Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs, and involve risks and uncertainties. Actual events or results may differ materially. Our forward-looking statements can be affected by inaccurate assumptions we might make or by known or unknown risks, uncertainties and other factors. We discuss many of these risks, uncertainties and other factors in this Annual Report on Form 10-K in greater detail under the heading “Item 1A—Risk Factors.” We caution investors that our business and financial performance are subject to substantial risks and uncertainties.

Overview

We are a biopharmaceutical company creating next generation immunotherapies for cancer, inflammation, and autoimmunity using de novo protein design technology. We use sophisticated computational methods to design proteins that demonstrate specific pharmaceutical properties that provide potentially superior therapeutic benefit over native proteins. Our lead product candidate, NL-201, is a combined IL-2 and IL-15 agonist designed to eliminate alpha receptor binding.

Results of Operations

Operating Loss

The following table summarizes our operating expenses for the years ended December 31, 2020 and 2019 (in thousands):

Years Ended December 31,

Acquired in-process research and development — 47,716 (47,716) (100) %

Gain on sale of Aquinox Canada (7,826) — (7,826) (100) %

Research and Development Expenses

Research and development expenses consists primarily of costs incurred under arrangements with third parties, such as CROs, manufacturing organizations, and consultants, personnel related costs (including stock-based compensation and travel expenses), facility-related costs and lab supplies.

Research and development expenses for the year ended December 31, 2020 were $24.3 million compared to $4.4 million for the year ended December 31, 2019. The increase in research and development expenses during the year ended December 31, 2020 was due to increased expenses incurred from IND-enabling activities related to our lead product candidate, NL-201, and in connection with the advancement of other Neoleukin technologies. Lower research and development costs during the year ended December 31, 2019 reflect the fact that prior to the merger between Aquinox and Former Neoleukin in August 2019, all research and development activities with rosiptor had been suspended since June 2018.

Acquired in-process Research and Development

The acquired in-process research and development expense arose from the merger between Aquinox and Former Neoleukin in August 2019 and was expensed immediately as management determined that the asset has no alternative future use.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel related costs (including severance, stock-based compensation and travel expenses), facility-related costs, insurance, and professional fees for consulting, legal and accounting services.

For the year ended December 31, 2020, general and administrative expenses were $17.2 million compared to $18.8 million for the year ended December 31, 2019. The higher general and administrative expenses the year ended December 31, 2019 as compared to the year ended December 31, 2020 were primarily due to severance costs and the recognition of stock-based compensation expense for certain options that vested as a result of the merger between Aquinox and Former Neoleukin in August 2019. The general and administrative expenses for the year ended December 31, 2020 reflect an increase in personnel related costs, facility-related costs, and professional service fees.

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Gain on sale of Aquinox Canada

The gain relates to the sale of Aquinox Canada in July 2020. The gain of $7.8 million recognized is the total consideration of $8.2 million, less transaction costs of $0.4 million.

Other income, net (in thousands)

Years Ended December 31,

Foreign exchange losses 5 (16) 21 (131) %

Interest income during the year ended December 31, 2020 decreased compared to the year ended December 31, 2019 due to a decrease in interest rates, partially offset by higher cash and money market fund balances for the year ended December 31, 2020.

Liquidity and Capital Resources

Since our inception, we have incurred net losses and negative cash flows from our operations and relied upon sales of common and preferred stock to fund our operations. Our operating activities used $24.6 million and $15.4 million of cash flows during the years ended December 31, 2020 and 2019, respectively. As of December 31, 2020, we had an accumulated deficit of $332.8 million, working capital of $186.6 million, and cash and cash equivalents of $192.6 million. We believe that our existing capital resources will be sufficient to fund our operations into 2023.

Cash Flows

The following table summarizes our cash flows for the years ended December 31, 2020 and 2019 (in thousands):

Years Ended December 31,

Net cash (used in) provided by:

Effect of exchange rate changes — 10

Net change in cash and cash equivalents $ 50,341 $ 66,165

Net cash used in operating activities

Net cash used in operating activities was $24.6 million for the year ended December 31, 2020 compared to $15.4 for the year ended December 31, 2019. Net cash used in operating activities for the year ended December 31, 2020 increased compared to the year ended December 31, 2019 due to an increase in operating expenses resulting primarily from expenses incurred in developing our lead product candidate, NL-201, and partially offset by cash received from the sale of Aquinox Canada, as compared to a reduction in costs in the year ended December 31, 2019 due to the restructuring in the second half of 2018 and the halting of all development activities relating to rosiptor.

Net cash used in investing activities

Net cash used in investing activities was $2.2 million for the year ended December 31, 2020 and consisted primarily of purchases laboratory and IT equipment. Net cash used in investing activities of $0.7 in the year ended December 31, 2019 consisted of purchases of property and equipment, offset partially by cash received in the merger between Aquinox and Former Neoleukin.

Net cash provided by financing activities

Net cash provided by financing activities was $77.1 for the year ended December 31, 2020 compared to $82.2 in the year ended December 31, 2019. For the year ended December 31, 2020, net cash provided by financing activities consisted primarily of the

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proceeds received in our offering of common stock and pre-funded warrants in July 2020 of $71.3 million, net of underwriting discounts, commissions, and offering costs, as well as proceeds from the exercise of stock options of $5.7 million. For the year December 31, 2019, cash provided by financing activities was the result of proceeds received in our offering of common stock and pre-funded warrants in December 31, 2019 of $80.7 million, net of underwriting discounts and commissions and offering costs.

Operating and Capital Expenditure Requirements

We have not generated product revenue or achieved profitability since our inception and we expect to continue to incur net losses for the foreseeable future. As of December 31, 2020, we had approximately $192.6 million in cash and cash equivalents. Based on our current operating plan, we believe that our available cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements into 2023. However, our future capital requirements and the period for which we expect our existing resources to support our operations, fund expansion, develop new or enhanced products, or otherwise respond to competitive pressures, may vary significantly from our expectation and we may need to seek additional funds sooner than planned. Unless and until we generate sufficient revenue to be profitable, we will seek to fund our operations through public or private equity or debt financings or other sources. If we raise additional funds through the issuance of convertible debt securities, these securities could have rights senior to those of our common stock and could contain covenants that restrict our operations. There can be no assurance that we will be able to obtain additional equity or debt financing on terms acceptable to us, if at all. Our failure to obtain sufficient funds on acceptable terms when needed could have a negative impact on our business, results of operations, financial condition, cash flows and future prospects. Our future capital requirements will depend on many factors, including:

•the number and characteristics of any future product candidates we develop or may acquire;

•the scope, progress, results and costs of researching and developing our product candidates or any future product candidates, and conducting preclinical studies and clinical trials;

•the timing of, and the costs involved in, obtaining regulatory approvals for any future product candidates;

•the cost of manufacturing our future product candidates and any products that may achieve regulatory approval;

•the cost of commercialization activities if any future product candidates are approved for sale, including marketing, sales and distribution costs;

•the timing, receipt and amount of sales of, or royalties on, future approved products, if any;

•our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements;

•any product liability or other lawsuits related to our products;

•the expenses needed to attract and retain skilled personnel; and

•the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of such litigation.

