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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 June 30, 2022.
    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 August 3, 2022, there were 8,381,682 shares of the registrant’s Common Stock, par value $0.01 per share, outstanding.



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https://cdn.kscope.io/bb91145bb66fb4a1f573f118e803ecfa-nlnk-20220630_g1.jpg
Lumos Pharma, Inc.
FORM 10-Q
Table of Contents
Page
Condensed Consolidated Balance Sheets as of June 30, 2022 (unaudited) and December 31, 2021
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2022 and 2021 (unaudited)
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 2022 and 2021 (unaudited)
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021 (unaudited)
ITEM 3.



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Forward-Looking Statements
This quarterly report on Form 10‑Q for the quarter ended June 30, 2022 (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 any associated downturn, governmental regulations or restrictions may impact our business, including our research, clinical trials, manufacturing and financial condition;
the extent to which the military conflict between Russia and Ukraine and any associated economic downturn, governmental regulations or restrictions may impact our business, including impacts to our research, clinical trials, manufacturing and financial condition;
a weakened macroeconomic environment, including high inflation rates, and its impact on our business, including impacts to our operating costs 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


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December 31, 2021 (the “2021 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 and per share data)
(unaudited)
June 30,December 31,
20222021
Assets
Current assets:
Cash and cash equivalents$79,511 $94,809 
Prepaid expenses and other current assets5,328 4,740 
Income tax receivable149 128 
Total current assets$84,988 $99,677 
Non-current assets:
Property and equipment, net70 79 
Right-of-use asset395 556 
Total non-current assets465 635 
Total assets$85,453 $100,312 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable$854 $612 
Accrued expenses3,658 4,166 
Current portion of lease liability320 352 
Total current liabilities$4,832 $5,130 
Long-term liabilities:
Royalty obligation payable to Iowa Economic Development Authority6,000 6,000 
Lease liability
75 205 
Total long-term liabilities6,075 6,205 
Total liabilities$10,907 $11,335 
Commitments and contingencies
Stockholders' equity:
Undesignated preferred stock, $0.01 par value: Authorized shares - 5,000,000 at June 30, 2022 and December 31, 2021; issued and outstanding shares - 0 at June 30, 2022 and December 31, 2021
  
Common stock, $0.01 par value: Authorized shares - 75,000,000 at June 30, 2022 and December 31, 2021; issued shares - 8,390,915 and 8,366,819 at June 30, 2022 and December 31, 2021, respectively, and outstanding shares - 8,377,567 and 8,357,391 at June 30, 2022 and December 31, 2021, respectively
83 83 
Treasury stock, at cost, 13,348 and 9,428 shares at June 30, 2022 and December 31, 2021, respectively
(151)(114)
Additional paid-in capital186,599 185,429 
Accumulated deficit(111,985)(96,421)
Total stockholders' equity $74,546 $88,977 
Total liabilities and stockholders' equity$85,453 $100,312 
See accompanying notes to condensed consolidated financial statements.



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Lumos Pharma, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except share and per share data)
(unaudited)

Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Revenues:
Royalty revenue$403 $ $514 $ 
Licensing and collaboration revenue  10  10 
Total revenues403 10 514 10 
Operating expenses:
Research and development4,645 4,113 8,866 8,773 
General and administrative3,682 4,561 7,303 8,518 
Total operating expenses8,327 8,674 16,169 17,291 
Loss from operations(7,924)(8,664)(15,655)(17,281)
Other income and expense:
Other income (expense), net 6 (8)12 12 
Interest income74 2 79 5 
Interest expense   (37)
Other income (expense), net80 (6)91 (20)
Net loss $(7,844)$(8,670)$(15,564)$(17,301)
Net loss per share:
Basic and diluted $(0.94)$(0.99)$(1.86)$(2.08)
Weighted average number of common shares outstanding:
Basic and diluted 8,366,445 8,732,149 8,361,907 8,328,486 
See accompanying notes to condensed consolidated financial statements.








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Lumos Pharma, Inc.
Condensed Consolidated Statement of Changes in Stockholders' Equity
(In thousands, except share data)
(unaudited)
Common StockTreasury Stock
Additional
Paid-in
Capital
Accumulated Deficit
Total
Stockholders' Equity
SharesAmountSharesAmount
Balance at December 31, 20208,305,269 $83  $ $182,480 $(65,991)$116,572 
Share-based compensation— — — — 1,049 — 1,049 
Exercise of stock options20,362 — — — 26 — 26 
Stock issued upon vesting of restricted stock units9,939 — — — — — — 
Shares surrendered for tax withholding on vested awards(3,377)— 3.377 (44)— — (44)
Net loss— — — — — (8,631)(8,631)
Balance at March 31, 20218,332,193 $83 3,377 $(44)$183,555 $(74,622)$108,972 
Share-based compensation— — — — 846 — 846 
Exercise of stock options6,560 — — — 38 — 38 
Sale of shares under stock purchase plan695 — — — 6 — 6 
Stock issued upon vesting of restricted stock units23,994 — — — — —  
Shares surrendered for tax withholding on vested awards(6,051)— 6,051 (70)— — (70)
Net loss— — — — — (8,670)(8,670)
Balance at June 30, 20218,357,391 $83 9,428 $(114)$184,445 $(83,292)$101,122 
Balance at December 31, 20218,357,391 $83 9,428 $(114)$185,429 $(96,421)$88,977 
Share-based compensation— — — — 565 — 565 
Stock issued upon vesting of restricted stock units1,702 — — — — —  
Shares surrendered for tax withholding on vested awards(468)— 468 (5)— — (5)
Net loss— — — — — (7,720)(7,720)
Balance at March 31, 20228,358,625 $83 9,896 $(119)$185,994 $(104,141)$81,817 
Share-based compensation— — — — 575 — 575 
Exercise of stock options1,962 — — — 3 — 3 
Sale of shares under stock purchase plan4,175 — — — 27 — 27 
Stock issued upon vesting of restricted stock units16,257 — — — — —  
Shares surrendered for tax withholding on vested awards(3,452)— 3,452 (32)— — (32)
Net loss— — — — — (7,844)(7,844)
Balance at June 30, 20228,377,567 $83 13,348 $(151)$186,599 $(111,985)$74,546 




Lumos Pharma, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
Six Months Ended June 30,
20222021
Cash Flows From Operating Activities
Net loss$(15,564)$(17,301)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation1,140 1,895 
Depreciation and amortization10 189 
Changes in operating assets and liabilities:
Prepaid expenses and other current assets(565)(2,000)
Other receivables(32)139 
Accounts payable and accrued expenses(267)287 
Net cash used in operating activities(15,278)(16,791)
Cash Flows From Investing Activities
Final installment from sale of priority review voucher 26,000 
Net cash provided by investing activities 26,000 
Cash Flows From Financing Activities
Sales of shares under stock purchase plan27 6 
Exercise of stock options3 64 
Payment for tax withholding on vested awards(37)(114)
Costs of common stock offering under Controlled Equity OfferingSM
(13)(148)
Net cash used in financing activities(20)(192)
Net increase (decrease) in cash and cash equivalents(15,298)9,017 
Cash and cash equivalents at beginning of period94,809 98,679 
Cash and cash equivalents at end of period$79,511 $107,696 
See accompanying notes to condensed consolidated financial statements.




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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 4,146,398 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 idiopathic 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 $79.5 million as of June 30, 2022 will be sufficient to allow the Company to fund its operations into the second quarter of 2024 which is inclusive of the primary read out of its Phase 2 clinical trial of LUM-201 in PGHD ("OraGrowtH210 Trial") and OraGrowtH212 Trial, expected in the second half of 2023. 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 resulted in a slower pace of site initiation and patient enrollment in our clinical trials that has led to a delay in 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 these impacts and resulting disruption to the Company’s operations is uncertain, 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.


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Lumos Pharma, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
The military conflict between Russia and Ukraine (the “Conflict”), has resulted, and may continue to result, in significant national and global economic disruption and may continue to adversely affect the Company’s operations. The Company had initiated or had planned to initiate clinical sites in Russia and Ukraine; however, due to the Conflict and the resulting uncertainty in the region, the Company is unable to enroll patients in Russia or Ukraine and all of its clinical sites in Russia are closed. The sites in Ukraine are closed to enrollment and are in the process of being closed. No patients had been randomized to treatment in the clinical trial at any of the Company's nine sites in Ukraine and Russia. Given the encouraging screening and enrollment trajectory at the Company's other clinical sites, the Company continues to anticipate the six-month primary outcome data on all 80 subjects in the second half of 2023. The ongoing Conflict may, however, adversely impact the Company's business in the future, and it remains too early to evaluate all the potential effects of this Conflict.
2. Summary of Significant Accounting Policies
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 2021 Annual Report filed on Form 10-K with the SEC on March 11, 2022.
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 June 30, 2022, 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 2021 Annual Report filed on Form 10-K with the SEC on March 11, 2022.
3. 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 Ammonnett Pharma LLC ("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.


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Lumos Pharma, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
On August 12, 2020, we entered into Amendment No. 1 to the Lumos Merck Agreement with Merck (the “Lumos Merck Agreement Amendment”). Pursuant to the Lumos Merck Agreement Amendment, we 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 our exclusive license to develop, manufacture and commercialize LUM-201 for diagnostic purposes, excluding Autism Spectrum Disorders.
Under the APA, the Company paid Ammonett an upfront fee of $3.5 million 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, and up to $14.0 million for achievements of 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 of 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-up, 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 priority review voucher ("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 and grant of the PRV.
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. Merck agreed to pay the Company an aggregate of $60 million 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 during the three months ended September 30, 2020 and the second installment of $26.0 million was received on January 11, 2021.
Under the NewLink Merck Agreement, as amended, the Company has earned and has the potential to continue to earn royalties on sales of the vaccine in certain countries. 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.


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Lumos Pharma, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
For the three months ended June 30, 2022 and 2021, the Company recognized revenues of $0 and $10,000, respectively, and recognized $0 and $10,000, respectively, for the six months ended June 30, 2022 and 2021, in each case, for work the Company performed in relation to ERVEBO®, as a subcontractor of Merck. For the three months ended June 30, 2022 and 2021, the Company recognized revenues of $0.4 million and $0, respectively, and recognized $0.5 million and $0, respectively, for the six months ended June 30, 2022 and 2021, for royalties related to royalty-bearing commercial sales of the vaccine.
Additionally, per the terms of the licensing agreement with the PHAC, the Company has an obligation to pay a royalty fee to the PHAC for any royalty amounts earned. For each of the three and six months ended June 30, 2022, the Company incurred royalty expense of $0.3 million for royalties related to royalty-bearing commercial sales of the vaccine. No royalty expense was incurred for the three and six months ended June 30, 2021. Royalty expense is included within general and administrative expenses in the consolidated statement of operations for the three and six months ended June 30, 2022.
4. Accrued Expenses
Accrued expenses are comprised of the following (in thousands):
June 30, 2022December 31, 2021
Compensation and related benefits$2,150 $2,812 
Clinical and contract manufacturing expenses1,045 508 
Other 463846 
Total accrued expenses$3,658 $4,166 
5. 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 of directors ("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 June 30, 2022, we had 426,022 shares available for grant under the 2019 Plan.
2010 Non-Employee Directors' Stock Award Plan
In connection with the Merger, the Company assumed NewLink’s 2010 Non-Employee Directors’ Stock Award Plan (the Directors’ Plan) which was effective on November 10, 2011. As of June 30, 2022, 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. 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, 2022, subject to restart provisions as described within the A&R ESPP.


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Lumos Pharma, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
The special offering period under the A&R ESPP was fully contingent upon stockholder approval of the A&R ESPP 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. On May 4, 2022, at the 2022 Annual Meeting of Stockholders, the A&R ESPP was approved. As of June 30, 2022, 55,825 shares remained available for issuance under the 2010 Purchase Plan.
Share-Based Compensation Expense
Stock-based compensation expenses included in the Company’s condensed consolidated statements of operations for the three and six months ended June 30, 2022 and 2021 were (in thousands):
Three Months Ended June 30,
Six Months Ended June 30,
2022
2021
2022
2021
Research and development$167 $100 $314 $555 
General and administrative408 746 826 1,340 
Total $575 $846 $1,140 $1,895 
As of June 30, 2022, we had unrecognized compensation cost of $5.3 million and the weighted-average period over which it is expected to be recognized is 2.8 years.
6. 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. 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 classified as a long-term liability as of June 30, 2022.
7. Income Taxes
For each of the three and six months ended June 30, 2022 and 2021, the Company recorded no income tax benefit. The income tax amount for each of the three and six months ended June 30, 2022 and 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.
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 June 30, 2022.
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. Based on subsequent analyses, we did not experience a Section 382 ownership change from March 19, 2020 through December 31, 2021.
8. Net Loss per Share of Common Stock
Basic 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 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.


