-vote. Broker non-votes will have no effect on the outcome of the Merger Proposal or the Compensation Proposal.

Failure to Vote

If you are a stockholder of record and you do not vote at the Special Meeting in person or properly return your proxy card or vote over the internet or by phone, your shares will not be voted at the Special Meeting, will not be counted as present in person or by proxy at the Special Meeting and will not be counted for purposes of determining whether a quorum exists.

As discussed above, brokers, banks and other agents do not have discretionary voting authority with respect to the Merger Proposal or the Compensation Proposal. Accordingly, if you are the beneficial owner of shares held in “street name” and you do not issue voting instructions to your broker, bank or other agent with respect to any such proposals, your shares will not be voted with respect to such proposals. If you are the beneficial owner of shares held in “street name” and you do not issue voting instructions to your broker, bank or other agent with respect to the Reverse Stock Split Proposal or the Adjournment Proposal, your broker will have discretionary authority to vote your shares with respect to such proposals.

A failure to vote will have the same effect as a vote “AGAINST” the approval of the Reverse Stock Split Proposal but, assuming a quorum is present, will have no effect on the outcome of the Merger Proposal, the Compensation Proposal or the Adjournment Proposal.

Proxies; Revocation of Proxies

Proxies that are signed and returned by a stockholder of record without voting instructions will be voted “FOR” the Merger Proposal, the Reverse Stock Split Proposal, the Compensation Proposal and the Adjournment Proposal in accordance with the recommendation of the NewLink Board.

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If you are a record holder, you may revoke your proxy at any time by any of the following means:

You may send a timely written notice that you are revoking your proxy to our Secretary at 2503 South Loop Drive, Suite 5100, Ames, IA 50010;
You may submit another properly completed proxy card with a later date;
You may grant a subsequent proxy by telephone or via the internet; or
You may attend the Special Meeting and vote in person (simply attending the meeting will not, by itself, revoke your proxy).

Your most current proxy card or telephone or internet proxy is the one that is counted.

If your shares are held by your broker or bank as a nominee or agent, you should follow the instructions provided by your broker or bank.

Adjournments

The Special Meeting may be adjourned for any purpose, including for the purpose of obtaining a quorum or soliciting additional votes if there are insufficient votes to authorize the Merger Proposal, the Reverse Stock Split Proposal or the Compensation Proposal. Any adjournment may be made without notice (if the adjournment is not for more than 30 days and a new record date is not fixed for the adjourned meeting), by an announcement made at the Special Meeting of the time, date and place of the adjourned meeting. Any adjournment will allow stockholders of record who have already sent in proxies to revoke them at any time prior to their use at the Special Meeting, as adjourned. See “Proposal 4: Approval of the Adjournment Proposal” on page 102 for more information concerning the adjournment of the Special Meeting.

Solicitation of Proxies

This proxy solicitation is being made by us on behalf of the NewLink Board. We will bear the costs of soliciting proxies. We have engaged The Proxy Advisory Group, LLC to assist in the solicitation of proxies and provide related advice and informational support for a services fee and customary disbursements, which are not expected to exceed $25,000 in total.

The solicitation of proxies will initially be made by mail. Forms of proxies and proxy materials may also be distributed through brokers, banks and other agents to the beneficial owners of our common stock, in which case such parties will be reimbursed for their reasonable out-of-pocket expenses. Proxies may also be solicited in person or by telephone, facsimile, electronic mail or by certain of our directors, officers or employees. Any of our directors, officers or employees participating in the solicitation will not receive additional compensation for their efforts but will be reimbursed for out-of-pocket expenses.

Other Matters

At this time, we know of no other matters to be submitted at the Special Meeting.

Independent Auditor’s Attendance

Representatives of KPMG LLP are not expected to be present at the Special Meeting.

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THE MERGER

This section and “The Merger Agreement” beginning on page 86 of this proxy statement describe the material aspects of the Merger, including the Merger Agreement. While NewLink believes that this description covers the material terms of the Merger and the Merger Agreement, it may not contain all of the information that is important to you. You should read carefully this entire proxy statement, including the Merger Agreement, which is attached as Annex A to this proxy statement, and the other documents to which NewLink has referred to or incorporated by reference herein. For a more detailed description of where you can find those other documents, see “Where You Can Find More Information” beginning on page 160 of this proxy statement.

