UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

OR

☐    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: 001-39592

Kronos Bio, Inc.

(Exact name of registrant as specified in its charter)

Delaware	82-1895605
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

1300 So. El Camino Real, Suite 300

San Mateo, California 94402

(650) 781-5200

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.001 par value per share	KRON	The Nasdaq Stock Market LLC

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 or ☒ No.

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Smaller reporting company	☐
Non-accelerated filer	☒	Accelerated filer	☐
		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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes or ☒ No

As of November 16, 2020, the registrant had 56,033,504 shares of common stock, $0.001 par value per share, outstanding.

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited):
	Condensed Balance Sheets as of September 30, 2020 and December 31, 2019	3
	Condensed Statements of Operations and Comprehensive Loss for the Three and Nine Months ended September 30, 2020 and 2019	4
	Condensed Statements of Convertible Preferred Stock and Stockholders’ Deficit for the Three and Nine Months Ended September 30, 2020 and 2019	5
	Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019	7
	Notes to Condensed Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4.	Controls and Procedures	45
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	46
Item 1A.	Risk Factors	47
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	109
Item 6.	Exhibits	112
	Signatures	113

2

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

KRONOS BIO, INC.

Condensed Balance Sheets

(Unaudited)

(in thousands, except share and per share amounts)

	September 30, 2020		December 31, 2019
Assets			(1)
Current assets:
Cash and cash equivalents	$	156,196	$	32,570
Short-term investments	55,069		59,614
Prepaid expenses and other current assets	1,628		1,119
Total current assets	212,893		93,303
Long-term investments	4,774		4,762
Property and equipment, net	10,301		3,721
Operating lease right-of-use assets	29,355		473
Restricted cash	2,026		—
Other noncurrent assets	3,207		427
Total assets	$	262,556	$	102,686
Liabilities, convertible preferred stock and stockholders' deficit
Current liabilities:
Accounts payable	$	4,443	$	1,506
Accrued expenses	1,780		818
Convertible notes payable, at fair value	173,944		—
Current portion of operating lease liabilities	1,300		285
Current portion of other liabilities	2,137		88
Total current liabilities	183,604		2,697
Noncurrent operating lease liabilities	29,484		211
Other noncurrent liabilities	2,841		74
Total liabilities	215,929		2,982
Commitments and contingencies (Note 13)
Convertible preferred stock, $0.001 par value; 21,506,977 and 21,506,977 shares authorized as of September 30, 2020 and December 31, 2019, respectively; 21,504,893 and 21,504,893 share issued and outstanding as of September, 2020 and December 31, 2019, respectively; $123,016 and $123,016 liquidation preference as of September 30, 2020 and December 31, 2019, respectively.	122,907		122,907
Stockholder's equity:
Common stock, $0.001 par value, 40,000,000 and 40,000,000 shares authorized as of September 30, 2020 and December 31, 2019 respectively; 6,284,326 and 5,660,391 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively.	6		6
Additional paid-in capital	2,416		271
Accumulated deficit	(78,749)		(23,462)
Accumulated other comprehensive income (loss)	47		(18)
Total stockholders' deficit	(76,280)		(23,203)
Total liabilities, convertible preferred stock and stockholders’ deficit	$	262,556	$	102,686

(1) The balance sheet as of December 31, 2019 is derived from the audited financial statements as of that date.

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

3

KRONOS BIO, INC.

Condensed Statements of Operations and Comprehensive Loss

(Unaudited)

(in thousands, except share and per share amounts)

	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Operating expenses:
Research and development	$	16,755	$	3,526	$	30,125	$	8,698
General and administrative	4,054		797		6,831		2,262
Total operating expenses	20,809		4,323		36,956		10,960
Loss from operations	(20,809)		(4,323)		(36,956)		(10,960)
Other income (expense), net:
Change in fair value of convertible notes payable	(15,215)		—		(15,215)		—
Interest expense	(3,889)		(1)		(3,890)		(3)
Interest and other income, net	200		311		774		311
Total other income (expense), net	(18,904)		310		(18,331)		308
Net loss	(39,713)		(4,013)		(55,287)		(10,652)
Other comprehensive income (loss):
Net unrealized gain (loss) on available-for-sale securities	(117)		—		65		—
Net comprehensive loss	$	(39,830)	$	(4,013)	$	(55,222)	$	(10,652)
Net loss per share, basic and diluted	$	(6.48)	$	(0.74)	$	(9.39)	$	(2.05)
Weighted-average shares of common stock, basic and diluted	6,127,146		5,409,433		5,886,191		5,196,681

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

4

KRONOS BIO, INC.

