Organization and Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2023

Accounting Policies [Abstract]

Organization and Summary of Significant Accounting Policies

1. Organization and Summary of Significant Accounting Policies

Organization and Business

Landos Biopharma, Inc. (“Landos” or “the Company”) was incorporated in the state of Delaware in January 2017 and is a clinical-stage biopharmaceutical company focused on the development of oral therapeutics for patients with autoimmune diseases. The Company has several development programs, each discovered internally, targeting novel pathways at the interface of immunity and metabolism.

Reverse Stock Split

In May 2023, the Company’s stockholders approved a reverse stock split at the annual meeting of stockholders, and subsequently, the Company effected a one-for-ten (1-for-10) reverse stock split (the “Reverse Stock Split”) of its outstanding common stock and a corresponding reduction in the total number of authorized shares of its common stock from 200,000,000 to 20,000,000. All references to common stock, pre-funded warrants to purchase common stock, options to purchase common stock, restricted stock units, share data, per share data and related information contained in the condensed consolidated financial statements have been retrospectively adjusted to reflect the effect of the Reverse Stock Split for all periods presented. No fractional shares were issued as a result of the Reverse Stock Split. Stockholders of record who would otherwise have been entitled to receive a fractional share received a cash payment in lieu thereof.

Nasdaq Listing Rule Compliance

In June 2022, the Company received a notice from the Listing Qualifications Department of The Nasdaq Stock Market (“Nasdaq”) notifying the Company that its listed securities did not maintain the minimum bid price requirement of $1.00 per share of common stock for continued listing on the Nasdaq Global Market. In December 2022, Nasdaq approved the Company's application to transfer to The Nasdaq Capital Market and notified the Company that it has been granted an additional 180-calendar day compliance period to regain compliance with the minimum bid price requirement. To regain compliance, the Company effected the Reverse Stock Split in May 2023. The Company received notice from Nasdaq in June 2023 that it had regained compliance with the minimum bid price listing requirement.

Basis of Presentation

The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Landos Biopharma Australia Pty Ltd. (“Landos Australia”). All intercompany balances and transactions have been eliminated in consolidation.

Liquidity

As of December 31, 2023, the Company had cash and cash equivalents of $37.5 million, which it believes will be sufficient to fund its planned operations for at least one year from the issuance of these consolidated financial statements. Since the Company’s inception in 2017, it funded operations through the issuance of convertible preferred stock and convertible promissory notes, the proceeds from its IPO, the upfront payment from the license and collaboration agreement and the sale of pre-funded warrants in a private placement. As of December 31, 2023, the Company had an accumulated deficit of $155.4 million and expects to incur substantial operating losses for at least the next several years. As such, the Company will need to raise additional capital to initiate and complete its planned clinical trials, to continue and expand its research and development operations that support its planned discovery, development and clinical and regulatory activities, and to adequately prepare for commercialization of its product candidates that may achieve regulatory approval in the future.

Consolidated Financial Statements in United States Dollars

The Company’s functional currency is the United States dollar as the United States dollar is the currency of the primary economic environment in which the Company has operated and expects to continue to operate in the foreseeable future. Transactions and balances denominated in dollars are presented at their original amounts. Transactions and balances denominated in foreign currencies have been re-measured to dollars. All transaction gains and losses from re-measurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the consolidated statement of operations and comprehensive loss as other income, net. Net foreign currency transaction gains and losses were not material for the years ended December 31, 2023 and 2022.

Use of Estimates

The preparation of consolidated financial statements in conformity with United States GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. Significant estimates and assumptions made in the accompanying consolidated financial statements include but are not limited to estimates for accrued liabilities, fair value of equity instruments and uncertain tax positions. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and highly liquid investments with original maturities of three months or less at the date of purchase. The carrying amounts approximate fair value due to the short maturities of these investments. Cash equivalents consist primarily of amounts invested in money market funds and certificates of deposit and are stated at fair value.

Restricted Cash

Restricted cash represents collateral provided under the Company's credit card program.

Marketable Securities

The Company’s investments in marketable securities are maintained by investment managers and consist of corporate debt securities with original maturities of over 90 days, all of which are considered available-for-sale debt securities. The Company classifies its available-for-sale securities as short-term marketable securities on the Consolidated Balance Sheets, even though the stated maturity date may be one year or more beyond the current Consolidated Balance Sheets date, as the Company views those securities as available for use in current operations, if needed.

Available-for-sale securities are carried at fair value with their unrealized gains and losses included in accumulated other comprehensive loss within stockholders’ equity (deficit), until such gains and losses are realized in other income, net, within the Consolidated Statements of Operations and Comprehensive Loss or until an unrealized loss is considered other-than-temporary. Realized gains and losses are determined using the specific identification method.

