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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the quarterly period ended September 30, 2021.
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the transition period from                       to                     .
Commission File Number
001-35342
LUMOS PHARMA, INC.
(Exact name of Registrant as specified in Its Charter)
Delaware
42-1491350
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
4200 Marathon Blvd #200
AustinTexas 78756
(512) 215-2630
(Address, including zip code, and telephone number, including area code, of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockLUMOThe Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes ☒    No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o
Accelerated filer o
Non-accelerated filer 
Smaller reporting company 
Emerging growth company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes     No 
As of November 1, 2021, there were 8,357,391 shares of the registrant’s Common Stock, par value $0.01 per share, outstanding.


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https://cdn.kscope.io/fc395b56eea260c008ca8351ac9ac535-nlnk-20210930_g1.jpg
Lumos Pharma, Inc.
FORM 10-Q
Table of Contents
Page
Condensed Consolidated Balance Sheets as of September 30, 2021 (unaudited) and December 31, 2020
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020 (unaudited)
Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and
Stockholders’ Equity (Deficit) for the Three and Nine Months Ended September 30, 2021 and 2020 (unaudited)
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020 (unaudited)
ITEM 3.



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Forward-Looking Statements
This quarterly report on Form 10‑Q for the quarter ended September 30, 2021 (this “Quarterly Report”) contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements involve risks and uncertainties and reflect our current views with respect to, among other things, future events and our financial performance. When used in this report, the words “believe,” “may,” “could,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “indicate,” “seek,” “should,” “would,” and similar expressions are intended to identify forward-looking statements, though not all forward-looking statements contain these identifying words. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date of this Quarterly Report, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.
Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to those summarized below:
the extent to which the novel strain of coronavirus, SARS-CoV-2, which causes COVID-19 (“COVID-19”) and related governmental regulations and restrictions may continue to impact our business, including our research, clinical trials, manufacturing and financial condition;
the development plan for our product candidate, the growth hormone secretagogue ibutamoren (“LUM-201”);
our expectations regarding the potential benefits, activity, effectiveness and safety of our product candidates;
the development plan for our existing pipeline and potential partnership and out-licensing opportunities;
the timing of planned preclinical studies and clinical trials and availability of clinical data from such clinical trials;
the timing of and our ability to obtain regulatory approvals for our product candidates;
the clinical utility of our product candidates;
our plans to leverage our existing technologies to discover and develop additional product candidates;
our intellectual property position;
our ability to enter into strategic collaborations, licensing or other arrangements;
our dependence on collaborators for developing, obtaining regulatory approval for and commercializing product candidates in the collaboration;
our estimates regarding expenses, future revenues, capital requirements and needs for additional financing;
plans to develop and commercialize our product candidates;
our ability to obtain additional funds for our operations;
the rate and degree of market acceptance of any approved product candidates;
the commercialization of any approved product candidates;
the implementation of our business model and strategic plans for our business, technologies and product candidates;
our reliance on third parties to conduct our preclinical studies or any future clinical trials;
our ability to attract and retain qualified key management and technical personnel;
our reliance on third-party supply and manufacturing partners to supply the materials and components for, and manufacture, our research and development, preclinical and clinical trial product supplies; and
developments relating to our competitors or our industry.
For additional information regarding known material factors that could cause our actual results to differ from our projected results, please read (1) Part I, Item 1A. “Risk Factors” in the annual report on Form 10-K for the fiscal year ended December 31, 2020 (the “2020 Annual Report”); (2) Part II, “Item 1A. Risk Factors” in this Quarterly Report; (3) our reports and registration statements filed from time to time with the Securities and Exchange Commission (the “SEC”), and (4) other public announcements we make from time to time. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.


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PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements

Lumos Pharma, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
September 30,December 31,
20212020
Assets(unaudited)
Current assets:
Cash and cash equivalents$100,650 $98,679 
Prepaid expenses and other current assets4,988 3,506 
Income tax receivable116 115 
Other receivables 26,149 
Total current assets$105,754 $128,449 
Non-current assets:
Property and equipment, net75 335 
Right-of-use asset636 249 
Total non-current assets711 584 
Total assets$106,465 $129,033 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable$149 $244 
Accrued expenses5,555 5,898 
Current portion of lease liability349 319 
Total current liabilities$6,053 $6,461 
Long-term liabilities:
Royalty obligation payable to Iowa Economic Development Authority6,000 6,000 
Lease liability
288  
Total long-term liabilities6,288 6,000 
Total liabilities$12,341 $12,461 
Commitments and contingencies
Stockholders' equity:
Undesignated preferred stock, $0.01 par value: Authorized shares - 5,000,000 at September 30, 2021 and December 31, 2020; issued and outstanding shares - 0 at September 30, 2021 and December 31, 2020
  
Common stock, $0.01 par value: Authorized shares - 75,000,000 at September 30, 2021 and December 31, 2020; issued shares - 8,366,819 and 8,305,269 at September 30, 2021 and December 31, 2020, respectively, and outstanding shares - 8,357,391 and 8,305,269 at September 30, 2021 and December 31, 2020, respectively
83 83 
Treasury stock, at cost, 9,428 and 0 shares at September 30, 2021 and December 31, 2020, respectively
(114) 
Additional paid-in capital184,935 182,480 
Accumulated deficit(90,780)(65,991)
Total stockholders' equity $94,124 $116,572 
Total liabilities and stockholders' equity$106,465 $129,033 
See accompanying notes to condensed consolidated financial statements.



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Lumos Pharma, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
(In thousands, except share and per share data)
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Revenues:
Licensing and collaboration revenue
$ $74 $10 $128 
Total revenues 74 10 128 
Operating expenses:
Research and development4,112 2,075 12,885 6,743 
General and administrative
3,385 5,156 11,903 12,634 
Total operating expenses
7,497 7,231 24,788 19,377 
Loss from operations(7,497)(7,157)(24,778)(19,249)
Other income and expense:
Other income, net 7 6,322 19 6,482 
Interest income
2 168 7 246 
Interest expense
  (37)(48)
Other (expense) income, net9 6,490 (11)6,680 
Net loss before taxes(7,488)(667)(24,789)(12,569)
Income tax benefit 2,432  9,321 
Net income (loss)(7,488)1,765 (24,789)(3,248)
Accretion of preferred stock to current redemption value   (651)
Net income (loss) attributable to common shareholders$(7,488)$1,765 $(24,789)$(3,899)
Net income (loss) per share of common stock
Basic $(0.90)$0.21 $(2.97)$(0.62)
Diluted $(0.90)$0.21 $(2.97)$(0.62)
Weighted average number of common shares outstanding
Basic 8,357,391 8,293,312 8,333,017 6,267,576 
Diluted 8,357,391 8,486,804 8,333,017 6,267,576 
See accompanying notes to condensed consolidated financial statements.