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Lumos Pharma, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
The following table presents the computation of basic and diluted loss per share of common stock (in thousands, except share and per share data) and the number of unexercised stock options and restricted stock units, which are common stock equivalents, that have been excluded from the diluted net loss calculation as their effect would have been anti-dilutive for all periods presented.
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Net loss$(7,844)$(8,670)$(15,564)$(17,301)
Weighted-average shares outstanding - Basic and diluted8,366,445 8,732,149 8,361,907 8,328,486 
Net loss per share - Basic and diluted$(0.94)$(0.99)$(1.86)$(2.08)
Anti-dilutive stock options 1,464,920 1,179,926 1,464,920 1,179,926 
Anti-dilutive restricted stock units77,606 49,765 77,606 49,765 
Total anti-dilutive common stock equivalents excluded
1,542,526 1,229,691 1,542,526 1,229,691 

9. Severance Charges
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, the Company 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 paid approximately $0.9 million as severance, accelerated vesting of all non-vested equity awards and extended the exercise period on any vested equity awards to twenty-four months from the separation date. 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 was paid in the fourth quarter of 2021. No severance-related expense was recognized during the three and six months ended June 30, 2022.






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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 June 30, 2022 (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 2021 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 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.”
We have focused our efforts on the development of our sole product candidate, growth hormone secretagogue ibutamoren (“LUM-201”), a potential oral therapy for idiopathic pediatric growth hormone deficiency (“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 deficits 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 new treatment, Skytrofa, a once-weekly injection that 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, when available.
On March 18, 2020, we closed the business combination (the “Merger”) among 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.” whereby 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 4,146,398 shares of NewLink common stock (after giving effect to the reverse split). Immediately following the reverse stock split and the completion of the Merger, there were 8,292,803 shares of our 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.
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 an 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. Related patents have been issued in the European Union (where validations are ongoing), Australia, Israel, Japan, South Korea, and Ukraine with related patent applications pending in multiple other 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 (GHSR1a), also known as the ghrelin receptor, and also suppresses the release of somatostatin, 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. The PGHD patient population consists of patients diagnosed with organic PGHD (a more severe GH deficiency) and idiopathic PGHD (a less severe or moderate GH deficiency). We believe that patients with idiopathic PGHD (i.e., those 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 OraGrowtH210 Trial (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 is a global multi-site randomized study evaluating orally administered LUM-201 at three dose levels (0.8, 1.6 and 3.2 mg/kg/day) against a standard dose of daily injectable rhGH in approximately 80 subjects diagnosed with idiopathic PGHD.
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. The primary efficacy endpoint is annualized height velocity. 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 OraGrowtH210 Trial currently has sites enrolling in the United States, Australia, New Zealand, Poland, and Israel. We had initiated or had planned to initiate sites in Russia and Ukraine; however, due to the ongoing conflict between Ukraine and Russia and the resulting uncertainty in the region, we are unable to enroll patients in Russia or Ukraine and all of our clinical sites in Russia are closed. The sites in Ukraine are closed to enrollment and are in the process of being closed. No patients had been randomized to treatment in the clinical trial at any of our nine sites in Ukraine and Russia. Given the encouraging screening and enrollment trajectory at our other clinical sites, we continue to anticipate the 6-month primary outcome data on all 80 subjects in the second half of 2023. In the event the Ukraine-Russia conflict were to affect other countries in the region, this could adversely impact our business in the future, and it remains too early to evaluate all the potential effects of this conflict.
A second concurrent trial of LUM-201 in PGHD exploring the effects of the novel mechanism of action of LUM-201 in amplifying the pulsatile secretion of growth hormone (the "OraGrowtH212 Trial") was initiated in the second quarter of 2021. The OraGrowtH212 Trial in PGHD will run in parallel with the OraGrowtH210 Trial. The OraGrowtH212 Trial is a single site, open-label trial evaluating the pharmacokinetic and pharmacodynamic ("PK/PD") effects of LUM-201 in up to 24 PGHD subjects at two different dose levels, 1.6 and 3.2 mg/kg/day. The objective of the OraGrowtH212 Trial is 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. Our OraGrowtH212 Trial 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. The primary endpoint for this trial is six months of PK/PD and height velocity data in up to 24 subjects and is anticipated 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 the FDA had restricted treatment with LUM-201 to no more than 12 months. At that time, we extended the treatment period from six months to 12 months for both our OraGrowtH210 and OraGrowtH212 Trials to gather additional efficacy data for LUM-201 in PGHD prior to starting our originally planned long-term extension trial (the "OraGrowtH211 trial"). As announced on May 10, 2022, after review of preliminary safety and efficacy data from both the OraGrowtH210 and OraGrowtH212 Trials, the FDA has removed


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the partial hold and will now permit treatment with LUM-201 beyond 12 months. As a result, the OraGrowtH210 Trial has been extended to 24 months to allow subjects to continue LUM-201 therapy uninterrupted. Additionally, during the second quarter of 2022, the protocol for the OraGrowtH212 Trial was amended to allow treatment until subjects reach a bone age of 14 for females and 16 for males, reflecting near-adult height.
The extension of the treatment period will not impact the primary outcome data read out for OraGrowtH210, 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 will initiate the extension study when appropriate. 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.
During the first quarter of 2022, we initiated our OraGrowtH213 Trial (the “OraGrowtH213 Trial,” and together with the OraGrowtH210 Trial, the OraGrowtH211 Trial, and the OraGrowtH212 Trial, the “OraGrowtH Trials”), an open-label, multi-center, Phase 2 study evaluating the growth effects and safety of LUM-201 following 12 months of daily rhGH in up to 20 idiopathic PGHD subjects who have completed the OraGrowtH210 Trial. Subjects will be administered LUM-201 at a dose level of 3.2 mg/kg/day for up to 12 months.
In April 2022, we announced achievement of the 50% randomization milestone for our OraGrowtH210 Trial. Interim data from both the OraGrowtH210 and OraGrowtH212 Trials are anticipated by the end of 2022. Data from the interim analysis for OraGrowtH210 will evaluate the safety and annualized height velocity at three dose levels of LUM-201 against a standard dose of rhGH in a total of 40 subjects at six months on therapy. We believe this data set may be adequate to provide an initial indication of LUM-201's impact on height velocity compared to growth hormone on the PEM positive population selected for in the trial. Our OraGrowtH212 interim analysis will evaluate safety and height velocity data in 10 or more subjects at six months on therapy at either 1.6 or 3.2 mg/kg/day. Baseline characteristics will determine whether we combine the AHV data from both trial datasets at the interim and final analyses.
The graphic below depicts the clinical development plan for LUM-201.
https://cdn.kscope.io/bb91145bb66fb4a1f573f118e803ecfa-nlnk-20220630_g2.jpg
Potential expansion of LUM-201 into additional indications
In May 2022, we announced a clinical collaboration with Massachusetts General Hospital ("MGH") to evaluate oral LUM-201 in nonalcoholic fatty liver disease ("NAFLD") in an investigator-initiated trial. This trial will evaluate a dose of 25 mg/day of LUM-201 in 10 men and women with NAFLD and prescreening patients has begun. GH is a critical stimulator of lipolysis, and preclinical data suggest that amplifying GH secretion has the potential to reduce hepatic steatosis and prevent NAFLD progression. Enhancing the natural pulsatile release of GH has been shown clinically in short-term studies to be more efficacious in inducing lipolysis than continuous infusions of GH. The primary endpoints will be to determine the changes in


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intrahepatic lipid content, hepatic inflammation and fibrosis with GH augmentation as measured by H-MRS and Perspectum’s LiverMultiScan®. Biopsies will be conducted on a subset of subjects to obtain additional information at the genetic and cellular level in this indication.
We approved an unsolicited grant application for this study and will supply LUM-201 for this pilot trial. Lumos has a pending application for a method-of-use patent for LUM-201 in NAFLD and retains intellectual property rights for LUM-201 in this indication.
We continue to explore our development path to expand into additional indications for LUM-201. We are actively reviewing the mechanism of action of LUM-201 in a subset of affected patients in other potential indications, including Prader Willi Syndrome, Idiopathic Short Stature, Children Born Small for Gestational Age, and Turners Syndrome, and are working towards developing the clinical plans for additional targeted indications. Timing for the initiation of these plans will be 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. Pursuant to the asset purchase agreement, Merck agreed, among other things, to pay us for the PRV in two installments. As required by the agreement, Merck paid us $34.0 million at the closing during the three months ended September 30, 2020 and $26.0 million on January 11, 2021.
We have received and have the potential to continue to earn royalties on sales of the vaccine in certain countries. 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.
Oncology Candidates
We have small-molecule product candidates, which we acquired from NewLink in the merger. These product candidates, indoximod, NLG802 (a prodrug of indoximod) and NLG919 (a direct IDO1 enzymatic inhibitor) are indoleamine-2, 3-dioxygenase pathway inhibitors. We also had an additional small molecule product candidate, NLG207, which is a nanoparticle-drug conjugate consisting of a cyclodextrin-based polymer backbone linked to camptothecin, a topoisomerase 1 inhibitor, which was out-licensed to Ellipses Pharma Limited, effective December 17, 2019.
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 may explore the potential for further development and licensing opportunities for these product candidates; however, we currently do not have any active program for these acquired small molecule product candidates.
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.


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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
General and administrative expenses consist primarily of professional fees for legal, auditing, tax and business consulting services, personnel expenses and travel costs. We expect that over the long term our general and administrative expenses will increase as we expand our operating activities; however, in the shorter term such expenses may fluctuate up or down from period to period.
Critical Accounting Policies and Significant Judgments and Estimates
We have prepared our condensed consolidated financial statements in accordance with U.S. GAAP, which requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, expenses. On an ongoing basis, we evaluate these estimates and judgments. We based our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results could, therefore, differ materially from these estimates under different assumptions or conditions.
Management believes there have been no material changes to the critical accounting policies from those discussed in "Note 2 - Summary of Significant Accounting Policies and Recent Accounting Pronouncements of our consolidated financial statements included in our 2021 Annual Report.
COVID-19
The pandemic caused by an outbreak of COVID-19 has resulted, and is likely to continue to result, in significant national and global economic disruption and may continue to adversely affect our operations. We are actively monitoring the potential impact of COVID-19, if any, on the carrying value of certain assets and our continued operations. To date, we have experienced delays related to the progress of our clinical trials as clinical sites adapt their procedures to caring for patients during a pandemic; however, we have not incurred impairment of any assets as a result of COVID-19. The extent to which these events may impact our business, clinical development, regulatory efforts, and the value of our common stock, will depend on future developments, which are highly uncertain and cannot be predicted at this time. The duration and intensity of these impacts and resulting disruption to our operations is uncertain and we will continue to evaluate the impact that these events could have on our operations, financial position, and results of operations and cash flows during fiscal year 2022.


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Results of Operations
Comparison of the Three Months Ended June 30, 2022 and 2021:
Three Months Ended June 30,
20222021Change in $Change in %
(in thousands)(in thousands)
Revenues:
Royalty revenue$403 $— 403 100 %
Licensing and collaboration revenue — 10 (10)(100)%
Total revenues403 10 
Operating expenses:
 Research and development4,645 4,113 532 13 %
General and administrative3,682 4,561 (879)(19)%
Total operating expenses8,327 8,674 
Other income (expense), net80 (6)86 1433 %
Net loss $(7,844)$(8,670)
Revenues. Royalty revenues increased by $0.4 million for the three months ended June 30, 2022 compared to the same period in 2021 due to royalties earned related to sales of ERVEBO®. Licensing and collaboration revenues decreased by $10,000 for the three months ended June 30, 2022 compared to the same period in 2021 primarily due to the wind down of work we performed in relation to ERVEBO® as a subcontractor of Merck.
Research and Development Expenses. Research and development expenses increased by $0.5 million for the three months ended June 30, 2022 compared to the same period in 2021 primarily due to increases of $0.3 million in personnel-related expenses and $0.3 million in legal and consulting expenses, offset by a decrease of $0.1 million in clinical trial and contract manufacturing expenses.
General and Administrative Expenses. General and administrative expenses decreased by $0.9 million for the three months ended June 30, 2022 compared to the same period in 2021 primarily due to decreases of $0.6 million in personnel-related expenses recorded as a result of severance expense incurred in the second quarter of 2021, $0.3 million in stock compensation expenses, $0.2 million in legal expenses and $0.1 million in other expenses, offset by an increase of $0.3 million in royalty expenses.
Other Income, net. Other income, net increased by $0.1 million for the three months ended June 30, 2022 compared to the same period in 2021 primarily due to an increase in interest income.