Please see Item 1A of this Annual Report titled “Risk Factors” for additional risks associated with our substantial capital requirements.

Contractual Obligations and Commitments

The following is a summary of our long-term contractual cash obligations as of December 31, 2020 (in thousands):

Laboratory equipment (2) 792 792 — — — — —

1.Operating lease obligations reflect remaining minimum commitments for our office and laboratory spaces in Seattle, Washington. Please see Note 7, Leases in the Notes to Consolidated Financial Statements included in Part II Item 8 of this Annual Report on Form 10-K for additional information pertaining to operating lease commitments.

2.In December 2020, the Company entered into a non-cancelable contract to purchase laboratory equipment for $0.8 million. The equipment is expected to be delivered in the first half of 2021 and will be paid for out of existing cash reserves.

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We enter into contracts in the normal course of business with CROs for clinical and preclinical research studies, external manufacturers for product for use in our clinical trials, and other research supplies and other services as part of our operations. These contracts generally provide for termination on notice, and therefore are cancelable contracts and not included in the table of contractual obligations and commitments.

Milestone, Royalty-Based and Other Commitments

We have an exclusive license agreement with the University of Washington, or UW, under which UW (on behalf of itself and Stanford University) granted us an exclusive worldwide license under certain patent rights, to make, have made, use, offer to sell, sell, offer to lease or lease, import, export or otherwise offer to dispose of licensed products in all fields of use, and a nonexclusive worldwide license to use certain know-how. The foregoing licenses are sublicensable without UW’s consent, subject to certain limited conditions.

As consideration for the licensed rights, we issued shares of common stock to UW, which upon the Merger were exchanged for 188,974 shares of our common stock and 4,197 shares of our non-voting convertible preferred stock.

Furthermore, we are required to pay; (i) an annual maintenance fee starting in January 2022 (but excluding any year in which minimum annual royalties are paid); (ii) up to $0.9 million in combined development and regulatory milestone payments with respect to each distinct class of licensed product; (iii) up to $10.0 million in combined commercial milestone payments based on cumulative net sales of licensed products within each distinct class of licensed products, beginning when cumulative net sales of the class of licensed products equals or exceeds $100.0 million, with the majority payable when cumulative net sales of the class of licensed products equals or exceeds $1.0 billion; (iv) a low single-digit royalty on net sales of licensed products sold by us and our sublicensees, which may be subject to reductions, and subject to minimum annual royalty payments following the first commercial sale of a licensed product; (v) a certain percentage of any sublicense consideration (other than royalties) we receive from sublicensees, based on the stage of development at the time the sublicense is executed; and (vi) a certain percentage of consideration we receive from an acquisition of us or our assets based on the stage of development at the relevant time. We are obligated to pay royalties on a country-by-country basis until the expiration of the last valid claim within the licensed patent rights in such country.

Critical Accounting Policies and Significant Judgments and Estimates

The preparation of these consolidated financial statements in accordance with U.S. GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities. We evaluate those estimates and judgments on an ongoing basis. We base our estimates on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in the notes to our consolidated financial statements appearing elsewhere in this Annual Report, we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Research and Development Expenses

Research and development costs are charged to expense as incurred and include, but are not limited to, employee-related expenses, including salaries, benefits and stock based compensation, expenses incurred under agreements with CROs that conduct clinical trials and preclinical studies, the cost of acquiring, developing and manufacturing clinical trial materials, costs incurred in relation to purchase of technology licenses and patent rights, facilities and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, and other supplies and costs associated with clinical trials, preclinical activities, and regulatory operations. Restructuring costs associated with the termination of research and development programs and related employees are included in research and development costs.

Development costs are expensed in the period incurred unless we believe a development project meets generally accepted accounting criteria for deferral and amortization. No product development expenditures have been deferred to date. We record costs for certain development activities based on our evaluation of the progress to completion of specific tasks or information provided to us by our vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the consolidated financial statements as prepaid or accrued liabilities.

Stock-Based Compensation

We measure the cost of services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost of such award will be recognized over the period during which services are provided in exchange for the

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award, generally the vesting period. We account for forfeitures as they occur. All share-based payments to employees are recognized in the consolidated financial statements based upon their respective grant-date fair values.

We estimate the fair value of options granted using the Black-Scholes option pricing model. This approximation uses assumptions regarding a number of inputs that required us to make significant estimates and judgments, including the expected term of the options. We also make decisions regarding the method of calculating the expected stock price volatility and the risk-free interest rate used in the model. The expected volatility assumption is based on industry peer information and we expect to continue to do so until it has adequate and relevant historical volatility of its common stock. Additionally, because we have no significant history to calculate the expected term, the simplified method calculation is used.

There is inherent uncertainty in our forecasts and projections and, if we had made different assumptions and estimates than those described previously, the amount of our stock-based compensation expense, net loss and net loss per common stock amounts could have been materially different.

Recent Accounting Pronouncements

See Note 2(p), Recently issued and recently adopted accounting standards in the Notes to Consolidated Financial Statements included in Part II Item 8 of this Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as of December 31, 2020.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

As a “smaller reporting company,” as defined by Rule 12b-2 of the Exchange Act, and pursuant to Item 305 of Regulation S-K we are not required to provide quantitative and qualitative disclosures about market risk.

Item 8. Financial Statements and Supplementary Data.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE

Neoleukin Therapeutics, Inc.

Reports of Independent Registered Public Accounting Firm 62

Consolidated balance sheets 63

Consolidated statements of operations and comprehensive loss 64

Consolidated statements of cash flow 65

Consolidated statements of stockholders’ equity 66

Notes to the consolidated financial statements 67

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Neoleukin Therapeutics, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Neoleukin Therapeutics, Inc. (the "Company") as of December 31, 2020, the related consolidated statements of operations, stockholders' equity, and cash flows, for the year ended December 31, 2020, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis of Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.

/s/ Deloitte & Touche LLP

Seattle, Washington

March 25, 2021

We have served as the Company's auditor since 2020.

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of

Neoleukin Therapeutics, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Neoleukin Therapeutics, Inc. and subsidiaries (the “Company”) as of December 31, 2019, the related consolidated statements of operations, cash flows, and stockholders’ equity, for the period ended December 31, 2019, and the related notes (collectively referred to as the “2019 financial statements”). In our opinion, the 2019 financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

/s/ Deloitte LLP

Chartered Professional Accountants

Vancouver, Canada

March 12, 2020

We began serving as the Company’s auditor in 2007. In 2020, we became the predecessor auditor.

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NEOLEUKIN THERAPEUTICS, INC.

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

Years Ended December 31,

Assets

Current assets

Operating lease right-of-use asset 10,154 770

Other non-current assets 1,926 30

Liabilities

Current liabilities

Accounts payable and other liabilities $ 7,181 $ 4,125

Operating lease liability 659 556

Finance lease liability 49 62

Non-current operating lease liability 11,306 447

Non-current finance lease liability 108 146

Stockholders’ equity

Total liabilities and stockholders’ equity $ 210,519 $ 147,023

The accompanying notes form an integral part of these consolidated financial statements

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NEOLEUKIN THERAPEUTICS, INC.

