NEXIMMUNE, INC. You should read the following discussion and analysis of our financial condition
and results of operations together with our financial statements and related
notes appearing elsewhere in this Quarterly Report on Form 10-Q and our final
prospectus for our initial public offering filed pursuant to Rule 424(b)(4)
under the Securities Act of 1933, as amended, or the Securities Act, on
Investors and others should note that we routinely use the Investor Relations section of our website to announce material information to investors and the marketplace. While not all of the information that we post on the Investor Relations section of our website is of a material nature, some information could be deemed to be material. Accordingly, we encourage investors, the media, and others interested in us to review the information that it shares on the Investor Relations section of our website, www.neximmune.com.
Overview
We are a clinical-stage biotechnology company developing a novel approach to immunotherapy designed to employ the body's own T cells to generate a specific, potent and durable immune response that mimics natural biology. Our mission is to create therapies with curative potential for patients with cancer and other life-threatening immune-mediated diseases. Currently, we have two product candidates in human trials: NEXI-001 in acute myeloid leukemia, or AML, and NEXI-002 in multiple myeloma, or MM.
We were incorporated under the laws of the
To date, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, identifying and developing product candidates, enhancing our intellectual property portfolio, undertaking research, conducting preclinical studies and clinical trials, and securing manufacturing for our development programs. We do not have any products approved for sale and have not generated any revenue from product sales.
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To date, we have funded our operations primarily with proceeds from private
placement of convertible preferred stock, our convertible promissory notes and
the IPO. In
We have incurred significant operating losses since our inception, which are
mainly attributed to research and development costs and employee payroll expense
included in general and administrative expenses. As of
As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our cash needs through public or private equity offerings, debt financings, collaborations and licensing arrangements or other capital sources. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates that we would otherwise prefer to develop and market ourselves.
Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.
As of
Components of our Results of Operations
Revenue
We have not generated any revenue since our inception and do not expect to generate any revenue from the sale of products in the near future, if at all.
Research and Development Expenses
To date, our research and development expenses, have related primarily to
development of NEXI-001 and NEXI-002, preclinical studies and other preclinical
activities related to our portfolio. Research and development expenses are
recognized as incurred and payments made prior to the receipt of goods or
services to be used in research and development are capitalized until the goods
or services are received. Research and development expenses also include the
accrual of minimum royalties under our
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Research and development expenses include:
• salaries, payroll taxes, employee benefits and stock-based
compensation charges for those individuals involved in research and
development efforts;
• external research and development expenses incurred under agreements
with contract research organizations, or CROs, and consultants to
conduct our preclinical, toxicology and other preclinical studies;
• laboratory supplies;
• costs related to manufacturing product candidates, including fees paid
to third-party manufacturers and raw material suppliers;
• license fees and research funding; and
• facilities, depreciation and other allocated expenses, which include
direct and allocated expenses for rent, maintenance of facilities,
insurance, equipment and other supplies.
Clinical trial costs are a significant component of research and development
expenses and include costs associated with third-party contractors. We outsource
a substantial portion of our clinical trial activities, utilizing external
entities such as CROs, independent clinical investigators and other third-party
service providers to assist us with the execution of our clinical trials. We
also expect to incur additional expenses related to milestone and royalty
payments payable to
We plan to substantially increase our research and development expenses for the foreseeable future as we continue the development of our product candidates and seek to discover and develop new product candidates. Due to the inherently unpredictable nature of preclinical and clinical development, we cannot determine with certainty the timing of the initiation, duration or costs of future clinical trials and preclinical studies of product candidates. Clinical and preclinical development timelines, the probability of success and the amount of development costs can differ materially from expectations. We anticipate that we will make determinations as to which product candidates and development programs to pursue and how much funding to direct to each product candidate or program on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments and our ongoing assessments as to each product candidate's commercial potential. In addition, we cannot forecast which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.
Our future clinical development costs may vary significantly based on factors such as:
• per-patient trial costs;
• the number of trials required for regulatory approval;
• the number of sites included in the trials;
• the countries in which the trials are conducted;
• the length of time required to enroll eligible patients;
• the number of patients that participate in the trials;
• the number of doses that patients receive;
• the drop-out or discontinuation rates of patients;
• potential additional safety monitoring requested by regulatory agencies;
• the duration of patient participation in the trials and follow-up;
• the phase of development of the product candidate; and
• the efficacy and safety profile of the product candidate.
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General and Administrative Expenses
General and administrative expenses consist primarily of salaries and
employee-related costs, including stock-based compensation, for personnel in our
executive, finance and other administrative functions. Other significant costs
include facility related costs, legal fees relating to intellectual property and
corporate matters, professional fees for accounting and consulting services and
insurance costs. We anticipate that our general and administrative expenses will
increase in the future to support our continued research and development
activities, pre-commercialization and, if any product candidates receive
marketing approval, commercialization activities. We also anticipate increased
expenses related to audit, legal, regulatory and tax-related services associated
with maintaining compliance with exchange listing and
Interest Income
Interest income consists of interest earned on our cash equivalents during the period.