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Comparison of the Six Months Ended June 30, 2022 and 2021:
Six Months Ended June 30,
20222021Change in $Change in %
(in thousands)(in thousands)
Revenues:
Royalty revenue$514 $— 514 100 %
Licensing and collaboration revenue— 10 (10)(100)%
Total revenues514 10 
Operating expenses:
 Research and development8,866 8,773 93 %
General and administrative7,303 8,518 (1,215)(14)%
Total operating expenses16,169 17,291 
Other income (expense), net91 (20)111 (555)%
Net loss $(15,564)$(17,301)
Revenues. Royalty revenues increased by $0.5 million for the six months ended June 30, 2022 compared to the same period in 2021 due to royalties earned related to sales of ERVEBO®. Licensing and collaboration revenues decreased by $10,000 for the six months ended June 30, 2022 compared to the same period in 2021 primarily due to the wind down of work we performed in relation to ERVEBO® as a subcontractor of Merck.
Research and Development Expenses. Research and development expenses increased by $0.1 million for the six months ended June 30, 2022 compared to the same period in 2021 primarily due to increases of $0.4 million in clinical trial and contract manufacturing expenses and $0.2 million in consulting expenses, offset by decreases of $0.2 million in personnel-related expenses, $0.2 million in stock compensation expenses and $0.1 million in operating expenses for supplies, depreciation and rent.
General and Administrative Expenses. General and administrative expenses decreased by $1.2 million for the six months ended June 30, 2022 compared to the same period in 2021 primarily due to decreases of $0.6 million in personnel-related expenses recorded as a result of severance expense incurred in the second quarter of 2021, $0.5 million in stock compensation expenses, $0.5 million in consulting expenses and $0.1 million in depreciation, offset by increases of $0.4 million in royalty expenses and $0.1 million in travel expenses.
Other Income, net. Other income, net increased by $0.1 million for the six months ended June 30, 2022 compared to the same period in 2021 primarily due to an increase in interest income.
Liquidity and Capital Resources
We have historically devoted all our efforts toward research and development and have never earned revenue from commercial sales of our products. We expect to continue to incur additional substantial losses in the foreseeable future as a result of our research and development programs and from general and administrative costs associated with our operations. However, we believe that our existing cash and cash equivalents of approximately $79.5 million as of June 30, 2022 will be sufficient to support operations into the second quarter of 2024, inclusive of the primary read out of the OraGrowtH210 and OraGrowtH212 Trials for patients with idiopathic (moderate) PGHD and for at least 12 months from the filing date of this Quarterly Report.
We may seek to sell additional equity or debt securities or obtain a credit facility from time to time if our available cash and cash equivalents are insufficient to satisfy our liquidity requirements or if we develop additional opportunities to do so. The sale of additional equity and debt securities may result in additional ownership dilution to our stockholders. If we raise additional funds through the issuance of debt securities or preferred stock, these securities could have rights senior to those of our common stock and could contain covenants that would restrict our operations. We may require additional capital beyond our currently forecasted amounts. Any such required additional capital may not be available on reasonable terms, if at all. If we


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are unable to obtain additional financing, we may be required to reduce the scope of, delay or eliminate some or all of our planned research and development activities, which could harm our business.
Because of the numerous risks and uncertainties associated with the research and development of our product candidates, we are unable to estimate the exact amounts of our working capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:
the scope, progress, results, and costs of clinical trials for our product candidates, and discovery and development activities related to new product candidates;
the timing of, and the costs involved in, obtaining regulatory approvals for our product candidates;
the cost of commercialization activities if any of our product candidates are approved for sale, including marketing, sales, facilities, and distribution costs;
the cost of manufacturing our product candidates and any products we commercialize;
our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements;
whether, and to what extent, we are required to repay our outstanding government provided loans;
the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of such litigation;
changes in domestic and global business or macro-economic conditions, including continued adverse impacts from the COVID-19 pandemic or the conflict in Ukraine, resulting labor shortages, supply chain disruptions, and inflation; and
the timing, receipt and amount of sales of, or royalties on, our future products, if any.
On December 30, 2020, we entered into a Controlled Equity OfferingSM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co., as agent (the “Agent”), pursuant to which we may offer and sell from time to time through the Agent up to $50.0 million of shares of our common stock (the “Shares”). The offering and sale of the Shares will be registered under the Securities Act pursuant to a shelf registration statement on Form S-3. Under the Sales Agreement, the Agent may sell the Shares by any method permitted by law and deemed to be an “at-the-market” offering as defined in Rule 415(a)(4) promulgated under the Securities Act, including sales made directly on or through the Nasdaq, on any other existing trading market for the Shares, in negotiated transactions at market prices prevailing at the time of sale or at prices related to such prevailing market prices and/or any other method permitted by law. We will notify the Agent of the number of Shares to be issued, the time period during which sales are requested to be made, any limitation on the number of Shares that may be sold in any one day and any minimum price below which sales may not be made. We intend to use the net proceeds from this offering for working capital and general corporate purposes, which include, but are not limited to, expanding clinical development opportunities for our product candidate into potential additional indications, and general and administrative expenses. We may also use a portion of the net proceeds to invest in future strategic transactions to expand and diversify our product pipeline through the acquisition or licensing of product candidates or technologies that are complementary to our own. We will pay the Agent a commission of up to 3.0% of the gross sales price of the Shares sold through it under the Sales Agreement. In addition, we have agreed to reimburse certain expenses incurred by the Agent in connection with the offering. The Sales Agreement may be terminated by the Agent or by us at any time upon notice to the other party, as set forth in the Sales Agreement, or by the Agent at any time in certain circumstances, including the occurrence of a material and adverse change in our business or financial condition that makes it impractical or inadvisable to market the shares or to enforce contracts for the sale of the Shares. As of June 30, 2022, no shares have been issued under the Sales Agreement.
So long as our public float is less than $75 million, we will be subject to the restrictions set forth in General Instruction I.B.6 to Form S-3, which limit our ability to conduct primary offerings under a Form S-3 registration statement, including with respect to issuances under our at-the-market program under the Sales Agreement. Under such limitations, we may not sell, during any 12-month period, securities on Form S-3 having an aggregate market value of more than one-third of our public float. As of August 3, 2022, our public float calculated in accordance with General Instruction I.B.6 of Form S-3 was $50.9 million.


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Cash Flows
The following table sets forth the primary sources and uses of cash for each of the periods set forth below (in thousands):
Six Months Ended June 30,
20222021
Net cash used in operating activities$(15,278)$(16,791)
Net cash provided by investing activities— 26,000 
Net cash used in financing activities(20)(192)
Net increase (decrease) in cash and equivalents$(15,298)$9,017 
For the six months ended June 30, 2022 and 2021, our operating activities used cash of $15.3 million and $16.8 million, respectively. The decrease was primarily due to decreases of $1.7 million in losses from operations and $0.7 million in the change in working capital, offset by decreases in adjustments to reconcile net loss to net cash used in operating activities, including a $0.7 million decrease in stock compensation expenses and a $0.2 million decrease in depreciation and amortization.
For the six months ended June 30, 2022 and 2021, our investing activities used cash of $0 and provided cash of $26.0 million, respectively. The decrease resulted from $26.0 million in cash received towards the final installment from sale of the PRV during the six months ended June 30, 2021.
For the six months ended June 30, 2022 and 2021, our financing activities used net cash of $20,000 and $0.2 million, respectively. The decrease was primarily due to $148,000 in expenses related to the common stock offering under our Controlled Equity OfferingSM during the six months ended June 30, 2021.
ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk related to changes in interest rates. As of June 30, 2022 and December 31, 2021, we had cash and cash equivalents of $79.5 million and $94.8 million, respectively, consisting primarily of money market funds. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of United States interest rates. For much of 2021, interest rates remained at relatively low levels on a historical basis and the Federal Reserve maintained the federal funds target range at 0.0% to 0.25%. However, during the first half of 2022, the Federal Reserve increased rates a total of 1.50% and has indicated that, in light of increasing signs of inflation, it foresees further increases in interest rates throughout the year and into 2023 and 2024. Due to the short-term duration of our investment portfolio and the low-risk profile of our investments, an immediate 10% change in interest rates would not have a material effect on the fair market value of our portfolio.

ITEM 4.    CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our principal executive officer and principal financial officer have concluded, based on an evaluation of our disclosure controls and procedures (as defined in the Exchange Act, Rules 13a-15(e) or 15d-15(e)) as required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15 that, as of June 30, 2022, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
In connection with the evaluation of our internal control over financial reporting that occurred during the quarter ended June 30, 2022, which is required under the Exchange Act by paragraph (d) of Exchange Rules 13a-15 or 15d-15 (as defined in paragraph (f) of Rule 13a-15), management determined that there was no change that materially affected or is reasonably likely to materially affect internal control over financial reporting.


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PART II. OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS
In the ordinary course of business, the Company may be subject from time to time to various proceedings, lawsuits, disputes, or claims. The Company's practice is to investigate these claims as they arise. Although claims are inherently unpredictable, the Company is currently not aware of any pending matters that, if determined adversely to the Company, would individually or taken together, have a material adverse effect on its business, financial position, results of operations, or cash flows.
Item 1A. RISK FACTORS
SUMMARY OF RISK FACTORS
Below is a summary of the principal factors that make an investment in our common stock speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under the heading “Risk Factors” and should be carefully considered, together with other information in this Quarterly Report and our other filings with the SEC before making an investment decision regarding our common stock.
Risks Related to our Financial Condition and Capital Requirements
We have a limited operating history and have incurred significant losses since our inception, and we anticipate that we will continue to incur substantial and increasing losses for the foreseeable future. We have only one product candidate and no commercial sales, which, together with our limited operating history, makes it difficult to evaluate our business and assess our future viability.
We currently have no source of product revenue and may never become profitable.
We will need additional funds to support our operations, and such funding may not be available to us on acceptable terms, or at all, which would force us to delay, reduce or suspend our research and development programs and other operations or commercialization efforts. Raising additional capital may subject us to unfavorable terms, cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our product candidates and technologies.
Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or our guidance.
Our ability to use our net operating loss carryforwards and certain other tax attributes is limited by Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”).
Risks Related to the Development and Commercialization of our Product Candidate
Our success depends heavily on the successful development, regulatory approval and commercialization of our only product candidate, LUM-201.
The analysis that supports our basis for pursuing development of LUM-201 for PGHD is derived from data from three clinical trials conducted by Merck in the 1990s, and a post-hoc analysis of one of the trials. Various issues relating to such trials and analysis could materially adversely impact our LUM-201 clinical trial design and our future development plans.
Because the results of preclinical testing or earlier clinical trials are not necessarily predictive of future results, LUM-201 may not have favorable results in later clinical trials or receive regulatory approval.
Interim, preliminary or topline data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.
If we make changes to any of our product candidates, additional clinical trials may be required resulting in additional costs and delays.
We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
Risks Related to the Operation of our Business
Our future success depends on our ability to retain our chief executive officer, president and other key members of our management team and to attract, retain and motivate qualified personnel.
We expect to expand our development, regulatory and sales and marketing capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.


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Business disruptions could seriously harm our clinical trials, future revenue and financial condition and increase our costs and expenses.
If we obtain approval to commercialize LUM-201 outside the United States, we will be subject to additional risks.
Our internal computer systems, or those of our contract research organizations ("CROs") or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our drug development programs.
Risks Related to our Intellectual Property
Our ability to successfully commercialize our technology and products may be materially adversely affected if we are unable to obtain and maintain effective intellectual property rights for our technologies and product candidates, or if the scope of the intellectual property protection is not sufficiently broad.
We do not have composition of matter patent protection with respect to LUM-201.
We may become involved in legal proceedings to protect or enforce our intellectual property rights, which could be expensive, time-consuming and unsuccessful.
Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.
If we are unable to protect the confidentiality of its trade secrets, the value of our technology could be materially adversely affected, harming our business and competitive position.
Risks Related to Government Regulation
The regulatory approval process is expensive, time consuming and uncertain and may prevent us or our collaboration partners from obtaining approvals for the commercialization of our product candidates.
Even if we receive regulatory approval for a product candidate, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense and subject us to penalties if we fail to comply with applicable regulatory requirements.
Failure to obtain regulatory approvals in foreign jurisdictions will prevent us from marketing our products internationally.
Healthcare reform measures could hinder or prevent our product candidates’ commercial success.
Our relationships with healthcare professionals, clinical investigators, CROs and third party payors in connection with our current and future business activities may be subject to federal and state healthcare fraud and abuse laws, false claims laws, transparency laws, government price reporting, and health information privacy and security laws, which could expose us to, among other things, criminal sanctions, civil penalties, contractual damages, exclusion from governmental healthcare programs, reputational harm, administrative burdens and diminished profits and future earnings. If we fail to comply with healthcare regulations, we could face substantial penalties and our business, operations and financial condition could be adversely affected.
Risks Related to Ownership of Our Common Stock
The trading price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in price in response to various factors, many of which are beyond our control
Our principal stockholders and management own a significant percentage of our stock and will be able to exercise significant influence over matters subject to stockholder approval.
Our amended and restated bylaws (“Bylaws”) designate the state courts in the State of Delaware or, if no state court located within the State of Delaware has jurisdiction, the federal court for the District of Delaware, as the sole and exclusive forum.
We do not anticipate that we will pay any cash dividends in the foreseeable future.
Provisions in our certificate of incorporation, our Bylaws or Delaware law might discourage, delay or prevent a change in control of our company or changes in our management and, therefore, depress the trading price of our common stock.