Consolidated Statements of Operations

(in thousands, except share and per share amounts)

Years Ended December 31,

Operating loss

Acquired in-process research and development — 47,716

Gain on sale of Aquinox Canada (7,826) —

Net loss per common stock - basic and diluted $ (0.64) $ (2.57)

The accompanying notes form an integral part of these consolidated financial statements

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NEOLEUKIN THERAPEUTICS, INC.

Consolidated Statements of Cash Flows

(in thousands)

Years Ended December 31,

Operating activities

Adjustments to reconcile net loss used in operating activities:

Acquired in-process research & development — 47,716

Depreciation and amortization 785 340

Loss on disposal of property and equipment 180 5

Amortization of right-of-use asset 1,036 188

Write-off of right-of-use asset upon lease termination 113 —

Unrealized foreign exchange loss and others — 70

Changes in operating assets and liabilities:

Other current assets and non-current assets (2,481) 290

Accounts payable and accrued liabilities 3,018 (2,007)

Operating lease right-of-use assets (169) —

Operating lease liabilities 598 (237)

Net cash used in operating activities (24,575) (15,394)

Investing activities

Acquisition of Neoleukin Therapeutics, Inc., net of cash acquired — 191

Purchase of property and equipment (2,219) (879)

Net cash used in investing activities (2,219) (688)

Financing activities

Payment of offering costs (355) (352)

Proceeds from exercise of stock options 5,665 1,555

Proceeds from issuance of common stock under Employee Stock Purchase Plan 199 —

Payment on finance lease obligations (49) (9)

Net cash provided by financing activities 77,135 82,237

Cash, cash equivalents, and restricted cash at beginning of year 143,093 76,928

Cash, cash equivalents, and restricted cash at end of year $ 193,434 $ 143,093

Non-cash investing and financing activities:

Other current assets acquired through the issuance of common stock $ — $ 560

Purchase of property and equipment unpaid at period end $ 36 $ —

The accompanying notes form an integral part of these consolidated financial statements

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NEOLEUKIN THERAPEUTICS, INC.

Consolidated Statements of Stockholders' Equity

(in thousands, except share amounts)

Number Amount Number Amount Amount Amount Amount Amount

Issuance of common stock to University of Washington 12,647 — — — 41 — — 41

Conversion of common stock to pre-funded warrants (10,925,481) — — — — — — —

Stock-based compensation — — — — 7,683 — — 7,683

Restricted stock units vested 36,000 — — — — — — —

Stock-based compensation — — — — 5,622 — — 5,622

The accompanying notes form an integral part of these consolidated financial statements

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NEOLEUKIN THERAPEUTICS, INC.

Notes to Consolidated Financial Statements

1. Nature of operations

Neoleukin Therapeutics, Inc. (“Neoleukin” or “the Company”) is a biopharmaceutical company creating next generation immunotherapies for cancer, inflammation and autoimmunity using de novo protein design technology. Neoleukin uses sophisticated computational methods to design proteins that demonstrate specific pharmaceutical properties that provide potentially superior therapeutic benefit over native proteins. The Company’s lead product candidate, NL-201, is a combined IL-2 and IL-15 agonist designed to eliminate alpha receptor binding.

2. Basis of presentation and summary of significant accounting policies

(a) Basis of presentation

The accompanying consolidated financial statements are presented in United States (“U.S.”) dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The financial results are presented on a consolidated basis. All intercompany transactions are eliminated on consolidation.

In July 2020, the Company sold all of the issued and outstanding capital stock of Aquinox Pharmaceuticals (Canada) (“Aquinox Canada”) to an unrelated third party, as further described in Note 16, Sale of Aquinox Canada. On December 31, 2020, Neoleukin Corporation, the Company's wholly owned subsidiary, was merged into the Company. As a result, the Company consists of a single operating company without any subsidiaries at December 31, 2020.

(b) Use of estimates and assumptions

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Significant areas requiring estimates include valuation and recognition of stock-based compensation, the incremental borrowing rate utilized in the measurement of operating and finance lease liabilities, amortization and depreciation of property, plant and equipment and intangible assets, and pre-clinical, clinical, and other accruals. Actual results could differ from those estimates.

The Company reclassified amounts related to prior year amortization of operating lease right-of-use assets, loss on disposal of property and equipment, changes in operating lease liabilities, and payment of offering costs in the consolidated statements of cash flows to conform to current year presentation. This reclassification had no effect on cash used in operating activities or cash provided by financing activities.

(d) Leases

At contract inception, the Company determines if the contract is or contains a lease. Lease liabilities are recognized on the lease commencement date based on the estimated present value of lease payments over the lease term. To determine the present value of the lease payments, the Company utilizes its estimated incremental borrowing rate based on information available at the lease commencement date as the interest rate implicit in the lease is typically not readily determinable. The related right-of-use assets are recorded net of any lease incentives received. Variable lease cost primarily includes building operating expenses as charged to the Company by its landlords.

We include options to extend the lease in our lease liability and right-of-use asset when it is reasonably certain that we will exercise that option. None of our options to extend the rental term of any existing leases were considered reasonably certain as of December 31, 2020.

For leases of office space, the Company has elected to not separate the lease components from the non-lease components.

For leases of office space with a lease term of 12 months or less and which do not include an option to purchase the underlying asset, the Company has elected to recognize the lease payments in the statement of operations on a straight-line basis over the lease term.

(e) Cash, cash equivalents, and restricted cash

All highly liquid investments with maturities of three months or less at the date of acquisition are considered to be cash equivalents.

Restricted cash, included in Other non-current assets in the consolidated balance sheets, includes cash deposits the Company maintains with its bank as collateral for the irrevocable letters of credits related to its lease obligations.

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The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows (in thousands):

December 31,

Restricted cash 878 —

Total cash, cash equivalents, and restricted cash $ 193,434 $ 143,093

(f) Property and equipment

Property and equipment are recorded at cost and are amortized using the straight-line basis over a range of three to seven years. Expenditures for improvements to the Company’s office spaces are capitalized and expenditures for maintenance and repairs are expensed as incurred. Leasehold improvements are amortized over the lesser of useful life and term of the lease.

The Company reviews the carrying value of property and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition, and other economic factors. Based on management’s assessment there were no indicators of impairment of property and equipment as at December 31, 2020 and 2019.

(g) Earnings (loss) per share

Basic net loss per share is calculated by dividing the net loss by the weighted average number of shares of common stock outstanding for the period, without consideration for common stock equivalents. Common stock equivalents are included in the calculation of diluted earnings per share only in periods of net income. Such common stock equivalents are excluded in the calculation of diluted net loss per share in periods of net loss as inclusion of such amounts would be anti-dilutive. Outstanding pre-funded warrants as of December 31, 2020 of 12,663,010 are considered outstanding as of their issuance date and are included in the basic and diluted net loss per share calculation because they are fully vested and exercisable at any time for a nominal cash consideration.

(h) Asset acquisitions/Intangible assets

At the time of acquisition, the Company determines if a transaction should be accounted for as a business combination or acquisition of assets.

For an acquisition of assets, the cost of acquiring the asset group, including transaction costs, is allocated to the acquired assets and assumed liabilities based on their relative fair values without giving rise to goodwill. Acquired in-process research and development assets are expensed if management determines that the assets do not have an alternative future use. Other long-lived intangible assets are recorded at the acquired cost and amortized using the straight-line method over their estimated useful life.