Interest Expense
Interest expense consists of interest accrued on the convertible notes and interest recognized upon the amortization of the beneficial conversion feature, debt issuance costs and bifurcated derivative liability.
Change in Fair Value of Derivative Liability
The change in fair value of derivative liability consists entirely of the mark-to-market adjustment of the bifurcated derivative liability related to the convertible notes. As a result of our IPO, the derivative liability was settled.
Results of Operations
Comparison of the Three Months Ended
The following table summarizes our results of operations for the three months
ended
For the three months ended
March 31,
2021 2020 Change
(in thousands)
Operating expenses
Research and development $ 6,013 $ 4,272 $ 1,741
General and administrative 4,057 2,089 1,969
Total operating expenses 10,070 6,361 3,709
Loss from operations (10,070 ) (6,361 ) (3,709 )
Other expense (income):
Interest income 4 19 (15 )
Interest expense (904 ) (1 ) (903 )
Change in fair value of derivative liability 2,425 - 2,425
Other income (expense) (1 ) 27 (28 )
Other expense (income) 1,524 45 1,479
Net loss $ (8,546 ) $ (6,316) $ (2,230 )
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Research and Development Expenses. Research and development expenses were
General and Administrative Expenses. General and administrative expenses were
Interest Expense. Interest expense was
Change in Fair Value of Derivative Liability. The change in fair value of
derivative liability was
Liquidity and Capital Resources
We have incurred net losses and negative cash flows from operations since our
inception and anticipate we will continue to incur net losses for the
foreseeable future. As of
Sources of Liquidity
To date, we have financed our operations principally through private placements of our redeemable convertible preferred stock, our convertible promissory notes and the IPO.
Series A Preferred Stock Financing
In
In
In
Convertible Note Financing
From
In
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Paycheck Protection Program Loan
On
Initial Public Offering
In
Cash Flows
The following table sets forth a summary of the net cash flow activity for the
three months ended
2021 2020
(in thousands)
Net cash provided by (used in):
Operating activities $ (11,155) $ (6,510)
Investing activities (581 ) 758
Financing activities 124,808 (5 )
Net (decrease) increase in cash, cash equivalents and
restricted cash $ 113,072 $ 5,757
Operating Activities
Net cash used in operating activities was
The net cash used in operating activities for the three months ended
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Investing Activities
Net cash used in investing activities was
Financing Activities
Net cash provided by financing activities was
Funding Requirements
We believe that our existing cash and cash equivalents, will be sufficient to meet our anticipated cash requirements through the second quarter of 2022. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect.
Our future capital requirements will depend on many factors, including:
• the initiation, progress, timing, costs and results of drug discovery,
preclinical studies and clinical trials of NEXI-001 and NEXI-002 and
any other future product candidates;
• the number and characteristics of product candidates that we pursue;
• the outcome, timing and costs of seeking regulatory approvals;
• the cost of manufacturing NEXI-001 and NEXI-002 and future product
candidates for clinical trials in preparation for marketing approval
and in preparation for commercialization;
• the costs associated with hiring additional personnel and consultants
as our preclinical and clinical activities increase;
• the emergence of competing therapies and other adverse market developments;
• the ability to establish and maintain strategic licensing or other
arrangements and the financial terms of such agreements;
• the costs involved in preparing, filing, prosecuting, maintaining,
expanding, defending and enforcing patent claims, including litigation
costs and the outcome of such litigation;
• the extent to which we in-license or acquire other products and
technologies; and
• the costs of operating as a public company.
Until such time, if ever, as we can generate substantial product revenues to support our capital requirements, we expect to finance our cash needs through a combination of public or private equity offerings, debt financings, collaborations and licensing arrangements or other capital sources. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, or other similar arrangements with third parties, we may need to relinquish valuable rights to our product candidates, future revenue streams or research programs or may have to grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings as and when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves.
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Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our financial statements, which have been prepared in
accordance with
While our significant accounting policies are described in more detail in Note
3, "Summary of significant accounting policies", and in our Form 10K for the
year ended
Stock-Based Compensation Expense
Stock-based compensation expense represents the cost of the grant date fair
value of equity awards recognized over the requisite service period of the
awards (usually the vesting period) on a straight-line basis. We estimate the
fair value of equity awards using the Black-Scholes option pricing model and
recognize forfeitures as they occur. Estimating the fair value of equity awards
as of the grant date using valuation models, such as the Black-Scholes option
pricing model, is affected by assumptions regarding a number of variables,
including the risk-free interest rate, the expected stock price volatility, the
expected term of stock options, the expected dividend yield and the fair value
of the underlying common stock on the date of grant. Changes in the assumptions
can materially affect the fair value and ultimately how much stock-based
compensation expense is recognized. These inputs are subjective and generally
require significant analysis and judgment to develop. See Note 3, "Summary of
significant accounting policies" for information concerning certain of the
specific assumptions we used in applying the Black-Scholes option pricing model
to determine the estimated fair value of our stock options granted for the three
months ended
Common stock valuations
We are required to estimate the fair value of the common stock underlying our
equity awards when performing fair value calculations. The fair value of the
common stock underlying our equity awards was determined on each grant date by
our board of directors, taking into account input from management and
independent third-party valuation analyses. All options to purchase shares of
our common stock are intended to be granted with an exercise price per share no
less than the fair value per share of our common stock underlying those options
on the date of grant, based on the information known to us on the date of grant.