Table of Contents


Lumos Pharma, Inc.
Condensed Consolidated Statement of Changes in Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)
(unaudited)
(In thousands, except share data)
Series A Redeemable Convertible Preferred Stock
Series B Redeemable Convertible Preferred Stock
Common StockTreasury Stock
Additional
Paid-in
Capital
Accumulated Deficit
Total
Stockholders' Equity (Deficit)
SharesAmountSharesAmountSharesAmountAmount
Balance at December 31, 2019978,849 $21,904 1,989,616 $41,631 1,177,933 $12 $ $202 $(59,677)$(59,463)
Accretion of preferred stock to current redemption value (pre-merger)— 216 — 435 — — — — (651)(651)
Issuance of common stock to former stockholders of NewLink upon merger— — — — 4,146,405 41 — 116,908 — 116,949 
Conversion of preferred stock into common stock upon merger(978,849)(22,120)(1,989,616)(42,066)2,968,465 30 — 64,156 — 64,186 
Share-based compensation—  — — — — — — 177 — 177 
Net income— — — — — — — — 340 340 
Balance at March 31, 2020    8,292,803 83  181,443 (59,988)121,538 
Share-based compensation— — — — — — — 274 — 274 
Sales of shares under stock purchase plan — — — — 509 — — 6 — 6 
Net loss— — — — — — — — (5,353)(5,353)
Balance at June 30, 2020    8,293,312 83  181,723 (65,341)116,465 
Share-based compensation— — — — — — — 305 — 305 
Net income— — — — — — — — 1,765 1,765 
Balance at September 30, 2020 $  $ 8,293,312 $83 $ $182,028 $(63,576)$118,535 
Balance at December 31, 2020 $  $ 8,305,269 $83 $ 182,480 (65,991)116,572 
Share-based compensation— — — — — — — 1,049 — 1,049 
Exercise of stock options— — — — 20,362 — — 26 — 26 
Stock issued upon vesting of restricted stock units — — — — 9,939 — — — — — 
Shares surrendered for tax withholding on vested awards— — — — (3,377)— (44)— — (44)
Net loss—  — — — — — — — (8,631)(8,631)
Balance at March 31, 2021    8,332,193 83 (44)183,555 (74,622)108,972 
Share-based compensation— — — — — — — 846 — 846 
Exercise of stock options— — — — 6,560 — — 38 — 38 
Sale of shares under stock purchase plan— — — — 695 — — 6 — 6 
Stock issued upon vesting of restricted stock units— — — — 23,994 — — — — — 
Shares surrendered for tax withholding on vested awards— — — — (6,051)— (70)— — (70)
Net loss— — — — — — — — (8,670)(8,670)
Balance at June 30, 2021    8,357,391 83 (114)184,445 (83,292)101,122 
Share-based compensation — — — — — — — 490 — 490 
Net loss — — — — — — — — (7,488)(7,488)
Balance at September 30, 2021 $  $ 8,357,391 $83 $(114)$184,935 $(90,780)$94,124 
See accompanying notes to condensed consolidated financial statements.



Lumos Pharma, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(In thousands)
Nine Months Ended September 30,
20212020
Cash Flows From Operating Activities
Net loss$(24,789)$(3,248)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation2,385 756 
Depreciation and amortization263 375 
Gain on sale of priority review voucher  (6,300)
Loss on sale or disposal of fixed assets14  
Amortization of ROU asset and change in operating lease liability(69) 
In-process research and development charge 426 
Benefit for deferred taxes (4,848)
Changes in operating assets and liabilities:
Prepaid expenses and other current assets(1,334)(495)
Other receivables148 224 
Accounts payable and accrued expenses(438)(2,907)
Net cash used in operating activities(23,820)(16,017)
Cash Flows From Investing Activities
Cash acquired in connection with merger  84,179 
Installment from sale of priority review voucher26,000 32,500 
Purchase of equipment(17)(18)
Net cash provided by investing activities25,983 116,661 
Cash Flows From Financing Activities
Exercise of stock options
64  
Payment for tax withholding on vested awards(114) 
Principal payments on notes payable (27)
Sales of shares under stock purchase plan6 6 
     Costs of common stock offering under Controlled Equity OfferingSM
(148) 
Net cash used in financing activities(192)(21)
Net increase in cash and cash equivalents1,971 100,623 
Cash and cash equivalents at beginning of period98,679 4,952 
Cash and cash equivalents at end of period$100,650 $105,575 
See accompanying notes to condensed consolidated financial statements.




Table of Contents
Lumos Pharma, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)

1. Description of Business
Organization and Nature of operations
Lumos Pharma, Inc. is a clinical-stage biopharmaceutical company. References in this Quarterly Report to “us,” “we,” “our,” “the Company,” or “Lumos” are to Lumos Pharma, Inc. and its wholly-owned subsidiaries. With our principal executive offices located in Austin, Texas and additional executive and administrative offices located in Ames, Iowa, we are engaged in advancing our clinical program and focused on identifying, acquiring, developing, and commercializing novel products and new therapies for people with rare diseases on a global level, for which there is currently a significant unmet need for safe and effective therapies. Our common stock is listed on the NASDAQ Global Market (“Nasdaq”) and trades under the ticker symbol “LUMO.”
The Company entered into a business combination (the “Merger”) between the Company, formerly known as NewLink Genetics Corporation (“NewLink”), Cyclone Merger Sub, Inc. (“Merger Sub”), a wholly owned subsidiary of NewLink, and Lumos Pharma, Inc., which has since been renamed “Lumos Pharma Sub, Inc.” (“Private Lumos”). The Merger closed on March 18, 2020, and Merger Sub merged with and into Private Lumos, with Private Lumos surviving as a wholly-owned subsidiary of the Company. Immediately prior to the closing of the Merger, the shares of NewLink common stock were adjusted with a reverse split ratio of 1‑for‑9. Under the terms of the Merger, Private Lumos stockholders received an aggregate of 4,146,405 shares of NewLink common stock (after giving effect to the reverse split) for each share of outstanding common stock, Series A Preferred Stock and Series B Preferred Stock of Private Lumos converted at an exchange ratio of 0.1308319305, 0.0873621142 and 0.1996348626, respectively. Immediately following the reverse stock split and the completion of the Merger, there were 8,292,803 shares of the Company’s common stock outstanding, of which approximately 50% was held by each of Private Lumos and NewLink security holders. The Merger was accounted for as a reverse asset acquisition.
After the consummation of the Merger, the combined company has focused its efforts on the development of Private Lumos’ sole product candidate, secretagogue ibutamoren (“LUM-201”), a potential oral therapy for pediatric growth hormone deficiency (“PGHD”) and other rare endocrine disorders.
Liquidity and Risks
The Company has historically devoted substantially all of its efforts toward research and development and has never earned revenue from commercial sales of its products. Management expects to continue to incur additional substantial losses in the foreseeable future as a result of the Company’s research and development activities. However, the Company believes that its existing cash and cash equivalents of approximately $100.7 million as of September 30, 2021 will be sufficient to allow the Company to fund its operations through the primary outcome data read out of its Phase 2 clinical trial of LUM-201 in PGHD ("OraGrowth210 Trial") for which data readout is now anticipated in the second half of 2023 and for at least 12 months from the filing date of this Quarterly Report. In addition, the Company may offer and sell from time to time through Cantor Fitzgerald & Co., as agent (the “Agent”) up to $50.0 million of shares of its common stock under the Controlled Equity OfferingSM sales agreement entered into with the Agent on December 30, 2020. If available liquidity becomes insufficient to meet the Company’s obligations as they come due, our future operations will be reliant on additional equity or financing arrangements. There can be no assurances that, in the event that the Company requires additional financing, such financing will be available on terms which are favorable to the Company, or at all. If the Company is unable to raise additional funding to meet its working capital needs in the future, it will be forced to delay or reduce the scope of its research programs and/or limit or cease its operations.
The pandemic caused by an outbreak of a novel strain of coronavirus, SARS-CoV-2, which causes COVID-19 (“COVID-19”), has resulted, and is likely to continue to result, in significant national and global economic disruption and may continue to adversely affect the Company’s operations. COVID-19 restrictions have led to a slower pace of site initiation and patient enrollment in our clinical trials that has delayed the 6-month primary outcome data read out of our OraGrowth210 Trial. While we have experienced delays to our clinical trials, we have not incurred impairment of any assets as a result of COVID-19. The extent to which these events may further impact the Company’s business, clinical development, regulatory efforts, and the value of its common stock, will depend on future developments, which are highly uncertain and cannot be predicted at this time. The duration and intensity of any future impacts and disruption to the Company’s operations is uncertain,