The intangible asset is tested for impairment when events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. The Company recognizes an impairment loss when carrying amount is not recoverable and the estimated fair value of the intangible asset is less than its carrying value.

(i) Income taxes

The Company accounts for income taxes using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the differences between events that have been recognized in the Company’s consolidated financial statements and the tax bases of assets and liabilities recognized at enacted tax rates. In estimating future tax consequences, Accounting Standards Codification ("ASC") 740 generally considers all expected future events other than enactments of and changes in the tax law or rates. The measurement of deferred tax assets is reduced, if necessary, by the extent of the valuation allowance. We will establish a valuation allowance for deferred tax assets if it is more likely than not that these items will expire before we are able to realize their benefits or that future deductibility is uncertain.

Investment tax credits relating to scientific research and experimental development are accounted for as a reduction in operating expenses. They are recorded in the period when there is reasonable assurance the credits will be realized. If investment tax credit amounts subsequently received are less or more than originally recorded, the difference is treated as a change in estimate.

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(j) Research and development costs

Research and development costs are charged to expense as incurred and include items such as: employee related expenses, including salaries and benefits, expenses incurred under agreements with contract research organizations that conduct clinical trials and preclinical studies, the cost of acquiring, developing and manufacturing clinical trial materials, facilities, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, and other supplies and costs associated with clinical trials, preclinical activities, and regulatory operations. Restructuring costs associated with the termination of research and development programs and related employees are included in research and development costs.

Development costs are expensed in the period incurred unless management believes a development project meets generally accepted accounting criteria for deferral and amortization. No product development expenditures have been deferred to date. The Company records costs for certain development activities based on management’s evaluation of the progress to completion of specific tasks or information provided to the Company by vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the consolidated financial statements as prepaid or accrued expense.

(k) Accounting for stock-based compensation

The Company has issued stock options and restricted stock units (“RSUs”). The Company measures the cost of services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost of such award is recognized on a straight-line basis over the requisite service period, which is generally the vesting period. The Company accounts for forfeitures as they occur. We utilize newly issued shares to satisfy option exercises.

The Company estimates the fair value of options using the Black-Scholes option pricing model on the grant date. This approximation uses assumptions regarding a number of inputs that requires management to make significant estimates and judgments. The expected term represents the period that the Company’s stock-based awards are expected to be outstanding. As the Company does not have sufficient historical experience for determining the expected term of the stock option awards granted, the Company has based its expected term for awards issued to employees on the simplified method, which represents the average period from vesting to the expiration of the stock option. In addition, the Company does not have sufficient trading history for the Company’s common stock, and therefore, the expected stock price volatility for the Company’s common stock was estimated by taking the average historical price volatility for industry peers. The Company has never declared or paid any cash dividends to common stockholders and does not presently plan to pay cash dividends in the foreseeable future. Consequently, the Company used an expected dividend yield of zero. The risk-free interest rate was based on the yields of treasury securities with maturities similar to the expected term of the options for each option group.

The fair value of each RSU is measured using the closing price of the Company’s common stock on the date of grant.

(l) Restructuring costs

The Company accounts for restructuring costs in accordance with ASC 420, Exit or Disposal Cost Obligations. ASC 420 specifies that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, except for a liability where employees are required to render service until they are terminated in order to receive termination benefits and will be retained to render service beyond the minimum retention period. A liability for such one-time termination benefits shall be measured initially at the communication date based on the fair value of the liability as of the termination date and recognized ratably over the future service period.

The charges that the Company expects to incur in connection with the restructuring are subject to a number of assumptions, and actual results may differ materially. The Company may also incur additional costs not currently contemplated due to events that may occur as a result of, or that are associated with, the restructuring plan.

(m) Segment reporting

The Company operates in one segment, the research and development of de novo protein therapeutics using sophisticated computational algorithms and methods to address unmet medical needs. Our primary areas of focus are in oncology, inflammation, and autoimmunity. The Company’s operations and its assets are held in the United States.

(n) Fair value of financial instruments

The carrying amounts of certain of the Company’s financial instruments, including cash, cash equivalents, receivables, accounts payable and other liabilities, approximate their fair values because of their nature and/or short maturities.

At December 31, 2020, and December 31, 2019, the Company had $108.3 million and $40.0 million in money market funds, respectively. Money market funds are level one financial instruments as their pricing can be obtained from an actively traded exchange.

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(o) Concentration of credit risk

Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist primarily of cash and cash equivalents. Cash and cash equivalents are invested in accordance with the Company’s investment policy. The primary objective for the Company’s investment portfolio is the preservation of capital and maintenance of liquidity and includes guidelines on the quality of financial instruments and defines allowable investments that the Company believes minimizes the exposure to concentration of credit risk.

(p) Recently issued and recently adopted accounting standards

In December 2019, the FASB issued ASU 2019-12 “Simplifying the Accounting for Income Taxes.” The objective of the standard is to improve areas of GAAP by removing certain exceptions permitted by ASC Topic 740-- Income Taxes and clarifying existing guidance to facilitate consistent application. ASU 2019-12 is effective for fiscal years and interim periods beginning after December 15, 2020. The Company has incurred net losses since its inception and maintains a full valuation allowance on the net deferred tax assets. As such, the Company does not expect the adoption of this standard to have a material impact on the financial condition, results of operations and cash flows, or financial statement disclosures.

In August 2018, the FASB issued “ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” The objective of the standard is to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company adopted this standard on January 1, 2020 on a prospective basis. The adoption of this ASU did not have a material impact on the Company’s financial condition, results of operations, cash flows, and financial statement disclosures.

3. Merger of Neoleukin Therapeutics, Inc. and Aquinox Pharmaceuticals, Inc.

On August 8, 2019, Neoleukin Therapeutics, Inc., or Former Neoleukin, and Aquinox Pharmaceuticals, Inc., or Aquinox, completed a transaction pursuant to the Agreement and Plan of Merger dated August 5, 2019. Former Neoleukin became a wholly owned subsidiary of Aquinox and Aquinox subsequently changed its name to Neoleukin Therapeutics, Inc. All of the outstanding shares of common stock of the Former Neoleukin were exchanged for 4,589,771 shares of common stock of the Company and 101,927 shares of non-voting convertible preferred stock of the Company.

The total consideration paid was $51.6 million and consisted of (in thousands, except share amounts):

Fair value of 101,927 Aquinox convertible preferred stock 33,432

Cash consideration for fractional shares 5

Transaction costs 3,086

Total consideration $ 51,578

The fair value of the Aquinox securities issued to stockholders of Former Neoleukin was based on the closing stock price on August 7, 2019, the last day of trading prior to the completion of the transaction.

The transaction was accounted for as an asset acquisition as Former Neoleukin did not meet the definition of a business as substantially all of the value was in the In-Process Research & Development (“IPR&D”) asset. The estimated fair value of the IPR&D asset of $47.7 million was expensed as the Company determined that the asset has no alternative future use.

