NGM BIOPHARMACEUTICALS, INC.
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the condensed consolidated
financial statements and notes to the condensed consolidated financial
statements included elsewhere in this Quarterly Report on Form 10-Q. This
discussion and analysis contains forward-looking statements based upon current
beliefs, plans and expectations that involve risks, uncertainties and
assumptions, such as statements regarding our plans, objectives, expectations,
intentions and projections. Our actual results and the timing of events could
differ materially from those anticipated in these forward-looking statements as
a result of several factors that could impact our business, including those set
forth in the section titled "Risk Factors" under Part II, Item 1A in this
Quarterly Report on Form 10-Q. In some cases, you can identify forward-looking
statements by terminology such as "anticipate," "believe," "continue," "could,"
"estimate," "expect," "intend," "may," "plan," "potentially," "predict,"
"should," "will" or the negative of these terms or other similar expressions.
In addition, statements that "we believe" and similar statements reflect our
beliefs and opinions on the relevant subject. These statements are based upon
information available to us as of the date of this Quarterly Report on Form
10-Q, and while we believe such information forms a reasonable basis for such
statements, such information may be limited or incomplete, and our statements
should not be read to indicate we have conducted exhaustive inquiry into, or
review of, all potentially available relevant information. These statements are
inherently uncertain and investors are cautioned not to unduly rely upon these
statements.
Overview of Our Business
We are a biopharmaceutical company focused on discovering and developing novel
therapeutics based on scientific understanding of key biological pathways
underlying retinal diseases, cancer, and liver and metabolic diseases. These
diseases represent a significant burden for patients and healthcare systems and,
in some cases, are leading causes of morbidity and mortality. Our strategy is to
leverage a combination of interrogating human biology and engineering powerful
biologics to discover and develop promising product candidates and seek to move
them rapidly into proof-of-concept studies and late-stage development, with the
goal of delivering impactful first-in-class or best-in-class treatments to
underserved patients suffering from grievous diseases. Since the commencement of
our operations in 2008, we have generated a robust portfolio of product
candidates ranging from early discovery to late-stage development. We aspire to
operate one of the most productive research and development engines in the
biopharmaceutical industry.
Merck Collaboration Update
On June 30, 2021 , we and Merck Sharp & Dohme Corp. , or Merck, entered into an
amended and restated research collaboration, product development and license
agreement, or the Amended Collaboration Agreement, that amends and restates the
research collaboration, product development and license agreement that we
originally entered into with Merck in February 2015 , which, together with
amendments made prior to entering into the Amended Collaboration Agreement, we
refer to as the Original Agreement. The Original Agreement contemplated an
initial five-year research term and, in March 2019 , Merck exercised its option
to extend the research phase of the collaboration through March 16, 2022 . As
part of that extension, Merck agreed to continue to fund up to $75.0 million of
our research and development efforts each year consistent with the initial
five-year research term and, in lieu of a $20.0 million extension fee payable to
us, Merck agreed to make additional payments totaling up to $20.0 million in
support of our research and development activities during 2021 through the first
quarter of 2022. Under the terms of the Amended Collaboration Agreement, we and
Merck agreed to extend the research phase of the collaboration with a narrower
scope than contemplated in the Original Agreement. The research phase will now
continue generally through March 31, 2024 , with possible extensions for each of
the various programs to allow us or Merck to complete ongoing development.
Under the Original Agreement, all of our research and development programs, both
those existing at the time we entered into the Original Agreement and those we
worked on during the research phase of the collaboration, other than aldafermin,
were included within the scope of the collaboration. Under the Amended
Collaboration Agreement, the scope of the collaboration and the resulting
programs for which Merck has a license option was narrowed. The collaboration as
now being conducted under the Amended Collaboration Agreement, or the continuing
collaboration, focuses primarily on the identification, research and development
of collaboration compounds directed to targets of interest to Merck in the
fields of ophthalmology and cardiovascular or metabolic, or CVM, disease,
including heart failure, as well as certain laboratory testing and other
activities on molecules that are directed to one of up to two undisclosed
targets outside of the fields of ophthalmology and CVM disease, referred to
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as the lab programs. The ophthalmology compounds in the continuing collaboration
include NGM621 and its related molecules and compounds directed against two
other undisclosed ophthalmology targets and their related molecules.
Collaboration compounds that remain within the scope of the continuing
collaboration under the Amended Collaboration Agreement are referred to as
continuing collaboration compounds. Our and Merck's rights and obligations with
respect to MK-3655 and related FGFR1c/KLB agonists for which Merck exercised its
license option in November 2018 under the Original Agreement did not change
under the Amended Collaboration Agreement as compared to the Original Agreement.
Merck retains the one-time option to obtain an exclusive, worldwide license, on
specified terms, to continuing collaboration compounds, as well as to other
molecules that are directed against the same target and that result in the same
effect on such target, or the related molecules, upon completion of a human
proof-of-concept trial for a particular collaboration compound, regardless of
the results of such trial, or at earlier points as specified in the Amended
Collaboration Agreement, including the option to license NGM621 upon completion
of a human proof-of-concept trial in humans, as well as the additional one-time
option at that time to license NGM621 together with all of the ophthalmology
continuing collaboration compounds included within the scope of the Amended
Collaboration Agreement. All such options to license are referred to as Merck
license options.