Background of the Merger

The terms of the Merger Agreement are the result of extensive arm’s-length negotiations among the management teams of NewLink and Lumos, and their representatives, under the guidance of each company’s board of directors. The following chronology summarizes the key meetings and events that led to the signing of the Merger Agreement. This chronology does not purport to catalogue every conversation among the NewLink Board or the representatives of NewLink, Lumos, and other parties.

The NewLink Board and NewLink management regularly review and evaluate NewLink’s business and operations, strategy and prospects with a view toward enhancing stockholder value. As part of this evaluation, the NewLink Board has, from time to time, considered a variety of strategic alternatives to NewLink’s business strategies, including consideration of potential changes to NewLink’s strategy and direction, potential partnerships and other strategic transactions and potential acquisitions.

During the course of these regular reviews, NewLink management and Lumos management held an informal meeting in January 2018.

In April 2018, a NewLink competitor announced negative results of a pivotal trial that evaluated its enzymatic IDO1 inhibitor in combination with a PD-1 therapy for metastatic melanoma patients. In cancer, the indoleamine-2, 3-dioxygenase (“IDO”) pathway regulates immune response by suppressing T-cell activation, which enables cancer to avoid immune response. IDO pathway inhibitors function to reverse the immunosuppressive effects of low tryptophan and high kynurenine that result from IDO activity. While indoximod, NewLink’s IDO1 pathway inhibitor, works differently than the competitor’s enzymatic inhibitor, the investor sentiment toward IDO inhibitors as a class was negatively affected by news of the competitor’s negative trial results, resulting in downward pressure on the NewLink stock price following the announcement of the competitor’s IDO1 enzymatic inhibitor failure.

On April 10, 2018, the NewLink Board met with NewLink management and representatives of Cooley LLP (“Cooley”), outside counsel to NewLink, and discussed the competitor’s clinical trial failure and its implications for NewLink’s clinical development programs. Thereafter, NewLink initiated an internal review of all clinical trials and programs and reduced its ongoing clinical development activities.

Also, in April 2018, a financial advisor to Party A introduced Party A to NewLink as a potential strategic partner. No formal discussions between NewLink and Party A regarding a potential business combination occurred until September 2018.

On May 22 and May 23, 2018, the NewLink Board met with NewLink management and representatives of Cooley and discussed potential strategic changes to the NewLink business in light of the competitor’s clinical trial failure.

Thereafter, NewLink’s business development team began evaluating strategic opportunities perceived to have the potential to be transformative to NewLink. Beginning in June 2018, NewLink initiated a weekly “External Opportunity Review” where a variety of strategic alternatives were reviewed by NewLink’s executive management team. Opportunities were evaluated on the basis of strategic flexibility, diversification of risk and the potential to increase stockholder value. During this process, NewLink management contacted 30 companies that management believed could be attractive strategic partners for NewLink. After assessing each of the alternatives, NewLink’s management team identified three companies (Lumos, Party B and Party C) that they believed warranted further assessment as potential strategic partners.

On June 27, 2018, former NewLink CEO, Charles Link, Jr. met with Lumos management for a preliminary discussion regarding a potential strategic transaction involving the two companies.

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On July 25 and July 26, 2018, the NewLink Board met with NewLink management and representatives of Cooley and discussed potential strategic changes to the NewLink business and potential strategic opportunities.

In August 2018, NewLink management held several meetings with representatives of Lumos. During these meetings, senior leadership of both NewLink and Lumos explored a potential business combination.

Between August 2018 and November 2018, NewLink and Lumos continued negotiations with respect to a potential business combination between the parties, but the parties were unable to reach consensus on a business strategy for the combined entities at that time.

On September 19, 2018, representatives from NewLink and Party A met for an introductory teleconference and discussed their respective businesses, strategic plans for clinical studies and a potential business combination. Following the meeting, the parties continued to exchange information relating to their respective businesses and began discussions of a potential business combination.

On October 29 and October 30, 2018, the NewLink Board met with NewLink management and representatives of Cooley and discussed the process undertaken by management to date to evaluate potential strategic opportunities and the criteria for evaluating potential strategic partners. At the meeting, the NewLink Board also discussed and assessed a number of potential strategic opportunities, which included Party A, Lumos, Party B, Party C and a fifth party.

During the second half of 2018, NewLink management conducted teleconferences and meetings with representatives of Party B to discuss a potential business combination. The parties did not reach an agreement on a preliminary set of terms and conditions and NewLink determined not to pursue further discussions.