Condensed Statements of Convertible Preferred Stock and Stockholders’ Deficit

(Unaudited)

(in thousands, except share and per share data)

	Convertible Preferred Stock			Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Deficit
	Shares	Amount		Shares	Amount
Balance at December 31, 2018	7,806,977	$	17,985	4,966,227	$	5	$	44	$	—	$	(7,345)	$	(7,296)
Issuance of common stock upon vesting and exercise of options and vesting of restricted stock	—	—		29,704	—		1		—		—		1
Stock-based compensation expense	—	—			—		16		—		—		16
Net loss	—	—			—		—		—		(3,130)		(3,130)
Balance at March 31, 2019	7,806,977	$	17,985	4,995,931	$	5	$	61	$	—	$	(10,475)	$	(10,409)
Issuance of common stock upon vesting and exercise of options and vesting of restricted stock	—	—		386,239	—		45		—		—		45
Stock-based compensation expense	—	—		—	—		21		—		—		21
Issuance of Series A convertible preferred stock at $7.67 per share, net of issuance costs of $70	7,142,488	54,680		—	—		—		—		—		—
Net loss	—	—		—	—		—		—		(3,509)		(3,509)
Balance at June 30, 2019	14,949,465	$	72,665	5,382,170	$	5	$	127	$	—	$	(13,984)	$	(13,852)
Issuance of common stock upon vesting and exercise of options and vesting of restricted stock	—	—		106,091	—		11		—		—		11
Stock-based compensation expense	—	—		—	—		23		—		—		23
Issuance of Series A convertible preferred stock at $7.67 per share, net of issuance costs of $78	6,555,428	50,242		—	—		—		—		—		—
Net loss	—	—		—	—		—		—		(4,013)		(4,013)
Balance at September 30, 2019	21,504,893	$	122,907	5,488,261	$	5	$	161	$	—	$	(17,997)	$	(17,831)

5

KRONOS BIO, INC.

Condensed Statements of Convertible Preferred Stock and Stockholders’ Deficit

(Unaudited)

(in thousands, except share and per share data)

	Convertible Preferred Stock			Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Deficit
	Shares	Amount		Shares	Amount
Balance at December 31, 2019	21,504,893	$	122,907	5,660,391	$	6	$	271	$	(18)	$	(23,462)	$	(23,203)
Issuance of common stock upon vesting and exercise of options and vesting of restricted stock	—	—		119,939	—		20		—		—		20
Stock-based compensation expense	—	—		—	—		188		—		—		188
Net unrealized gain on available-for-sale securities	—	—		—	—		—		158		—		158
Net loss	—	—		—	—		—		—		(6,995)		(6,995)
Balance at March 31, 2020	21,504,893	$	122,907	5,780,330	$	6	$	479	$	140	$	(30,457)	$	(29,832)
Issuance of common stock upon vesting and exercise of options and vesting of restricted stock	—	—		171,713	—		113		—		—		113
Stock-based compensation expense	—	—		—	—		293		—		—		293
Net unrealized gain on available-for-sale securities	—	—		—	—		—		24		—		24
Net loss	—	—		—	—		—		—		(8,579)		(8,579)
Balance at June 30, 2020	21,504,893	$	122,907	5,952,043	$	6	$	885	$	164	$	(39,036)	$	(37,981)
Issuance of common stock upon vesting and exercise of options and vesting of restricted stock	—	—		332,283	—		278		—		—		278
Stock-based compensation expense	—	—		—	—		1,253		—		—		1,253
Net unrealized loss on available-for-sale securities	—	—		—	—		—		(117)		—		(117)
Net loss	—	—		—	—		—		—		(39,713)		(39,713)
Balance at September 30, 2020	21,504,893	$	122,907	6,284,326	$	6	$	2,416	$	47	$	(78,749)	$	(76,280)

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

6

KRONOS BIO, INC.

Condensed Statements of Cash Flows

(Unaudited)

(in thousands)

	Nine months ended September 30,
	2020		2019
Cash flows from operating activities:
Net loss	$	(55,287)	$	(10,652)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization	539		215
Net amortization/accretion on available-for-sale securities	105		—
Change in accrued interest on available-for-sale securities	71		—
Stock-based compensation expense	1,734		60
Noncash lease expense	1,994		183
Change in fair value of convertible notes payable	15,215		—
Debt issuance costs on convertible notes payable	3,889		—
Acquired in-process research and development	3,565		—
Changes in operating assets and liabilities:
Prepaid expenses and other current assets	(493)		(271)
Other long-term assets	150		(152)
Accounts payable	1,129		258
Accrued expenses	879		434
Right-of-use operating assets and liabilities, net	(588)		(183)
Other liabilities	4,816		(32)
Net cash used in operating activities	(22,282)		(10,140)
Cash flows from investing activities:
Purchase of property and equipment	(5,886)		(2,311)
Purchase of available-for-sale securities	(41,205)		—
Maturities of available-for-sale securities	45,611		—
Net cash used by investing activities	(1,480)		(2,311)
Cash flows from financing activities:
Principal payments on finance lease	(24)		(22)
Proceeds from issuance of common stock	411		56
Proceeds from issuance of preferred stock, net of financing fees	—		104,929
Proceeds from issuance of convertible notes, net of issuance costs	151,275		—
Payments of deferred offering costs	(2,248)		—
Net cash provided by financing activities	149,414		104,963
Net increase in cash and cash equivalents	125,652		92,512
Cash, cash equivalents and restricted cash at beginning of period	32,570		10,226
Cash, cash equivalents and restricted cash at end of period	$	158,222	$	102,738
Supplemental disclosures of non-cash activities:
Property and equipment additions included in accounts payable and accrued expenses	$	1,325	$	478
Right-of-use asset obtained in exchange for operating lease liability	$	30,898	$	—
Deferred offering costs included in accounts payable and accrued expenses	$	682	$	—
Preferred stock issuance costs in accounts payable and accrued expenses	$	—	$	8

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

7

KRONOS BIO, INC.