Under the Amended Collaboration Agreement, we now have the sole right, in our
sole discretion to independently research, develop and commercialize our
oncology product candidates NGM120, NGM707 and NGM438 and their related
molecules and all other preclinical and research assets that we researched or
developed under the Original Agreement but that are not included within the
research and development scope of the continuing collaboration, which we refer
to as the released NGM compounds, subject to Merck's right to receive royalties
at low single digit rates on any released NGM compounds that receive regulatory
approval and, if we decide during a certain time period to engage in a formal
partnering process or negotiations regarding a license or asset sale for a
released NGM compound, to a requirement to notify Merck, provide Merck with
certain information and engage in good faith, non-exclusive negotiations with
respect to such released NGM compound with Merck at Merck's request. We are
generally responsible for funding released NGM compounds going forward, although
we may use Merck funding for research and development activities that we perform
on these compounds prior to April 1, 2022 . We also have full rights to all
future programs we pursue that fall outside of the scope of the Amended
Collaboration Agreement. Aldafermin remains wholly owned and funded by us.
Under the terms of the Amended Collaboration Agreement, Merck will provide an
aggregate of approximately $120.0 million in research and development funding
through March 31, 2024 , including $86.0 million for the period from April 1,
2021 through March 31, 2022 (although we are obligated to use commercially
reasonable efforts to expend $35.0 million of such funding during such time
frame on programs within the scope of the continuing collaboration other than
the released NGM compounds), plus additional potential option payments if Merck
exercises any Merck license option. We are committed to advancing an undisclosed
ophthalmology program to a potential investigational new drug application, or
IND, submission, utilizing our own funding after March 2022 . After Merck has
exercised the Merck license option for a continuing collaboration program and
paid the applicable option fee, the economics for such program are unchanged
from the Original Agreement. Following exercise of a Merck license option, Merck
is responsible, at its own cost, for any further development and any
commercialization activities for compounds within the applicable program that it
licensed, or the licensed compounds, subject to our option on a licensed
compound-by-licensed compound basis, prior to Merck initiating any Phase 3
clinical trial of such licensed compound, to enter into a worldwide cost and
profit share with Merck. If we do not elect to exercise our cost and profit
share option for a particular licensed compound, we are eligible to receive
milestone and royalty payments.
Similar to the Original Agreement, during the research phase and any applicable
tail period of the continuing collaboration, we may not directly or indirectly
research, develop, manufacture or commercialize, outside of the continuing
collaboration, any product with specified activity against any target that is
being researched or developed under the continuing collaboration and, if Merck
exercises its Merck license option for a program, we may not directly or
indirectly research, develop, manufacture or commercialize any product with
specified activity against the target that is the subject of that program for so
long as Merck's license to it remains in effect. In addition, under the Amended
Collaboration Agreement, we are prohibited from directly or indirectly
researching, developing or commercializing any product for the treatment of
heart failure with preserved ejection fraction (HFpEF) during the research phase
for the CVM-related programs.
For more information on the terms of the Amended Collaboration Agreement, see
Note 5, "Research Collaboration and License Agreements," of the notes to
unaudited condensed consolidated financial statements included in Part 1 Item 1
of this Quarterly Report on Form 10-Q.
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Pipeline Programs and Operations Updates
We currently have five product candidates in the clinic, including four Phase 2
and Phase 2b programs, two wholly owned by us (NGM120 and aldafermin), one being
progressed by Merck (MK-3655) and one optionable by Merck (NGM621), and one in
the Phase 1 component of a Phase 1/2 trial (NGM707). In addition, we have one
wholly owned product candidate expected to enter the clinic in the first half of
2022.
•Retinal diseases.
•NGM621. NGM621 is a humanized Immunoglobulin 1, or IgG1, monoclonal antibody
administered via intravitreal, or IVT, injection. NGM621 was engineered to
potently inhibit the activity of complement C3 with the treatment goal of
reducing disease progression in patients with geographic atrophy, or GA,
secondary to age-related macular degeneration. NGM621 remains within the scope
of the Amended Collaboration Agreement with Merck, and Merck has a one-time
option to license NGM621 and its related molecules upon completion of the Phase
2 CATALINA clinical trial of NGM621 in patients with GA, as well as the
additional one-time option at that time to license NGM621 together with all of
the ophthalmology continuing collaboration compounds and their respective
related molecules included within the scope of the Amended Collaboration
Agreement.
?To date in 2021, we completed enrollment of 320 patients into the Phase 2
CATALINA clinical trial of NGM621 in patients with GA, more than the originally
planned 240 patients. The CATALINA trial was designed to be a Phase 3-supportive
or -enabling clinical trial and is evaluating NGM621's safety and effects on
disease progression when given every four weeks or every eight weeks compared to
matched sham injection control groups.
?Looking forward: We anticipate a readout of the CATALINA trial topline data in
the second half of 2022.
•Oncology.
•NGM120. NGM120 is an antagonist antibody that binds glial cell-derived
neurotrophic factor receptor alpha-like, or GFRAL, and inhibits growth
differentiation factor 15, or GDF15, signaling, for the potential treatment of
cancer and cancer-related cachexia. We are currently conducting a clinical trial
to assess NGM120's effect on cancer-related cachexia and on cancer in patients
with select advanced solid tumors and metastatic pancreatic cancer.