During the second half of 2018, NewLink management also conducted teleconferences with representatives of Party C to discuss a potential business combination. Following initial discussions, Party C and NewLink determined not to pursue further discussions.

Throughout the fourth quarter of 2018, executive management and senior leadership from Party A and NewLink met face-to-face and via teleconferences to discuss clinical priorities of the respective companies, analyze one another’s research and development pipelines, and begin due diligence efforts. Also, during November and December 2018, the NewLink Board held multiple meetings with management and representatives of Cooley to discuss a potential business combination with Party A. These meetings and teleconferences culminated in a non-binding letter of interest executed by Party A and NewLink on December 20, 2018 that included a mutual exclusivity provision expiring on the earliest of February 28, 2019, written notification by one party to the other party that there was no longer an interest in a transaction between the parties and such later date as the parties would agree in writing.

In January 2019, a team of NewLink executives and senior managers traveled to Party A’s principal place of business, where the parties discussed corporate strategy and clinical development plans for a potential combined entity as well as due diligence items.

On January 28, 2019, NewLink sent Party A an initial draft of a share purchase agreement, which proposed the purchase by NewLink of the outstanding capital stock of Party A from Party A’s stockholders in exchange for issuance by NewLink of shares of its common stock to those stockholders.

From mid-January 2019 through the end of May 2019, Cooley and NewLink continued their due diligence review of Party A. From late-February through May 2019, the NewLink Board met regularly with management and representatives of Cooley to discuss the status of negotiations with, and due diligence matters regarding, Party A.

On March 6, 2019, a team of NewLink executives and senior managers traveled to Party A’s principal place of business and engaged in further discussions about due diligence matters. Following this visit and throughout March 2019, additional teleconferences took place between executive officers of NewLink and Party A regarding due diligence matters and proposed transaction terms.

On March 29, 2019, Party A responded to the initial draft of the share purchase agreement. Given the significant differences between Party A’s revision to the draft share purchase agreement and the terms set forth in the initial letter of intent, the parties negotiated and entered into a new, non-binding letter of interest dated April 9, 2019 that included a mutual exclusivity provision expiring on the earliest of May 10, 2019, written notification by one party to the other party that there was no longer an interest in a transaction between the parties and such later date as the parties would agree in writing.

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Throughout April 2019, the two parties continued negotiating terms of the draft share purchase agreement as well as expanding supplemental due diligence reviews.

In May 2019, following release of data related to a clinical trial involving one of Party A’s investigational product candidates, NewLink discussed with Party A alternative structures for a transaction. Ultimately, NewLink and Party A were unable to reach agreement on the terms of a proposed business combination and the parties ended their discussions in June 2019.

On June 25, 2019, Dr. Link met with Lumos CEO, Rick Hawkins, to discuss a potential business combination between NewLink and Lumos.

On July 11, 2019, Lumos management hosted a teleconference with NewLink management to introduce key members of the Lumos organization, share business information, and to provide an overview of their therapeutic development programs and strategy. Over the next several days, representatives from NewLink and Lumos continued to meet and discuss a potential business combination.

On July 16, 2019, NewLink executives and senior managers traveled to Lumos’ principal place of business to discuss matters relating to their respective businesses and strategies and to determine whether they believed a potential business combination was feasible from a strategic perspective.

On July 19, 2019, NewLink and Lumos entered into a mutual confidential disclosure agreement and throughout the remainder of July 2019, each of NewLink and Lumos conducted a due diligence review of the other party.

On July 25, 2019, Mr. Hawkins and John McKew, Ph.D., CSO of Lumos, presented a potential combined business strategy to the NewLink Board.

On July 26, 2019, the two parties executed a non-binding term sheet for the Merger that included a mutual exclusivity provision providing for an exclusivity period of 45 days.

On July 30, 2019, NewLink announced financial results for the second quarter ended June 30, 2019 and announced that Dr. Link, was retiring from his posts as Chairman, Chief Executive Officer and Chief Science Officer of NewLink and resigning from the NewLink Board, effective August 3, 2019. NewLink also announced that the NewLink Board had established the Office of the CEO, comprised of Carl W. Langren, Chief Financial Officer; Eugene P. Kennedy, M.D., Chief Medical Officer; Bradley J. Powers, General Counsel; and Lori D. Lawley, Vice President, Finance and Controller, to lead NewLink, effective August 3, 2019.

