You should read the following discussion and analysis of our financial condition and results of operations together with the financial statements and the related notes appearing elsewhere in this Annual Report. This discussion contains forward-looking statements that are based on management's current expectations, estimates, and projections about our business and operations, and involve risks and uncertainties. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the sections entitled "Risk Factors" and "Special Note Regarding Forward-Looking Statements" and elsewhere in this Annual Report.
Overview
We are a clinical-stage biopharmaceutical company committed to discovering and developing novel, first-in-class immunomedicines to treat cancer and other immune-related diseases by restoring normal immune function. We view the immune system holistically and, rather than target one specific immune cell type, we focus on understanding biological pathways, the interactions of cells and the role each interaction plays in an immune response. Through our proprietary Functional, Integrated, NextCure Discovery in Immuno-Oncology, or FIND-IO, platform, we study various immune cells to discover and understand targets and structural components of immune cells and their functional impact in order to develop immunomedicines. We are focused on patients who do not respond to current therapies, patients whose cancer progresses despite treatment and patients with cancer types not adequately addressed by available therapies. We are committed to discovering and developing first-in-class immunomedicines, which are immunomedicines that use new or unique mechanisms of action to treat a medical condition, for these patients.
In
Our lead product candidate NC318 is a first-in-class immunomedicine against a
novel immunomodulatory receptor called Siglec-15, or S15. In
We began enrolling patients in the Phase 2 portion of the Phase 1/2 clinical
trial of NC318 trial in
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the evaluable biopsies collected, 13% of the patients enrolled had S15-positive tumors. These biopsies showed that the selection criterion did not result in enough S15-positive patients for us to effectively evaluate the activity of NC318 in S15-positive tumors. We are modifying the Phase 2 portion of the trial for S15 selection and expect to begin pre-selecting patients for enrollment based on S15 expression in the second quarter of 2021 in order to assess response rates in patients selected for S15 positivity. In addition, we believe that scientific evidence supports a combination of NC318 with anti-PD-1 therapy, and we plan to study that combination in NSCLC patients.
Our second product candidate, NC410, is a novel immunomedicine designed to block
immune suppression mediated by an immune modulator called Leukocyte-Associated
Immunoglobulin-like Receptor 1. In
Our third product candidate, NC762, is an immunomedicine targeting an immunomodulatory molecule called human B7 homolog 4 protein, or B7-H4. We submitted our investigational new drug application, or IND, for NC762, to the FDA, in the first quarter of 2021, and we intend to initiate a Phase 1/2 clinical trial of NC762 in patients with lung cancer, HER2+ breast cancer, ovarian cancer or potentially other tumor types in the second quarter of 2021. The Phase 1 dose-escalation portion of this open-label trial is being designed to evaluate the safety and tolerability of NC762 and determine its pharmacologically active and/or maximum tolerated dose. After a recommended dose for the Phase 2 portion of the trial is determined, the efficacy of NC762 will be evaluated in select tumor types.
Financial Overview
Since commencing operations in 2015, we have devoted substantially all of our efforts and financial resources to organizing and staffing our company, identifying business development opportunities, raising capital, securing intellectual property rights related to our product candidates, building and optimizing our manufacturing capabilities and conducting discovery, research and development activities for our product candidates, discovery programs and FIND-IO platform.
We have not generated any revenue from product sales and only limited revenue
from other sources and, as a result, we have never been profitable and have
incurred net losses since the commencement of our operations. Our net losses for
the years ended
We have funded our operations to date primarily with proceeds from public
offerings of our common stock, private placements our preferred stock and
upfront fees received under our former research collaboration and development
agreement with Eli Lilly and Company, or Lilly. From our inception through
In
On
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On
As of
We expect to incur substantial expenditures in the foreseeable future as we advance our product candidates through clinical development, the regulatory approval process and, if approved, commercialization, and as we expand our pipeline through research and development activities related to our FIND-IO platform and discovery programs. Specifically, in the near term, we expect to incur substantial expenses relating to our ongoing Phase 1/2 clinical trials for NC318 and NC410 and our planned Phase 1/2 clinical for NC762, and other research and development activities. We expect to incur significantly increased costs as a result of operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company.
We will need substantial additional funding to support our continuing operations and to pursue our development strategy. Until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our operations through a combination of public and private equity offerings, debt financings, marketing and distribution arrangements, other collaborations, strategic alliances and licensing arrangements. Adequate funding may not be available to us on acceptable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials, or other research and development activities or one or more of our development programs.