Table of Contents
Lumos Pharma, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
and the Company will continue to evaluate the impact that these events could have on the operations, financial position, and the results of operations and cash flows during fiscal year 2021.
2. Summary of Significant Accounting Policies and Recent Accounting Pronouncements
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of Lumos and its wholly-owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”). All significant intercompany accounts and transactions are eliminated in consolidation.
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments of a normal and recurring nature considered necessary for a fair presentation have been included in the accompanying condensed consolidated financial statements. The results of operations for the interim period are not necessarily indicative of the results that will be realized for the entire fiscal year. These condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and accompanying notes thereto included in the Company’s 2020 Annual Report filed on Form 10-K with the SEC on March 9, 2021.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in the Company’s financial statements and accompanying notes. Significant management estimates that affect the reported amounts of assets and liabilities include stock-based compensation, accruals for clinical trials and deferred tax assets. While we believe that the estimates and assumptions used in preparation of our condensed consolidated financial statements based on our knowledge of current events and actions that we may undertake in the future are appropriate, actual results could differ from those estimates, and any such differences may be material.
As of September 30, 2021, the Company’s significant accounting policies are consistent with those discussed in Note 2 - Summary of Significant Accounting Policies and Recent Accounting Pronouncements of its consolidated financial statements included in the Company’s 2020 Annual Report filed on Form 10-K with the SEC on March 9, 2021.
Recently Issued Accounting Standards
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies and adopted by us as of a specified effective date, if applicable to us.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (“ASC 740”), which simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The guidance is effective for calendar-year public business entities in 2021 and interim periods within that year. The Company adopted ASU 2019-12 as of January 1, 2021. The adoption of this new guidance did not have any impact on the Company's financial position or results of operations.
3. NewLink Merger
The Company completed the Merger on March 18, 2020. The Merger was accounted for as a reverse asset acquisition as NewLink did not meet the definition of a business pursuant to Topic 805, Business Combinations, because NewLink did not have the ability to generate outputs. Private Lumos was deemed to be the accounting acquirer because immediately following the Merger: (i) Lumos stockholders owned approximately 50% of outstanding common stock of the Company, (ii) the board of directors of the Company (the “Board”) consisted of three members designated by Private Lumos, three members designated by


Table of Contents
Lumos Pharma, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
NewLink and a seventh independent member unanimously appointed by the Board and (iii) the Company is led by Private Lumos’ current chief executive officer and chief scientific officer, with other current members of senior management from both Private Lumos and NewLink.
For accounting purposes: (i) the assets acquired and liabilities assumed were recorded based on their estimated fair values on the Merger date, (ii) the reported historical operating results of the combined company prior to the Merger were those of Private Lumos and not of NewLink after retroactively giving effect to the common stock exchange ratio, reverse stock split and change in par value for all periods presented, and (iii) for periods prior to the transaction, shareholders’ authorized capital of the combined company is presented based on the historical authorized capital of NewLink.
As the fair value of the NewLink net assets acquired, including the intangible assets of the priority review voucher (“PRV”) and in-process research and development (“IPR&D”) not previously reflected on NewLink’s balance sheet, were more clearly evident, fair valuing the net assets was determined to be a more reliable approach in determining the cost of net assets acquired. Except for the items noted herein, the fair value of the net assets acquired were determined to be the carrying value due to their short-term nature and ability to convert to cash. Based on most current observable inputs and trends in the market of the PRVs, we determined an estimated transaction price of the acquired PRV under the precedent transaction method to be $95.0 million, which was the observed median guideline in the range of publicly disclosed transactions of $80.0 million to $111.0 million from 2018 and through 2020. We applied a present value factor and estimated selling costs to the estimated transaction price to arrive at a fair value of the PRV. The PRV was recorded at an asset value of $87.9 million along with a corresponding liability due to Merck Sharp & Dohme Corp. (“Merck”) of $35.7 million. In addition, the Company recorded a deferred tax liability of $9.5 million on March 18, 2020 for the step up in book basis over tax basis for the net value of the PRV. The PRV was sold on July 27, 2020. The Company recorded a $9.5 million tax benefit for tax losses for the year ended December 31, 2020, and certain historical tax attributes realized as of the date of the Merger, both of which benefited from the deferred tax liability recorded for the step up in book basis over tax basis for the net value of the PRV. The fair value assigned to the acquired IPR&D was estimated based on the estimated expected net proceeds from the sales of these assets as intellectual property. As these assets were no longer being actively pursued in further clinical development by the Company, the IPR&D fair value of $426,000 was expensed to research and development expenses in the Statement of Operations for the three months ended March 31, 2020.


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Lumos Pharma, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
The following table summarizes the estimated fair value of the assets acquired and liabilities assumed on March 18, 2020, the date of the Merger (in thousands):
Assets acquired:
Cash and cash equivalents$84,179 
Prepaid and other current assets2,999
Income tax receivable192
Property and equipment1,020
Economic interest in PRV87,920
Other intangible assets426
Other non-current assets517
Total Assets Acquired177,253
Liabilities assumed:
Accounts payable285
Accrued expenses and other current liabilities8,788
PRV-related liability owed to Merck35,720
Royalty obligation payable to Iowa Economics Development Authority6,000
Deferred tax liability9,500
Other long-term liabilities12
Total liabilities assumed60,305
Total net assets acquired$116,948 

4. License and Asset Purchase Agreements
License and LUM-201 Asset Purchase Agreements
In July 2018, the Company entered into an asset purchase agreement (the “APA”) with Ammonett and acquired substantially all of the assets related to LUM-201, which Ammonett licensed from Merck in October 2013 (the “Lumos Merck Agreement”).
The Lumos Merck Agreement, which grants Lumos (as successor in interest to Ammonett) worldwide, exclusive, sublicensable (subject to Merck’s consent in the United States, major European countries and Japan, such consent not to be unreasonably withheld) rights under specified patents and know-how to develop, manufacture and commercialize LUM-201 for any and all indications, excluding Autism Spectrum Disorders as defined in the Fifth Edition of the Diagnostic and Statistical Manual of Mental Disorders.
On August 12, 2020, Lumos entered into Amendment No. 1 to the Lumos Merck Agreement with Merck (the “Lumos Merck Agreement Amendment”). Pursuant to the Lumos Merck Agreement Amendment, Lumos obtained from Merck a worldwide, non-exclusive, sublicensable (subject to Merck’s consent in the United States, specified major European countries and Japan, such consent not to be unreasonably withheld) license under the specified patents and know-how that are the subject of Lumos’ exclusive license to develop, manufacture and commercialize LUM-201 for diagnostic and therapeutic purposes, excluding Autism Spectrum Disorders.
Under the APA, the Company paid Ammonett an upfront fee of $3.5 million which was recorded as research and development expense in 2018. The Company may also incur development milestone payments totaling up to $17.0 million for achievement of specified milestones on the first indication that Lumos pursues, up to $14.0 million for achievements of