Notes to Condensed Financial Statements

(Unaudited)

1.NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Kronos Bio, Inc. (Kronos or the Company), a Delaware corporation, was incorporated on June 2, 2017. The Company is a clinical-stage biopharmaceutical company dedicated to the discovery and development of novel cancer therapeutics designed to transform patient outcomes through a precision medicine strategy by targeting dysregulated transcription.

The Company operates in one business segment, the development of biopharmaceutical products.

Initial Public Offering

In October 2020, the Company completed an initial public offering (IPO) of its common stock. In connection with its IPO, the Company issued and sold 15,131,579 shares of its common stock, which included 1,973,684 shares of its common stock issued and sold pursuant to the full exercise of the underwriters’ option to purchase additional shares, at a price to the public of $19.00 per share. As a result of the IPO, the Company received approximately $263.9 million in net proceeds, after deducting underwriting discounts and commissions of $20.1 million and offering expenses of approximately $3.5 million payable by the Company. At the closing of the IPO, 21,504,893 shares of outstanding convertible preferred stock were automatically converted to 22,687,625 shares of common stock and the 2020 Notes (See Note 15) were automatically converted into 9,610,713 shares of common stock. At the closing of the IPO, the Gilead Note (See Note 13) was also converted into 188,567 shares of common stock. Following the IPO, there were no shares of convertible preferred stock outstanding. As of September 30, 2020, the Company had incurred $2.9 million of deferred offering costs, which will be offset against the net proceeds received from the sale of common stock.

Need for Additional Capital

The Company has incurred net operating losses since its inception of $78.7 million as of September 30, 2020. The Company expects that its cash, cash equivalents and investments as of September 30, 2020, in addition to its approximate net cash proceeds of $263.9 million from the Company’s IPO, which closed on October 14, 2020, will enable it to fund its planned operating expenses and capital expenditure requirements for at least one year from the date of issuance of these condensed financial statements. Management expects to incur additional losses in the future to fund its operations and conduct product research and development and recognizes the need to raise additional capital to fully implement its business plan.

The Company intends to raise additional capital through the issuance of equity securities, debt financings or other sources in order to further implement its business plan. However, if such financing is not available when needed and at adequate levels, the Company will need to reevaluate its operating plan and may be required to delay the development of its product candidates. The Company expects that its cash and cash equivalents and investments will be sufficient to fund its operations for a period of at least one year from the date the accompanying unaudited condensed consolidated financial statements are filed with the Securities and Exchange Commission (SEC).

In March 2020, the World Health Organization declared the global novel coronavirus disease (COVID-19) outbreak a pandemic. The Company cannot at this time predict the specific extent, duration, or full impact that the COVID-19 pandemic will have on its financial condition and operations, including ongoing and planned clinical trials. The impact of the COVID-19 pandemic on the financial performance of the Company will depend on future developments, including the duration and spread of the pandemic and related governmental advisories and restrictions. These developments and the impact of the COVID-19 pandemic on the financial markets and the overall economy are highly uncertain. If the financial markets and/or the overall economy are impacted for an extended period, the Company’s results may be adversely affected.

8

KRONOS BIO, INC.

Notes to Condensed Financial Statements

(Unaudited)

The future viability of the Company is dependent on its ability to generate cash from operating activities or to raise additional capital to finance its operations. The Company’s failure to raise capital as and when needed could have a material adverse effect on its financial condition and ability to pursue business strategies. The Company may not be able to obtain financing on acceptable terms, or at all, and the Company may not be able to enter into collaboration arrangements or obtain government grants. The terms of any financing may adversely affect the holdings or the rights of the Company’s stockholders. If the Company is unable to obtain funding, the Company could be forced to delay, reduce, or eliminate its research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect its business prospects. In the event that the Company requires additional funding, there can be no assurance that it will be successful in obtaining sufficient funding on terms acceptable to the Company to fund its continuing operations, if at all.

Forward Stock Split

On October 2, 2020, the Company filed an amendment to the Company’s amended and restated certificate of incorporation to effect a forward split of shares of the Company’s common stock on a 1.055-for-1 basis (the Forward Stock Split). In connection with the Forward Stock Split, the conversion ratio for the Company’s outstanding convertible preferred stock was proportionally adjusted such that the common stock issuable upon conversion of such preferred stock was increased in proportion to the Forward Stock Split. The par value of the common stock was not adjusted as the result of the Forward Stock Split. All references to common stock, options to purchase common stock, early exercised options, share data, per share data, convertible preferred stock (to the extent presented on an as-converted to common stock basis) and related information contained in these condensed financial statements have been retrospectively adjusted to reflect the effect of the Forward Stock Split for all periods presented.