Components of Our Results of Operations
Revenue
We recognized revenue under the former Lilly Agreement of
For additional information about our revenue recognition policy, see Note 2 to our audited financial statements included elsewhere in this Annual Report.
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our discovery efforts, research activities, development and testing of our product candidates as well as for clinical trials, including:
? salaries, benefits and other related costs, including stock-based compensation,
for personnel engaged in research and development functions;
expenses incurred under agreements with third parties, including agreements
? with third parties that conduct research, preclinical activities or clinical
trials on our behalf, such as our corporate sponsored research agreement, or
the SRA, and our license agreement with
? costs of outside consultants, including their fees, stock-based compensation
and related travel expenses;
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? the costs of laboratory supplies and acquiring, developing and manufacturing
preclinical study and clinical trial materials; and
facility-related expenses, which include direct depreciation costs and
? allocated expenses for rent and maintenance of facilities and other operating
costs.
We expense research and development costs as incurred. Our expenses related to clinical trials are based on actual costs incurred and estimates of other incurred costs. These estimated costs are based on several factors, including patient enrollment and related expenses at clinical investigator sites, contract services received, consulting agreement costs and efforts expended under contracts with research institutions and third-party contract research organizations that conduct and manage clinical trials on our behalf. We generally accrue estimated costs related to clinical trials based on contracted amounts applied to the level of patient enrollment and other activity according to the protocol. If future timelines or contracts are modified based on changes in the clinical trial protocol or scope of work to be performed, we would modify our estimates of accrued expenses accordingly on a prospective basis. Historically, any such modifications have not been material.
Research and development activities are central to our business model. We expect that our research and development expenses will continue to increase substantially for the foreseeable future as we advance our product candidates through development and expand the number of trials we are conducting and the patients enrolled in those trials, and as we utilize our current good manufacturing practice, or cGMP, manufacturing capacity, including to provide drug supply of NC318, NC410 and NC762 for future clinical trials, and as we expand our pipeline through research and development activities, including through our FIND-IO platform and discovery programs.
We cannot determine with certainty the duration and costs of future clinical trials of NC318, NC410, NC762 or any other product candidate we may develop or if, when or to what extent we will generate revenue from the commercialization and sale of any product candidate for which we may obtain marketing approval. We may never succeed in obtaining marketing approval for any product candidate. The duration, costs and timing of clinical trials and development of NC318, NC410, NC762 and any other product candidate we may develop will depend on a variety of factors, including:
the scope, progress, results and costs of clinical trials of NC318, NC410 and
? NC762, as well as of any future clinical trials of other product candidates and
other research and development activities that we may conduct;
? the impact of the COVID-19 pandemic, including delays and slowdowns as a result
of strain on our clinical trial sites and concerns about patient safety;
? uncertainties in selection of indications, clinical trial design and patient
enrollment rates;
the probability of success for our product candidates, including safety and
? efficacy, early clinical data, competition, ease and ability of manufacturing
and commercial viability;
? significant and changing government regulation and regulatory guidance;
? the timing and receipt of any development or marketing approvals; and
? the expense of filing, prosecuting, defending and enforcing any patent claims
and other intellectual property rights.
A change in the outcome of any of these variables with respect to the development of a product candidate could lead to a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in our clinical trials due to patient enrollment or other reasons, we would be required to expend significant additional financial resources and time to complete clinical development for any such product candidate.
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General and Administrative Expenses
General and administrative expenses consist primarily of personnel-related costs, including payroll and stock-based compensation, for personnel in executive, finance, human resources, business and corporate development and other administrative functions, professional fees for legal, intellectual property, consulting and accounting services, rent and other facility-related costs, depreciation and other general operating expenses not otherwise classified as research and development expenses. General and administrative expenses also include all patent-related costs incurred in connection with filing and prosecuting patent applications, which are expensed as incurred.
We anticipate that our general and administrative expenses will increase substantially during the next few years, including as a result of expected staff expansion, additional occupancy costs, higher legal and accounting fees, investor relations costs, higher insurance premiums and other compliance costs.
Other Income, Net
Other income, net consists primarily of interest income earned on marketable securities and payment of interest on our term loan with a commercial bank, or the Term Loan.