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RISK FACTORS
Investing in our common stock involves significant risks, some of which are described below. In evaluating our business, investors should carefully consider the following risk factors. These risk factors contain, in addition to historical information, forward-looking statements that involve substantial risks and uncertainties. Our actual results could differ materially from the results discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below. The order in which the following risks are presented is not intended to reflect the magnitude of the risks described. The occurrence of any of the following risks could have a material adverse effect on our business, financial condition, results of operations and prospects. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.
Risks Related to our Financial Condition and Capital Requirements
We have a limited operating history and have incurred significant losses since our inception, and we anticipate that we will continue to incur substantial and increasing losses for the foreseeable future. We have only one product candidate and no commercial sales, which, together with our limited operating history, makes it difficult to evaluate our business and assess our future viability.
We are a clinical-stage biopharmaceutical company with a limited operating history. We do not have any products approved for sale, and we are currently focused on developing our product candidate, LUM-201. Evaluating our performance, viability or future success will be more difficult than if we had a longer operating history or approved products on the market. We continue to incur significant research and development and general and administrative expenses related to our operations. Investment in biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatory approval or become commercially viable. We have incurred significant operating losses in each year since our inception and expect to incur substantial and increasing losses for the foreseeable future. As of June 30, 2022, we had an accumulated deficit of $112.0 million
To date, we have devoted substantially all of our efforts to research and development, including clinical trials, but have not completed development of any product candidate. We anticipate that our expenses will increase substantially as we:
continue the research and development of our product candidate, LUM-201, and any future product candidates;
pursue clinical trials of LUM-201, including our OraGrowtH Trials;
seek to in-license additional product candidates and incur any future costs to develop these product candidates;
seek regulatory approvals for LUM-201 and any future product candidates that successfully complete clinical trials;
establish a sales, marketing and distribution infrastructure and scale-up manufacturing capabilities to commercialize LUM-201 or any future product candidates if they obtain regulatory approval, including process improvements in order to manufacture LUM-201 or any future product candidates at commercial scale; and
enhance operational, financial and information management systems and hire more personnel, including personnel to support development of LUM-201 and any future product candidates and, if a product candidate is approved, its commercialization efforts.
To be profitable in the future, we must succeed in developing and eventually commercializing LUM-201 as well as other products with significant market potential. This will require us to be successful in a range of activities, including advancing LUM-201 and any future product candidates, completing clinical trials of these product candidates, obtaining regulatory approval for these product candidates and manufacturing, marketing and selling those products for which we may obtain regulatory approval. We are only in the preliminary stages of some of these activities. We may not succeed in these activities and may never generate revenue that is sufficient to be profitable in the future. Even if we are profitable, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to achieve sustained profitability would depress our value and could impair our ability to raise capital, expand our business, diversify our product candidates, market our product candidates, if approved, or continue our operations.
We currently have no source of product revenue and may never become profitable.
To date, we have not generated any revenues from commercial product sales. Even if we are able to successfully achieve regulatory approval for LUM-201 or any future product candidates, we do not know when any of these products will generate revenue from product sales. Our ability to generate revenue from product sales and achieve profitability will depend upon our


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ability, alone or with any future collaborators, to successfully commercialize products, including LUM-201 or any product candidates that we may develop, in-license or acquire in the future. Our ability to generate revenue from product sales from LUM-201 or any future product candidates also depends on a number of additional factors, including our or any future collaborators’ ability to:
complete development activities, including our OraGrowtH Trials, and a Phase 3 clinical trial of LUM-201, successfully and on a timely basis;
demonstrate the safety and efficacy of LUM-201 to the satisfaction of the FDA and obtain regulatory approval for LUM-201 and future product candidates, if any, for which there is a commercial market;
complete and submit applications to, and obtain regulatory approval from, foreign regulatory authorities;
set a commercially viable price for our products;
establish and maintain supply and manufacturing relationships with reliable third parties, and ensure adequate and legally compliant manufacturing of bulk drug substances and drug products to maintain that supply;
develop a commercial organization capable of sales, marketing and distribution of any products for which we obtain marketing approval in markets where we intend to commercialize independently;
find suitable distribution partners to help us market, sell and distribute our approved products in other markets;
obtain coverage and adequate reimbursement from third-party payors, including government and private payors;
achieve market acceptance of our approved products, if any;
establish, maintain and protect our intellectual property rights and avoid third-party patent interference or patent infringement claims; and
attract, hire and retain qualified personnel.
In addition, because of the numerous risks and uncertainties associated with pharmaceutical product development, including that LUM-201 or any future product candidates may not advance through development or achieve the endpoints of applicable clinical trials, we are unable to predict the timing or amount of increased expenses, or when or if we will be able to achieve or maintain profitability. In addition, our expenses could increase beyond expectations if we decide to or are required by the FDA or foreign regulatory authorities to perform studies or trials in addition to those that we currently anticipate. Even if we are able to complete the development and regulatory process for LUM-201 or any future product candidates, we anticipate incurring significant costs associated with commercializing these products.
Even if we are able to generate revenues from the sale of LUM-201 or any future product candidates that may be approved, we may not become profitable and may need to obtain additional funding to continue operations. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or shut down our operations.
We will need additional funds to support our operations, and such funding may not be available to us on acceptable terms, or at all, which would force us to delay, reduce or suspend our research and development programs and other operations or commercialization efforts. Raising additional capital may subject us to unfavorable terms, cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our product candidates and technologies.
The completion of the development and the potential commercialization of LUM-201 and any future product candidates, should they receive approval, will require substantial funds. Our future financing requirements will depend on many factors, some of which are beyond our control, including the following:
the rate of progress and cost of our clinical trials;
the timing of, and costs involved in, seeking and obtaining approvals from the FDA and other regulatory authorities;
the extent of any required post-marketing approval commitments to applicable regulatory authorities;
developing an efficient, cost-effective, and scalable manufacturing process for LUM-201 and any future product candidates, including establishing and maintaining commercially viable supply and manufacturing relationships with third parties to obtain finished products that are appropriately packaged for sale;


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the costs of commercialization activities if LUM-201 or any future product candidate is approved, including product sales, marketing, manufacturing and distribution;
the degree and rate of market acceptance of any products launched by us or future partners;
a continued acceptable safety profile following any marketing approval;
the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;
our ability to enter into additional collaboration, licensing, commercialization or other arrangements and the terms and timing of such arrangements;
the emergence of competing technologies or other adverse market developments; and
the costs of attracting, hiring and retaining qualified personnel.
We do not have any material committed external source of funds or other support for our planned development efforts. Until we can generate a sufficient amount of product revenue to finance our cash requirements, which we may never do, we expect to finance future cash needs through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. Additional financing may not be available to us when we need it or such additional financing may not be available on favorable terms. If we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish certain valuable rights to LUM-201 or any potential future product candidates, technologies, future revenue streams or research programs, or grant licenses on terms that may not be favorable to us. If we raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect its stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to obtain adequate financing when needed, we may have to delay, reduce the scope of, or suspend one or more of our clinical trials or research and development programs or our commercialization efforts.
Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or our guidance.
Our quarterly and annual operating results may fluctuate significantly in the future, which makes it difficult for us to predict our future operating results. From time to time, we may enter into collaboration agreements with other companies that include development funding and significant upfront and milestone payments and/or royalties. Accordingly, our revenue may depend on development funding and the achievement of development and clinical milestones under any potential future collaboration and license agreements and sales of its product candidates, if approved. These upfront and milestone payments may vary significantly from period to period and any such variance could cause a significant fluctuation in our operating results from one period to the next. In addition, we estimate the grant date fair value, and the resulting stock-based compensation expense, using the Black-Scholes option-pricing model and recognize the cost as an expense over the employee’s requisite service period. As the variables that we use as a basis for valuing these awards change over time, the magnitude of the expense that we must recognize may vary significantly. Furthermore, our operating results may fluctuate due to a variety of other factors, many of which are outside of our control and may be difficult to predict, including the following:
the timing and cost of, and level of investment in, research and development activities relating to LUM-201 and any future product candidates, which will change from time to time;
our ability to enroll patients in clinical trials and the timing of enrollment;
the cost of manufacturing LUM-201 and any future product candidates, which may vary depending on FDA guidelines and requirements, the quantity of production and the terms of our agreements with manufacturers;
expenditures that we will or may incur to acquire or develop additional product candidates and technologies;
the timing and outcomes of clinical trials for LUM-201 and any future product candidates or competing product candidates;
changes in the competitive landscape of our industry, including consolidation among our competitors or partners;
any delays in regulatory review or approval of LUM-201 or any of our future product candidates;


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the level of demand for LUM-201 and any future product candidates, should they receive approval, which may fluctuate significantly and be difficult to predict;
the risk/benefit profile, cost and reimbursement policies with respect to our products candidates, if approved, and existing and potential future drugs that compete with our product candidates;
competition from existing and potential future drugs that compete with LUM-201 or any of our future product candidates;
our ability to commercialize LUM-201 or any future product candidate inside and outside of the United States, either independently or working with third parties;
our ability to establish and maintain collaborations, licensing or other arrangements;
our ability to adequately support future growth;
potential unforeseen business disruptions that increase our costs or expenses;
future accounting pronouncements or changes in our accounting policies; and
the changing and volatile global economic environment.
The cumulative effects of these factors could result in large fluctuations and unpredictability in our quarterly and annual operating results. As a result, comparing our operating results on a period-to-period basis may not be meaningful. Investors should not rely on our past results as an indication of its future performance.
Our ability to use our net operating loss carryforwards and certain other tax attributes is limited by Sections 382 and 383 of the Code.
Sections 382 and 383 of the Code limit a corporation’s ability to utilize its net operating loss carryforwards and certain other tax attributes (including research credits) to offset any future taxable income or tax if the corporation experiences a cumulative ownership change of more than 50% over any rolling three-year period. State net operating loss carryforwards (and certain other tax attributes) may be similarly limited. A Section 382 ownership change can, therefore, result in significantly greater tax liabilities than a corporation would incur in the absence of such a change, and any increased liabilities could adversely affect the corporation’s business, results of operations, financial condition and cash flow.
Based on Section 382 ownership change analyses 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 limited 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.
Based on subsequent analyses, we did not experience a Section 382 ownership change from March 19, 2020 through December 31, 2021. Additional ownership changes may occur in the future as a result of events over which we will have little or no control, including purchases and sales of our equity by our 5% stockholders, the emergence of new 5% stockholders, additional equity offerings or redemptions of our stock or certain changes in the ownership of any of our 5% stockholders.
Accounting pronouncements may impact our reported results of operations and financial position.
Accounting principles generally accepted in the U.S. (“U.S. GAAP”) and related implementation guidelines and interpretations can be highly complex and involve subjective judgments. Changes in these rules or their interpretation, the adoption of new pronouncements or the application of existing pronouncements to changes in our business could significantly alter our reported financial statements and results of operations.


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We incur significant costs as a result of operating as a public company, and our management is required to devote substantial time to meet compliance obligations.
As a public company, we incur significant legal, accounting and other expenses to comply with reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), as well as rules subsequently implemented by the SEC and Nasdaq. Meeting the requirements of these rules and regulations entails significant legal and financial compliance costs, makes some activities more difficult, time-consuming or costly and may also place undue strain on our personnel, systems and resources. Our management and other personnel devote a substantial amount of time to these compliance requirements. In addition, these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified people to serve on our Board, our Board committees or as executive officers.
Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our ability to produce accurate financial statements and on our stock price.
Pursuant to Section 404 of the Sarbanes-Oxley Act, we are required to publish a report by our management on our internal control over financial reporting. To achieve compliance with Section 404, we have engaged in a process to document and evaluate our internal control over financial reporting, which has been both costly and challenging. To maintain compliance on an ongoing basis, we will need to dedicate internal resources, engage outside consultants and adopt a detailed work plan. Despite our effort, there is a risk that we will not be able to conclude that our internal control over financial reporting is effective as required by Section 404. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.
Changes in our effective income tax rate could adversely affect our results of operations in the future.
Our effective income tax rate, as well as our relative domestic and international tax liabilities, will depend in part on the allocation of any future income among different jurisdictions. In addition, various factors may have favorable or unfavorable effects on our effective income tax rate in individual jurisdictions or in the aggregate. These factors include whether tax authorities agree with our interpretations of existing tax laws, any required accounting for stock options and other share-based compensation, changes in tax laws and rates (including the recently enacted U.S. federal income tax law changes), our future levels of research and development spending, changes in accounting standards, changes in the mix of any future earnings in the various tax jurisdictions in which we may operate, the outcome of any examinations by the U.S. Internal Revenue Service or other tax authorities, the accuracy of our estimates for unrecognized tax benefits and realization of deferred tax assets and changes in overall levels of pre-tax earnings. For example, the current administration has proposed tax reform legislation to increase the U.S. corporate income tax rate, increase U.S. taxation of international business operations and impose a global minimum tax, which could result in increased marginal corporate tax rates. A number of countries, as well as organizations such as the Organization for Economic Cooperation and Development, support the global minimum tax initiative. Such countries and organizations are also actively considering changes to existing tax laws or have proposed or enacted new laws that could increase our tax obligations in countries where we do business or cause us to change the way we operate our business. The effect on our income tax liabilities resulting from the above-mentioned factors or other factors could have a material adverse effect on our results of operations.
Risks Related to the Development and Commercialization of our Product Candidate
Our success depends heavily on the successful development, regulatory approval and commercialization of our only product candidate, LUM-201.
We do not have any products that have gained regulatory approval. Our current clinical-stage product candidate, LUM-201, is an orally-formulated GH stimulating therapeutic for a subset of PGHD patients and potentially other endocrine disorders. As a result, our near-term prospects, including our ability to finance our operations and generate revenue, are substantially dependent on our ability to obtain regulatory approval for and, if approved, to successfully commercialize LUM-201 in a timely manner.
We cannot commercialize LUM-201 or any future product candidates in the United States without first obtaining regulatory approval for the product from the FDA, nor can we commercialize LUM-201 or any future product candidates outside of the United States without obtaining regulatory approval from comparable foreign regulatory authorities. The FDA approval process typically takes years to complete and approval is never guaranteed. Before obtaining regulatory approvals for the commercial sale of LUM-201 for a target PGHD indication or any future product candidates, we generally must demonstrate with substantial evidence gathered in preclinical and well-controlled clinical trials that the product candidate is safe