On August 6, 2019, Cooley emailed a draft Merger Agreement to DLA Piper, outside legal counsel to Lumos. On August 13, 2019, Lumos responded with its comments to the draft of the Merger Agreement. Throughout the remainder of August and September 2019, representatives of NewLink, Lumos, Cooley and DLA Piper continued to negotiate and exchange revised drafts of the Merger Agreement and the other transaction documents, including the forms of Support Agreement and Lock-Up Agreement.

On August 16, 2019, NewLink engaged Stifel as NewLink’s exclusive financial advisor for the potential Merger.

Throughout August 2019, representatives from NewLink and Lumos continued to meet telephonically to discuss the combined company’s potential corporate strategy and clinical development plans and to work through due diligence items. During these meetings, the representatives discussed a combined company development plan primarily focused on development of Lumos’ sole product candidate, LUM-201.

On August 14, 2019, NewLink executives and senior management traveled to Lumos’ principal place of business to meet with executives and senior management of Lumos to further discuss the combined company’s potential corporate strategy and operational plans, and to develop draft pro forma financial forecasts.

On August 28, 2019, executives from Lumos and NewLink held a meeting with representatives from Stifel present. Attendees discussed the draft pro forma financial forecasts of the combined company.

During August and September 2019, the outside directors of NewLink held weekly teleconferences at which management and representatives of Cooley provided updates on the due diligence review of Lumos and progress in negotiating the terms of the proposed business combination.

On September 9, 2019, the NewLink Board met with NewLink management and representatives of Stifel and Cooley. Representatives of Stifel presented their preliminary draft valuation analysis of Lumos and NewLink. NewLink management presented the proposed combined company clinical development plan focused on

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development of LUM-201 and a preliminary, three-year pro forma financial expense forecast for the combined company. NewLink management also reviewed its preliminary plans for a restructuring plan and reduction in workforce in the context of the potential Merger, and presented recommendations for the treatment of stock options for employees who would be terminated and those who would be continuing and for members of the NewLink Board. The NewLink Board discussed the status of NewLink’s executive employment agreements and determined that the Merger should be considered a “change of control” under such employment agreements. The NewLink Board also discussed the proposed pro forma capitalization of the combined company. The NewLink Board also reviewed NewLink’s 2019 corporate goals and discussed potential revision of such goals.

On September 10, 2019, the NewLink Board, with representatives of management and Cooley present, continued its discussion of the Merger terms, the proposed restructuring plan and reduction in workforce, 2019 corporate goals and the proposed pro forma capitalization of the combined company. The NewLink Board provided guidance to management and Cooley regarding the negotiation of matters affecting the pro forma capitalization table of the combined company. The NewLink Board also discussed appropriate changes to NewLink’s strategic goals and development plans in light of the current business circumstances.

On September 12, 2019, the NewLink Board met with NewLink management and representatives of Cooley and received an update on the status of negotiations with Lumos. The NewLink Board approved, subject to the signing of the Merger Agreement, (i) the acceleration of vesting of equity awards granted under the 2009 Equity Plan by, with respect to continuing employees, 12 months upon closing of the Merger, with respect to terminating employees, 12 months upon their respective termination dates, and with respect to resigning NewLink Board members, 100% upon closing of the Merger, and (ii) the extension of the exercise period for terminating employees and resigning NewLink Board members to allow each to exercise his or her respective options to purchase any vested shares on or before the one-year anniversary of their termination or resignation dates, respectively.

On September 30, 2019, the NewLink Board met with NewLink management and with representatives of Stifel and Cooley. Representatives of Stifel delivered to the NewLink Board Stifel’s oral opinion, subsequently confirmed in writing by delivery of a written opinion dated September 30, 2019, which is referred to herein as the Opinion, that, as of that date, and based upon and subject to the assumptions made, procedures followed, matters considered and qualifications and limitations of review set forth therein, the Merger Consideration in the Merger pursuant to the Merger Agreement was fair to NewLink from a financial point of view. Representatives of Cooley reviewed the terms of the Merger Agreement. Following extensive discussion of the foregoing by the NewLink Board, the NewLink Board unanimously (i) approved the Merger Agreement and consummation of the Merger upon the terms and subject to the conditions set forth in the Merger Agreement, (ii) determined that the terms of the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger, are fair to, advisable and in the best interests of NewLink and its stockholders, (iii) directed that (1) the amendment of the Company’s Charter to effect a reverse stock split, (2) the issuance of the shares of the Company’s common stock to Lumos stockholders in connection with the Merger and (3) change of control of the Company resulting from the Merger pursuant to the Nasdaq rules be submitted to NewLink’s stockholders for approval at the Special Meeting, and (iv) recommended that NewLink stockholders approve the foregoing matters. The NewLink Board also approved (x) amended and restated bylaws for NewLink to, among other changes, add an exclusive forum provision, (y) restatements of the form of NewLink’s employment agreements for executives and senior management to, among other things, provide that the Merger would be a “change of control” for purposes of the agreements, and (z) severance arrangements for employees to be terminated in the reorganization. The NewLink Board also ratified the separation agreement between NewLink and Dr. Nicholas Vahanian, NewLink’s former President and a former member of the NewLink Board who retired on September 27, 2019.