?To date in 2021, we initiated a Phase 2 placebo-controlled component of the
ongoing Phase 1/2 PINNACLES clinical trial of NGM120 and are continuing
enrollment into that trial. This Phase 2 portion of the trial is testing NGM120
in combination with gemcitabine and Abraxane® (paclitaxel protein bound) as
first-line treatment in patients with metastatic pancreatic cancer to assess
NGM120's effect on both cancer and cancer-related cachexia.
?Looking forward: In the third quarter of 2021, we expect to report interim data
from two Phase 1 dose-finding cohorts of the ongoing Phase 1/2 trial of NGM120:
a Phase 1a cohort evaluating NGM120 as a monotherapy in patients with select
advanced solid tumors and a Phase 1b cohort evaluating NGM120 in combination
with gemcitabine and Abraxane in patients with metastatic pancreatic cancer.
•NGM707. NGM707 is a dual antagonist antibody that is designed to inhibit
Immunoglobulin-like transcript 2, or ILT2 (also known as LILRB1), and
Immunoglobulin-like transcript 4, or ILT4 (also known as LILRB2). ILT2 and ILT4
are key myeloid and lymphoid checkpoints that may restrict anti-tumor immunity,
enable tumors to evade immune detection and contribute to resistance to T-cell
checkpoint inhibitors. Designed to inhibit these key checkpoints, NGM707 has the
potential to reverse myeloid suppression and further stimulate effector function
activity. In June 2021 , we initiated the Phase 1 component of a first-in-human
Phase 1/2 clinical trial of NGM707, as a monotherapy and in combination with
KEYTRUDA® (pembrolizumab), for the treatment of patients with advanced solid
tumors and are continuing enrollment into that trial.
•NGM438. NGM438 is an antagonist antibody that is designed to inhibit
leukocyte-associated immunoglobulin-like receptor 1, or LAIR1. LAIR1, through
interactions with tumor-associated collagens, may form a stromal checkpoint that
imposes signaling-based immune suppression and impedes antitumor immunity.
Designed to inhibit this stromal checkpoint, NGM438 has the potential to treat
cancer by promoting the remodeling of the tumor architecture that restricts T
cell infiltration of the tumor cell mass and reversing immune suppression in the
tumor microenvironment.
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?To date in 2021, we have advanced the preparation of an IND for a planned
submission later in 2021 or in early 2022.
?Looking forward: We expect to commence a first-in-human Phase 1 clinical trial
of NGM438 in patients with advanced solid tumors in the first half of 2022.
•Liver and metabolic diseases.
•Aldafermin. Aldafermin is an engineered analog of human hormone fibroblast
growth factor 19, or FGF19, that is administered through a once-daily
subcutaneous injection. Aldafermin is wholly owned by us. In May 2021 , we
announced topline results from our ALPINE 2/3 trial evaluating aldafermin in 171
patients with non-alcoholic steatohepatitis, or NASH, and liver fibrosis stage 2
or 3, or F2 or F3. The trial did not meet its primary endpoint evaluating a dose
response at week 24 on liver fibrosis improvement by >1 stage with no worsening
of NASH. The lack of statistically significant fibrosis improvement was
unexpected given the consistency of histology findings seen with aldafermin in
the fourth cohort of a previously completed Phase 2 trial. Although the trial
did achieve statistical significance versus placebo on certain secondary
endpoints, we have decided to shift resources that had previously been reserved
for a Phase 3 F2/F3 NASH development program toward advancing our other
programs. Aldafermin remains in Phase 2b development for the treatment of
patients with compensated NASH cirrhosis (liver fibrosis stage 4, or F4). To
date in 2021, in addition to completing treatment of patients in and announcing
topline results from our ALPINE 2/3 trial, we have continued enrollment into our
Phase 2b ALPINE 4 clinical trial of aldafermin, with a goal of enrolling
approximately 150 patients across 80 sites in the United States , Europe , the UK ,
Hong Kong and Australia .
•MK-3655 (formerly NGM313). MK-3655 is an agonistic antibody discovered by us
that selectively activates fibroblast growth factor receptor 1c-beta-klotho, or
FGFR1c/KLB, which regulates insulin sensitivity, blood glucose and liver fat and
is administered every four weeks through a subcutaneous injection. MK-3655, in
Phase 2b development for the treatment of NASH, was optioned by Merck under the
Original Agreement. In 2021, Merck is continuing enrollment into the worldwide
52-week randomized, double-blind Phase 2b trial of MK-3655 in patients with NASH
and F2 or F3 liver fibrosis that it initiated in the fourth quarter of 2020.
We have additional undisclosed programs that are in various stages of
development ranging from functional validation to preclinical development.
The success of each of our product candidates may be affected by numerous
factors, including preclinical data, clinical data, competition, manufacturing
capability, sales capability, collaboration partners, the sufficiency of our
cash resources, regulatory matters, third-party payor matters and commercial
viability. We do not have any products approved for sale and do not anticipate
generating revenue from product sales for the foreseeable future, if ever.