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The following table summarizes the assets acquired and liabilities assumed (in thousands):

Assets acquired:

Cash and cash equivalents $ 3,282

Receivables, prepayments and deposits 560

Property and equipment 1,034

In-process research and development 47,716

Intangible asset 659

Total assets acquired 53,251

Liabilities assumed:

Accounts payable and other liabilities 1,472

Financing lease liability 201

Total liabilities assumed 1,673

Total consideration $ 51,578

4. Property and equipment, net

Property and equipment, net consist of the following (in thousands):

Cost Accumulated Amortization Net Book Value

Furniture, fixtures, and IT equipment 753 159 594

Cost Accumulated Amortization Net Book Value

Furniture, fixtures, and IT equipment 743 293 450

Depreciation expense on property and equipment totaled $0.6 million and $0.2 million for the years ended December 31, 2020 and 2019, respectively.

5. Intangible asset, net

The following table summarizes intangible asset (in thousands):

December 31,

Accumulated amortization (312) (92)

Net intangible asset $ 347 $ 567

As part of the Merger as discussed in Note 3, Merger of Neoleukin Therapeutics, Inc. and Aquinox Pharmaceuticals, Inc., an assembled workforce was acquired. In an asset acquisition, an assembled workforce meets the asset recognition criteria and is separately recognized as an intangible asset and amortized over its expected life. The amortization period has been established as 3 years based on management's judgement. The Company will recognize $0.2 million and $0.1 million of amortization expense in fiscal years 2021 and 2022, respectively.

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6. Accounts payable and other liabilities

Accrued liabilities consist of the following (in thousands):

December 31,

Accrued clinical and preclinical expenses 1,687 944

Accrued compensation and vacation 3,244 1,238

Other accrued liabilities 927 339

7. Leases

The Company enters into lease arrangements for its facilities as well as certain equipment, classified either as operating or finance leases.

The Company has a lease agreement for approximately 33,300 square feet of office space in Seattle, Washington for the Company’s principal executive offices, a laboratory for research and development and related uses (the "Blaine lease"). In January 2020, the Company issued an irrevocable letter of credit in the amount of $0.5 million for the security deposit in accordance with the terms of the lease. The lease commenced on January 15, 2020 and rent obligations were scheduled to commence on December 1, 2020. The Company will also be responsible for the payment of additional rent to cover the Company’s share of the annual operating and tax expenses and utilities costs for the building. The lease was originally scheduled to expire on December 1, 2028, with the option to extend the lease for twofive-year terms. The lease provides for a tenant improvement allowance of $8.0 million, which is included in the base rent, and an optional additional tenant improvement allowance with a maximum amount of $1.5 million, which will result, if elected, in additional rent expense recognized over the term of the lease. In September 2020, the Company elected to utilize this additional tenant improvement allowance. This resulted in a remeasurement of the lease liability due to an increase in lease payments over the term of the lease. The Company recorded an increase to the lease liability and related right-of-use asset of $1.0 million. In November 2020, the Company executed an amendment to this lease that extends the scheduled rent commencement date to February 1, 2021 and the base term expiration to February 1, 2029. This amendment was accounted for as a modification to the lease and resulted in an immaterial reduction of the lease liability and related right-of-use asset.As of December 31,2020, there was a tenant improvement allowance receivable of $0.9 million recorded in other current assets on the consolidated balance sheets related to reimbursable build-out costs incurred by the Company.

The Company has a lease agreement for approximately 6,272 square feet of office space in Seattle, Washington, for the Company’s former principal executive offices, a laboratory for research and development and related uses. In June 2020, the Company executed an amendment to this lease pursuant to which the Company has the option to terminate the lease, without penalty, at any point subsequent to November 1, 2020 with 45 days advance written notice. At December 31, 2020, the Company determined that it is reasonably certain to not exercise this termination option. On March 24, 2021, the Company executed a second amendment to this lease, pursuant to which the term of the lease is extended through September 30, 2026. This will result in an increase in fixed rental payments over the updated term.

On June 30, 2020, the Company terminated its lease agreement for 10,946 square feet of office space in Vancouver, Canada. The lease termination resulted in an extinguishment of the lease liability and the write-off of the related right-of-use asset. After incurring additional expenses included in the termination fee of $0.5 million, the Company recognized a loss of $0.3 million on the termination of the lease, which was recorded in general and administrative expenses in June 2020. In addition, the Company wrote-off leasehold improvements and other property and equipment associated with the lease and incurred a loss on disposal of $0.2 million in June 2020.

As of December 31, 2020, and December 31, 2019, the Company’s operating lease right-of-use assets were $10.2 million and $0.8 million, respectively. As of December 31, 2020, and December 31, 2019, the Company'sfinance lease right-of use-assets, included within property and equipment on the consolidated balance sheet, were $0.3 million and $0.3 million, respectively.

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The components of the lease expense were as follows (in thousands):

December 31,

Finance lease cost

Amortization of right-of-use asset $ 46 $ 19

Interest on lease liabilities 14 —

Supplemental balance sheet information related to leases is as follows:

December 31,

Weighted average remaining lease term—finance leases 2.45 years 3.33 years

Weighted average remaining lease term—operating leases 7.97 years 1.83 years

Weighted average discount rate—finance leases 7.11% 7.11%

Weighted average discount rate—operating leases 12.88% 5.37%

Supplemental cash flow information related to leases was as follows (in thousands):

December 31,

The calculation of the present value of the operating lease payments for the Blaine lease did not include the option to extend the lease for twofive year terms.

At December 31, 2020, the future payments under the Company’s operating and finance lease liabilities were as follows (in thousands):

Finance Lease Operating Lease

Total undiscounted lease payments 180 19,537

Less: imputed interest (23) (7,572)

Less: current portion (49) (659)

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8. Stockholders’ equity

(a) Common stock

The Company is authorized to issue 100,000,000 shares of common stock with a par value of $0.000001 per share as of December 31, 2020. As of December 31, 2020, and 2019, the total number of shares of common stock issued and outstanding was 42,196,296, and 37,996,849, respectively.

On July 7, 2020, the Company completed an underwritten public offering of 3,262,471 shares of its common stock at a price of $15.25 per share and pre-funded warrants to purchase 1,737,529 shares of its common stock at a price of $15.249999 per prefunded warrant. The pre-funded warrants can be exercised at any time after issuance for an exercise price of $0.000001 per share. The aggregate net proceeds received by the Company from the offering were $71.3 million, net of underwriting discounts, commissions, and offering costs of approximately $4.9 million.

On December 20, 2019, the Company completed an underwritten public offering of 10,263,750 shares of its common stock at a price to the public of $8.40 per share. The aggregate net proceeds received by the Company from the offering, net of underwriting discounts, commissions, and offering costs of approximately $5.5 million, were $80.7 million.

(b) Preferred stock

The Company is authorized to issue 5,000,000 shares of preferred stock with a par value of $0.000001 per share. As of December 31, 2020 and December 31, 2019, 0 shares of preferred stock were issued or outstanding.