On September 30, 2019, each of Lumos, NewLink, and Merger Sub executed and delivered the Merger Agreement, effective as of September 30, 2019, each of the officers and directors of NewLink and Stine Seed Farm, Inc. (“Stine”), a significant stockholder of NewLink, entered into a support agreement with NewLink and Lumos (as more fully described in “Ancillary Agreements Related to the Merger — Support Agreements”), and each of the officers and directors of NewLink, Stine, and each of the officers, directors and certain stockholders of Lumos entered into a lock-up agreement with NewLink (as more fully described in “Ancillary Agreements Related to the Merger — Lock-Up Agreements”). On September 30, 2019, Lumos stockholders also approved the Merger and the Merger Agreement.

On October 1, 2019, NewLink and Lumos issued a joint press release announcing the execution of the Merger Agreement and the proposed Merger.

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NewLink’s Reasons for the Merger

The following discussion sets forth material factors considered by the NewLink Board in reaching its determination to approve the terms and authorize the execution of the Merger Agreement for the purpose of effecting the Merger; however, it does not include all of the factors considered by the NewLink Board. In view of the wide variety of factors considered in connection with its evaluation of the Merger and the complexity of these matters, the NewLink Board did not find it useful to attempt, and did not attempt, to quantify, rank or otherwise assign relative weights to these factors. In considering the factors described above, individual members of the NewLink Board may have given different weight to different factors. The NewLink Board conducted an overall analysis of the factors described above, including thorough discussions with, and questioning of, NewLink’s management team and the legal and financial advisors of NewLink, and considered the factors overall to be favorable to, and to support, its determination.

The NewLink Board believes, based in part on the judgment, advice and analysis of NewLink management with respect to the potential strategic, financial and operational benefits of the Merger (which judgment, advice and analysis was informed in part on the business, technical, financial, accounting and legal due diligence investigation performed with respect to Lumos), that:
Lumos’ sole product candidate, LUM-201, is potentially the first oral GH stimulating therapy for PGHD and other rare endocrine disorders;
the current standard of care for PGHD is a daily injection of rhGH and therefore an oral alternative could be received well by the market;
the combined company may be able to achieve cost savings and synergies from, among other things, reductions in corporate overhead and administrative costs in comparison to both companies on a stand-alone basis; and
the combined company will be led by experienced senior management from both NewLink and Lumos and a board of directors of seven members with three designated by NewLink, three designated by Lumos, and one to be designated following the Merger by the board of directors of the combined company.
The NewLink Board also reviewed with the NewLink management Lumos’ current plans for development of its sole product candidate to confirm the likelihood that the combined company would possess sufficient financial resources to enable it to implement its near-term business plans, including the Phase 2b clinical trial for LUM-201.
The NewLink Board considered the opportunity as a result of the Merger for NewLink stockholders to participate in the potential increase in value that may result from the development of Lumos’ sole product candidate and the potential increase in value of the combined company following the Merger.
The NewLink Board considered Stifel’s opinion to the NewLink Board that the Merger Consideration was fair, from a financial point of view, to NewLink, as more fully described below under the caption “ — Opinion of NewLink’s Financial Advisor.”
The NewLink Board also reviewed various factors impacting the financial condition, results of operations and prospects for NewLink, including:
the strategic alternatives of NewLink to the Merger, including potential transactions that could have resulted from discussions that NewLink management conducted with other potential strategic partners and the belief that the Merger with Lumos would provide NewLink stockholders with a greater potential opportunity to realize a return on their investment than any other alternative reasonably available to NewLink stockholders at that time;
the risks of continuing to operate NewLink on a stand-alone basis given concerns of investor sentiment toward IDO inhibitors as a class and the likelihood that market conditions for NewLink would not change for the benefit of NewLink stockholders in the foreseeable future on a stand-alone basis; and
the risks associated with NewLink’s continued ability to maintain its Nasdaq listing as a stand-alone company.