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Lumos Pharma, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
specified milestones on the second indication that Lumos pursues, sales milestone payments totaling up to $55.0 million on worldwide product sales, and royalty payments based on worldwide product sales, as discussed below.
Under the Lumos Merck Agreement, Lumos will be required to pay Merck substantial development milestone payments for achievement of specified milestones relating to each of the first and second indications. Total potential development milestone payments are required up to $14.0 million for the first indication that Lumos pursues and up to $8.5 million for the second indication that Lumos pursues. Tiered sales milestone payments totaling up to $80.0 million are required on worldwide net product sales up to $1.0 billion, and substantial royalty payments based on product sales are required if product sales are achieved.
If product sales are ever achieved, Lumos is required to make royalty payments under both the APA and the Lumos Merck Agreement collectively of 10% to 12% of total annual product net sales, subject to standard reductions for generic erosion. The royalty obligations under the Lumos Merck Agreement are on a product-by-product and country-by-country basis and will last until the later of expiration of the last licensed patent covering the product in such country and expiration of regulatory exclusivity for such product in such country. The royalty obligations under the APA are on a product-by-product and country-by-country basis for the duration of the royalty obligations under the Merck License and thereafter until the expiration of the last patent assigned to Lumos under the APA covering such product in such country.
The Lumos Merck Agreement shall continue in force until the expiration of royalty obligations on a country-by-country and product-by-product basis, or unless terminated by Lumos at will by submitting 180 days’ advance written notice to Merck or by either party for the other party’s uncured material breach or specified bankruptcy events. Upon expiry of the royalty obligations the Lumos Merck Agreement converts to a fully paid, perpetual non-exclusive license.
If the Lumos Merck Agreement is terminated, and upon Merck’s written request, Lumos is obligated to use reasonable and diligent efforts to assign to Merck any sublicenses previously granted by Lumos.
License and PRV Asset Purchase Agreements
In November 2014, NewLink entered into a worldwide license and collaboration agreement (the “NewLink Merck Agreement”), with Merck, to develop and potentially commercialize its Ebola vaccine rVSV∆G-ZEBOV that it licensed from the Public Health Agency of Canada (“PHAC”). rVSV∆G-ZEBOV was also eligible to receive a PRV if approval was granted by the U.S. Food and Drug Administration (the “FDA”), with the Company entitled to 60% and Merck entitled to the remaining 40% of the PRV value obtained through sale, transfer or other disposition of the PRV. On December 20, 2019, Merck announced that the FDA approved its application for ERVEBO® (Ebola Zaire Vaccine, Live) for the prevention of disease caused by Zaire Ebola virus in individuals 18 years of age and older.
On July 27, 2020, Lumos and Merck entered into the asset purchase agreement (the “PRV Asset Purchase Agreement”), whereby Lumos and Merck each agreed that Merck would purchase the PRV from the Company for $100.0 million. Merck agreed to pay the Company $60 million, representing its share of the purchase price in two installments. The $35.7 million liability, representing the portion of the PRV value to which Merck was entitled, was also extinguished through the PRV Asset Purchase Agreement. The first installment of $34.0 million was received by the Company at the closing on July 27, 2020 and the final installment of $26.0 million was received on January 11, 2021. The Company recognized a gain of $6.3 million, net of $1.5 million in costs incurred, from the sale of the PRV and such gain was recorded within other income, net on the condensed consolidated statements of operations for the three months ended September 30, 2020.
Under the NewLink Merck Agreement, as amended, the Company has the potential to earn royalties on sales of the vaccine in certain countries, if the vaccine is successfully commercialized by Merck. However, we believe that the market for the vaccine will be limited primarily to areas in the developing world that are excluded from royalty payment or where the vaccine is donated or sold at low or no margin, and therefore we do not expect to receive material royalty payments from Merck in the foreseeable future. For the three and nine months ended September 30, 2021 and 2020, the Company recognized revenues of $0, $10,000, $74,000 and $128,000, respectively, for work the Company performed in relation to ERVEBO®, as a subcontractor of Merck.
5. Leases
The Company has certain facility leases with non-cancellable terms ranging up-to two years, with certain renewal options.


Table of Contents
Lumos Pharma, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
The Company records lease liabilities based on the present value of lease payments over the lease term using an incremental borrowing rate to discount its lease liabilities, as the rate implicit in the lease is typically not readily determinable. To compute the present value of the lease liability, the Company used a weighted-average discount rate of 3%. Certain lease agreements include renewal options that are under the Company’s control. The Company includes optional renewal periods in the lease term only when it is reasonably certain that the Company will exercise its option. The weighted-average remaining lease term as of September 30, 2021 is 1.77 years.
The Company does not separate lease components from non-lease components. Variable lease payments include payments to lessors for taxes, maintenance, insurance and other operating costs as well as payments that are adjusted based on an index or rate. The Company’s lease agreements do not contain any residual value guarantees or restrictive covenants.
Future minimum lease payments under the non-cancellable operating leases (with initial or remaining lease terms in excess of one year) as of September 30, 2021 are as follows (in thousands), excluding option renewals:
As of September 30, 2021:
2021$83 
2022337 
2023236 
Total future minimum lease payments656 
     Less: Imputed interest(19)
Total$637 

6. Stock-Based Compensation and Employee Benefit Plans
Stock Options and Performance Stock Options
In 2012, Private Lumos adopted the 2012 Equity Incentive Plan (“2012 Plan”), and in 2016 it adopted the 2016 Stock Plan (“2016 Plan” and together with the 2012 Plan, the “Plans”). In connection with the Merger, all outstanding options under the Plans were assumed and such assumed options may be exercised to purchase common stock of the Company after the Merger. Subsequent to the Merger, the Plans were terminated as to future awards.
In connection with the Merger, the Company assumed NewLink’s 2009 Equity Incentive Plan which was effective since July 2009 and was subsequently amended on May 9, 2019 (the “2019 Plan”). The 2019 Plan has a 10 year term from the Board adoption date of March 22, 2019 and on January 1 of each year through January 1, 2029, in accordance with an “evergreen provision”, a number of shares of common stock in an amount equal to 3% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year or such lesser amount of shares (or no shares) approved by the Board, will be added to the shares reserved under the 2019 Plan. The 2019 Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock awards and stock appreciation rights to officers, employees, members of the Board, advisors, and consultants to the Company. As of September 30, 2021, we had 433,761 shares available for grant under the 2019 Plan.
In connection with the Merger, the Company re-valued the assumed stock options, and it did not result in a material incremental expense for the three and nine months ended September 30, 2020.