Results of Operations
Comparison of the Years Ended
The following table summarizes our results of operations for the periods indicated (in thousands): Year Ended December 31, 2020 2019 Change Revenue:
Revenue from former research and development arrangement
Operating expenses: Research and development 46,554 34,216 12,338 General and administrative 17,049 9,613 7,436 Loss from operations (41,225) (37,482) (3,743) Other income, net 4,622 3,745 877 Net loss$ (36,603) $ (33,737) $ (2,866)
Revenue from
Revenue was
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Research and Development Expenses
The following table summarizes our research and development expenses by product candidate for the periods indicated (in thousands):
Year Ended December 31, 2020 2019 Change External research and development expenses: NC318$ 9,455 $ 8,773 $ 682 NC410 2,847 3,100 (253)
Programs in discovery and preclinical development 14,798 9,118 5,680 Total external research and development expenses 27,100 20,991 6,109 Total internal research and development expenses 19,454 13,225 6,229 Total research and development expenses
$ 46,554 $ 34,216 $ 12,338
We do not allocate personnel-related costs, including stock-based compensation costs, or other indirect costs to specific programs, as they are deployed across multiple projects under development and discovery and, as such are separately classified as internal research and development expenses in the table above.
Research and development expenses for the year ended
General and Administrative Expenses
General and administrative expenses for the year ended
Other Income, Net
Other income, net for the year ended
Liquidity and Capital Resources
We have financed our operations primarily with proceeds from public offerings of
our common stock, private placements of our preferred stock and upfront fees
received under the Lilly Agreement. On
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As of
In addition, in
We will continue to require additional capital to develop our product candidates and fund operations for the foreseeable future. We may seek to raise capital through sale of equity, debt financings, strategic alliances and licensing arrangements. Adequate additional funding may not be available to us on acceptable terms or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development of our product candidates or delay our efforts to expand our pipeline of product candidates. Our need to raise additional capital will depend on many factors, including:
the scope, progress, results and costs of researching and developing NC318,
? NC410, NC762 and our other programs, including targets identified through our
FIND-IO platform, and of conducting preclinical studies and clinical trials;
the timing of, and the costs involved in, obtaining marketing approvals for
? NC318, NC410, NC762 and any future product candidates we develop, if clinical
trials are successful;
the costs of manufacturing NC318, NC410 and any future product candidates we
? develop for preclinical studies and clinical trials in preparation for
marketing approval and commercialization;
the costs of commercialization activities, including marketing, sales and
distribution costs, for NC318, NC410, NC762 and any future product candidates
? we develop, whether alone or with a collaborator, if any such product
candidates are approved for sale, including marketing, sales and distribution
costs;
? the success of the SRA with Yale;
? our ability to establish and maintain additional collaborations, licenses or
other arrangements on favorable terms, if at all;
the costs involved in preparing, filing, prosecuting, maintaining, expanding,
? defending and enforcing patent claims, including litigation costs and the
outcome of any such litigation;
our current collaboration and license agreements remaining in effect and our
? achievement of milestones and the timing and amount of milestone payments we
are required to make, or that we may be eligible to receive, under those
agreements;
? the timing, receipt and amount of sales of, or royalties on, our future
products, if any; and
? the emergence of competing therapies and other adverse developments in the
oncology market.
Adequate additional financing may not be available to us on acceptable terms, or at all. If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Any future debt financing into which we enter may impose upon us additional covenants that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, repurchase our common stock, make certain investments and engage in certain merger, consolidation or asset sale transactions. Any debt financing or additional equity that we raise may contain terms
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that are not favorable to us or our stockholders. If we raise additional funds through government or private grants, collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required to relinquish valuable rights to our future revenue streams, product candidates or research programs or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds when needed, we may be required to delay, reduce or terminate some or all of our development programs and clinical trials. We may also be required to sell or license to others rights to our product candidates in certain territories or indications that we would prefer to retain for ourselves. See the section entitled "Risk Factors" for additional risks associated with our substantial capital requirements.
Cash Flows
The following table sets forth the primary sources and uses of cash and cash equivalents for each of the periods presented below (in thousands):
Year Ended December 31, 2020 2019 Net cash (used in) provided by : Operating activities$ (44,954) $ (35,623) Investing activities 43,523 (303,923) Financing activities (1,415) 243,043 Net decrease in cash and cash equivalents$ (2,846) $ (96,503)
Cash Used in/Provided by Operating Activities
Net cash used in operating activities was
Cash Provided by/Used in Investing Activities
Cash provided by investing activities for the year ended
Cash Used in/Provided by Financing Activities
Cash used in financing activities was
Contractual Obligations and Commitments
Operating Leases
In
In
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subleasing under the 2016 Sublease. The base rent under the 2019 Lease is
currently
Term Loan
In
We also have potential contingent payment obligations upon the achievement by us of clinical, regulatory, and commercial events, as applicable, or royalty payments that we may be required to make under license agreements we have entered into with various entities pursuant to which we have in-licensed intellectual property, including, our license agreement with Yale and the SRA with Yale. The timing and amount (if any) of any such payments cannot be reasonably estimated at this time. See "Business-Our Collaboration Agreements" for additional information.