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The NewLink Board also reviewed the terms and conditions of the proposed Merger Agreement, as well as the safeguards and protective provisions included therein intended to mitigate risks, including:
the fact that immediately following the Effective Time, Lumos stockholders will own approximately 50% of the outstanding common stock of the combined company, with NewLink stockholders holding approximately 50% of the outstanding common stock of the combined company;
the limited number and nature of the conditions to Lumos’ obligation to consummate the Merger, including the absence of any financing contingency, and the limited risk of non-satisfaction of such conditions as well as the likelihood that the Merger will be consummated on a timely basis;
the respective rights of, and limitations on, NewLink and Lumos under the Merger Agreement to consider certain unsolicited acquisition proposals under certain circumstances should NewLink or Lumos receive a superior proposal;
the reasonableness of the potential termination fee payable by NewLink under certain circumstances of  $2.0 million and the reasonableness of the potential termination fee payable by Lumos under certain circumstances of  $2.0 million;
the support agreements, pursuant to which directors, officers and certain stockholders of NewLink agreed, solely in their capacity as stockholders, to vote their shares of NewLink’s common stock in favor of the Merger Proposal, the Reverse Stock Split Proposal and the Compensation Proposal; and
the belief that the terms of the Merger Agreement, including the parties’ representations, warranties and covenants, and the conditions to their respective obligations, are reasonable under the circumstances.

In the course of its deliberations, the NewLink Board also considered a variety of risks and other countervailing factors related to entering into the Merger, including:

the substantial expenses to be incurred in connection with the Merger;
the possible volatility, at least in the short term, of the trading price of NewLink’s common stock resulting from the Merger announcement;
the risk that the Merger might not be consummated in a timely manner or at all and the potential adverse effect of the public announcement of the Merger or any delay or failure to complete the Merger on the reputation of NewLink;
the risk to NewLink’s business, operations and financial results in the event that the Merger is not consummated;
the strategic direction of the combined company following the completion of the Merger, which will be determined by the new board of directors of the combined company with substantial representation of Lumos’ current directors;
the fact that the Merger would give rise to substantial limitations on the utilization of NewLink’s NOLs and various income tax credits; and
various other risks associated with the combined company and the Merger, including those described in “Risk Factors” elsewhere in this proxy statement.

Recommendations of the NewLink Board

The NewLink Board has determined and believes that the Merger and the issuance of shares of NewLink’s common stock pursuant to the Merger Agreement and the resulting “change of control” of NewLink under Nasdaq rules is in the best interests of NewLink and its stockholders and has approved such items. The NewLink Board recommends that NewLink stockholders vote “FOR” Proposal 1 to approve the issuance of shares of NewLink’s common stock in the Merger and the resulting “change of control” of NewLink under Nasdaq rules.

The NewLink Board has determined and believes that it is advisable to, and in the best interests of, NewLink and its stockholders to approve the Charter Amendment to NewLink’s Charter effecting the proposed reverse stock split, as described in this proxy statement. The NewLink Board recommends that NewLink stockholders vote “FOR” Proposal 2 to approve the Charter Amendment effecting the proposed reverse stock split, as described in this proxy statement.

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The NewLink Board has determined and believes that it is advisable to, and in the best interests of, NewLink and its stockholders to approve, on an advisory basis, the executive compensation of Carl W. Langren, Eugene P. Kennedy, M.D. and Bradley J. Powers, as described in this proxy statement. The NewLink Board recommends that NewLink stockholders vote “FOR” Proposal 3 to approve the Compensation Proposal, as described in this proxy statement.

The NewLink Board has determined and believes that adjourning the Special Meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposals 1 (Merger Proposal) and 2 (Reverse Stock Split Proposal) is advisable to, and in the best interests of, NewLink and its stockholders and has approved and adopted the proposal. The NewLink Board recommends that NewLink stockholders vote “FOR” Proposal 4 to adjourn the Special Meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposals 1 or 2.