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Lumos Pharma, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
The table below summarizes the stock option activity, including options with market and performance conditions, during the nine months ended September 30, 2021:
Number
of options
Weighted
average
exercise
price
Weighted average
remaining contractual
term (years)
Outstanding at beginning of period
958,945 $9.59 7.5
Options granted
361,844 14.75 
Options exercised
(26,922)2.40 
Options forfeited
(23,101)13.04 
Options expired
(47,786)16.57 
Outstanding at end of period
1,222,980 $10.94 7.3
Options exercisable at end of period
610,911 $10.28 6.0
The weighted-average assumptions used to value the stock options using the Black-Scholes option-pricing (January 1, 2021 through September 30, 2021) were as follows:
Risk-free interest rate
0.56% to 1.03%
Expected dividend yield
%
Expected volatility
77.2% to 90.3%
Expected term (in years)
5.4 to 7.7
Weighted-average grant-date fair value per share
$10.80
2010 Non-Employee Directors' Stock Award Plan
In connection with the Merger, the Company assumed NewLink’s 2010 Non-Employee Directors’ Stock Award Plan, as amended (the "Directors’ Plan") which was effective on November 10, 2011. As of September 30, 2021, 5,624 shares remain available for grant under the Directors' Plan.

2010 Employee Stock Purchase Plan
In connection with the Merger, the Company assumed NewLink’s 2010 Employee Stock Purchase Plan, as amended (the "2010 Purchase Plan"), which was effective on November 10, 2011. As of September 30, 2021, 60,000 shares remain available for issuance under the 2010 Purchase Plan. On July 22, 2021, the Board approved an amendment and restatement of the 2010 Purchase Plan (the “A&R ESPP”), and established a special offering period under the A&R ESPP beginning September 1, 2021 and lasting until June 30, 2023, subject to restart provisions as described within the A&R ESPP. The A&R ESPP is fully contingent upon stockholder approval at the 2022 Annual Meeting of Stockholders. The A&R ESPP provides for an increase in the number of shares reserved for issuance under the A&R ESPP by 60,000 shares. The purchase rights granted to employees for the special offering period under the A&R ESPP are exercisable only if the Company’s shareholders approve the A&R ESPP at the Company’s 2022 Annual Meeting of Stockholders.
Restricted Stock Units
The table below summarizes the restricted stock units activity during the nine months ended September 30, 2021:         
Number
of restricted shares
Weighted
average
grant date fair value
Unvested at beginning of period73,754 $7.86 
Granted41,903 10.32 
Vested(33,933)8.39 
Forfeited/cancelled(709)7.78 
Unvested at end of period81,015 $8.91 

Share-Based Compensation Expense
Stock-based compensation expenses included in the Company’s condensed consolidated statements of operations for the three and nine months ended September 30, 2021 and 2020 were (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2021202020212020
Research and development$120 $10 $675 $75 
General and administrative370 295 1,710 681 
Total $490 $305 $2,385 $756 
As of September 30, 2021, we had unrecognized compensation cost of $4.9 million and the weighted-average period over which it is expected to be recognized is 2.8 years.
7. Long-Term Debt and Conversion to Royalty Obligation
In March 2005, NewLink entered into a $6.0 million forgivable loan agreement with the Iowa Department of Economic Development (the “IDED”). Under the agreement, in the absence of default, there were no principal or interest payments due until the completion date for the project. This loan was converted into a royalty obligation under the terms of a settlement agreement entered into on March 26, 2012 (the “IEDA Agreement”), with the Iowa Economic Development Authority (the “IEDA”), as successor in interest to the IDED. Under the terms of the IEDA Agreement the Company agreed to pay a 0.5% royalty on future product sales up to a cap of $6.8 million. As no payments are expected in the next 12 months, the entire royalty obligation of $6.0 million, which we assumed in connection with the Merger, is considered as long-term liability as of September 30, 2021.
8. Income Taxes
For the three and nine months ended September 30, 2021, the Company recorded no income tax benefit. For the three and nine months ended September 30, 2020, the Company recorded an income tax benefit of $2.4 million and $9.3 million, respectively. The income tax benefit is as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Current tax benefit$ $ $ $4,473 
Deferred tax benefit 2,432  4,848 
Total income tax benefit$ $2,432 $ $9,321 
On March 25, 2020, in response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law to provide emergency assistance to affected individuals, families, and businesses. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior


Table of Contents
Lumos Pharma, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
and future utilization of net operating losses. The CARES Act amends the net operating losses ("NOLs") provisions of the Tax Cut and Jobs Act of 2017 (the "Tax Act"), providing for a five year carryback for NOLs generated in tax years beginning after December 31, 2017 and before January 1, 2021. A tax benefit of $4.5 million related to pre-tax NOLs was carried back to each of the five taxable years to fully offset taxable income with a receivable recorded for this amount as of March 31, 2020. The Company received the full refund in July 2020.
The income tax amount for the three and nine months ended September 30, 2021 differs from the amount that would be expected after applying the statutory U.S. federal income tax rate primarily due to an increase in the valuation allowance. The income tax amount for the three and nine months ended September 30, 2020 differs from the amount that would be expected after applying the statutory U.S. federal income tax rate primarily due to the benefit of $4.5 million recorded as a result of the CARES Act. Additionally, the income tax benefit for the three and nine months ended September 30, 2020 includes $2.4 million and $4.8 million, respectively, for the release of the valuation allowance related to Private Lumos NOLs and a current period benefit for losses the Company anticipated would be offset by future income.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Due to the uncertainty of the Company’s ability to realize the benefit of the deferred tax assets, the net deferred tax assets are fully offset by a valuation allowance at September 30, 2021.
Based on Section 382 ownership change analyses through March 18, 2020, as a result of the Merger, both historical NewLink and Private Lumos experienced Section 382 ownership changes on March 18, 2020. These ownership changes limit our ability to utilize federal net operating loss carryforwards and certain other tax attributes that accrued prior to the respective ownership changes of us and our subsidiaries and may continue to limit our ability to utilize such attributes in the future.
The Company has a reserve for uncertain tax positions related to state tax matters of $1.2 million as of September 30, 2021 recorded within accrued expenses in the condensed consolidated balance sheets, which includes the accrual of interest and penalties. This reserve is expected to be released in the fourth quarter of 2021 due to the statute of limitations expiring in October 2021.
9. Net Income (Loss) per Share of Common Stock
Basic income (loss) per share is based upon the weighted-average number of shares of common stock outstanding during the period, without consideration of common stock equivalents. Diluted income (loss) per share is based upon the weighted-average number of common shares outstanding during the period plus additional weighted-average potentially dilutive common stock equivalents during the period when the effect is dilutive.
The following table presents the computation of basic and diluted income (loss) per share of common stock (in thousands, except share and per share data) and the number of un-exercised stock options and restricted stock units, which are common stock equivalents, that have been excluded from the diluted net income (loss) calculation when their effect would have been anti-dilutive for the period.