2.SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGMENTS

Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and pursuant to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

Unaudited Interim Financial Information

The accompanying balance sheet as of September 30, 2020, the statements of operations and comprehensive loss for the three and nine months ended September 30, 2020 and 2019, the statements of convertible preferred stock and stockholders’ deficit as of September 30, 2020 and 2019, the statements of cash flows for the nine months ended September 30, 2020 and 2019, and the financial data and other financial data and other information disclosed to in the notes to the condensed financial statements are unaudited. The unaudited interim financial statements have been prepared on a basis consistent with the Company’s audited annual financial statements and, in the opinion of management, reflect all adjustments, consisting solely of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of September 30, 2020 and the results of its operations the three and nine months ended September 30, 2020 and 2019. The results for the three and nine months ended September 30, 2020 are not necessarily indicative of results to be expected for the year ending December 31, 2020, any other interim periods, or any future year or period. These financial statements should be read in conjunction with the Company's audited financial statements included in the prospectus dated October 8, 2020 that forms a part of the Company's Registration Statements on Form S-1 (File No. 333-248925), as filed with the SEC pursuant to Rule 424 promulgated under the Securities Act of 1933, as amended, on October 9, 2020.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods.

9

KRONOS BIO, INC.

Notes to Condensed Financial Statements

(Unaudited)

Significant estimates and assumptions reflected in these condensed financial statements include, but are not limited to, the accrual of research and development expenses, the fair value of convertible notes and investments, income tax uncertainties, the valuation of equity instruments and the incremental borrowing rate for determining the operating lease assets and liabilities. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Actual results could differ from the Company’s estimates.

The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including expenses, clinical trials and research and development costs, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19, as well as the economic impact on local, regional, national and international markets.

Research and Development Expenses

Research and development (R&D) expenses consist primarily of personnel costs, including salaries, benefits and stock-based compensation, discovery research performed by contract research organizations (CROs), materials and supplies, licenses and fees and overhead allocations consisting of various support and facility-related costs. The Company expenses R&D costs as the services are performed or the goods are received. Research and development expenses for the three and nine months ended September 30, 2020 included $6.6 million related to acquired intangible assets as research and development costs pursuant to the Asset Purchase Agreement with Gilead (See Note 13) as, at the time of acquisition of the asset, the technology was under development; was not approved by the U.S. Food and Drug Administration or other regulatory agencies for marketing; had not reached technical feasibility; or otherwise had no foreseeable alternative future use. There were no acquired intangible assets expensed for the three and nine months ended September 30, 2019.

CRO costs are a significant component of R&D expenses. The Company monitors levels of performance under each significant contract through communications with its CROs. The Company accrues costs for discovery research performed by CROs over the service periods specified in the contracts and adjusts our estimates, if required, based upon its ongoing review of the level of effort and costs actually incurred by the CROs. All of the Company’s material CRO contracts are terminable by the Company upon written notice and it is generally only liable for actual services completed by the CRO and certain non-cancellable expenses incurred at any point of termination.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less from the date of purchase to be cash equivalents.

Restricted Cash

The Company has deposited cash of $2.0 million as of September 30, 2020 to secure a letter of credit in connection with the lease of the 301 Binney facility (See Note 14). The Company has classified the restricted cash as a noncurrent asset on its balance sheets.

Concentration of Credit Risk and Other Risks and Uncertainties

Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist primarily of cash and cash equivalents and investments. The primary objectives for the Company’s investment portfolio are the preservation of capital and the maintenance of liquidity. The Company does not enter into any investment transaction for trading or speculative purposes.

10

KRONOS BIO, INC.

Notes to Condensed Financial Statements

(Unaudited)

The Company’s investment policy limits investments to certain types of instruments such as certificates of deposit, money market instruments, obligations issued by the U.S. government and U.S. government agencies as well as corporate debt securities, and places restrictions on maturities and concentration by type and issuer. The Company maintains cash balances in excess of amounts insured by the FDIC and concentrated within a limited number of financial institutions. The accounts are monitored by management and management believes that the financial institutions are financially sound, and, accordingly, minimal credit risk exists with respect to these financial institutions. As of September 30, 2020 and December 31, 2019, the Company has not experienced any credit losses in such accounts or investments.

The Company is subject to a number of risks common for biopharmaceutical companies, including, but not limited to, dependency on the clinical and commercial success of its product candidates, ability to obtain regulatory approval of its product candidates, the need for substantial additional financing to achieve its goals, uncertainty of broad adoption of its approved products, if any, by physicians and patients, significant competition, and untested manufacturing capabilities.

Investments

Investments are available-for-sale and are carried at estimated fair value. The Company’s valuations of available-for-sale securities are generally derived from independent pricing services based upon quoted prices in active markets for similar securities, with prices adjusted for yield and number of days to maturity, or based on industry models using data inputs, such as interest rates and prices that can be directly observed or corroborated in active markets. Management determines the appropriate classification of its investments in debt securities at the time of purchase. Investments with original maturities beyond three months at the date of purchase and which mature at, or less than 12 months from, the balance sheet date are classified as short-term investments.