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and effective for use for that target indication and that the manufacturing facilities, processes and controls are adequate. We are pursuing the same regulatory pathway for LUM-201 followed by most of the approved rhGH products and long-acting GH products under development with LUM-201 focused on a subset of previously diagnosed PGHD patients. We intend to study treatment naïve patients by conducting trials including our OraGrowtH210 dose-finding trial and a Phase 3 clinical trial with a primary endpoint of 12 month mean height velocity that is intended to support regulatory approval. If we must conduct additional or different trials than prior rhGH products were required to complete, this could increase the amount of time and expense required for regulatory approval of LUM-201, if any. In addition, while the available growth data from published studies of approved rhGH therapy products suggest that six and 12 months mean height velocities are well correlated, it is possible that LUM-201, due to its unique properties, will produce different results. If the six months mean height velocities that we observe for LUM-201 in the OraGrowtH210 Trial do not correlate to 12 month mean height velocities that we ultimately observe in any Phase 3 clinical trial that we may conduct, LUM-201 may not achieve the required primary endpoint in the Phase 3 clinical trial, and LUM-201 may not receive regulatory approval. Moreover, obtaining regulatory approval for marketing of LUM-201 in one country does not ensure we will be able to obtain regulatory approval in other countries, while a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in other countries.
Even if LUM-201 or any of our future product candidates were to successfully obtain approval from the FDA and comparable foreign regulatory authorities, any approval might contain significant limitations related to use restrictions for specified age groups, warnings, precautions or contraindications, or may be subject to burdensome post-approval study or risk management requirements. If we are unable to obtain regulatory approval for LUM-201 in one or more jurisdictions, or any approval contains significant limitations, we may not be able to obtain sufficient funding or generate sufficient revenue to continue to fund its operations. Also, any regulatory approval of LUM-201 or any future product candidates, once obtained, may be withdrawn. Furthermore, even if we obtain regulatory approval for LUM-201, the commercial success of LUM-201 will depend on a number of factors, including the following:
development of our own commercial organization or establishment of a commercial collaboration with a commercial infrastructure;
establishment of commercially viable pricing and obtaining approval for adequate reimbursement from third-party and government payors;
the ability of our third-party manufacturers to manufacture quantities of LUM-201 using commercially viable processes at a scale sufficient to meet anticipated demand and reduce our cost of manufacturing, and that are compliant with the FDA’s cGMP;
our success in educating physicians and patients about the benefits, administration and use of LUM-201;
the availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing treatments;
the effectiveness of our own or our potential strategic collaborators’ marketing, sales and distribution strategy and operations;
acceptance of LUM-201 as safe and effective by patients, caregivers and the medical community;
a continued acceptable safety profile of LUM-201 following approval; and
continued compliance with our obligations in our intellectual property licenses with third parties upon favorable terms.
Many of these factors are beyond our control. If we or our commercialization collaborators are unable to successfully commercialize LUM-201, we may not be able to earn sufficient revenues to continue our business.
The analysis that supports our basis for pursuing development of LUM-201 for PGHD is derived from data from three clinical trials conducted by Merck in the 1990s, and a post-hoc analysis of one of the trials. Various issues relating to such trials and analysis could materially adversely impact our LUM-201 clinical trial design and our future development plans.
The probability of the OraGrowtH210 Trial succeeding is highly dependent on the adequacy of the trial design. In designing such trial, we reviewed data and analysis from three studies on LUM-201 completed by Merck in the 1990s (the “Merck Trials”) and we incorporated the results of our analysis of Merck’s clinical data into the design of the OraGrowtH210 Trial. However, we could have misinterpreted or performed a flawed analysis of such data. Factors that could have affected our interpretation and analysis of the Merck Trials include:


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clinical trial procedures and statistical analysis methods may have changed since the 1990s when the Merck Trials were conducted, which limits our ability to effectively predict how changes to trial design might affect the OraGrowtH210 Trial results;
two of the Merck Trials were discontinued prior to completion due to lack of efficacy;
one of the Merck Trials changed the formulation of the drug part way through the treatment naïve patient trial and for the other previously-treated patient trial the formulation change was for the entire trial, and the changed formulation was subsequently determined to have 30% to 40% less bioavailability;
certain relevant information from the Merck Trials, including some of the source documentation for the Merck Trials, may not have been made available to us and so could not be referenced for our analysis and OraGrowtH210 Trial design; and
bias in small sample size and other limitations inherent in the post-hoc analysis of the Merck Trials upon which we have relied for our OraGrowtH210 Trial design could have caused such post-hoc analysis to be unreliable.
As a result of such factors, among others, there could be flaws in the design of the OraGrowtH210 Trial that could cause it to fail, which would materially adversely impact our business, future development plans, and prospects.
Because the results of preclinical testing or earlier clinical trials are not necessarily predictive of future results and may not translate to other indications, LUM-201 may not have favorable results in later clinical trials or receive regulatory approval.
Success in preclinical testing and early clinical trials does not ensure that later clinical trials will generate adequate data to demonstrate the efficacy and safety of an investigational drug. A number of companies in the pharmaceutical and biotechnology industries, including those with greater resources and experience, have suffered significant setbacks in clinical trials, even after seeing promising results in earlier clinical trials. We do not know whether the clinical trials we are conducting, or may conduct, will demonstrate adequate efficacy and safety to result in regulatory approval to market LUM-201. Even if we believe that we have adequate data to support an application for regulatory approval to market our product candidates, the FDA, the European Union Medicines Agency (the "EMA"), or other applicable foreign regulatory authorities may not agree and may require that we conduct additional clinical trials. If later-stage clinical trials do not produce favorable results, our ability to achieve regulatory approval for LUM-201 may be adversely impacted.
There can be no assurance that LUM-201 will not exhibit new or increased safety risks in the OraGrowtH210 Trial compared to the previously conducted Merck Trials, or, if we complete the OraGrowtH210 Trial, in the planned Phase 3 clinical trial. Trials in additional indications may not be successful or may exhibit new or increased safety risks. In addition, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many other companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain regulatory approval for the marketing of their products.
In addition, we have not yet established the optimal dose for LUM-201. There can be no guarantee that the three dose levels currently being administered in the OraGrowtH210 Trial will be efficacious or, if they are, whether any one will be the optimal dose. The OraGrowtH210 Trial may not be successful in demonstrating successful patient selection with our PEM strategy or determining a dose or dose regimen of LUM-201 suitable for future development and potential marketing approval. Even if an optimal dose is established in one indication, different doses may be optimal in other indications requiring additional clinical trials to determine such optimal dosing.
Interim, preliminary or topline data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.
From time to time, we may publish interim, preliminary or topline data from clinical trials. Interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Interim or preliminary data from clinical trials that we may conduct may not be indicative of the final results of the trial or may be inconclusive and are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data becomes available. Thus, favorable interim results may not necessarily lead to favorable final results or FDA or other regulatory approval. Interim results may also be inconclusive which would create uncertainty as to whether we should continue the clinical trial or what the final results of the trial will be. Interim or preliminary data also remains subject to audit and verification procedures that may result in the final data being materially different or materially adverse from the interim or preliminary data. As a result, any interim or preliminary data should be viewed with caution until the final data are available. Adverse differences between interim,


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preliminary or topline data and final data could significantly harm our reputation and business prospects. We do not know whether any clinical trials we may conduct will demonstrate consistent or adequate efficacy and safety sufficient to obtain marketing approval to market our product candidates.
In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically more extensive information, and you or others may not agree with what we determine is the material or otherwise appropriate information to include in our disclosure. Any information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular product candidate or our business. Similarly, even if we are able to complete our planned and ongoing preclinical studies and clinical trials of our product candidates according to our current development timeline, the positive results from such preclinical studies and clinical trials of our product candidates may not be replicated in subsequent preclinical studies or clinical trial results. Moreover, preclinical, nonclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials nonetheless failed to obtain FDA or other regulatory approval.
If we make changes to any of our product candidates, additional clinical trials may be required resulting in additional costs and delays.
We have an ongoing research program to investigate potential opportunities to improve the potency, efficacy and/or safety profile of some of our product candidates through modifications to their formulations or chemical compositions. These efforts may not be successful. If a new formulation or composition appears promising, we may decide to undertake clinical development of such formulation or composition even if an existing product candidate has shown acceptable safety and efficacy in clinical trials. The nature and extent of additional clinical trials that might be required for a new formulation or composition would depend on many factors. Material changes to product candidates, including changes in the methods of manufacturing, carry the risk that they will not achieve consistent purity, identity, quality, efficacy and results. Any of these changes could cause our product candidates to perform differently and could affect planned or other clinical trials conducted with product candidates produced using the modified manufacturing methods, materials, and processes. This could delay completion of clinical trials and could require non-clinical or clinical bridging and comparability studies, which could increase costs, delay approval of our product candidates and jeopardize our ability to commercialize our product candidates, if approved. If we were to decide to pursue clinical development of a new formulation or composition, we would incur additional costs and the timeline for potential commercialization would be delayed. There can be no assurance that any new formulation or composition would prove to be safe or effective or superior to an existing product candidate. Any delay in commercialization of a new formulation or composition may adversely affect our competitive position.
We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and managerial resources, we must focus on research programs and product candidates for the specific indications that we believe are the most scientifically and commercially promising. As a result, we have in the past determined to let certain of our development projects remain idle, including by allowing IND applications to lapse into inactive status, and we may in the future decide to forego or delay pursuit of opportunities with other product candidates or other indications that later prove to have greater scientific or commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable scientific or commercial products or profitable market opportunities. In addition, we may spend valuable time and managerial and financial resources on research programs and product candidates for specific indications that ultimately do not yield any scientifically or commercially viable products. Furthermore, our resource allocation decisions and our decisions about whether and how to develop or commercialize any particular product candidate may be based on evaluations of the scientific and commercial potential or target market for the product candidate that later prove to be materially inaccurate. If we enter into collaborations, licensing or other royalty arrangements to develop or commercialize a particular product candidate, we may relinquish valuable rights to that product candidate in situations where it would have been more advantageous for us to retain sole rights to development and commercialization.
The outbreak of the novel strain of coronavirus, SARS-CoV-2, which causes COVID-19, has, and could continue to adversely impact our business, including our planned clinical trials.
Public health crises such as pandemics or similar outbreaks have and could continue to adversely impact our business. In December 2019, a novel strain of coronavirus, SARS-CoV-2, which causes coronavirus disease 2019, or COVID-19, surfaced in Wuhan, China. Since then, COVID-19 has spread worldwide and multiple new variants have subsequently emerged. In response to the spread of COVID-19 many of our employees are continuing their work outside of our offices.