Partnering has been and is expected to continue to be a component of our
strategy as we plan to develop a broad portfolio of product candidates and, if
approved, to commercialize the resulting products. Our collaboration with Merck
under the Original Agreement has provided us with substantial financial support;
however, under the narrower scope of the Amended Collaboration Agreement, after
March 2022 the level of research funding from Merck will be substantially lower
on an annual and overall basis than the research funding provided by Merck prior
to that date. As a result, our funding requirements for the development of our
current and potential future product candidates will increase substantially
after March 2022 , particularly with respect to our wholly owned programs, and,
to a lesser extent, with respect to our programs that are within the scope of
the continuing collaboration under the Amended Collaboration Agreement that we
are required to fund. In addition, our funding requirements would increase for
any programs that are within the scope of the continuing collaboration in the
event Merck does not elect to license these programs, in the event Merck elects
to terminate its license to any program it licenses or in the event we opt to
co-develop any Merck-licensed programs. Accordingly, we will require significant
additional capital in order to proceed with the development through to
regulatory approval and commercialization of our current and potential future
product candidates, or we will need to enter into additional collaboration or
license agreements in order to fund such development and commercialization.
Neither may be possible and, as a result, we may be required to delay, scale
back or discontinue development of such product candidates, which could have a
material adverse effect on our business, operating results and prospects. For
any programs wholly owned by us and not within the scope of the continuing
collaboration, we may decide to pursue a strategic partner to progress, in whole
or in part, the program or commercialize any resulting approved product.
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In addition, all of our manufacturing activities are outsourced to third-party
contract development and manufacturing organizations or third-party contract
manufacturing organizations, which we refer to collectively as CMOs, who are
generally single source suppliers of the drug product or drug substance they are
manufacturing for us. We also utilize third-party contract research
organizations, or CROs, to carry out many of our clinical development
activities. We expect to be reliant on CMOs and CROs for these activities for
the foreseeable future. Significant portions of our research and development
resources are focused, and will continue to be focused, on the manufacture of
clinical trial materials. If our CROs and CMOs fail to satisfy their contractual
duties to us or meet expected deadlines or if our CMOs experience difficulties
in scaling production or procuring raw materials or components or experience
product loss due to contamination, equipment failure, improper installation or
operation of equipment, vendor or operator error, turnover of qualified staff or
improper storage conditions, our ongoing and planned trials may be delayed,
perhaps substantially, which could materially and adversely affect our business.
We seek to allocate our capital efficiently and strategically and fund our
portfolio based on each program's scientific and other merits. Our discipline
has been demonstrated by our decision not to proceed with development activities
on multiple potentially viable product candidates for portfolio management
reasons, in order to concentrate our resources on what we consider our most
promising product candidates. However, given the narrower scope of the Amended
Collaboration Agreement and our associated increased funding requirements with
respect to our development programs, particularly after March 2022 , we may need
to delay or suspend development activities on product candidates that we
consider promising unless and until we are able to raise sufficient additional
capital in order to proceed with such development through to regulatory
approval.
Financial Highlights
Since inception, we have funded our operations primarily through:
•fees received from collaboration partners, which since inception through
June 30, 2021 includes reimbursement of research and development expenses of
$446.8 million and upfront cash licensing fees of $123.0 million , primarily from
Merck, and a payment of $20.0 million from Merck to license MK-3655 and related
compounds;
•proceeds from private placements of convertible preferred stock prior to our
initial public offering, or IPO, including approximately $106.0 million of our
Series E convertible preferred stock purchased by Merck;
•net proceeds from our IPO in 2019 of approximately $107.8 million , together
with proceeds from the concurrent private placement of shares of common stock to
Merck of $65.9 million ;
•net proceeds of $21.9 million from sales of 809,700 shares of our common stock
at an average price of $27.94 per share in December 2020 under an Open Market
Sale AgreementSM, or the Sales Agreement, we entered into with Jefferies LLC , or
Jefferies, in June 2020 ; and
•net proceeds of $134.6 million from the sale of 5,324,074 shares of our common
stock in January 2021 upon completion of an underwritten public offering of our
common stock, or the follow-on offering, which included the full exercise by the
underwriters of their option to purchase additional shares.
At June 30, 2021 , we had $390.6 million in cash, cash equivalents and short-term
marketable securities.
We have incurred net losses each year since our inception. As of June 30, 2021 ,
we had an accumulated deficit of $362.9 million . Substantially all of our net
losses have resulted from costs incurred in connection with our research and
development, or R&D, programs and general and administrative costs associated
with our operations. Our net losses may fluctuate significantly from
quarter-to-quarter and year-to-year, depending on the timing of our clinical
trials and our expenses on other R&D activities, and the amount of R&D funding
we receive from Merck or other collaboration partners, particularly after March
2022 . For further discussion of our financial position and future sources of
funding, see "Liquidity and Capital Resources" below.
COVID-19 Business Update
We continue to closely monitor the impact of the global COVID-19 pandemic on our
business and have taken and continue to take proactive efforts designed to
protect the health and safety of our patients, study investigators, clinical
research staff and employees, while maintaining business continuity. Following
guidance from federal, state and local authorities, we continue to operate with
a primarily remote work model. Employees working on site continue to be mostly
those individuals conducting essential in-person laboratory work and other
business functions considered essential under COVID-19 regulations and guidance.
We are still allowing other individuals to work remotely. There have been
relatively minor impacts on productivity overall, but future developments could
more materially and adversely impact our productivity. In addition, in 2020 and
to date in 2021, we have experienced higher-than-normal employee turnover and an
increased rate of hiring new employees. We cannot predict whether these trends
will continue or be exacerbated, when we will be permitted to, and whether we
will,
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return to a fully office-based working model or a hybrid model, and the impacts
of that decision, or whether we will be required to adopt a more restrictive
work model as the pandemic evolves.