Unrealized gains and losses are excluded from earnings and are reported as components of comprehensive loss. The Company periodically evaluates whether declines in fair values of its available-for-sale securities below their book value are other-than-temporary. This evaluation consists of several qualitative and quantitative factors regarding the severity and duration of the unrealized loss as well as the Company’s ability and intent to hold the available-for-sale security until a forecasted recovery occurs. Additionally, the Company assesses whether it has plans to sell the security or it is more likely than not that it will be required to sell any available-for-sale securities before recovery of its amortized cost basis. Realized gains and losses and declines in fair value judged to be other than temporary, if any, on available-for-sale securities are included in interest income (expense), net. The cost of investments sold is based on the specific-identification method. Interest income on investments is included in interest income (expense), net on the Company’s statements of operations and comprehensive loss.

Fair Value Measurement

Assets and liabilities recorded at fair value on a recurring basis in the balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:

Level 1—Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2—Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3— Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

11

KRONOS BIO, INC.

Notes to Condensed Financial Statements

(Unaudited)

The fair value estimates are made at a discrete point in time based on relevant market information and information about the financial instruments. Fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

As of September 30, 2020, the Company recorded both financial assets and financial liabilities requiring fair value measurement. The financial assets include cash equivalents and investments. The financial liabilities consist of the convertible promissory note (Gilead Note) from the Gilead Asset Purchase Agreement (See Note 13) and the convertible promissory notes (2020 Notes) sold in August 2020 (See Note 15).

As of December 31, 2019, the Company recorded financial assets, including cash equivalents, and investments, requiring fair value measurement. There were no financial liabilities as of December 31, 2019.

Fair Value Option

Under U.S. GAAP, the Company has the irrevocable option to report most financial assets and financial liabilities at fair value on an instrument by instrument basis, with changes in fair value reported in the statements of operations. The option was elected for the treatment of the Company’s convertible promissory note from the Gilead Asset Purchase Agreement entered into in July 2020 (See Note 13) and the convertible promissory notes (2020 Notes) sold in August 2020 (See Note 15) in order to more accurately reflect the economic value of the notes.

Property and Equipment, Net

Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization are recognized using the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements are amortized over the lesser of their useful lives or the remaining life of the lease. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation and amortization are removed from the balance sheet and the resulting gain or loss is reflected in operations in the period realized. Repairs and maintenance costs are expensed as incurred.

Estimated useful lives in years are generally as follows:

Description	Estimated Useful Life
Lab equipment	3 to 7 years
Leasehold improvements	Shorter of useful life or lease term

Deferred Offering Costs

Offering costs, including legal, accounting, and filing fees related to the IPO, were deferred and were offset against the offering proceeds upon the completion of the IPO. As of September 30, 2020, $2.9 million of deferred offering costs have been capitalized, which are included in the accompanying balance sheet within other noncurrent assets. There were no deferred offering costs recorded as of December 31, 2019.

Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (ROU) assets, current portion of operating lease liabilities, and noncurrent operating lease liabilities on the Company’s balance sheet. Finance leases are included in property and equipment, current portion of other liabilities, and other noncurrent liabilities on the balance sheet.

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KRONOS BIO, INC.

Notes to Condensed Financial Statements

(Unaudited)

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments and initial direct costs incurred, net of lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company elected to exclude from its balance sheets recognition of leases having a term of 12 months or less (short-term leases) and elected to not separate lease components and non-lease components for its long-term real-estate leases.

Impairment of Long-Lived Assets

Long-lived assets, including property and equipment, are reviewed for impairment whenever facts or circumstances either internally or externally may suggest that the carrying value of an asset or asset group may not be recoverable. Should there be an indication of impairment, the Company tests for recoverability by comparing the estimated undiscounted future cash flows expected to result from the use of the asset or asset group and its eventual disposition to the carrying amount of the asset or asset group. Any excess of the carrying value of the asset or asset group over its estimated fair value is recognized as an impairment loss.

Stock-Based Compensation

The Company measures stock-based awards granted to employees and nonemployees based on the fair value on the date of the grant and recognizes stock-based compensation expense of those awards over the requisite service period, which is generally the vesting period of the respective award. The Company calculates the fair value measurement of stock options using the Black-Scholes option-pricing model. Forfeitures are accounted for as they occur. As of September 30, 2020 and December 31, 2019, the Company has only issued stock options with service-based vesting conditions and records the expense for these awards using the straight-line method.

Income Taxes

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on differences between the financial statement carrying amounts and the tax bases of the assets and liabilities using the enacted tax rates in effect in the years in which the differences are expected to reverse. A valuation allowance against deferred tax assets is recorded if, based on the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

The Company accounts for uncertainty in income taxes recognized in the financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.

Comprehensive Loss

Comprehensive loss includes net loss as well as other changes in stockholders’ equity (deficit) that result from transactions and economic events other than those with stockholders. For the three and nine months ended September 30, 2020, other comprehensive loss consisted of unrealized gains and losses from available-for-sale securities. There was no difference between net loss and comprehensive loss for the three and nine months ended September 30, 2019.

13

KRONOS BIO, INC.

Notes to Condensed Financial Statements

(Unaudited)

Net Loss Per Share

Basic net loss per share is computed using the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed using the sum of the weighted-average number of shares of common stock outstanding during the period and the effect of dilutive securities.