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As a result of the COVID-19 outbreak, or similar pandemics, we have experienced, and may continue to experience disruptions that could severely impact our business, manufacturing, preclinical development activities, preclinical studies and planned clinical trials, including:
delays or difficulties in enrolling patients in clinical trials;
government shutdowns, interruption or delays in the operations of the U.S. Food and Drug Administration, other agencies and comparable foreign regulatory agencies, which may impact timelines for regulatory submission, trial initiation and regulatory approval;
interruption or delays in our CROs and collaborators meeting expected deadlines or complying with regulatory requirements related to preclinical development activities, preclinical studies and planned clinical trials;
interruptions of, or delays in receiving materials, such as LUM-201 and recombinant human growth hormone, for our clinical trial, due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems;
delays or difficulties in any planned clinical site initiation, including difficulties in obtaining IRB approvals, recruiting clinical site investigators and clinical site staff;
increased rates of patients withdrawing from any planned clinical trials following enrollment as a result of contracting COVID-19 or being forced to quarantine;
diversion of healthcare resources away from the conduct of our preclinical development activities, preclinical studies and planned clinical trials, including the diversion of hospitals serving as any potential clinical trial sites and hospital staff supporting the conduct of our planned clinical trials;
interruption of planned key clinical trial activities, such as clinical trial site data monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others or interruption of clinical trial subject visits and study procedures (particularly any procedures that may be deemed non-essential), which may impact the integrity of subject data and planned clinical study endpoints;
limitations on employee or collaborator resources that would otherwise be focused on the conduct of our preclinical development activities, preclinical studies and planned clinical trials, including because of sickness of employees or their families, the desire of employees to avoid contact with large groups of people, an increased reliance on working from home or mass transit disruptions;
reduced ability to engage with the medical and investor communities due to the cancellation of conferences scheduled throughout the year; and
changes in clinical site procedures and requirements as well as regulatory requirements for conducting clinical trials during the pandemic.
We may be required to develop and implement additional clinical trial policies and procedures designed to help protect subjects from the COVID-19 virus. For example, in March 2020, the FDA issued a guidance, which the FDA subsequently updated, on conducting clinical trials during the pandemic, which describes a number of considerations for sponsors of clinical trials impacted by the pandemic, including the requirement to include in the clinical trial report contingency measures implemented to manage the clinical trial, and any disruption of the clinical trial as a result of the COVID-19 pandemic, among other considerations. In June 2020, FDA also issued a guidance on good manufacturing practice considerations for responding to COVID-19 infection in employees in drug products manufacturing, including recommendations for manufacturing controls to prevent contamination of drugs. Other COVID-19 industry guidance and updates to previous guidance documents issued by the FDA addresses remote interactive evaluations of drug manufacturing and bioresearch monitoring facilities; and manufacturing, supply chain, and drug and biological product inspections, among others. In view of the spread of the COVID-19 variants, the FDA may issue additional guidance and policies that may materially impact our business and clinical development timelines. Changes to existing policies and regulations can increase our compliance costs or delay our clinical plans.
These and other factors arising from the COVID-19 pandemic could worsen or could return to countries where the pandemic has been partially contained, either of which could further adversely impact our ability to conduct preclinical development activities, preclinical studies and planned clinical trials and our business generally, and has had and could continue to have a material adverse impact on our operations and financial condition and results.


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On July 20, 2021, we announced that the pace of site initiation and enrollment of our clinical trials had been slower than anticipated primarily due to COVID-19 restrictions. This impact was particularly pronounced at international sites where faster patient enrollment was anticipated. As a result, the six-month primary outcome data for OraGrowtH210 trial is now anticipated in the second half of 2023. The coronavirus pandemic is ongoing and has resulted in and is expected to continue to result in unpredictable conditions including the availability of healthcare providers and facilities for clinical research and varying protective measures implemented by governments and private organizations. Such conditions are expected to continue to adversely impact our operations and may cause further delays.
The extent to which the outbreak may continue to impact our business, preclinical studies and clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, new variants, travel restrictions and actions to contain the outbreak or treat its impact, such as social distancing and quarantines or lock-downs in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.
As an organization, we have never conducted a Phase 3 clinical trial or submitted a New Drug Application (an "NDA") before, and may be unsuccessful in doing so for LUM-201.
We initiated the OraGrowtH210 Trial in the fourth quarter of 2020 and we may need to conduct additional clinical trials before initiating our planned Phase 3 clinical trial. If the OraGrowtH210 Trial is successful, we intend to independently conduct a Phase 3 clinical trial of LUM-201. To conduct a Phase 3 clinical trial and submit a successful NDA is a complicated process. As an organization, we have never conducted a Phase 3 clinical trial, have limited experience in preparing, submitting and prosecuting regulatory filings, and have not submitted an NDA before. We also have had limited interactions with the FDA and have not discussed any proposed Phase 3 clinical trial designs or implementations with the FDA. Consequently, even if the OraGrowtH210 Trial is successful, we may be unable to successfully and efficiently execute and complete necessary clinical trials in a way that leads to an NDA submission and approval of LUM-201. Failure to commence or complete, or delays in, our planned clinical trials would prevent us from or delay us in commercializing LUM-201.
Further delays in the enrollment of patients in any of our clinical trials could increase our development costs and delay completion of the trial.
We have experienced longer than expected time required to achieve enrollment in our clinical trial for LUM-201 primarily due to the impact of COVID-19. We may not be able to initiate or continue clinical trials for LUM-201 or any future product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials. Even if we are able to enroll a sufficient number of patients in our clinical trials, if the pace of enrollment is slower than we expect, the development costs for our product candidates may increase and the completion of our trials may be delayed or our trials could become too expensive to complete.
There may be concurrent competing PGHD clinical trials that will inhibit or slow our enrollment in the OraGrowtH210 and any future Phase 3 clinical trials. If we experience delays in enrollment, our ability to complete our planned clinical trials could be impaired and the costs of conducting such trials could increase, either of which could have a material adverse effect on our business.
Our business may be adversely impacted by the consequences of Russia's invasion of Ukraine.
Economic, political and social conditions, including supply chain disruptions, inflation, and clinical site closures, resulting from Russia’s invasion of Ukraine could materially disrupt our clinical trials, increase our costs and may disrupt planned clinical development activities. For example, our OraGrowtH210 Trial currently has sites enrolling in Poland, a country that borders Ukraine and is being impacted by an influx of Ukrainian refugees resulting from Russia’s invasion of Ukraine. Although we opened clinical sites in Ukraine and Russia in late 2021, we have no patients enrolled at such sites and, in light of Russia's invasion, we are closing such sites. We currently expect that we will be able to meet our enrollment goals without any enrollment in Ukraine or Russia; however, there can be no assurance that such goals will be met. Furthermore, we rely on suppliers in Germany, and to the extent the conflict between Ukraine and Russia adversely impacts the ability of our suppliers to produce and distribute the supplies we need for our OraGrowtH210 Trial, or such distribution cannot be done on a timely basis, the timing for completing our OraGrowtH210 Trial may be adversely impacted. In addition, the United States, United Kingdom and European Union governments, among others, have instituted various sanctions and export-control measures in response to the invasion, including comprehensive financial sanctions, targeted at Russia or designated individuals and entities with business interests and/or government connections to Russia or those involved in Russian military activities. Governments have also enhanced export controls and trade sanctions targeting Russia’s imports of goods. The duration and intensity of this conflict and its economic impact on our European operations is uncertain at this time, but it is possible that our business, results of operations and financial condition could be materially and adversely affected.


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If clinical trials of LUM-201 and any future product candidates fail to demonstrate safety and efficacy to the satisfaction of the FDA or similar regulatory authorities outside the United States or do not otherwise produce positive results, we may incur additional costs, experience delays in completing or ultimately fail in completing the development and commercialization of LUM-201 or our future product candidates.
Before obtaining regulatory approval for the sale of any product candidate, we must conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Clinical trials are expensive, difficult to design and implement, can take many years to complete and are uncertain as to outcome. A failure of one or more of our clinical trials could occur at any stage of testing.
We have identified several aspects of the OraGrowtH210 Trial protocols that could potentially delay or prevent our ability to receive regulatory approval or commercialize LUM-201. For example, we may be administering LUM-201 at dose levels that are not as efficacious and/or safe as other rhGH therapies. The OraGrowtH210 Trial will test doses of LUM-201 that are equal to, and two and four times higher than, the highest doses tested in the pediatric multiple dose Merck Trials. These higher doses were never tested in adults or children in a multiple dose trial in the Merck Trials and, even if the trials are able to show that such higher doses increase efficacy, such higher doses may not be as safe as the doses tested in the Merck Trials. As a result, frequent safety assessments may be required during the trial.
FDA or other regulatory authorities may disagree with our clinical trials protocol or study design and may require us to change our clinical studies protocol or laboratory procedures used to identify patients that meet the entry criteria for our studies, which could negatively impact our existing arrangements with clinical laboratories or vendors engaged for our clinical trials, delay enrollment, or cause us to modify our studies protocol, all of which could delay our clinical development plans and increase the amount of time and expense required for regulatory approval of LUM-201, if any, or negatively impact the scope of our proposed indication or target patient population. For example, in July 2021, the FDA requested an extension of the OraGrowtH210 Trial from six months to 12 months and restricted treatment with LUM-201 to no more than 12 months until additional efficacy data was available for review. After review of the preliminary safety and efficacy data from our OraGrowtH210 and OraGrowtH212 Trials, the FDA has lifted the partial clinical hold and will now permit treatment with LUM-201 beyond 12 months. As a result, the OraGrowtH210 Trial will now be extended to up to 24 months and we plan to extend the treatment period for OraGrowtH212. The extension of these treatment periods will increase the amount of time and expense required for these trials. In addition to trials design factors, we may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive regulatory approval or commercialize LUM-201 or any future product candidates, including the following:
clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;
the number of patients required for clinical trials may be larger than we anticipate, enrollment of subjects who meet our inclusion criteria in these clinical trials may be insufficient or slower than we anticipate, or patients may drop out of these clinical trials at a higher rate than we anticipate;
our existing supply of the LUM-201 API was manufactured more than 20 years ago and, while we have conducted testing and believe this supply is suitable for clinical use, it may unexpectedly become unusable or documentation concerning this supply may be in the possession of third parties and become unavailable over time;
the cost of clinical trials or the manufacturing of our product candidates may be greater than we anticipate;
our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;
we might have to suspend or terminate clinical trials of our product candidates for various reasons, including a finding that our product candidates have unanticipated serious adverse events or other unexpected characteristics or that the patients are being exposed to unacceptable health risks;
regulators may not approve our proposed clinical development plans, including our clinical trial design or protocol;
we have been, and may in the future be required to modify our clinical trial protocol or design, and thus our arrangements with clinical trial vendors or trial sites, based on regulators’ feedback;
regulators or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;


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regulators or institutional review boards may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements; and
the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate.
If we are required to conduct additional clinical trials or other testing of LUM-201 or any future product candidates beyond those that we contemplate, if we are unable to successfully complete clinical trials or other testing, or if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:
be materially delayed in obtaining marketing approval for LUM-201 or other product candidates;
not obtain marketing approval at all;
obtain approval for indications that are not as broad as intended or targeted;
have the product removed from the market after obtaining marketing approval;
be subject to additional post-marketing testing requirements; or
be subject to restrictions on how the product is distributed or used.
Our product development costs will also increase if it experiences delays in testing or approvals. We do not know whether any clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all.
Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do, which would impair our ability to commercialize our product candidates and harm our business and results of operations.
Even if we obtain marketing approval for LUM-201, certain factors may limit the market for LUM-201, which could materially impair our ability to generate revenue from such product.
Even if we receive regulatory approval for LUM-201, certain factors may limit the market for LUM-201 or put the product at a competitive disadvantage relative to alternative therapies. For instance, we believe that the treatment will only be effective for approximately 60% of PGHD patients, and approximately 50% for patients with either SGA or Turner Syndrome, and the actual percentages could be substantially lower. Certain jurisdictions such as Australia and the European Union have different diagnostic criteria for diagnosing PGHD and as a result, the market for LUM-201 in those jurisdictions is smaller. In addition, there are a number of challenges that LUM-201 would face to obtain acceptance and use by physicians. Physicians will need to conduct additional testing to identify their patients who would be eligible for LUM-201 treatment. Approved products that would compete with LUM-201 have been used for many years or decades with an excellent safety profile. It will take a number of years of results of LUM-201 to provide the comfort level that may be necessary to satisfy some physicians and patient families. Some physicians may feel the benefits of an oral product do not outweigh limitations. For example, the mean annual growth velocity for LUM-201 treated patients included in the trial may be substantially lower, despite meeting non-inferiority study requirements, than such mean for all rhGH treated PGHD patients. These factors could limit the size of the market LUM-201 intends to address and the rate of market acceptance, which could materially impair our ability to generate revenue.
LUM-201 or our future product candidates may cause serious adverse events or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label or result in significant negative consequences following any marketing approval.
Our product candidate, LUM-201, has not completed clinical development. The risk of failure of clinical development is high. It is impossible to predict when or if this or any future product candidates will prove safe enough to receive regulatory approval. Undesirable adverse events caused by LUM-201 or any future product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign regulatory authority.
At the doses tested previously in the Merck Trials, LUM-201 was generally well-tolerated in children with the most commonly reported adverse events being digestive systems events, including appetite increase. Mild elevations in liver enzymes without accompanying changes in bilirubin were also reported. To our knowledge, no serious drug-related adverse events have been reported in children treated with LUM-201 to date. However, we cannot assure you that adverse events from LUM-201 in current or future clinical trials will not prompt the discontinuation of the development of LUM-201. Similarly, our future product candidates may cause serious adverse events or have other properties that could delay or prevent their regulatory