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Lumos Pharma, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
Three Months Ended September 30,

Nine Months Ended September 30,
2021202020212020
Net income (loss)$(7,488)$1,765 $(24,789)$(3,248)
Accretion of preferred stock to current redemption value   (651)
Net income (loss) attributable to common shareholders$(7,488)$1,765 $(24,789)$(3,899)
Weighted-average shares outstanding - Basic 8,357,391 8,293,312 8,333,017 6,267,576 
Add: dilutive effect of stock options and restricted stock units 193,492   
Weighted-average shares outstanding - Diluted 8,357,391 8,486,804 8,333,017 6,267,576 
Net income (loss) per share - Basic and diluted$(0.90)$0.21 $(2.97)$(0.62)
Anti-dilutive stock options 1,222,980 394,672 1,222,980 1,029,030 
Anti-dilutive restricted stock units81,015  81,015 73,754 
Total anti-dilutive common stock equivalents excluded
1,303,995 394,672 1,303,995 1,102,784 

10. Restructuring and Severance Charges
On September 30, 2019, prior to the Merger, NewLink adopted a restructuring plan to reduce its headcount by approximately 60%, which consisted primarily of clinical and research and development staff, and made several changes to senior leadership in order to conserve resources.
In conjunction with the restructuring and departure of former NewLink executives, NewLink recorded restructuring and severance charges of $5.6 million during the year ended December 31, 2019. The following table shows the amount accrued for restructuring activities which is recorded within accrued expenses in the condensed consolidated balance sheets (in thousands):
Total Employee Severance Cost
NewLink's accrued balance as of December 31, 2020$59 
Expensed 
Cash payments59 
Balance as of September 30, 2021$ 


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Lumos Pharma, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
On February 4, 2021, Eugene P. Kennedy, M.D., notified the Company that he would be resigning from his position as the Company's Chief Medical Officer effective March 6, 2021. As per the terms of Dr. Kennedy's employment agreement relating to change in control benefits, the Company paid approximately $0.7 million in severance expenses recognized during the three months ended March 31, 2021 and accelerated vesting of all non-vested equity awards. For the three months ended March 31, 2021, we recognized additional stock compensation expense of approximately $0.7 million due to accelerated vesting of all non-vested equity awards held by Dr. Kennedy.
On April 16, 2021, Carl W. Langren notified the Company that he would be retiring from his position as the Company's Chief Financial Officer effective June 30, 2021. Mr. Langren's resignation in connection with his retirement was effective June 30, 2021. As per the terms of Mr. Langren's employment agreement relating to change in control benefits, the Company will pay approximately $0.9 million, accelerate vesting of all non-vested equity awards and allow for a twenty-four month extension of the exercise period after the separation date to exercise any vested equity awards. For the three months ended June 30, 2021, we recognized additional stock compensation expense of approximately $0.4 million due to accelerated vesting of all non-vested equity awards held by Mr. Langren. Final payment of accrued severance compensation of $0.9 million will be paid in the fourth quarter of 2021.
11. Commitments and Contingencies
From time to time, claims are asserted against the Company arising in the ordinary course of business. In the opinion of management, liabilities, if any, arising from existing claims are not expected to have a material effect on the Company’s earnings, financial position, or liquidity.
On or about May 12, 2016, Trevor Abramson filed a putative securities class action lawsuit in the United States District Court for the Southern District of New York (the “Court for the Southern District of NY”), captioned Abramson v. NewLink Genetics Corp., et al., Case 1:16-cv-3545 (the “Securities Action”). Subsequently, the Court for the Southern District of NY appointed Michael and Kelly Nguyen as lead plaintiffs and approved their selection of Kahn, Swick & Foti, LLC as lead counsel in the Securities Action. On October 31, 2016, the lead plaintiffs filed an amended complaint asserting claims under the federal securities laws against the Company, the Company’s former Chief Executive Officer Charles J. Link, Jr., and the Company’s former Chief Medical Officer and President Nicholas Vahanian, (collectively, the “Defendants”). The amended complaint alleges the Defendants made material false and/or misleading statements that caused losses to the Company’s investors. The Defendants filed a motion to dismiss the amended complaint on July 14, 2017. On March 29, 2018, the Court for the Southern District of NY dismissed the amended complaint for failure to state a claim, without prejudice, and gave the lead plaintiffs until May 4, 2018 to file any amended complaint attempting to remedy the defects in their claims. On May 4, 2018, the lead plaintiffs filed a second amended complaint asserting claims under the federal securities laws against the Defendants. Like the first amended complaint, the second amended complaint alleges that the Defendants made material false and/or misleading statements or omissions relating to the Phase 2 and 3 trials and efficacy of the product candidate algenpantucel-L that caused losses to the Company’s investors. The lead plaintiffs do not quantify any alleged damages in the second amended complaint but, in addition to attorneys’ fees and costs, they sought to recover damages on behalf of themselves and other persons who purchased or otherwise acquired the Company’s stock during the putative class period of September 17, 2013 through May 9, 2016, inclusive, at allegedly inflated prices and purportedly suffered financial harm as a result. The Defendants filed a motion to dismiss the second amended complaint on July 31, 2018. On February 13, 2019, the Court for the Southern District of NY dismissed the second amended complaint for failure to state a claim, with prejudice, and closed the case. On March 14, 2019, lead plaintiffs filed a notice of appeal. The briefing on lead plaintiffs' appeal was completed in early July 2019 and oral argument before the Second Circuit Court of Appeals was held on October 21, 2019. In an opinion dated July 13, 2020, the Second Circuit Court of Appeals affirmed the district court’s dismissal of the second amended complaint in part, vacated the district court’s dismissal of the second amended complaint in part, and remanded the matter to the district court for further proceedings. On August 6, 2020, the Defendants filed a Petition for Rehearing en banc requesting reconsideration of portions of the opinion from the Second Circuit Court of Appeals. The Second Circuit Court of Appeals denied the Petition on September 8, 2020 and issued a mandate to the Court for the Southern District of NY on September 15, 2020.
On December 16, 2020, the Company reached a settlement in principle to fully resolve the Securities Action, and on February 1, 2021, a motion for preliminary approval of the settlement was filed in the Court for the Southern District of NY. On February 25, 2021 the Court for the Southern District of NY denied the motion for preliminary approval and directed the parties to re-submit the motion with certain revisions. On March 24, 2021 the parties re-submitted the motion for preliminary approval,