In periods in which the Company reports a net loss, diluted net loss per share is the same as basic net loss per share, since dilutive shares of common stock are not assumed to have been issued if their effect on net loss per share is anti-dilutive.

Recently Adopted Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13). The Company adopted ASU No. 2018-13 on January 1, 2019. This standard modifies certain disclosure requirements on fair value measurements. The adoption of this standard did not have a material impact on the Company’s financial statements.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows, Restricted Cash (ASU 2016-18). This ASU requires changes in restricted cash during the period to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. If cash, cash equivalents and restricted cash are presented in more than one line item on the balance sheet, the new guidance requires a reconciliation of the total in the statement of cash flows to the related captions in the balance sheet. The Company elected to adopt ASU 2016-18 on January 1, 2019 and has reflected the adoption in its financial statements. A reconciliation of the cash, cash equivalents, and restricted cash reported within the balance sheet that sum to the total of the same amounts shown in the statement of cash flows is as follows:

	September 30,
	2020		2019
	(in thousands)
Cash and cash equivalents	$	156,196	$	102,738
Restricted cash	2,026		—
Total cash, cash equivalents and restricted cash as shown on the statements of cash flows	$	158,222	$	102,738

In addition, the Company adopted ASU No 2016-15, Statement of Cash Flow (ASU 2016-15) in 2019. The guidance reduces diversity in how certain cash receipts and cash payments are presented and classified in the statements of cash flows. The adoption of ASU 2016-15 did not have a material impact on the Company’s condensed financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments and also issued subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, ASU 2019-05, and ASU 2019-11. The standard requires measurement and recognition of expected credit losses for financial assets by requiring an allowance to be recorded as an offset to the amortized cost of such assets. For available-for-sale debt securities, expected credit losses should be estimated when the fair value of the debt securities is below their associated amortized costs. The standard will become effective for the Company in the first quarter of 2020, with early adoption permitted beginning the first quarter of 2019. The modified retrospective approach should be applied upon adoption of this new guidance. The Company’s financial instruments that are in the scope of ASU 2016-13 include available-for-sale debt securities. The Company adopted this standard on January 1, 2020 and this amendment did not have a material impact on its financial statements.

14

KRONOS BIO, INC.

Notes to Condensed Financial Statements

(Unaudited)

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. This guidance will be effective for the Company in the first quarter of 2021 on a prospective basis, and early adoption is permitted. The Company has adopted this standard as of January 1, 2020, which did not have a material impact on its financial statements.

3.FAIR VALUE MEASUREMENTS

The Company follows authoritative accounting guidance, which among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.

The Company measures and reports its cash equivalents, investments, and convertible notes at fair value.

Money market funds are measured at fair value on a recurring basis used quoted prices and are classified as Level 1. Investments are measured at fair value based on inputs other than quoted prices that are derived from observable market data and are classed as Level 2 inputs.

Level 3 liabilities consist of the Company’s convertible notes payable. The determination of the fair values for the Gilead Note and the 2020 Notes and the change in the fair value of these notes are discussed in Note 13 and Note 15, respectively.

Financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used in such measurements by major security type as of September 30, 2020 and December 31, 2019 were as follows:

	September 30, 2020
	Level 1		Level 2		Level 3		Fair Value
			(in thousands)
Financial Assets:
Money market funds	$	84,635	$	—	$	—	$	84,635
Certificates of deposit	1,234		—		—		1,234
Corporate bonds	—		18,021		—		18,021
U.S. treasury securities	40,926		—		—		40,926
Total financial assets	$	126,795	$	18,021	$	—	$	144,816
Financial Liabilities:
2020 Notes	$	—	$	—	$	168,506	$	168,506
Gilead Note	—		—		5,488		5,488
Total financial liabilities	$	—	$	—	$	173,994	$	173,994

15

KRONOS BIO, INC.

Notes to Condensed Financial Statements

(Unaudited)

	December 31, 2019
	Level 1		Level 2		Level 3		Fair Value
	(in thousands)
Financial Assets:
Money market funds	$	112	$	—	$	—	$	112
Certificates of deposit	1,715		—		—		1,715
Commercial paper	—		4,489		—		4,489
Corporate bonds	—		26,432		—		26,432
U.S. agency securities	—		1,499		—		1,499
U.S. treasury securities	36,880		—		—		36,880
Total financial assets	$	38,707	$	32,420	$	—	$	71,127

The carrying amounts of accounts payable and accrued expenses approximate their fair values due to their short-term maturities. The Company’s Level 2 securities are valued using third-party pricing sources. The pricing services utilize industry standard valuation models, including both income- and market-based approaches, for which all significant inputs are observable, either directly or indirectly.

Both observable and unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category as of September 30, 2020. Recorded losses associated within the Level 3 category include changes to fair value and are recorded within change in fair value of convertible notes in the statement of operations. Refer to Note 13 and Note 15 for the fair value determination of the Level 3 financial liabilities.

The Company did not have any financial assets or liabilities as of December 31, 2019 that required Level 3 inputs. There were no transfers of assets between the fair value measurement levels during any of the periods presented in the accompanying financial statements.