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approval. As a result of these adverse events or further safety or toxicity issues that we may experience in its clinical trials in the future, we may not receive approval to market LUM-201 or any future product candidates, which could prevent us from ever generating revenue or achieving profitability. Results of our trials could reveal an unacceptably high severity or prevalence of adverse events. In such an event, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order it to cease further development of or deny approval of its product candidates for any or all targeted indications. Any drug-related adverse events could affect patient recruitment or the ability of enrolled subjects to complete the trial or result in potential product liability claims. Any of these occurrences may have a material adverse effect on our business, results of operations, financial condition, cash flows and future prospects.
Additionally, if LUM-201 or any of our future product candidates receive marketing approval, and we or others later identify undesirable adverse events caused by such product, a number of potentially significant negative consequences could result, including:
we may be forced to suspend the marketing of such product;
regulatory authorities may withdraw our approvals of such product;
regulatory authorities may require additional warnings on the label that could diminish the usage or otherwise limit the commercial success of such products;
the FDA or other regulatory bodies may issue safety alerts, Dear Healthcare Provider letters, press releases or other communications containing warnings about such product;
the FDA may require the establishment or modification of REMS, or a comparable foreign regulatory authority may require the establishment or modification of a similar strategy that may, for instance, restrict distribution of our products and impose burdensome implementation requirements on us;
we may be required to change the way the product is administered or conduct additional clinical trials;
we could be sued and held liable for harm caused to subjects or patients;
we may be subject to litigation or product liability claims; and
our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate, if approved.
Even if our clinical trials demonstrate acceptable safety and efficacy of LUM-201 for growth in PGHD patients based on a once daily oral dosing regimen, the FDA or similar regulatory authorities outside the United States may not approve LUM-201 for marketing or may approve it with restrictions on the label, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
Assuming the success of our clinical trials, we anticipate seeking regulatory approval for LUM-201 initially in the United States and the European Union for treatment of a subset of PGHD patients based on a once daily weight-based dosing regimen. We may subsequently seek regulatory approval in other jurisdictions including China and Japan. It is possible that the FDA, the EMA, or regulatory agencies in other countries may not consider the results of our clinical trials to be sufficient for approval of LUM-201 for this indication. In general, the FDA suggests that sponsors complete two adequate and well-controlled clinical trials to demonstrate effectiveness because a conclusion based on two persuasive trials will be more compelling than a conclusion based on a single trial. Even if we achieve favorable results in the OraGrowtH210 Trial or subsequent Phase 3 clinical trial and considering that LUM-201 is a new chemical entity, the FDA may nonetheless require that we conduct additional clinical trials, possibly using a different clinical trial design.
Moreover, even if the FDA or other regulatory authorities approve LUM-201 for treatment of a subset of PGHD patients based on a once daily weight-based dosing regimen, the approval may include additional restrictions on the label that could make LUM-201 less attractive to physicians and patients compared to other products that may be approved for broader indications, which could limit potential sales of LUM-201.
If we fail to obtain FDA or other regulatory approval of LUM-201 or if the approval is narrower than what we seek, it could have a material adverse effect on our business, financial condition, results of operations and growth prospects.


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Even if LUM-201 or any future product candidates receive regulatory approval, they may fail to achieve the degree of market acceptance by physicians, patients, caregivers, healthcare payors and others in the medical community necessary for commercial success.
If LUM-201 or any future product candidates receive regulatory approval, they may nonetheless fail to gain sufficient market acceptance by physicians, hospital administrators, patients, healthcare payors and others in the medical community. The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on a number of factors, including the following:
the prevalence and severity of any adverse events;
their efficacy and potential advantages compared to alternative treatments;
the price Lumos charges for its product candidates;
the willingness of physicians to change their current treatment practices;
convenience and ease of administration compared to alternative treatments;
the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
the strength of marketing and distribution support; and
the availability of third-party coverage or adequate reimbursement.
For example, a number of companies offer therapies for treatment of PGHD patients based on a daily injection-based regimen, and physicians, patients or their families may not be willing to change their current treatment practices in favor of LUM-201 even if it is able to eliminate daily injection dosing. If LUM-201 or any future product candidates, if approved, do not achieve an adequate level of acceptance, we may not generate significant product revenue and we may not become profitable on a sustained basis or at all.
In addition, in August 2021, the FDA approved a competitive treatment, the once-weekly injectable, Skytrofa, for the treatment of patients with PGHD, and other companies, including large worldwide pharmaceutical companies, are also currently developing products that provide weekly injection-based treatment for PGHD. With the approval of once-weekly injections, physicians, patients and their families may prefer a once weekly treatment option over LUM-201’s daily treatment if it is available to them.
LUM-201 has never been manufactured on a commercial scale, and there are risks associated with scaling up manufacturing to commercial scale. We have arranged for production of LUM-201 by a third-party manufacturer, which may not be successful, and this could delay regulatory approval and commercialization of LUM-201.
We have an existing supply of the LUM-201 API obtained in connection with the APA by and between Lumos and Ammonett and the Lumos Merck Agreement entered into in November 2014 with Merck that we believe will be sufficient for our OraGrowtH210 Trial. The LUM-201 API has never been manufactured by a manufacturing site other than Merck on a commercial scale, and there are risks associated with the scaling up of the manufacturing process to commercial scale including, among others, cost overruns, potential problems with process scale-up, process reproducibility, stability issues, lot consistency, and timely availability of raw materials. Even if we could otherwise obtain regulatory approval for LUM-201, there is no assurance that the manufacturer we have arranged will be able to manufacture the approved product to specifications acceptable to the FDA or other regulatory authorities, to produce it in sufficient quantities to meet the requirements for the potential launch of the product or to meet potential future demand. If the manufacturer is unable to begin production in a timely and efficient manner or produce sufficient quantities of the approved product for commercialization, our commercialization efforts would be impaired, which would have an adverse effect on our business, financial condition, results of operations and growth prospects.
Our failure to successfully identify, acquire, develop and commercialize additional products or product candidates could impair our ability to grow.
Although a substantial amount of our efforts will focus on the continued clinical testing and potential approval of our product candidate, LUM-201, a key element of its long-term growth strategy is to acquire, develop, and/or market additional products and product candidates. Research programs to identify product candidates require substantial technical, financial and human resources, whether or not any product candidates are ultimately identified. Because our internal research capabilities are limited, we may be dependent upon pharmaceutical and biotechnology companies, academic scientists and other researchers to


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sell or license products or technology to us. The success of this strategy depends partly upon our ability to identify, select and acquire promising pharmaceutical product candidates and products. The process of proposing, negotiating and implementing a license or acquisition of a product candidate or approved product is lengthy and complex. Other companies, including some with substantially greater financial, marketing and sales resources, may compete with us for the license or acquisition of product candidates and approved products. We have limited resources to identify and execute the acquisition or in-licensing of third-party products, businesses and technologies and integrate them into its current infrastructure. Moreover, we may devote resources to potential acquisitions or in-licensing opportunities that are never completed, or we may fail to realize the anticipated benefits of such efforts. Any product candidate that we acquire may require additional development efforts prior to commercial sale, including extensive clinical testing and approval by the FDA and applicable foreign regulatory authorities. All product candidates are prone to risks of failure typical of pharmaceutical product development, including the possibility that a product candidate will not be shown to be sufficiently safe and effective for approval by regulatory authorities. In addition, we cannot provide assurance that any products that we develop or approved products that we acquire will be manufactured profitably or achieve market acceptance.
We currently have no sales or distribution personnel and only limited marketing capabilities. If we are unable to develop a sales and marketing and distribution capability on our own or through collaborations or other marketing partners, we will not be successful in commercializing LUM-201 or other future products.
We do not have sales or marketing infrastructure and have no experience in the sale, marketing or distribution of therapeutic products. To achieve commercial success for any approved product, we must either develop a sales and marketing organization or outsource these functions to third parties. If LUM-201 is approved, we currently initially intend to commercialize it with our own specialty sales force in the United States, the European Union, and potentially other geographies.
There are risks involved with both establishing our own sales and marketing capabilities and entering into arrangements with third parties to perform these services. For example, recruiting and training a sales force is expensive and time-consuming and could delay any product launch. Recent labor market dynamics have resulted in fewer candidates available to fill employment openings and us having to offer higher wages. As such, recruiting and retaining employees has become more difficult and, in some cases, we may not be able to obtain suitable candidates on acceptable terms to fill open positions. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.
We also may not be successful entering into arrangements with third parties to sell and market our product candidates or may be unable to do so on terms that are favorable to us. We likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively and could damage our reputation. If we do not establish sales and marketing capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our product candidates.
We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.
The development and commercialization of new therapeutic products is highly competitive. We face competition with respect to LUM-201 and will face competition with respect to any product candidates that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. There are several large pharmaceutical and biotechnology companies that currently market and sell rhGH therapies to our target patient group. These companies typically have a greater ability to reduce prices for their competing drugs to gain or retain market share and undermine the value proposition that we might otherwise be able to offer to payors. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization, as well as manufacturers and sellers of the LUM-201 compound that may sell the compound illegally or for other indications. Many of these competitors are attempting to develop therapeutics for our target indications.
We are developing our product candidate, LUM-201, for treatment of a subset of PGHD patients based on a once daily weight-based oral dosing regimen. The current standard of care for growth therapies for patients in the United States is a daily subcutaneous injection of rhGH. There are a variety of currently marketed rhGH therapies administered by daily subcutaneous injection and used for the treatment of GHD, principally Norditropin® (Novo Nordisk A/S (“Novo Nordisk”)), Humatrope® (Eli Lilly and Company), Nutropin-AQ® (F. Hoffman-La Roche Ltd./Genentech, Inc.), Genotropin® (Pfizer Inc.), Saizen® (Merck Serono S.A.), Tev-tropin® (Teva Pharmaceuticals Industries Ltd.), Omnitrope® (Sandoz GmbH), Valtropin® (LG Life Science and Biopartners GmbH), Zomacton® (Ferring Pharmaceuticals, Inc.), and Skytrofa®(Ascendis Pharma). These rhGH


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drugs, apart from Valtropin and the recently approved Skytrofa, are well-established therapies and are widely accepted by physicians, patients, caregivers, third-party payors and pharmacy benefit managers (“PBMs”), as the standard of care for the treatment of GHD. Physicians, patients, third-party payors and PBMs may not accept the addition of LUM-201 to their current treatment regimens for a variety of potential reasons, including concerns about incurring potential additional costs related to LUM-201, the perception that the use of LUM-201 will be of limited additional benefit to patients, or limited long-term safety data compared to currently available rhGH treatments.
In addition to the currently approved and marketed daily rhGH therapies, there are a variety of experimental therapies and devices that are in various stages of clinical development by companies already participating in the rhGH market as well as potential new entrants, principally Novo Nordisk, Genexine Inc. and OPKO Health, Inc. (in collaboration with Pfizer). During the fourth quarter of 2021, OPKO Health Inc.'s NGENLA® (somatrogon), a once-weekly injectable long-acting human growth hormone molecule, was granted regulatory approvals in Europe, Japan, Australia and Canada and became commercially available in Canada during the first quarter of 2022.
Many of our competitors, including a number of large pharmaceutical companies that compete directly with us, have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical, biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.
We may form strategic alliances in the future, and we may not realize the benefits of such alliances.
We may form strategic alliances, create joint ventures or collaborations or enter into licensing arrangements with third parties that we believe will complement or augment our business. These relationships or those like them may require us to incur non-recurring and other charges, increase our near-term and long-term expenditures, issue securities that dilute our existing stockholders or disrupt our management and business. In addition, we face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish a strategic partnership or other alternative arrangements for LUM-201 or any future product candidates and programs because our research and development pipeline may be insufficient, our product candidates and programs may be deemed to be at too early of a stage of development for collaborative effort and third parties may not view our product candidates and programs as having the requisite potential to demonstrate safety and efficacy. If we license products or businesses, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company culture. We cannot be certain that, following a strategic transaction or license, we will achieve the revenues or specific net income that justifies such a transaction. Any delays in entering into new strategic partnership agreements related to our product candidates could also delay the development and commercialization of our product candidates and reduce their competitiveness even if they reach the market.
If we are able to commercialize LUM-201 or any future product candidates, the products may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, thereby harming our business.
The regulations that govern marketing approvals, pricing and reimbursement for new therapeutic products vary widely from country to country. Some countries require approval of the sale price of a product before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain regulatory approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product and negatively impact the revenue we are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if our product candidates obtain regulatory approval.
Our ability to commercialize LUM-201 or any future products successfully also will depend on the extent to which reimbursement for these products and related treatments becomes available from government health administration authorities, private health insurers and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. A primary trend in the United States healthcare industry and elsewhere is cost containment. Government authorities and these third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. We cannot be sure that reimbursement will be available for


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any product that we commercialize and, if reimbursement is available, what the level of reimbursement will be. Reimbursement may impact the demand for, or the price of, any product for which we obtain marketing approval. Obtaining reimbursement for our products may be particularly difficult because of the higher prices often associated with products administered under the supervision of a physician. If reimbursement is not available or is available only to limited levels, we may not be able to successfully commercialize any product candidate that we successfully develop.
There may be significant delays in obtaining reimbursement for approved products, and coverage may be more limited than the purposes for which the product is approved by the FDA or regulatory authorities in other countries. Moreover, eligibility for reimbursement does not imply that any product will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim payments for new products, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Payment rates may vary according to the use of the product and the clinical setting in which it is used, may be based on payments allowed for lower cost products that are already reimbursed and may be incorporated into existing payments for other services. Net prices for products may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of products from countries where they may be sold at lower prices than in the United States. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and profitable payment rates from both government funded and private payors for new products that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition. In some foreign countries, including major markets in the European Union and Japan, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take nine to 12 months or longer after the receipt of regulatory marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product to other available therapies. Our business could be materially harmed if reimbursement of our approved products, if any, is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels.
Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of any products that we may develop.
We face an inherent risk of product liability exposure related to the testing of LUM-201 and any future product candidates in human clinical trials and will face an even greater risk if we commercially sell any products that we may develop. If we cannot successfully defend ourselves against claims that our product candidates or products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
decreased demand for any product candidates or products that we may develop;
injury to our reputation and significant negative media attention;
withdrawal of patients from clinical trials or cancellation of trials;
significant costs to defend the related litigation;
substantial monetary awards to patients;
loss of revenue; and
the inability to commercialize any products that we may develop.
Any product liability insurance coverage we may obtain in the future may not be adequate to cover all liabilities that we may incur. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.
We have agreed not to develop or seek to commercialize any products in the dermatological field, or the fields of Parkinson’s, Huntington’s and ALS diseases.
Pursuant to the terms of our settlement agreement with The Avicena Group, Inc. and its Chief Executive Officer, we have agreed not to, among other things, develop, commercialize, market, sell, license, transfer or otherwise exploit any substance, therapeutic, diagnostic or other methodology in the dermatological field or the fields of Parkinson’s, Huntington’s and ALS diseases for a period of 25 years, beginning on November 19, 2012. As a result, we may be limited in our ability to develop or collaborate on products in those fields, and we could miss valuable future opportunities thus potentially adversely affecting our financial results, business and business prospects.