On August 8, 2019, the Company issued 4,589,771 shares of common stock and 101,927 shares of non-voting convertible preferred stock as consideration in the Merger among Aquinox, Former Neoleukin and Apollo Merger Inc. (see Note 3, Merger of Neoleukin Therapeutics, Inc. and Aquinox Pharmaceuticals, Inc.). Each share of non-voting convertible preferred stock was convertible into 100 shares of common stock and was entitled to receive dividends, on an as-is converted to common stock basis, when dividends are paid to common stockholders. The holders of preferred stock were only entitled to vote when it impacts the rights of the preferred stockholder.

On November 12, 2019, the Company’s stockholders approved the conversion of 101,927 shares of non-voting convertible preferred stock into 10,192,700 shares of the Company’s common stock. As of December 31, 2020, the Company did not have any outstanding non-voting convertible preferred stock.

(d) December 2019 pre-funded common stock warrants

On December 17, 2019, Neoleukin entered into an exchange agreement (the “Exchange Agreement”) with certain stockholders, pursuant to which the Company exchanged an aggregate of 10,925,481 shares of common stock held by the stockholders for pre-funded warrants (the “Exchange Warrants”) to purchase an aggregate of 10,925,481 shares of common stock (subject to adjustment in the event of stock splits, recapitalizations and other similar events affecting common stock), with an exercise price of $0.000001 per share. The Exchange Warrants may be exercised at any time after the date of issuance, except that the Exchange Warrants cannot be exercised by the stockholders if, after giving effect thereto, the stockholders would beneficially own more than 9.99% of the outstanding common stock, subject to certain exceptions. The holders of the Exchange Warrants will not have the right to vote on any matter except to the extent required by Delaware law.

As the Exchange Warrants meet the conditions for equity classification, the proceeds previously received for the shares of common stock will remain in additional paid-in capital. Upon the exercise of the warrants the proceeds received along with the exercise price will be recorded in common stock.

(e) Stock option plan

In January 2014, the Company’s stockholders approved the 2014 Equity Incentive Plan (“2014 Plan”) which became effective in March 2014. The 2014 Plan is the successor to and continuation of the Joint Canadian Stock Option Plan (the “2006 Plan”). No further grants will be made under the 2006 Plan. The 2014 Plan provides for the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, performance cash awards, and other forms of equity awards to employees, directors, and consultants.

As of December 31, 2020, the maximum number of shares of common stock that may be issued under the 2014 Plan was 9,786,363. The number of shares of common stock reserved for issuance under the 2014 Plan will be increased by the number of shares subject to stock options granted under the 2006 Plan that would have otherwise returned to the 2006 Plan, such as upon the expiration or termination of a stock award prior to vesting. As of December 31, 2020, there were 23,958 shares subject to stock options granted under the 2006 Plan. Additionally, the number of shares of common stock reserved for issuance under the 2014 Plan will automatically increase on January 1 of each year for a period of up to 10 years, beginning on January 1, 2015 and ending on and including January 1, 2024, by 4.00% of the total number of shares of capital stock

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outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by the board of directors. On November 12, 2019, the Company’s stockholders approved the increase in the number of shares reserved from issuance under the 2014 Plan by 4,500,000 shares. All awards granted pursuant to the 2014 Plan have a contractual term of ten years. All awards granted to date are equity classified and subject to service based vesting, typically over a period of one to four years.

The number of shares available to be granted under the 2014 Plan was 6,037,532 and 6,556,534 as of December 31, 2020 and 2019 respectively.

Stock options

A summary of the Company's stock option activity and related information for the year ended December 31, 2020 is as follows:

During the year ended December 31, 2020, 882,624 shares of common stock were issued upon exercise of options with an aggregate intrinsic value of $6.0 million. During the year ended December 31, 2019, 326,094 shares of common stock were issued upon exercise of options with an aggregate intrinsic value of $1.3 million. The weighted-average grant date fair value of options granted during the years ended December 31, 2020 and December 31, 2019 was $8.70 and $2.17 per share, respectively.

The fair value of stock options granted is estimated using the Black-Scholes option pricing model with the following weighted average assumptions:

December 31,

Expected volatility 93 % 90 %

Expected dividends 0 % 0 %

Expected terms (years) 6.02 6.07

Restricted stock units

A summary of the Company's restricted stock unit activity and related information for the year ended December 31, 2020 is as follows:

Number ofShares WeightedAverageGrant Date Fair Value

Restricted stock units vested (36,000) 3.47

Restricted stock units forfeited (1,500) 3.47

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(f) Stock-based compensation

Stock-based compensation expense is classified in the consolidated statements of operations as follows (in thousands):

December 31,

Research and development expenses $ 1,999 $ 486

General and administrative expenses $ 3,623 $ 7,197

Total stock-based compensation expense $ 5,622 $ 7,683

Total unrecognized compensation for all stock-based compensation was $24.9 million as of December 31, 2020, which is expected to be recognized over a weighted-average period of 3.15 years.

(g) Employee stock purchase plan

The Company’s 2020 Employee Stock Purchase Plan (“2020 ESPP”) was adopted by the Company’s Board of Directors in March 2020 and approved by the Company’s stockholders in May 2020. A total of 759,936 shares of common stock have been reserved for issuance under the 2020 ESPP.

Subject to share and dollar limits as described in the plan, the 2020 ESPP allows eligible employees to contribute, through payroll deductions, up to 15% of their earnings for the purchase of the Company’s shares of common stock at the lower of 85% of the closing price of the Company’s common stock on the first trading day of the offering period or 85% of the closing price of the Company’s common stock on the last trading day of the offering period. There are twosix-month offering periods during each fiscal year, ending on May 15 and November 15.

During the year ended December 31, 2020, the Company issued 18,352 shares of common stock at a price per share of $10.84 under the 2020 ESPP. Cash received from the purchases under the 2020 ESPP for the year ended December 31, 2020 was $0.2 million.

9. Restructuring

In July 2018, the Company’s Board of Directors approved a restructuring plan to reduce operating costs and better align the Company’s workforce with the needs of its business following the June 27, 2018 announcement that its Phase 3 Leadership 301 clinical trial evaluating once-daily, oral rosiptor for the treatment of IC/BPS failed to meet its primary endpoint. The Company has halted all further development activities with rosiptor. In 2018 and 2019, the Company incurred and paid aggregate restructuring charges of $7.4 million related to clinical trial closing costs, contract cancellations, closing of its office in San Bruno, California, severance payments and other employee-related costs. During the second quarter of 2019, the Company revised its original estimate of aggregate restructuring charges lower by $2.0 million based upon updated information from its vendors related to a completed project. There were no amounts accrued as of December 31, 2020 or December 31, 2019.

On November 6, 2018, the Company’s Board of Directors approved an additional restructuring plan to further reduce operating costs. The Company incurred and paid aggregate restructuring charges of $1.6 million related to severance payments and other employee-related costs. There were no amounts accrued as of December 31, 2020.

For the year ended December 31, 2020, the Company incurred and paid an immaterial amount of restructuring charges. For the year ended December 31, 2019, restructuring recoveries of $1.9 million were recorded in research and development expenses and restructuring costs of $0.7 million were recorded in general and administrative expenses.