Interests of NewLink’s Directors and Executive Officers in the Merger

In considering the recommendation of the NewLink Board that you vote to approve the Merger Proposal, you should be aware that NewLink’s directors and executive officers have interests in the Merger that are different from, or in addition to, those of NewLink stockholders generally. The NewLink Board was aware of and considered these interests, among other matters, in evaluating and negotiating the Merger Agreement and the Merger, and in recommending that the Merger Proposal be approved by NewLink stockholders.

Assumptions

For purposes of this disclosure, “executive officers” refer to:

Name
Title
Eugene P. Kennedy, M.D.
Chief Medical Officer of NewLink
Carl W. Langren
Chief Financial Officer of NewLink
Bradley J. Powers
General Counsel of NewLink
Lori D. Lawley
Vice President, Finance and Controller of NewLink

The “named executive officers” refer to:

Name
Title
Charles J. Link, Jr., M.D.(1)
Former Chief Executive Officer and Chief Scientific Officer of NewLink
Carl W. Langren(2)
Chief Financial Officer of NewLink
Eugene P. Kennedy, M.D.
Chief Medical Officer of NewLink
Bradley J. Powers
General Counsel and current Principal Executive Officer of NewLink
Nicolas N. Vahanian, M.D.(1)
Former President of NewLink
(1)NewLink’s former Chief Executive Officer and Chief Scientific Officer, Dr. Link, retired from his position as a NewLink executive and NewLink Board member on August 3, 2019, and its former President, Dr. Vahanian, retired from his position as President and as NewLink Board member on September 27, 2019.
(2)Mr. Langren was not a named executive officer for the year ended 2018. His information is included in this section to provide additional information to NewLink stockholders.

Severance and Change in Control Provisions of Employment Arrangements

On September 30, 2019, NewLink entered into amended and restated employment agreements (the “Employment Agreements”) with its then-executive officers including Mr. Langren, Dr. Kennedy, Mr. Powers and Ms. Lawley. The Employment Agreements provide for severance payments and benefits in the event of a termination of employment by NewLink without “Cause” or resignation for “Good Reason” and enhanced severance benefits in the event of a termination of employment by NewLink without “Cause” or resignation for “Good Reason” within one month before or within 13 months following the occurrence of a “Change in Control” of NewLink. The Merger is deemed to be a “Change in Control” under the Employment Agreements.

The severance benefits of Dr. Kennedy, Mr. Powers and Ms. Lawley consist of:

(i)a lump sum payment equal to 12 months of the executive officer’s then-current base salary,

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(ii)a lump sum payment of the executive officer’s target bonus for the year of termination,
(iii)100% accelerated vesting and a 24-month extension of the exercise period of the executive officer’s outstanding equity awards; and
(iv)reimbursement for COBRA coverage for up to 12 months after the separation date.

The severance benefits of Mr. Langren consist of:

(i)a lump sum severance payment equal to 18 months of Mr. Langren’s then-current base salary;
(ii)a lump sum payment of an amount equal to the most recent bonus paid to Mr. Langren multiplied by 1.5;
(iii)100% accelerated vesting and a 24-month extension of the exercise period of Mr. Langren’s outstanding equity awards; and
(iv)reimbursement for COBRA coverage for up to 18 months after the separation date.

See “The Merger — Interests of NewLink’s Directors and Executive Officers in the Merger — Golden Parachute Compensation” for more detail.

Board of Directors of the Combined Company

Pursuant to the Merger Agreement, NewLink and Lumos will use reasonable best efforts to take all necessary action so that immediately after the Effective Time, the board of directors of the combined company will consist of three members designated by NewLink, and three members designated by Lumos. One member is to be designated following the Merger by the board of directors of the combined company.

Executive Officers of the Combined Company

Pursuant to the Merger Agreement, NewLink and Lumos will use reasonable best efforts to take all necessary action so that immediately after the Effective Time, the following persons will be elected or appointed to the positions listed next to their names below to serve as executive officers of the combined company. Mr. Hawkins and Dr. McKew are currently executive officers of Lumos.