We enter into contracts in the normal course of business with third-party contract organizations for clinical trials, non-clinical studies and testing, manufacturing and other services and products for operating purposes. These contracts generally provide for termination following a certain period after notice, and therefore we believe that our non-cancelable obligations under these agreements are not material.
Critical Accounting Policies, Significant Judgments and Use of Estimates
Our financial statements have been prepared in accordance with
While our significant accounting policies are described in the notes to our financial statements, we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results, as these policies relate to the more significant areas involving management's judgments and estimates.
Research and Development Expenses, Including Clinical Trial Accruals
Research costs consist of employee-related costs, contractor expenses, laboratory supplies and facility costs, for research and development of product candidates are expensed as incurred. Development costs, including clinical trial-related expenses, incurred by third parties, such as CROs, are expensed as the contracted work is performed. Where contingent milestone payments are due to third parties under research and development arrangements, the milestone payment obligations are expensed when the milestone results are probable of being achieved. When evaluating the adequacy of the accrued liabilities, we analyze progress of the studies, including the phase or completion of events, invoices received and contracted costs. For further discussion of research and development expenses, including clinical trial accruals, see Note 2 to our audited financial statements included elsewhere in this Annual Report.
Revenue Recognition
We account for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers ("ASC 606"). Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services in
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an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine the appropriate amount of revenue to be recognized for arrangements determined to be within the scope of ASC 606, we perform the following five steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) we satisfy each performance obligation. We only apply the five-step model to contracts when it is probable that we will collect consideration to which we are entitled in exchange for the goods or services we transfer to the customer. For further discussion of revenue recognition, see Note 2 to our audited financial statements included elsewhere in this Annual Report.
Stock-Based Compensation
We account for stock-based compensation, including stock options and restricted stock units, based on the fair value of the award as of the grant date. We utilize the Black-Scholes option-pricing model as the method for estimating the fair value of our stock option grants. The Black-Scholes option-pricing model requires the use of highly subjective and complex assumptions, including the options' expected term and the price volatility of the underlying stock. The fair value of the portion of the award that is ultimately expected to vest is recognized as compensation expense over the award's requisite service period. We recognize stock-based compensation to expense using the straight-line method and recognize forfeitures as they occur. If there are any modifications or cancelations of stock-based awards, we may be required to accelerate, increase, or decrease any remaining unrecognized stock-based compensation expense.
Before our IPO, there was no public market for our common stock to date and the
estimated fair value of our common stock was determined by our board of
directors as of the date of each option grant, with input from management,
considering our most recently available third-party valuations of common stock,
and our board of directors' assessment of additional objective and subjective
factors that it believed were relevant and which may have changed from the date
of the most recent valuation through the date of the grant. These third-party
valuations were performed in accordance with the guidance outlined in the
Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. Our common stock valuations were prepared using an option pricing method, or OPM, which used market approaches to estimate our enterprise value. The OPM treats common stock and preferred stock as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocation among the various holders of a company's securities changes. Under this method, the common stock has value only if the funds available for distribution to stockholders exceeded the value of the preferred stock liquidation preferences at the time of the liquidity event, such as a strategic sale or a merger. A discount for lack of marketability of the common stock is then applied to arrive at an indication of value for the common stock.
Since the closing of our IPO, we have determined the fair value of our common stock based on the closing price of our common stock on the Nasdaq Global Select Market as reported on the date of grant.
For further discussion of our accounting for stock-based compensation, see Note 2 to our audited financial statements included elsewhere in this Annual Report.
Off-Balance Sheet Arrangements
Since our inception, we have not engaged in any off-balance sheet arrangements,
as defined in the rules and regulations of the
JOBS Act Accounting Election
The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, permits an "emerging growth company" such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to take advantage of this extended transition period to enable us to comply with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
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For so long as we remain an emerging growth company, we are permitted and intend
to rely on certain exemptions from various public company reporting
requirements, including not being required to have our internal control over
financial reporting audited by our independent registered public accounting firm
pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002. We will remain an
emerging growth company until the earliest of (i)
Recent Accounting Pronouncements
See Note 2 to our audited financial statements included elsewhere in this Annual Report for a discussion of recent accounting pronouncements that have impacted or may impact our financial position and results of operations.
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