16

KRONOS BIO, INC.

Notes to Condensed Financial Statements

(Unaudited)

4.INVESTMENTS

The fair value and amortized cost of available-for-sale securities by major security type as of September 30, 2020 and December 31, 2019 were as follows:

	September 30, 2020
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
			(in thousands)
Money market funds	$	84,635	$	—	$	—	$	84,635
Certificates of deposit	1,225		9		—		1,234
Corporate bonds	18,011		18		(8)		18,021
U.S. treasury securities	40,898		30		(2)		40,926
Total cash equivalents and investments	$	144,769	$	57	$	(10)	$	144,816

	December 31, 2019
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
	(in thousands)
Money market funds	$	112	$	—	$	—	$	112
Certificates of deposit	1,715		—		—		1,715
Commercial paper	4,490		—		(1)		4,489
Corporate bonds	26,444		1		(13)		26,432
U.S. agency securities	1,500		—		(1)		1,499
U.S. treasury securities	36,884		1		(5)		36,880
Total cash equivalents and investments	$	71,145	$	2	$	(20)	$	71,127

These available-for-sale securities were classified on the Company’s balance sheets as of September 30, 2020 and December 31, 2019 as:

	Fair Value
	September 30, 2020		December 31, 2019
	(in thousands)
Cash equivalents	$	84,973	$	6,751
Short-term investments	55,069		59,614
Long-term investments	4,774		4,762
Total cash equivalents and investments	$	144,816	$	71,127

The fair values of available-for-sale securities by contractual maturity as of September 30, 2020 and December 31, 2019 were as follows:

	September 30, 2020		December 31, 2019
	(in thousands)
Due in 1 year or less	$	55,407	$	66,253
Due in 1 to 2 years	4,774		4,762
Instruments not due at a single maturity date	84,635		112
Total cash equivalents and investments	$	144,816	$	71,127

17

KRONOS BIO, INC.

Notes to Condensed Financial Statements

(Unaudited)

As of September 30, 2020 and December 31, 2019, the remaining contractual maturities of available-for-sale securities were less than 23 months and 18 months, respectively. There have been no significant realized losses on available-for-sale securities for any of the periods presented in the accompanying financial statements. Based on the Company’s review of its available-for-sale securities, the Company believes that it had no other-than-temporary impairments on these securities as of September 30, 2020 and December 31, 2019 because the Company does not intend to sell these securities nor does it believe that it will be required to sell these securities before the recovery of their amortized cost basis. Gross realized gains and gross realized losses were immaterial for any of the periods presented in the accompanying financial statements.

5.PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following as of September 30, 2020 and December 31, 2019:

	September 30, 2020		December 31, 2019
	(in thousands)
Accrued interest on short-term available-for-sale securities	$	217	$	198
Prepaid equipment service contracts	432		191
Prepaid external research and development	410		113
Prepaid software	254		180
Prepaid insurance	36		23
Prepaid rent	3		196
Other prepaid expenses	276		218
Total prepaid expenses and other current assets	$	1,628	$	1,119

6.PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following as of September 30, 2020 and December 31, 2019:

	September 30, 2020		December 31, 2019
	(in thousands)
Property and equipment:
Lab equipment	$	5,256	$	3,978
Finance lease on R&D equipment	139		139
Construction in progress	5,891		50
Total property and equipment	11,286		4,167
Less: Accumulated depreciation and amortization	(985)		(446)
Total property and equipment, net	$	10,301	$	3,721

Depreciation and amortization expense was $0.2 million and $0.1 million for the three months ended September 30, 2020 and 2019, respectively, and $0.5 million and $0.2 million for the nine months ended September 30, 2020 and 2019, respectively.

18

KRONOS BIO, INC.

Notes to Condensed Financial Statements

(Unaudited)

7.ACCRUED EXPENSES AND CURRENT PORTION OF OTHER LIABILITIES

Accrued expenses consisted of the following as of September 30, 2020 and December 31, 2019:

	September 30, 2020		December 31, 2019
	(in thousands)
Accrued compensation	$	1,107	$	528
Accrued franchise tax	38		43
External research and development	469		241
Accrued offering costs	83		—
Other accrued expenses	83		6
Total accrued expenses	$	1,780	$	818

Current portion of other liabilities consist of the following as of September 30, 2020 and December 31, 2019:

	September 30, 2020		December 31, 2019
	(in thousands)
Current portion of finance lease liability	$	14	$	32
Current portion of unvested early exercised share liability	2,123		56
Total current portion of other current liabilities	$	2,137	$	88

8.PREFERRED STOCK

On May 22, 2018, the Company completed a private placement (Series Seed Financing) in which it issued an aggregate of 7,806,977 shares of its Series Seed Convertible Preferred Stock (Series Seed Preferred Stock) at a purchase price of $2.30769 per share, for aggregate gross proceeds of $18.0 million.

On July 1, 2019, the Company completed a private placement (the Series A Financing) in which it issued 13,697,916 shares of its Series A Convertible Preferred Stock (Series A Preferred Stock) at a purchase price of $7.6654 per share, for aggregate gross proceeds of $105.0 million less issuance costs of $0.1 million.