The Company evaluates its investments with unrealized losses for other-than-temporary impairment. When assessing investments for other-than-temporary impairments in value, the Company considers such factors as, among other things, how significant the impairment in value is as a percentage of the original cost, how long the market value of the investment has been less than its original cost, the Company’s ability and intent to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value and market conditions. If the Company determines from this analysis that it does not expect to receive cash flows sufficient to recover the entire amortized cost of the security, a credit loss exists, the impairment is considered other-than-temporary and is recognized in the Consolidated Statements of Operations and Comprehensive Loss.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash and cash equivalents. Bank deposits are held by accredited financial institutions and these deposits may at times be in excess of insured limits. The Company limits its credit risk associated with cash and cash equivalents by placing them with financial institutions it believes are of high quality. The Company has not experienced any losses on its deposits of cash or cash equivalents as of December 31, 2023.

The Company’s available-for-sale investments primarily consist of high-grade corporate debt, and potentially subject the Company to concentrations of credit risk. The Company has adopted investment guidelines that limit the amounts the Company may invest in any one type of investment and requires all investments held by the Company to be highly rated, thereby reducing credit risk exposure.

Revenue Recognition for Out-License Arrangements

To date, all of the Company’s revenue has been derived from its license agreement with LianBio Respiratory Limited (“Lian”) (Note 7).

The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation.

License Revenue

The Company first assesses whether the goods or services promised within each contract are distinct to identify those that are performance obligations. This assessment involves subjective determinations and requires management to make judgments about the individual promised goods or services and whether such are separable from the other aspects of the contractual relationship. In assessing whether a promised good or service is distinct, and therefore a performance obligation, the Company considers factors such as the research, manufacturing and commercialization capabilities of the customer and the availability of the associated expertise in the general marketplace. The Company also considers the intended benefit of the contract in assessing whether a promised good or service is separately identifiable from other promises in the contract. If a promised good or service is not distinct, the Company is required to combine that good or service with other promised goods or services until it identifies a bundle of goods or services that is distinct. Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options. The Company assesses if these options provide a material right to the customer and if so, they are considered performance obligations.

The transaction price is determined and allocated to the identified performance obligations in proportion to their stand-alone selling prices (“SSP”) on a relative SSP basis. SSP is based on observable prices of the performance obligations or, when such prices are not observable, are estimated based on factors such as forecasted revenues or costs, development timelines, discount rates, and probabilities of technical and regulatory success.

If the consideration promised in a contract includes a variable amount, the Company estimates the amount of consideration to which it will be entitled in exchange for transferring the promised goods or services to a customer. The Company determines the amount of variable consideration by using the expected value method or the most likely amount method. The Company includes the amount of estimated variable consideration in the transaction price to the extent that it is probable that a significant reversal of cumulative revenue recognized will not occur. At the end of each subsequent reporting period, the Company re-evaluates the estimated variable consideration included in the transaction price and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis in the period of adjustment.

Milestone Payments

If an arrangement includes development, regulatory or commercial milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the Company’s control or the licensee’s control, such as regulatory approvals, are generally not considered probable of being achieved until those approvals are received.

Royalties

For arrangements with licenses of intellectual property that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes royalty revenue and sales-based milestones at the later of (i) when the related sales occur, or (ii) when the performance obligation to which the royalty has been allocated has been satisfied. The Company recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) each performance obligation is satisfied at a point in time or over time, and if over time, recognition is based on the use of an output or input method.

The Company receives payments from its collaborators based on billing schedules established in each contract. Up-front and other payments may require deferral of revenue recognition to a future period until the Company performs its obligations under its collaboration arrangements. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less.

Research and Development Expenses

Research and development costs consist primarily of external costs related to clinical development, contract manufacturing and discovery as well as personnel costs. The Company estimates preclinical and clinical study and research expenses based on the services performed, pursuant to contracts with research institutions that conduct and manage nonclinical and clinical studies and research services on its behalf. The Company records the costs of research and development activities based upon the estimated amount of services provided but not yet invoiced and includes these costs in accrued liabilities in the Consolidated Balance Sheets. These costs are a component of the Company’s research and development expenses. The Company accrues for these costs based on factors such as estimates of the work completed and in accordance with agreements established with its third-party service providers under the service agreements. The Company makes significant judgments and estimates in determining the accrued liabilities balance in each reporting period. As actual costs become known, the Company adjusts its accrued liabilities.

Share-Based Compensation

The Company measures employee and non-employee stock-based awards, including stock options and purchase rights, at grant-date fair value and records compensation expense on a straight-line basis over the vesting period of the award. The Company uses the Black-Scholes option pricing model to value its stock option awards. The Company elects to account for forfeitures as they occur.

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized as income in the period that includes the enactment date.

The Company recognizes net deferred tax assets to the extent that the Company believes these assets are more likely than not to be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If management determines that the Company would be able to realize its deferred tax assets in the future in excess of their net recorded amount, management would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

The Company records uncertain tax positions on the basis of a two-step process whereby (1) management determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than‑not recognition threshold, management recognizes the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense. Any accrued interest and penalties are included within the related tax liability.