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10. Other income, net

Other income is presented for all periods (in thousands):

December 31

Foreign exchange gains (losses) 5 (16)

Other expenses (44) (9)

11. Net loss per common stock

The Company excluded the following potentially dilutive shares from diluted net loss per share as the effect would have been anti-dilutive for all periods presented:

December 31, YEARS ENDED

12. Income taxes

Income tax recovery varies from the amounts that would be computed by applying the expected U.S. federal income tax rate (21%) as shown in the following table:

December 31,

Statutory federal income tax rate (21.0) % (21.0) %

Change in tax rate — —

State income taxes — —

Foreign rate differential (0.1) (0.2)

Acquired in-process research and development — 14.4

Stock compensation 1.8 2.6

Disposal of Aquinox Canada (5.2) —

Change in valuation allowance 26.5 (0.6)

Expiration of NOLs (section 382) 0.5 5.4

Tax Credits (2.5) (0.9)

Other — 0.3

Income tax recovery — % — %

Years Ended December 31,

Net loss before taxes (in thousands): 2020 2019

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Deferred income tax assets and liabilities result from the temporary differences between the amount of assets and liabilities recognized for financial statement and income tax purposes. The significant components of the deferred income tax assets are as follows (in thousands):

December 31,

Deferred tax assets:

Canadian net operating losses $ — $ 39,574

Research and development deductions and credits 1,040 11,062

Deferred income tax liabilities

Total deferred tax liabilities 2,289 229

Deferred tax assets, net of valuation allowance $ — $ —

On July 31, 2020, the Company sold all issued and outstanding capital stock of its Canadian subsidiary, Aquinox Canada, to an unrelated third party for cash consideration. As of the date of sale, Aquinox Canada’s remaining assets included intellectual property and other assets developed through past research and development activities, all of which had no book value. The transaction resulted in a net gain on sale of $7.8 million. The sale of Aquinox Canada triggered a significant capital loss carryforward for tax purposes. However, most of the capital loss carryforward is limited by the prior ownership change under Section 382. The remaining unlimited portion of the capital loss carryforward will be subject to a full valuation allowance as the Company has determined that it is more likely than not that the benefit of the loss will not be realized. After the sale, Aquinox Canada's tax attributes of $51.7 million including the net operating losses, scientific research and experimental development expenditures and investment tax credits are no longer reflected in the deferred tax assets and valuation allowance.

At December 31, 2020 and December 31, 2019, the Company had U.S. federal net operating losses ("NOL") carryforwards for tax purposes of approximately $58.1 million and $25.5 million, respectively, which were available to reduce taxable income. Of the $58.1 million of federal NOL carryforwards, $1.7 million will expire between the years 2028 and 2037 and the remaining $56.4 million are indefinite. The Company also has U.S. federal research & development tax credits of $1.0 million and $0.2 million as of December 31, 2020 and December 31, 2019, respectively, that begin to expire in 2039. The Company completed a formal study under IRC Section 382 through 2019 to determine the U.S. tax attributes available for use. The U.S. attributes disclosed reflect the conclusion of that study. However, subsequent ownership changes may further affect the limitation in future years.

The Company maintains a full valuation allowance on its net U.S. deferred tax assets. The assessment regarding whether a valuation allowance is required considers both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable. In making this assessment, significant weight is given to evidence that can be objectively verified. In its evaluation, the Company considered its cumulative losses and its forecasted losses in the near-term as significant negative evidence. Therefore, the Company determined that the negative evidence outweighed the positive evidence and a full valuation allowance on its assets will be maintained. The Company will continue to assess the realizability of its assets going forward and will adjust the valuation allowance as needed. The valuation allowance decreased by $42.9 million for the year ended December 31, 2020. The decrease is primarily due to the sale of Aquinox Canada and the write-off of the related tax attributes, and partially offset by an increase in US net operating losses and research and development tax credits. The valuation allowance increased by $0.6 million for the year ended December 31, 2019. The increase is primarily related to an increase in deferred tax assets.

The Company applies judgment in the determination of the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. As of December 31, 2020, the Company had no uncertain tax positions.

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The Company currently files income tax returns in the United States, the jurisdictions in which the Company believes that it is subject to tax. Further, while the statute of limitations in each jurisdiction where an income tax return has been filed generally limits the examination period, as a result of loss carryforwards, the limitation period for examination generally does not expire until several years after the loss carryforwards are utilized. Other than routine audits by tax authorities for tax credits and tax refunds that the Company has claimed, the Company is not aware of any other material income tax examination currently in progress by any taxing jurisdiction.

13. License and patent agreements

The Company has an exclusive license agreement with the University of Washington, or UW, under which UW (on behalf of itself and Stanford University) granted the Company an exclusive worldwide license under certain patent rights, to make, have made, use, offer to sell, sell, offer to lease or lease, import, export or otherwise offer to dispose of licensed products in all fields of use, and a nonexclusive worldwide license to use certain know-how. The foregoing licenses are sublicensable by the Company without UW’s consent, subject to certain limited conditions. The Exclusive License Agreement was amended effective as of July 24, 2020 to, among other things, (i) add a jointly owned de novo cytokine antagonist to the agreement, (ii) specify royalties, milestone payments and sublicense consideration payments payable by Neoleukin for certain jointly licensed products, (iii) specify the term for achievement of performance milestones for certainly jointly licensed products, and (iv) terminate UW’s right to participate in equity financings.

As consideration for the licensed rights, the Company issued 536,813 shares of common stock to UW. These shares were exchanged for 188,974 shares of common stock of the Company and 4,197 shares of non-voting convertible preferred stock on the completion of the Merger.

Furthermore, the Company is required to pay; (i) an annual maintenance fee starting in January 2022 (but excluding any year in which minimum annual royalties are paid); (ii) up to $0.9 million in combined development and regulatory milestone payments with respect to each distinct class of licensed product; (iii) up to $10.0 million in combined commercial milestone payments based on cumulative net sales of licensed products within each distinct class of licensed products, beginning when cumulative net sales of the class of licensed products equals or exceeds $100.0 million, with the majority payable when cumulative net sales of the class of licensed products equals or exceeds $1.0 billion; (iv) a low single-digit royalty on net sales of licensed products sold by the Company and its sublicensees, which may be subject to reductions, and subject to minimum annual royalty payments following the first commercial sale of a licensed product; (v) a certain percentage of any sublicense consideration (other than royalties) the Company receives from sublicensees, based on the stage of development at the time the sublicense is executed; and (vi) a certain percentage of consideration the Company receives from an acquisition of the Company or its assets based on the stage of development at the relevant time. The Company is obligated to pay royalties on a country-by-country basis until the expiration of the last valid claim within the licensed patent rights in such country.

The agreement will expire upon the expiration of the last valid claim within the licensed patent rights. The Company may terminate the agreement upon prior written notice to UW. UW may terminate the agreement by a specified number of days’ notice if the Company permanently ceases operations, becomes insolvent or similar, or if the Company challenges the validity of the licensed patent rights. In addition, UW may terminate the agreement for material breach that is not cured within a specified number of days, which cure period is to be at least doubled if the Company is proceeding diligently to cure the default.

14. Commitments and contingencies

In December 2020, the Company entered into a non-cancelable contract to purchase laboratory equipment for $0.8 million. The equipment is expected to be delivered in the first half of 2021.