The Preferred Stock (as defined below) consisted of the following as of September 30, 2020 and December 31, 2019:

	September 30, 2020
	Preferred Stock Authorized	Preferred Stock Issued and Outstanding	Carrying Value		Liquidation Preference		Common Stock Issuable Upon Conversion
	(in thousands, except share amounts)
Series Seed Preferred Stock	7,806,977	7,806,977	$	17,985	$	18,016	8,236,347
Series A Preferred Stock	13,700,000	13,697,916	104,922		105,000		14,451,278
Total	21,506,977	21,504,893	$	122,907	$	123,016	22,687,625

19

KRONOS BIO, INC.

Notes to Condensed Financial Statements

(Unaudited)

	December 31, 2019
	Preferred Stock Authorized	Preferred Stock Issued and Outstanding	Carrying Value		Liquidation Preference		Common Stock Issuable Upon Conversion
	(in thousands, except share amounts)
Series Seed Preferred Stock	7,806,977	7,806,977	$	17,985	$	18,016	8,236,347
Series A Preferred Stock	13,700,000	13,697,916	104,922		105,000		14,451,278
Total	21,506,977	21,504,893	$	122,907	$	123,016	22,687,625

Upon the completion of the IPO (See Note 1), all outstanding shares of convertible preferred stock were automatically converted into 22,687,625 shares of common stock.

9.COMMON STOCK

Pursuant to the Company’s amended and restated certificate of incorporation, filed on July 1, 2019, the Company was authorized to issue up to 40,000,000 shares of its common stock, par value $0.001. As of September 30, 2020 and December 31, 2019, there were 6,284,326 and 5,660,391 shares issued and outstanding, respectively.

Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company's stockholders. Subject to the rights of the Preferred Stock, holders of the Company’s common stock are entitled to receive dividends, as may be declared by the Board of Directors.

10.STOCK-BASED COMPENSATION

2017 Equity Incentive Plan

The Company's 2017 Equity Incentive Plan, as amended (the 2017 Plan), provides that the Company may sell or issue shares of common stock or restricted common stock, or to grant incentive stock options or nonqualified stock options for the purchase of shares of common stock, to employees, members of the Board of Directors, and consultants of the Company. The exercise prices, vesting, and other restrictions are determined at the discretion of the Board of Directors, or a designated committee thereof, except that the exercise price per share of stock options may not be less than 100% of the fair market value of the common share on the date of grant and the term of stock option may not be greater than 10 years. The Company recognizes the impact of forfeitures on stock-based compensation expense as forfeitures occur. The Company applies the straight-line method of expense recognition to all awards with only service-based vesting conditions. Vesting periods are determined at the discretion of the Board of Directors. Stock options typically vest over four years. The maximum contractual term is 10 years.

As of September 30, 2020 and December 31, 2019, the total number of shares of the Company’s common stock that may have been issued was 6,857,500 and 3,692,500 shares, respectively. As of September 30, 2020 and December 31, 2019, there were 358,596 and 1,365,647 shares, respectively, reserved by the Company under the 2017 Plan for the future issuance of equity awards.

20

KRONOS BIO, INC.

Notes to Condensed Financial Statements

(Unaudited)

Stock Option Valuation

The Company estimates the fair value of each stock option grant on the date of grant using the Black-Scholes option-pricing model. This model requires the use of highly subjective assumptions to determine the fair value of stock-based awards, including:

•Fair Value of Common Stock—In order to determine the fair value of the Company’s common stock underlying option grants, the Board of Directors considered, among other things, valuations of the Company’s common stock prepared by an unrelated third-party valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. Other objective and subjective factors considered included the Company’s stage of development and material risks related to its business, the progress of its research and development programs, its business conditions and projections, its financial position and its historical and forecasted performance and operating results, the lack of an active public market for its securities, its Preferred Stock, biopharmaceutical company performance, the likelihood of achieving a liquidity event, the hiring of key personnel and the experience of management, industry trends and developments, and external market conditions and industry trends.

•Expected Term—The expected term represents the period that the stock-based awards are expected to be outstanding. The Company uses the simplified method to determine the expected term, which is based on the average of the time-to-vesting and the contractual life of the options.

•Expected Volatility—Since the Company is not yet a public company and does not have any trading history for its common stock, the expected volatility is estimated based on the average historical volatilities of common stock of comparable publicly traded entities over a period equal to the expected term of the stock option grants. The comparable companies are chosen based on their size, stage in the product development cycle or area of specialty. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available.

•Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero-coupon U.S. Treasury notes with maturities approximately equal to the expected term of the awards.

•Expected Dividend—The Company has never paid dividends on its common stock and has no plans to pay dividends on its common stock. Therefore, the Company used an expected dividend yield of zero.

The Black-Scholes option-pricing model assumptions that the Company used to determine the grant-date fair value of stock options for the three and nine months ended September 30, 2020 and 2019 were as follows, presented on a weighted-average basis:

	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Fair value of common stock per share	$	6.79	$	2.53	$	4.70	$	1.35
Expected term (in years)	5.99		6.03