In the absence of a public trading market for our common stock, on each grant
date we develop an estimate of the fair value of our common stock in order to
determine an exercise price for the option grants. Our determinations of the
fair value of our common stock were made using methodologies, approaches and
assumptions consistent with the
Our board of directors considered various objective and subjective factors, along with input from management, to determine the fair value of our common stock, including:
• valuations of our common stock performed with the assistance of
independent third-party valuation specialists;
• current and potential strategic relationships and licenses;
• our stage of development and business strategy, including the status
of research and development efforts of our product candidates, and the
material risks related to our business and industry;
• our results of operations and financial position, including our levels
of available capital resources;
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• the valuation of publicly traded companies in the life sciences and
biotechnology sectors, as well as recently completed mergers and
acquisitions of peer companies;
• the lack of marketability of our common stock as a private company;
• the prices of preferred stock sold to investors in arm's length
transactions and the rights, preferences and privileges of our
preferred stock relative to those of our common stock;
• the likelihood of achieving a liquidity event for the holders of our
common stock, such as an initial public offering or a sale of our
company, given prevailing market conditions;
• trends and developments in our industry; and
• external market conditions affecting the life sciences and
biotechnology industry sectors.
The Practice Aid prescribes several valuation approaches for setting the value of an enterprise, such as the cost, income and market approaches, and various methodologies for allocating the value of an enterprise to its common stock. The cost approach establishes the value of an enterprise based on the cost of reproducing or replacing the property less depreciation and functional or economic obsolescence, if present. The income approach establishes the value of an enterprise based on the present value of future cash flows that are reasonably reflective of our future operations, discounting to the present value with an appropriate risk-adjusted discount rate or capitalization rate. The market approach is based on the assumption that the value of an asset is equal to the value of a substitute asset with the same characteristics. Each valuation methodology was considered in our valuations.
The various methods for allocating the enterprise value across our classes and series of capital stock to determine the fair value of our common stock in accordance with the Practice Aid include the following:
Option Pricing Method, or OPM. Under the OPM, shares are valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class. The values of the preferred and common stock are inferred by analyzing these options.
Probability-Weighted Expected Return Method, or PWERM. The PWERM is a scenario-based analysis that estimates the value per share based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the economic and control rights of each equity class.
In determining the fair value of our common stock underlying stock option grants
for the years ended
The determination of the fair value of our common stock after our IPO on
Other Company Information
Net Operating Loss and Research and Development Carryforwards and Other Income Tax Information
At
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We believe that it is more likely than not that we will not realize the benefits
of the deferred tax assets. Accordingly, a full valuation allowance has been
established against the net deferred tax assets as of
We have not completed a Section 382 study to assess whether an ownership change has occurred or whether there have been multiple ownership changes since our formation due to the complexity and cost associated with such a study and the fact that there may be additional such ownership changes in the future. Pursuant to Sections 382 and 383 of the Internal Revenue Code, annual use of our net operating loss and research and development tax credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period.
Emerging Growth Company and Smaller Reporting Company Status
We are an emerging growth company as defined in the Jumpstart Our Business
Startups Act of 2012, as amended, or the JOBS Act. We will remain an emerging
growth company until the earlier of (1)
• we may present only two years of audited financial statements, plus
unaudited condensed financial statements for any interim period, and
related Management's Discussion and Analysis of Financial Condition
and Results of Operations in this filing.
• we may avail ourselves of the exemption from the requirement to obtain
an attestation and report from our auditors on the assessment of our
internal control over financial reporting pursuant to the
Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act;
• we may provide reduced disclosure about our executive compensation
arrangements; and
• we may not require stockholder non-binding advisory votes on executive
compensation or golden parachute arrangements.
We have elected to take advantage of certain of the reduced disclosure obligations in the registration statement of which this filing is a part and may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests.
Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies, which may make our financial statements less comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. Until the date that we are no longer an emerging growth company or affirmatively and irrevocably opt out of the exemption provided by Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, upon issuance of a new or revised accounting standard that applies to our financial statements and that has a different effective date for public and private companies, we will disclose the date on which we will adopt the recently issued accounting standard.
We are also a "smaller reporting company," meaning that the market value of our
stock held by non-affiliates plus the proposed aggregate amount of gross
proceeds to us as a result of the IPO was less than
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Recently Issued and Adopted Accounting Pronouncements
A description of recently issued and adopted accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 3, "Summary of significant accounting policies".
Off-Balance Sheet Arrangements
During the periods presented we did not have, nor do we currently have, any
off-balance sheet arrangements as defined under
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