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Lumos Pharma, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
which the Court for the Southern District of NY granted on April 2, 2021. The parties’ agreement provides in part for a $13.5 million settlement payment in exchange for the dismissal and a release of all claims against the Defendants in connection with the Securities Action. The full amount of the settlement payment was paid by the Company’s insurance provider under its insurance policy. The terms of the settlement and the final plan of allocation of settlement proceeds was approved by the Court for the Southern District of NY on September 22, 2021. On that date, the Court for the Southern District of NY dismissed the Securities Action with prejudice and released all of the claims against the Defendants in connection with the Securities Action.
On or about April 26, 2017, Ronald Morrow filed a shareholder derivative lawsuit on behalf of the Company in the Court for the Southern District of NY, against the Company’s former Chief Executive Officer Charles J. Link, Jr., the Company’s former Chief Medical Officer and President Nicholas Vahanian, and the Company directors Thomas A. Raffin, Joseph Saluri, Ernest J. Talarico, III, Paul R. Edick, Paolo Pucci, and Lota S. Zoth (collectively, the “Morrow Defendants”), captioned Morrow v. Link., et al., Case 1:17-cv-03039 (the “Morrow Action”). The complaint alleges that the Morrow Defendants caused the Company to issue false statements in its 2016 proxy statement regarding risk management and compensation matters in violation of federal securities laws. The complaint also asserts state law claims against the Morrow Defendants for breaches of fiduciary duties, unjust enrichment, abuse of control, insider trading, gross mismanagement, and corporate waste, alleging that the Morrow Defendants made material misstatements or omissions related to the Phase 2 and 3 trials and efficacy of the product candidate algenpantucel-L, awarded themselves excessive compensation, engaged in illegal insider trading, and grossly mismanaged the Company. The plaintiff does not quantify any alleged damages in the complaint but seeks restitution for damages to the Company, attorneys’ fees, costs, and expenses, as well as an order directing that proposals for strengthening board oversight be put to a vote of Company’s shareholders. The language for such proposals is not specified in the complaint. The plaintiff also contemporaneously filed a statement of relatedness, informing the Court for the Southern District of NY that the Morrow Action is related to the Securities Action. On May 19, 2017, the plaintiff dismissed the Morrow Action without prejudice. Also on May 19, 2017, plaintiffs’ counsel in the Morrow Action filed a new shareholder derivative complaint that is substantively identical to the Morrow Action, except that the plaintiff is Rickey Ely. The latter action is captioned Ely v. Link, et al., Case 17-cv-3799 (the “Ely Action”). By agreement of the parties and orders dated June 26, 2017 and March 20, 2019, the Court for the Southern District of NY temporarily stayed the Ely Action until the Securities Action is dismissed or otherwise finally resolved.
On December 11, 2020, the Company reached a settlement in principle to resolve the substantive claims asserted in the Ely Action, and on February 26, 2021, the Company reached an agreement with the plaintiff with respect to an award for plaintiff’s counsel’s attorneys’ fees and expenses in the total amount of $375,000. In addition to this award for fees and expenses, the parties' agreement provides for the adoption and/or enactment of certain corporate governance reforms at both the Board of Directors and management levels, in exchange for the dismissal and a release of all claims against the Defendants in connection with the Ely Action. On June 3, 2021, a motion for preliminary approval of the settlement was filed in the Court for the Southern District of NY. On August 10, 2021, the Court for the Southern District of NY granted the motion for preliminary approval of the settlement. Thereafter, the full amount of the fees and expenses award was paid by the Company’s insurance provider under its insurance policy. On November 2, 2021, the Court for the Southern District of NY granted the motion for final approval of the settlement.





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Lumos Pharma, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this quarterly report on Form 10‑Q for the quarter ended September 30, 2021 (this “Quarterly Report”). This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, such statements are subject to the “safe harbor” created by those sections and involve risks and uncertainties. Forward-looking statements are based on our management’s beliefs and assumptions and on information available to our management as of the date hereof. As a result of many factors, such as those set forth under “Item 1A. Risk Factors” included in our 2020 Annual Report and Part II, “Item 1A. Risk Factors” in this Quarterly Report, our actual results may differ materially from those anticipated in these forward-looking statements, accordingly, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. Such factors may be amplified by the COVID-19 pandemic and its potential impact on our business and the global economy.
Overview
Lumos Pharma, Inc. is a clinical-stage biopharmaceutical company. References in this report to “us,” “we,” “our,” “the Company,” or “Lumos” are to Lumos Pharma, Inc. and its wholly-owned subsidiaries. With our principal executive offices located in Austin, Texas and additional executive and administrative offices located in Ames, Iowa, we are engaged in advancing our clinical program and focused on identifying, acquiring, developing, and commercialization of novel products and new therapies for people with rare diseases on a global level, for which there is currently a significant unmet need for safe and effective therapies. Our common stock is listed on the NASDAQ Select Market (“Nasdaq”) and trades under the ticker symbol “LUMO”.
We entered into a business combination (the “Merger”) between the Company, formerly known as NewLink Genetics Corporation (“NewLink”), Cyclone Merger Sub, Inc. ("Merger Sub"), a wholly owned subsidiary of NewLink, and Lumos Pharma, Inc., (“Private Lumos”), which has since been renamed “Lumos Pharma Sub, Inc.” The Merger closed on March 18, 2020, and Merger Sub merged with and into Private Lumos, with Private Lumos surviving as a wholly-owned subsidiary of the Company. Immediately prior to the closing of the Merger, the shares of NewLink common stock were adjusted with a reverse split ratio of 1-for-9. Under the terms of the Merger, Private Lumos stockholders received an aggregate of 4,146,405 shares of our common stock (after giving effect to the reverse split) for each share of outstanding common stock, Series A Preferred Stock and Series B Preferred Stock of Private Lumos converted at an exchange ratio of 0.1308319305, 0.0873621142 and 0.1996348626, respectively. Immediately following the reverse stock split and the completion of the Merger, there were 8,292,803 shares of the Company’s common stock outstanding, of which approximately 50% was held by each of Private Lumos and NewLink security holders. The Merger was accounted for as a reverse asset acquisition.
Since the consummation of the Merger, we have focused our efforts on the development of Private Lumos’ sole product candidate, LUM-201, a potential oral therapy for PGHD and other rare endocrine disorders.
PGHD is a rare endocrine disorder occurring in approximately one in 3,500 persons aged birth to 17 years. Causes of PGHD can be congenital (children are born with the condition), acquired (brain tumor, head injuries or other causes), iatrogenic (induced by medical treatment) or idiopathic (of unknown cause). Children with untreated PGHD will have significant growth failure (potential adult heights significantly less than five feet and may have abnormal body composition with decreased bone mineralization, decreased lean body mass and increased fat mass).
The main therapeutic goal in PGHD is to restore growth, enabling short children to achieve normal height and prevent complications that could involve metabolic abnormalities, cognitive deficiencies and reduced quality of life. The current standard of care for PGHD is limited to daily subcutaneous injections of rhGH with a treatment cycle lasting up to an average of seven years. Poor compliance with daily rhGH injections during treatment can result in an adverse impact on growth. The FDA recently approved a competitive treatment, Skytrofa, a once-weekly injection which would reduce the number of injections over the course of treatment for a patient, however, we believe that many providers and patients will have a preference for an orally administered treatment.
LUM-201 Growth Hormone Secretagogue
Our pipeline is focused on the development of an orally administered small molecule, LUM-201, which is a growth hormone (“GH”) secretagogue, also called ibutamoren, for rare endocrine disorders where injectable recombinant human growth hormone (“rhGH”) is currently approved. LUM-201 is a tablet formulation that will be administered once daily.