For patients enrolled in our clinical trials, we continue to work closely with
clinical trial investigators and site staff with the goal of continuing
treatment in a manner designed to uphold trial integrity, while allowing some
flexibility in the manner and timing of patient visits, and to observe
government and institutional guidelines designed to safeguard the health and
safety of patients, clinical trial investigators and site staff. We have
experienced, from time to time, a slower pace of clinical trial site initiation
and clinical trial enrollment than originally anticipated in certain of our
clinical trials, including the ALPINE 4, CATALINA and NGM120 trials, and we
experienced a higher dropout rate in our ALPINE 2/3 trial than we had
anticipated based on our previous trials in patients with NASH. We believe this
may be due to factors such as the vulnerability of our studied patient
populations, clinical trial site suspensions, reallocation of medical resources
and the challenges of working remotely due to shelter-in-place and similar
government orders.
We have been proactively working to mitigate these and other effects of the
COVID-19 pandemic by monitoring site initiations, patient enrollment and patient
study adherence to provide support to patients and trial staff, often on a
casebycase and/or patient-by-patient basis. For example, we have implemented
additional study policies and procedures designed to help protect trial
participants from exposure to COVID-19 as a result of their trial participation,
which include the use of telemedicine visits, remote monitoring of patients and
clinical trial sites and other measures, as appropriate, designed to ensure that
data from clinical trials that may be disrupted as result of the pandemic are
collected pursuant to the study protocol and consistent with current Good
Clinical Practices, with any material protocol deviation reviewed and approved
by the clinical trial site institutional review board, or IRB. Most of our
clinical trial sites, both within and outside of the United States , continue to
screen patients in our clinical trials, and new patients are being enrolled when
appropriate. While the COVID-19 pandemic has not yet resulted in a significant
impact to our disclosed clinical development timelines, as the pandemic
continues, there may be additional negative impacts on our ability to initiate
new clinical trial sites, maintain enrollment of existing patients and enroll
new patients, which may result in increased clinical trial costs and negatively
impact our timelines and our ability to obtain regulatory approvals of our
product candidates in a timely fashion, if at all.
We also could see an adverse impact on our ability to report clinical trial
results, or interact with regulators, IRBs and ethics committees or other
important agencies due to limitations in health authority employee resources or
otherwise. Moreover, we rely on CROs and other third parties to assist us with
clinical development activities, and we cannot guarantee that they will continue
to perform their contractual duties in a timely and satisfactory manner as a
result of the COVID-19 pandemic.
In addition, while we have not experienced significant disruption to drug or
related component supply for our ongoing clinical trials, we could experience
disruptions to our supply chain and operations due to the evolving effects of
the continuing pandemic, including if our CMOs' manufacturing facilities and
operations are adversely affected by labor and raw material shortages, turnover
of qualified staff or financial difficulties of their owners or operators. Any
associated delays in the manufacturing and supply of drug substance and drug
product for our clinical trials could adversely affect our ability to conduct
ongoing and future clinical trials of our product candidates. Our aldafermin
drug product CMO has advised us that it could be required under orders of the
U.S. government to allocate manufacturing capacity to the manufacture or
distribution of COVID-19 vaccines. If any of our CMOs become subject to acts or
orders of U.S. or foreign government entities to allocate manufacturing capacity
to the manufacture or distribution of COVID-19 vaccines or medical supplies
needed to treat COVID-19 patients, this could also delay our clinical trials,
perhaps substantially, which could materially and adversely affect our business.
Finally, we cannot predict how the evolving effects of the COVID-19 pandemic may
influence the future decisions of Merck to license any programs available to it
under the Amended Collaboration Agreement. For additional information about
risks and uncertainties related to the COVID-19 pandemic that may impact our
business, financial condition and results of operations, see the section titled
"Risk Factors" in Part II, Item 1A of this Quarterly Report on Form 10-Q.
Financial Operations Overview
Related Party Revenue
Our revenue to date has been generated primarily from recognition of license
fees and R&D service funding pursuant to our collaboration with Merck. Merck is
also a significant stockholder and, as such, collaboration revenue from Merck is
referred to as related party revenue.
Since inception through June 30, 2021 , Merck had paid us $541.6 million under
the collaboration. Due to the nature of our collaboration with Merck and the
timing of related revenue recognition, our revenue has fluctuated
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from period to period in the past and we expect that it will continue to
fluctuate in future periods, particularly given the amendment and restatement of
the collaboration on June 30, 2021 . As a result, we believe that
period-to-period comparisons of our revenue may not be meaningful and should not
be relied upon as being indicative of future performance.
We use the cost-based input method in accordance with Accounting Standards
Codification 606, or ASC 606, to calculate the corresponding amount of revenue
to recognize at each reporting period. In applying the cost-based input measure
of revenue recognition, we measure actual costs incurred relative to budgeted
costs to fulfill our performance obligation. We apply considerable judgment when
we re-evaluate the estimate of expected costs to satisfy the performance
obligation each reporting period and make adjustments for any significant
changes. A significant change in the estimate of expected costs under the
Amended Collaboration Agreement could have a material impact on revenue
recognized (including the possible reversal of previously recognized revenue) at
each reporting period.