In the ordinary course of business, the Company may be subject from time to time to various proceedings, lawsuits, disputes, or claims. Although the Company cannot predict with assurance the outcome of any litigation, it does not believe there are currently any such actions that, if resolved unfavorable, would have a material impact on the Company’s financial condition, results of operations or cash flows.

15. 401(k) plan

In May 2020, the Company established a 401(k) plan that allows full-time employees to contribute a portion of their salary, subject to statutory limits. The Company makes matching cash contributions up to a pre-defined annual maximum contribution per employee per year. During the year ended December 31, 2020, the Company’s total expense for the matching contributions was immaterial.

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16. Sale of Aquinox Canada

On July 31, 2020, the Company sold all issued and outstanding capital stock of its Canadian subsidiary, Aquinox Canada, to an unrelated third party for cash consideration of $8.2 million. The Company concluded that the sale did not meet the criteria for discontinued operations reporting as it did not represent a strategic shift that had a major effect on the Company’s operations and financial results. As of the date of sale, Aquinox Canada’s remaining assets included intellectual property and other assets developed through past research and development activities, all of which had no book value. The transaction resulted in a net gain on sale of $7.8 million, after deducting $0.4 million in transaction costs, which is recorded as a reduction of operating loss in the Company’s consolidated statement of operations. The sale of Aquinox Canada triggered a significant capital loss carryforward for tax purposes. However, the deferred tax asset related to the capital loss carryforward will be subject to a full valuation allowance as the Company has determined that it is more likely than not that the benefit of the loss will not be realized. Refer to Note 12, Income taxes for further information.

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Evaluation of disclosure controls and procedures. Our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal accounting officer) have evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) prior to the filing of this annual report. Based on that evaluation, they have concluded that, as of the end of the period covered by this annual report, our disclosure controls and procedures were, in design and operation, effective at a reasonable assurance level.

Management’s Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the 2013 framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its evaluation under the framework in Internal Control—Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2020.

Changes in internal control over financial reporting. There have not been any changes in our internal control over financial reporting during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent limitation on the effectiveness of internal control. The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting

This Annual Report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report.

Item 9B. Other Information.

None

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PART III

The information required by Part III is omitted from this report because we will file a definitive proxy statement within 120 days after the end of our 2020 fiscal year pursuant to Regulation 14A for our 2021 Annual Meeting of Stockholders, or the 2021 Proxy Statement, and the information to be included in the 2021 Proxy Statement is incorporated herein by reference.

Item 10. Directors, Executive Officers and Corporate Governance.

(1) The information required by this Item concerning our executive officers and our directors and nominees for director, including information with respect to our audit committee and audit committee financial expert, may be found under the section entitled “Proposal No. 1 Election of Directors,” “Information Regarding the Board of Directors and Corporate Governance,” and “Information About Our Executive Officers” appearing in the 2021 Proxy Statement. Such information is incorporated herein by reference.

(2) The information required by this Item concerning our code of ethics may be found under the section entitled “Information Regarding the Board of Directors and Corporate Governance” appearing in the 2021 Proxy Statement. Such information is incorporated herein by reference.

(3) The information required by this Item concerning compliance with Section 16(a) of the Securities Exchange Act of 1934 may be found in the section entitled “Delinquent Section 16(a) Reports” appearing in the 2021 Proxy Statement. Such information is incorporated herein by reference.

Item 11. Executive Compensation.

The information required by this Item may be found under the sections entitled “Director Compensation,” “Executive Compensation” and “Equity Compensation Plan Information” appearing in the 2021 Proxy Statement. Such information is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

(1) The information required by this Item with respect to security ownership of certain beneficial owners and management may be found under the section entitled “Security Ownership of Certain Beneficial Owners and Management” appearing in the 2021 Proxy Statement. Such information is incorporated herein by reference.

(2) The information required by this Item with respect to securities authorized for issuance under our equity compensation plans may be found under the sections entitled “Equity Compensation Plan Information” appearing in the 2021 Proxy Statement. Such information is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

(1) The information required by this Item concerning related party transactions may be found under the section entitled “Transactions with Related Persons” appearing in the 2021 Proxy Statement. Such information is incorporated herein by reference.

(2) The information required by this Item concerning director independence may be found under the sections entitled “Information Regarding the Board of Directors and Corporate Governance—Independence of the Board of Directors” and “Information Regarding the Board of Directors and Corporate Governance—Information Regarding Committees of the Board of Directors” appearing in the 2021 Proxy Statement. Such information is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services.

The information required by this Item may be found under the section entitled “Proposal No. 2 Ratification of Appointment of Independent Registered Public Accounting Firm” appearing in the 2021 Proxy Statement. Such information is incorporated herein by reference.

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PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a)The following documents are filed as part of this report:

(1)Financial Statements and Report of Independent Registered Public Accounting Firm

(2)Financial Statement Schedules

Financial Statement Schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.

(3)Exhibits are incorporated herein by reference or are filed with this report as indicated below (numbered in accordance with Item 601 of Regulation S-K).

(b)Exhibits

The exhibits listed below on the Exhibit Index are filed herewith or are incorporated by reference to exhibits previously filed with the SEC.

EXHIBIT INDEX

Number Description

Table of Contents

Number Description

Table of Contents

Number Description

21.1 List of subsidiaries of the Registrant

23.2 Consent of Deloitte LLP, Independent Registered Public Accounting Firm.

31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a).

31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a).

101.INS XBRL Instance Document

101.SCH XBRL Taxonomy Extension Schema Document.

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB XBRL Taxonomy Extension Labels Linkbase Document.

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.

+ Indicates a management contract or compensatory plan.

# This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act.

* Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the SEC upon request.

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Item 16. Form 10-K Summary.

N/A

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Neoleukin Therapeutics, Inc.

Date: March 25, 2021 By: /s/ Jonathan G. Drachman

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature Title Date

Jonathan G. Drachman

Robert Ho

/s/ Martin Babler Director March 25, 2021

Martin Babler

/s/ M. Cantey Boyd Director March 25, 2021

M. Cantey Boyd

/s/ Erin Lavelle Director March 25, 2021

Erin Lavelle

/s/ Sarah Noonberg Director March 25, 2021

Sarah Noonberg

/s/ Todd Simpson Director March 25, 2021

Todd Simpson

/s/ Lewis T. Williams Director March 25, 2021

Lewis T. Williams

NGNE US Equity

NGNE · 10-K · period ended 2020-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Item 8. Financial Statements and Supplementary Data.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Item 9A. Controls and Procedures.

Item 9B. Other Information.

Item 10. Directors, Executive Officers and Corporate Governance.

Item 11. Executive Compensation.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Item 14. Principal Accounting Fees and Services.

Item 15. Exhibits, Financial Statement Schedules.

Item 16. Form 10-K Summary.

NGNE US Equity☆

NGNE · 10-K · period ended 2020-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Item 8. Financial Statements and Supplementary Data.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Item 9A. Controls and Procedures.

Item 9B. Other Information.

Item 10. Directors, Executive Officers and Corporate Governance.

Item 11. Executive Compensation.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Item 14. Principal Accounting Fees and Services.

Item 15. Exhibits, Financial Statement Schedules.

Item 16. Form 10-K Summary.

NGNE US Equity