Name
Title
Richard J. Hawkins
Chief Executive Officer
Eugene P. Kennedy, M.D.
Chief Medical Officer
John McKew, Ph.D.
Chief Science Officer
Carl W. Langren
Chief Financial Officer
Bradley J. Powers
General Counsel
Lori D. Lawley
Vice President, Finance and Controller

Executive Officer Transitions

Dr. Link retired from his position as an executive of NewLink and a NewLink Board member on August 3, 2019. Pursuant to the terms of Dr. Link’s separation agreement, Dr. Link is eligible to receive certain benefits, none of which is contingent upon or in connection with the Merger, including: (i) a pro-rated 2019 bonus payment based on actual 2018 bonus paid, (ii) a lump sum payment equal to 24 months of his current base salary, (iii) reimbursement for COBRA coverage for a period up to 18 months, and (iv) acceleration by 12 months of certain unvested stock options and restricted stock units. In addition, Dr. Link received an option grant for 331,258 shares of common stock which became exercisable beginning November 3, 2019, and extension of the post-termination exercise period by two years for certain vested options. If a PRV is issued in connection with the Ebola vaccine licensed to Merck, Dr. Link would be eligible to receive up to 0.5% of the net amount realized by the Company from the monetization of that voucher. To be eligible for the separation benefits described above, Dr. Link must comply with his obligations under the separation agreement and provide a release of claims.

Dr. Vahanian retired from his position as President of NewLink and as a NewLink Board member on September 27, 2019, and remained an employee during the transition period through November 11, 2019, his separation date. Pursuant to the terms of Dr. Vahanian’s transition agreement, Dr. Vahanian is eligible to receive certain benefits, none of which is contingent upon or in connection with the Merger, including: (i) a pro-rated 2019

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bonus payment based on actual 2018 bonus paid, (ii) a lump sum payment equal to 18 months of his current base salary, (iii) COBRA coverage for a period up to 18 months, (iv) $400,000 as an allowance for future medical costs, healthcare insurance and rehabilitation expenses, and (v) acceleration by 12 months of certain unvested stock options and restricted stock units. In addition, Dr. Vahanian will receive an extension of the post-termination exercise period by two years for certain vested options. If a PRV is issued in connection with the Ebola vaccine licensed to Merck prior to December 31, 2024, Dr. Vahanian would be eligible to receive up to 0.5% of the net amount realized by the Company from the monetization of that voucher. To be eligible for the separation benefits described above, Dr. Vahanian must comply with his obligations under the transition agreement and provide a release of claims.

The NewLink Board formed an Office of the CEO on July 28, 2019, and appointed Mr. Powers as our principal executive officer effective August 3, 2019.

Acceleration of Equity Awards

On September 12, 2019, the NewLink Board approved, subject to the signing of the Merger Agreement, a 12-month acceleration of vesting of equity awards granted under NewLink’s 2009 Equity Incentive Plan (as amended, the “2009 Plan”) held by all employees, including the executive officers of the Company, as well as 100% vesting of all outstanding equity awards granted under the 2009 Plan held by the resigning NewLink Board members who will resign effective as of the closing of the Merger. For continuing employees, which include NewLink’s current executive officers, such acceleration will be effective as of the closing of the Merger. For terminating employees, such acceleration will be effective as of their respective termination dates. Terminating employees and resigning NewLink Board members will also receive an extension of their post-termination exercise periods such that they may exercise their respective awards to purchase any vested shares on or before the one-year anniversary of their respective termination date or resignation date, respectively.

The following table presents certain information concerning the outstanding NewLink options and RSUs held by NewLink’s then-current directors and executive officers, as of October 15, 2019:

Name
Options/RSUs
Grant Date
Expiration
Date
Exercise
Price ($)
Numbers of
Shares of
NewLink
Common Stock
Underlying
Options and
RSUs as of
October 15, 2019
Numbers of Shares
of NewLink
Common Stock
Underlying
Options and RSUs
Vested as of
October 15, 2019
Eugene P. Kennedy, M.D.
RSUs
 
1/4/2016
 
 
N/A
 
 
N/A
 
 
1,105
 
 
1,105
 
Eugene P. Kennedy, M.D.
Options
 
3/1/2019
 
 
2/28/2029
 
$
1.80
 
 
185,000
 
 
36,614
 
Eugene P. Kennedy, M.D.
Options
 
7/31/2019
 
 
7/31/2026
 
$
1.77
 
 
173,254
 
 
56,315
 
Lori D. Lawley
Options
 
8/1/2018
 
 
7/31/2028
 
$
3.17
 
 
25,000
 
 
13,541
 
Lori D. Lawley
Options
 
3/1/2019
 
 
2/28/2029
 
$
1.80
 
 
50,000
 
 
9,895
 
Lori D. Lawley
Options
 
7/31/2019
 
 
7/31/2026
 
$
1.77
 
 
11,624