Our related party revenue was as follows (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
Related party revenue $ 16,773 $ 19,755 $ 38,348 $ 44,119
Research and Development Expenses
R&D efforts include drug discovery research activities and development
activities relating to our product candidates, such as manufacturing drug
substance, drug product and other clinical trial materials, conducting
preclinical studies and clinical trials and providing support for these
operations. Our R&D expenses consist of both internal and external costs. Our
internal costs include employee, consultant, facility and other R&D operating
expenses. Our external costs include fees paid to CROs and other service
providers in connection with our clinical trials and preclinical studies,
third-party license fees and CMO costs related to manufacturing drug substance,
drug product and other clinical trial materials.
Our R&D expenses related to the development of aldafermin, MK-3655, NGM621,
NGM120, NGM707 and NGM438 (and prior to suspending these programs, NGM386,
NGM395 and NGM217) consist primarily of:
•fees paid to our CROs in connection with our clinical trials and other related
clinical trial fees, when applicable;
•costs related to acquiring and manufacturing drug substance, drug product and
clinical trial materials, including continued testing, such as process
validation and stability, of drug substance and drug product;
•costs related to toxicology testing and other research and preclinical related
studies;
•salaries and related overhead expenses, which include stock-based compensation
and benefits, for personnel in R&D functions;
•fees paid to consultants for R&D activities;
•R&D operating expenses, including facility costs and depreciation expenses; and
•costs related to compliance with regulatory requirements.
Our clinical development efforts are spread across multiple programs, only some
of which remain within the scope of our collaboration with Merck. For the
foreseeable future, we anticipate the majority of our financial resources, other
than those received from Merck and dedicated to continuing collaboration
activities under the Amended Collaboration Agreement, will be directed to
activities required to advance our Phase 2b ALPINE 4 clinical trial of
aldafermin and our trials of NGM120 and NGM707 and to initiate a clinical trial
of NGM438.
Our R&D efforts are extensive and costly. While Merck has committed under the
Amended Collaboration Agreement to provide up to $86.0 million in research
funding for the four calendar quarters ending March 31, 2022 (with up to $51.0
million of such amount that may be used by us to advance certain of our wholly
owned programs), after March 2022 and through the remaining two years of the
research phase of the collaboration, Merck is committed to provide only up to
$20.0 million in research funding for the ophthalmology- and CVM-related
programs (other than NGM621) and to fund certain R&D costs related to NGM621,
expected to be approximately $15.0 million , during the earlier of the remaining
two years of the research phase after March 2022 or until Merck exercises, or
decides not to exercise, its Merck license option with respect to NGM621. As a
result, after March 2022 , we will need to devote a substantial amount of our own
financial resources to our development programs,
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particularly with respect to our wholly owned programs and, to a lesser extent,
with respect to our programs that are within the scope of the Amended
Collaboration Agreement that we are required to fund. In addition, our funding
requirements would increase for any programs that are within the scope of the
continuing collaboration in the event Merck does not elect to license these
programs, in the event Merck elects to terminate its license to any program it
licenses or in the event we opt to co-develop any Merck-licensed programs.
Accordingly, we will require significant additional capital in order to proceed
with the development through to regulatory approval and commercialization of our
current and potential future product candidates or we will need to enter into
additional collaboration or license agreements in order to fund such development
and commercialization. Neither may be possible and, as a result, we may be
required to delay, scale back or discontinue development of such product
candidates, which could have a material adverse effect on our business,
operating results and prospects. In addition, our R&D expenses may exceed the
funding caps set forth under the Amended Collaboration Agreement, as happened in
the fiscal year ended December 31, 2020 under the Original Agreement, and is
expected to occur in the fiscal year ending December 31, 2021 , in which case our
funding requirements will increase.
The successful development of our product candidates is highly uncertain. At
this time, we cannot reasonably estimate the nature, timing or costs of the
efforts that will be necessary to complete the remainder of the development of
our product candidates. This is due to the numerous risks and uncertainties
associated with developing medicines, including the uncertainty of:
•our ability to hire and retain key R&D personnel;
•manufacturing scale-up challenges, production shortages or other supply
disruptions for clinical trial materials;
•the evolving effects of the COVID-19 pandemic on our employees, patients,
clinical trial sites and our CROs, CMOs and other service providers;
•the timely and quality performance of our CROs, CMOs and other service
providers;
•whether Merck will elect to license, or to terminate its license, to any of our
programs within the scope of the continuing collaboration and the timing of such
election or termination;
•prior to March 2022 , the extent to which we exceed the funding caps provided in
the Amended Collaboration Agreement;
•after March 2022 , the amount of our financial resources that we will need to
devote to our development programs and our obligations under the Amended
Collaboration Agreement, and our ability to raise adequate additional capital to
meet our requirements;
•the effect of products that may compete with our product candidates or other
market developments;
•our ability to expand and enforce our intellectual property portfolio;
•the scope, rate of progress, results and expense of our ongoing, as well as any
future, clinical trials and other R&D-related activities; and
•the impact and timing of any interactions with regulatory authorities.
A change in the outcome of any of the risks and uncertainties associated with
the development of a product candidate could mean a significant change in the
costs and timing associated with the development of that product candidate. For
example, if the FDA or another health authority were to require us to conduct
clinical trials beyond those that we currently anticipate will be required for
the completion of clinical development of a product candidate, or if we
experience significant delays in enrollment in any of our clinical trials, we
could be required to expend significant additional financial resources and time
on the completion of clinical development. For additional discussion of the
risks and uncertainties associated with our R&D efforts, see "Risk Factors-Risks
Related to Our Business and Industry," "-Risks Related to Our Dependence on
Merck and Other Third Parties" and "-Risks Related to Regulatory Approvals" in
Part II, Item 1A of this Quarterly Report on Form 10-Q.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other
related costs, including stock-based compensation and benefits. Other
significant costs include legal fees relating to patent and corporate matters,
facility costs not otherwise included in R&D expenses and fees for accounting
and other consulting services.