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Lumos acquired LUM-201 from Ammonett Pharma LLC (“Ammonett”) in July 2018. LUM-201 received the Orphan Drug Designation (“ODD”) in the United States and the European Union for Growth Hormone Deficiency (“GHD”) in 2017. The United States patent “Detecting and Treating Growth Hormone Deficiency” has been issued with an expiration in 2036. Other patent applications are pending in multiple jurisdictions. 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 recombinant growth hormone product injections. 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.
LUM-201 stimulates GH via the GH secretagogue receptor, also known as the ghrelin receptor, thus providing a differentiated mechanism of action to treat some rare endocrine disorders (involving a deficiency of GH) by increasing the amplitude of endogenous, pulsatile GH secretion. LUM-201’s stimulatory effect is regulated by both circulating levels of GH and its down-stream mediator insulin-like growth factor which at supraphysiological levels feedback or negatively regulate additional release of GH from the pituitary, hence protecting against hyperstimulation of GH release. LUM-201 has been observed to stimulate endogenous GH secretion in patients who have a functional but reduced hypothalamic pituitary GH axis. We believe that a subset of patients with PGHD who have a functional but reduced hypothalamic pituitary GH axis are expected to respond to LUM-201 and represent approximately 60% of PGHD patients.
During the fourth quarter of 2020, we launched our OraGrowtH Trials (as defined below) program to study the effects of LUM-201 in PGHD and initiated our Phase 2 clinical trial (“OraGrowtH210 Trial” or the “Phase 2 Trial”) with the opening of the initial sites participating in this study. The OraGrowtH210 Trial currently has sites enrolling in the United States, Australia, New Zealand, Poland and Ukraine with plans to activate the remaining sites in Russia and Israel by the end of 2021. We currently anticipate the primary outcome data read out for the OraGrowtH210 Trial will be in the second half of 2023. In response to the FDA's request in a letter dated July 16, 2021, we announced in July 2021 that we would extend the treatment period from six months to twelve months to gather additional efficacy data for LUM-201 in PGHD prior to starting our originally planned long-term extension trial. The extension of the treatment period will not impact the primary outcome data read out which will be based on the annualized data from the first six months of treatment. We continue to review the timing of the start of the long-term extension study in context of the OraGrowtH210 Trial extension and gather the requested additional efficacy data to be reviewed by the FDA prior to initiation. We do not anticipate these protocol changes, on a stand-alone basis, will extend the time to the initiation of our Phase 3 clinical trial.
The OraGrowtH210 trial is a randomized study testing three doses of LUM-201 in a parallel enrollment approach versus the current standard dose of injectable rhGH. The primary endpoint of the study is preliminary validation of our predictive enrichment marker (“PEM”) patient selection strategy as evidenced by the percentage of selected patients who grow in response to LUM-201. Secondary endpoints include selection of a pediatric dose of LUM-201 for future studies including Phase 3 and determination of the degree of repeatability of the PEM selection process in PEM positive patients screened for participation in OraGrowtH210.
The coronavirus pandemic has caused pervasive interruptions to clinical trials industry-wide. Facing similar near-term impediments, we have experienced significant delays related to the pandemic as clinical sites adapt their procedures to caring for patients during a pandemic and we may experience further delays should significant pandemic related disruptions persist.
During the second quarter of 2021, we initiated our OraGrowtH212 Trial in PGHD which will run in parallel with the OraGrowtH210 Trial. The OraGrowtH212 trial will evaluate the effects of the pharmacokinetic and pharmacodynamic ("PK/PD") effects of LUM-201 in PGHD patients at two dose levels to confirm prior clinical data illustrating the increased pulsatile release of endogenous growth hormone unique to LUM-201 and its potential for this mechanism of action to contribute to efficacy in PGHD. OraGrowtH212 is being conducted at a single specialized pediatric center with the capacity to conduct the more frequent sample acquisition and monitoring required for this type of clinical trial. Data from the OraGrowtH212 Trial may be supportive in future regulatory filings; however, this trial is not required for regulatory approval of LUM-201. As we announced in July 2021, this open-label trial was extended from six months to twelve months of treatment for the patients to capture additional PK/PD and height velocity data. Given the open-label design of this trial, we have the ability to perform an interim analysis at our discretion. The PD pulsatility assessment will continue to occur at baseline and six months on therapy as planned.


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The graphic below depicts the clinical development plan for PGHD.
https://cdn.kscope.io/fc395b56eea260c008ca8351ac9ac535-nlnk-20210930_g2.jpg
Potential expansion of LUM-201 into additional endocrine indications
We continue to explore our development path to expand into additional indications for LUM-201. We are actively reviewing the pathway for LUM-201 in a certain subset of affected patients in other potential indications including Turners Syndrome, Prader Willi Syndrome, Idiopathic Short Stature and for Children Born Small for Gestational Age. Management is working towards developing the clinical plans for additional targeted indications and will provide further updates as the indications and plans are developed. Timing for the initiation of these plans will be somewhat dependent on the outcome of data developed and identification of the most efficacious dose in the OraGrowtH210 Trial and the timing of such data.
Ebola Vaccine
In November 2014, NewLink entered into the NewLink Merck Agreement with Merck to develop and potentially commercialize its Ebola vaccine rVSV∆G-ZEBOV that it licensed from PHAC. rVSV∆G-ZEBOV was also eligible to receive a PRV if approval was granted by the FDA, with the Company entitled to 60% of the PRV value obtained through sale, transfer or other disposition of the PRV. On December 20, 2019, Merck announced that the FDA approved its application for ERVEBO® (Ebola Zaire Vaccine, Live) for the prevention of disease caused by Zaire Ebola virus in individuals 18 years of age and older. On July 27, 2020, we and Merck entered into the PRV Asset Purchase Agreement, whereby we and Merck each agreed that Merck would purchase the PRV from us for $100.0 million. Merck paid us $60.0 million, representing our share of the purchase price in two installments. The first installment of $34.0 million was received by us at the closing on July 27, 2020 and the final installment of $26.0 million was received on January 11, 2021.
We also have the potential to earn royalties on sales of the vaccine in certain countries, if the vaccine is successfully commercialized by Merck. However, we believe that the market for the vaccine will be limited primarily to areas in the developing world that are excluded from royalty payment or where the vaccine is donated or sold at low or no margin and therefore we do not expect to receive material royalty payments from Merck in the foreseeable future.
NewLink’s Legacy Oncology Candidates
In connection with the Merger, we acquired NewLink’s small-molecule product candidates. These product candidates, indoximod, NLG802 (a prodrug of indoximod) and NLG919 (a direct IDO1 enzymatic inhibitor) are indoleamine-2, 3-dioxygenase pathway inhibitors.


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Two U.S. patents covering both the salt and prodrug formulations of indoximod were issued in the United States on August 15, 2017 and February 19, 2019, respectively, providing exclusivity until at least 2036. We are continuing to pursue international patent coverage for these formulations in some countries, we are exploring the potential for further development and licensing opportunities and we are actively providing drug product to external collaborators conducting investigator initiated studies.
Financial Overview
Revenue
We have no products approved for commercial sale and have not generated any revenue from product sales. In the future, we may generate revenue from product sales, royalties on product sales, or license fees, milestones, or other upfront payments if we enter into any collaborations or license agreements. We expect that our future revenue will fluctuate from quarter to quarter for many reasons, including the uncertain timing and amount of any such payments and sales.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred to advance our product candidate, LUM-201. Our research and development expenses include internal personnel expenditures along with external research and development expenses incurred under arrangements with third parties, such as contract research and manufacturing organizations, consultants, and our scientific advisors.
We expense research and development costs as incurred. Nonrefundable advance payments for goods and services that will be used in future research and development activities are capitalized as an asset and expensed when the service has been performed or when the goods have been received. We expect our research and development expenses to increase for the foreseeable future as we continue to conduct our clinical trial programs for our product candidates develop our pipeline and pursue regulatory approval of our product candidates.
General and Administrative Expenses