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Under the worldwide license and collaboration agreement between NewLink and Merck, dated November 2014 (the “NewLink Merck Agreement”), future royalty obligations may exceed any future limited revenues, if any, from any future sales of ERVEBO®.
Even now that ERVEBO® has been approved and we have received limited revenues from sales of ERVEBO®, a number of factors may adversely affect commercial sales of such product and any future revenues under the NewLink Merck Agreement. For example, lack of familiarity with the viral vaccine and potential adverse events associated with vaccination may adversely affect physician and patient perception and uptake of such product. Furthermore, there are no assurances that the vaccine will be approved for inclusion in government stockpile programs, which may be material to the commercial success of the product candidate, either in the United States or abroad. Finally, in certain cases, our obligations to pay royalties to the Public Health Agency of Canada (“PHAC”) may exceed the royalties we receive from Merck.
Some of our product candidates have been studied, or in the future may be studied, in clinical trials co-sponsored by organizations or agencies other than us, or in investigator-initiated clinical trials, which means we have little control over the conduct of such trials.
We have in the past and currently supply indoximod in support of Phase 2 investigator-initiated clinical trials. Our Ebola vaccine product candidate was studied in clinical trials in West Africa. Additionally, we have agreed to supply NLG919 and NLG802 for future investigator-initiated clinical trials. We also recently announced a clinical collaboration with Massachusetts General Hospital to evaluate oral LUM-201 in nonalcoholic fatty liver disease. We may continue to supply and otherwise support similar trials in the future. However, because we are not the sponsors of these trials, we do not control the protocols, administration or conduct of these trials, including follow-up with patients and ongoing collection of data after treatment, and, as a result, are subject to risks associated with the way these types of trials are conducted, in particular should any problems arise. These risks include difficulties or delays in communicating with investigators or administrators, procedural delays and other timing issues and difficulties or differences in interpreting data.
Risks Related to the Operation of our Business
Our future success depends on our ability to retain our chief executive officer, president and other key members of our management team and to attract, retain and motivate qualified personnel.
We are highly dependent on our chief executive officer, our president and the other members of our management team. Under the terms of their employment, our executives may terminate their employment with us at any time. The loss of the services of any of these people could impede the achievement of our research, development and commercialization objectives.
Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel will also be critical to our success. We may not be able to attract and retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. Recent labor market dynamics have resulted in fewer candidates available to fill employment openings and us having to offer higher wages. As such, recruiting and retaining employees has become more difficult and, in some cases, we may not be able to obtain suitable candidates on acceptable terms to fill open positions. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating its research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.
We expect to expand our development, regulatory and sales and marketing capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.
As of June 30, 2022, we had 32 employees. Over the next several years, we expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of drug development, regulatory affairs, commercial development and sales and marketing. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. We may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The physical expansion of our operations may lead to significant costs and may divert our management and business development resources. Future growth would impose significant added responsibilities on members of management, including:
managing our clinical trials effectively, which we anticipate being conducted at numerous clinical sites;


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identification, recruitment, and the integration of additional employees we may require with the expertise and experience to support our future growth;
management of our internal development efforts effectively while complying with our contractual obligations to licensors, licensees, contractors and other third parties;
managing any future additional relationships with various strategic partners, suppliers and other third parties; and
improving our managerial, development, operational and finance reporting systems and procedures.
Our failure to accomplish any of these tasks could prevent us from successfully growing. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.
Business disruptions could seriously harm our clinical trials, future revenue and financial condition and increase our costs and expenses.
In addition to the disruptions we may face as a result of the COVID-19 pandemic, our operations or those of our vendors or clinical trials, could be subject to earthquakes, power shortages, telecommunications failures, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or manmade disasters or business interruptions. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses.
If we obtain approval to commercialize LUM-201 outside the United States, we will be subject to additional risks.
If we obtain approval to commercialize any approved products outside of the United States, a variety of risks associated with international operations could materially adversely affect our business, including:
different regulatory requirements for drug approvals and pricing and reimbursement regimes in foreign countries;
reduced protection for intellectual property rights;
unexpected changes in tariffs, trade barriers and regulatory requirements;
economic weakness, including inflation or political instability in particular foreign economies and markets;
compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
foreign taxes, including withholding of payroll taxes;
foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country;
potential liability under the U.S. Foreign Corrupt Practices Act or comparable foreign regulations;
workforce uncertainty in countries where labor unrest is more common than in the United States;
production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods and fires.
Our internal computer systems, or those of our CROs or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our drug development programs.
Despite the implementation of security measures, our internal computer systems and those of our CROs and other contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not, to our knowledge, experienced any such system failure, accident or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our drug development programs. For example, the loss of clinical trial data from completed or ongoing clinical trials for a product candidate could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development of any product candidates could be delayed.


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Our business and operations would suffer in the event of system failures, security breaches or cyber-attacks.
Our computer systems, as well as those of various third parties on which we will rely, including CROs and other contractors, consultants, and law and accounting firms, may sustain damage from computer viruses, unauthorized access, data breaches, phishing attacks, cybercriminals, natural disasters, terrorism, war and telecommunication and electrical failures. We will rely on third-party providers to implement effective security measures and identify and correct for any such failures, deficiencies or breaches. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. We may in the future experience material system failures or security breaches that could cause interruptions in our operations or result in a material disruption of our drug development programs. For example, the loss of nonclinical or clinical trial data from completed, ongoing or planned trials could result in delays in our regulatory approval efforts and significantly increase costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of or damage to our data or applications, or inappropriate disclosure of personal, confidential or proprietary information, we could incur liability and the further development of our product candidates could be delayed.
Our employees, independent contractors and consultants, principal investigators, CROs, CMOs and other vendors, and any future commercial partners may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could cause significant liability for us and harm our reputation.
We are exposed to the risk that our employees, independent contractors and consultants, principal investigators, CROs, contract marketing organizations ("CMOs") and other vendors, and any future commercial partners may engage in fraudulent conduct or other misconduct, including intentional failures to comply with FDA regulations or similar regulations of comparable foreign regulatory authorities, to provide accurate information to the FDA or comparable foreign regulatory authorities, to comply with our manufacturing standards or those required by cGMP, to comply with federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established and enforced by comparable foreign regulatory authorities, and to report financial information or data accurately or disclose unauthorized activities to them. The misconduct of our employees and other service providers could involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We have implemented a code of business ethics and conduct, but it is not always possible to identify and deter such misconduct, and the precautions we take to detect and prevent this activity, such as the implementation of a quality system which entails vendor audits by quality experts, may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations, including the imposition of significant fines or other sanctions. For example, if one of our manufacturing partners was placed under a consent decree, we may be hampered in our ability to manufacture clinical or commercial supplies.
If we fail to fulfill our obligations under our contractual commitments, our counterparties could terminate the applicable agreements or make claims against us, which could have a materially adverse effect on us.
Under our license agreement with Merck and its APA with Ammonett, we are obligated to use commercially reasonable and diligent efforts to develop and commercialize LUM-201. We are also obligated to make substantial milestone payments and royalties to both Merck and Ammonett, which may limit our future profitability and our ability to enter into marketing partnership agreements. If we fail to fulfill our obligations under our contractual commitments to Merck, Ammonett, or any other counterparty, the counterparties could terminate the exclusive, worldwide license and collaboration agreement entered into in November 2014, the Lumos Merck Agreement, or make claims against us under both agreements, which could have a materially adverse effect on our business, results of operations and prospects.
We rely on third parties to conduct our clinical trials, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials.
We do not independently conduct clinical trials. We rely on third parties, such as CROs, clinical data management organizations, medical institutions and clinical investigators, to perform this function. Our reliance on these third parties for clinical development activities reduces our control over these activities but does not relieve us of our responsibilities. We remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires us to comply with standards, commonly referred to as GCP, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of patients in clinical trials are protected. Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors. If these third parties do not successfully


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carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, regulatory approvals for our product candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize our product candidates.
We also rely on other third parties to store and distribute supplies for our clinical trials. Any performance failure on the part of our existing or future distributors could delay clinical development or regulatory approval of our product candidates or commercialization of our products, producing additional losses and depriving us of potential product revenue.
We currently rely and may continue to rely on a single third-party CMO to manufacture and supply LUM-201. If our manufacturer and supplier fail to perform adequately or fulfill our needs, we may be required to incur significant costs and devote significant efforts to find a new supplier or manufacturer. We may also face delays in the development and commercialization of our product candidates.
We currently have limited experience in, and we do not own facilities for, clinical-scale manufacturing of our sole product candidate, LUM-201, and we currently rely and may continue to rely upon a single third-party CMO to manufacture and supply drug product for our clinical trials of LUM-201. The manufacture of pharmaceutical products in compliance with the FDA’s cGMP requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of pharmaceutical products often encounter difficulties in production, including difficulties with production costs, yields, and quality control, including stability of the product candidate and quality assurance testing, shortages of qualified personnel, as well as compliance with strictly enforced cGMP requirements, other federal and state regulatory requirements and foreign regulations. If any manufacturer contracted by us were to encounter any of these difficulties or otherwise fail to comply with its obligations to us or under applicable regulations, our ability to provide study drugs in our clinical trials would be jeopardized. Any delay or interruption in the supply of clinical trial materials could delay the completion of our clinical trials, increase the costs associated with maintaining our clinical trial programs and, depending upon the period of delay, require us to commence new trials at significant additional expense or terminate the trials completely.
All manufacturers of our product candidates must comply with cGMP requirements enforced by the FDA through our facilities inspection program. These requirements include, among other things, quality control, quality assurance and the maintenance of records and documentation. Manufacturers of our product candidates may be unable to comply with these cGMP requirements and with other FDA, state and foreign regulatory requirements. The FDA or similar foreign regulatory agencies may also implement new standards at any time, or change their interpretation and enforcement of existing standards for manufacture, packaging or testing of products. We have little control over our manufacturers’ compliance with these regulations and standards. A failure to comply with these requirements may result in fines and civil penalties, suspension of production, suspension or delay in clinical trial and product approval, product seizure or recall or withdrawal of product approval. If the safety of any product supplied is compromised due to our manufacturers’ failure to adhere to applicable laws or for other reasons, we may not be able to obtain regulatory approval for or successfully commercialize our products and we may be held liable for any injuries sustained as a result. Any of these factors could cause a delay of clinical trials, regulatory submissions, approvals or commercialization of our product candidates, entail higher costs or impair our reputation.
The number of third-party manufacturers with the necessary manufacturing and regulatory expertise and facilities is limited, and it could be expensive and take a significant amount of time to arrange for alternative suppliers, which could have a material adverse effect on our business. New manufacturers of any product candidate would be required to qualify under applicable regulatory requirements and would need to have sufficient rights under applicable intellectual property laws to the method of manufacturing the product candidate. Obtaining the necessary FDA approvals or other qualifications under applicable regulatory requirements and ensuring non-infringement of third-party intellectual property rights could result in a significant interruption of supply and could require the new manufacturer to bear significant additional costs that may be passed on to us.


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Any future collaboration agreements we may enter into for LUM-201 or any other product candidate may place the development of LUM-201 or other product candidates outside our control, may require us to relinquish important rights or may otherwise be on terms unfavorable to us.
We may enter into collaboration agreements with third pa