We anticipate that our general and administrative expenses will increase in the
future to support our continued R&D activities. These increases will likely
include increased costs related to the hiring of additional personnel, as well
as fees paid to outside consultants, lawyers and accountants, among other
expenses. Additionally, we anticipate continued increased costs associated with
being a public company, including expenses
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related to services associated with maintaining compliance with Nasdaq listing
rules and related Securities and Exchange Commission , or SEC , requirements and
costs related to insurance, investor relations and SOX 404 compliance. In
addition, we may incur expenses associated with building a commercial
organization in connection with, and prior to, potential future regulatory
approval of our product candidates.
Results of OperationsOur results of operations were as follows (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 Change 2021 2020 Change
Related party revenue $ 16,773 $ 19,755
43,570 38,494 5,076 84,269 76,933 7,336
General and administrative 9,823 6,794 3,029 18,544 13,389 5,155
Total operating expenses 53,393 45,288 8,105 102,813 90,322 12,491
Loss from operations (36,620) (25,533) (11,087) (64,465) (46,203) (18,262)
Interest income, net 115 388 (273) 229 1,563 (1,334)
Other expense, net (187) (471) 284 - (91) 91
Net loss $ (36,692) $ (25,616) $ (11,076) $ (64,236) $ (44,731) $ (19,505)
Related Party Revenue from Merck
Revenue decreased $3.0 million and $5.8 million in the three and six months
ended June 30, 2021 compared to the same periods in 2020, respectively. As of
March 31, 2021 , the Company had a contract asset of $4.6 million under the prior
two-year extension of the research phase which, under the Amended Collaboration
Agreement, was no longer billable to Merck at any point and therefore was
recorded as a reduction in revenue on June 30, 2021 .
Research and Development Expenses
Our R&D expenses by program were as follows (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
External R&D expenses:
Aldafermin (FGF19 analog) $ 9,474 $ 11,286 $ 19,072 $ 25,437
NGM621 (C3 inhibitor) 5,491 2,597 9,177 3,895
NGM120 (GFRAL antagonist) 2,235 1,529 3,596 2,894
NGM707 (Anti-ILT2/ILT4 dual antagonist) 1,056 1,843 2,221 2,603
NGM438 (LAIR1 antagonist) 956 345 2,471 387
MK-3655 (FGFR1c/KLB agonist) 574 403 609 532
NGM395 (GDF15 analog) 302 1,131 537 1,607
Other external R&D expenses 688 1,975 1,396 3,910
Total external R&D expenses 20,776 21,109 39,079 41,265
Personnel-related expenses 14,192 10,775 28,461 21,593
Internal and unallocated R&D expenses(1) 8,602 6,610 16,729 14,075
Total R&D expenses $ 43,570 $ 38,494 $ 84,269 $ 76,933
_____________(1)Internal and unallocated research and development expenses consist primarily of research supplies and consulting fees, which we deploy across multiple research and development programs.
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R&D expenses increased $5.1 million and $7.3 million in the three and six months
ended June 30, 2021 compared to the same periods in 2020, respectively,
primarily due to increases in external expenses driven by our ongoing clinical
trials of NGM621 and NGM120 and our preclinical studies of NGM438, and increases
in personnel-related and internal and unallocated R&D expenses. These increases
were partially offset by decreases in expenses for our manufacturing activities
and our clinical trials of aldafermin and in external expenses related to our
other development programs.
We expect R&D expenses for the remainder of 2021 to increase compared to 2020
due to our ongoing activities, particularly as we advance our clinical
development of NGM621 and our oncology programs. We are continuing to advance
Phase 2b development of aldafermin for the treatment of patients with
compensated NASH cirrhosis (F4 liver fibrosis). Resources previously intended
for a Phase 3 F2/F3 NASH development program have been shifted toward advancing
our other programs. In addition, we may be required to develop and implement
additional clinical study policies and procedures to mitigate the evolving
effects of the COVID-19 pandemic, which could significantly increase our R&D
expenses.
General and Administrative Expenses
General and administrative expenses increased $3.0 million and $5.2 million in
the three and six months ended June 30, 2021 compared to the same periods in
2020, respectively, primarily due to an increase in personnel-related expenses
due to increased headcount and an increase in stock-based compensation expense
primarily due to an increase in the average grant date fair value of stock
options granted in the six months ended June 30, 2021 .
We anticipate general and administrative expenses for the remainder of 2021 to
increase compared to 2020 due to an increase in compensation-related expenses
driven by higher headcount and other expenses related to the expansion and
support of our business including expenses related to SOX 404 compliance.
Interest Income
Interest income decreased in the three and six months ended June 30, 2021
compared to the same periods in 2020 primarily due to the decrease in market
interest rates.