Research and Development Tax Incentives

Landos Australia incurs Goods and Services Tax (“GST”) on services provided by Australian vendors. As an Australian entity, Landos Australia is entitled to a refund of the GST paid. The Company’s estimate of the amount of cash refund it expects to receive related to GST incurred is included in prepaid and other current assets in the accompanying consolidated balance sheets.

Government Assistance Tax Credits

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) provided refundable employee retention credits (“ERC”), which are used to offset payroll tax liabilities. During the three months ending June 30, 2023, the Company determined that it qualified for an ERC in the amount of $0.6 million related to labor costs recognized during the years ended December 31, 2020 and 2021 and filed its amended employment tax returns to claim this credit. The Company recorded $0.4 million of the offset as a reduction to research and development expense and $0.2 million as a reduction to general and administrative expense in the accompanying Condensed Consolidated Statement of Operations and Comprehensive Loss. In August 2023, the Company received all $0.6 million of refunds.

NIH Grant Income

In 2020, the Company was awarded a grant by the National Institutes of Health (“NIH”) for a phase 2 proof-of-concept efficacy study of omilancor in Crohn's disease patients. The grant award provided for reimbursement of actual, allowable costs incurred. As of the twelve months ended December 31, 2023, the Company had received $1.2 million of funding under the grant, which was used to reimburse expenses incurred under its phase 2 study of omilancor in patients with Crohn’s disease during the grant funding periods. In February 2023, the Company transferred omilancor and certain other assets to its scientific founder, however the NIH did not approve the transfer of the grant to the scientific founder. During the three months ended September 30, 2023, the Company made the decision to terminate the grant and repay the grant proceeds to the NIH due to an evaluation of the ongoing effort to continue the grant relative to the benefit of maintaining the grant. As a result of this decision, the Company determined that repayment of the grant is probable, which resulted in a change in estimate and the recording of a liability of $1.2 million in accrued liabilities on the Condensed Consolidated Balance Sheet as of December 31, 2023 and a corresponding charge for $1.2 million included in interest and other (expense) income, net on the Condensed Consolidated Statements of Operations and Comprehensive Loss for the twelve months ended December 31, 2023.

Net Loss per Share

Basic net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock together with the number of additional shares of common stock that would have been outstanding if all potentially dilutive shares of common stock had been issued. The Company included the weighted-average number of pre-funded warrants issued in its private placement in the number of outstanding shares for calculating basic and diluted net loss per share because the shares issuable upon exercise of the pre-funded warrants will be issued for little to no consideration. The following table sets forth the computation of basic and diluted net loss per share during the periods presented (in thousands, except share and per share amounts):

	Year Ended December 31,
	2023			2022
Numerator:
Net Loss	$	(21,935	)	$	(39,276	)
Denominator:
Weighted-average shares of common stock issued and outstanding		3,261,162			4,025,489
Weighted-average pre-funded warrants outstanding		3,014,694			—
Weighted-average shares used to calculate net loss per common share, basic and diluted		6,275,856			4,025,489
Net loss per common stock, basic and diluted	$	(3.50	)	$	(9.76	)

The following outstanding shares of potentially dilutive securities have been excluded from diluted net loss per common share for the periods presented, because their inclusion would be anti-dilutive:

	Years Ended December 31,
	2023		2022
Stock options to purchase common stock		493,038		330,860
Restricted stock units		98,567		—
Total		591,605		330,860

Comprehensive Loss

The Company’s comprehensive gain is currently comprised of changes in unrealized gains on available-for-sale securities.

Segment Reporting

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business in one operating segment.

Emerging Growth Company Status

The Company is an emerging growth company (“EGC”), as defined in the Jumpstart Our Business Startups Act of 2012 (“the JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an EGC or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these combined and consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-23, which requires an allowance for expected credit losses on financial assets be recognized as early as day one of the instrument. This ASU departs from the incurred loss model which means the probability threshold is removed. It considers more forward-looking information and requires the entity to estimate its credit losses as far as it can reasonably estimate. The ASU was effective for fiscal years beginning after December 15, 2019 for public business entities that are United States Securities and Exchange Commission (“SEC”) filers, excluding entities eligible to be smaller reporting companies (“SRC”). For all other public business entities, including SRC, the ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company's adoption of ASU 2016-13 as of January 1, 2023 did not have a material impact on the condensed consolidated financial statements and accompanying notes.

Recently Issued Accounting Pronouncements Not Yet Adopted

In December 2023, FASB issued ASU 2023-09, which requires improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The ASU is effective for fiscal years beginning after December 15, 2024 for public business entities that are SEC filers. The Company expects to adopt the new standard in the annual reporting period beginning after December 15, 2024 and does not expect the adoption of this ASU to have a material impact on the consolidated financial statements.