Liquidity and Capital Resources
Funding Requirements
We have incurred net losses every year since inception. We have spent, and
expect to continue to spend, significant resources to fund R&D of, and seek
regulatory approvals for, our product candidates. These activities require us to
incur substantial costs related to research, development, manufacturing,
preclinical studies, clinical trial and related activities, as well as to cover
other expenses related to our ongoing operations. Our collaboration with Merck
under the Original Agreement has provided us with substantial financial support;
however, under the narrower scope of the Amended Collaboration Agreement, after
March 2022 the level of research funding from Merck will be substantially lower
on an annual and overall basis than the research funding provided by Merck prior
to that date, as described below. In this regard, after March 2022 , we will need
to devote a substantial amount of our own financial resources to our development
programs, particularly with respect to our wholly owned programs and, to a
lesser extent, with respect to our programs that are within the scope of the
continuing collaboration under the Amended Collaboration Agreement that we are
required to fund, and our failure to allocate funding to meet such requirements
may be deemed a breach of the Amended Collaboration Agreement. In addition, our
funding requirements would increase for any programs that are within the scope
of the continuing collaboration in the event Merck does not elect to license
these programs, in the event Merck elects to terminate its license to any
program it licenses or in the event we opt to co-develop any Merck-licensed
programs. Accordingly, we will require significant additional capital in order
to proceed with the development through to regulatory approval and
commercialization of our current and potential future product candidates or we
will need to enter into additional collaboration or license agreements in order
to fund such development and commercialization. Neither may be possible and, as
a result, we may be required to delay, scale back or discontinue development of
such product candidates, which could have a material adverse effect on our
business, operating results and prospects. In addition, our R&D expenses may
exceed the funding caps set forth under the Amended Collaboration Agreement, as
happened in the fiscal year ended December 31, 2020 under the Original
Agreement, and is expected to occur in the fiscal year ending December 31, 2021 ,
in which case, our funding requirements will increase. See "Overview of Our
Business - Merck Collaboration Update" above. As a result, we expect to incur
significant and increasing operating losses. We have no products approved for
commercial sale, have not generated any revenue from product sales to date and
we are not and may never be profitable. We have incurred losses in each year
since commencing operations. As of
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June 30, 2021 , we had an accumulated deficit of $362.9 million and we expect our
accumulated deficit will increase significantly over time. The size of our
future net losses will depend, in part, on the rate of future growth of our
expenses, the amount of revenue generated from Merck under the Amended
Collaboration Agreement and our ability to generate revenue outside of the Merck
collaboration, particularly after March 2022 .
Sources of Liquidity
Merck Collaboration
The revenue we receive under the Amended Collaboration Agreement with Merck is
our only source of revenue. As described in greater detail above, including
under "Overview of Our Business - Merck Collaboration Update," under the Amended
Collaboration Agreement, Merck has committed to provide us with up to $86.0
million in research funding for the four calendar quarters ending March 31, 2022
(with up to $51.0 million of such amount that may be used by us to advance
certain of our wholly owned programs). However, after March 2022 and through the
remaining two years of the research phase of the collaboration, Merck is
committed to provide only up to $20.0 million in research funding for the
ophthalmology- and CVM-related programs and to fund the R&D costs related to
NGM621, including our CATALINA clinical trial, subject to certain limitations.
Other Sources of Liquidity
In June 2020 , we entered into the Sales Agreement with Jefferies relating to the
sale of shares of our common stock. In accordance with the terms of the Sales
Agreement, we may offer and sell shares of our common stock having an aggregate
offering price of up to $150.0 million from time to time through Jefferies,
acting as our sales agent. During the six months ended June 30, 2021 , no shares
of our common stock were sold pursuant to the Sales Agreement. As of June 30,
2021 , $127.4 million of our common stock remained available to be sold under the
Sales Agreement, subject to conditions specified in the Sales Agreement.
In January 2021 , we sold 5,324,074 shares of common stock (inclusive of shares
sold pursuant to the full exercise of the option to purchase additional shares
granted to the underwriters in connection with the offering) through an
underwritten public offering at a price to the public of $27.00 per share for
aggregate net proceeds to the Company of $134.6 million , or the follow-on
offering.
As of June 30, 2021 , we had cash and cash equivalents of $99.4 million ,
short-term marketable securities of $291.1 million , working capital of $358.1
million and an accumulated deficit of $362.9 million .
We believe that our existing cash, cash equivalents and short-term marketable
securities will be sufficient to fund our operations for at least the next
twelve months from the date our interim condensed financial statements are
filed. We have based this estimate on assumptions that may prove to be wrong and
we could utilize our available capital resources sooner than we currently
expect. In addition, 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 as a result of a number of factors, including the
factors discussed under "Risk Factors" in Part II, Item 1A of this Quarterly
Report on Form 10-Q.
We plan to finance our future cash needs through public or private equity or
debt offerings, including under the Sales Agreement, government or other
third-party funding, product collaborations, strategic alliances, licensing
arrangements or a combination of these. Additional capital may not be available
in sufficient amounts, on reasonable terms or when we need it, if at all, and
our ability to raise additional capital may be adversely impacted by worsening
global economic conditions and the disruptions to, and volatility in, the credit
and financial markets in the United States and worldwide resulting from, among
other things, the evolving effects of the COVID-19 pandemic. If we raise
additional funds by issuing equity securities, our stockholders may experience
dilution. Debt financing, if available, may involve restrictive covenants. Any
debt financing or additional equity that we raise may contain terms that are not
favorable to us or our stockholders. Furthermore, any securities that we may
issue may have rights senior to those of our common stock and could contain
covenants or protective rights that would lead to restrictions on our operations
and potentially impair our competitiveness, such as limitations on our ability
to incur additional debt, limitations on our ability to acquire, sell or license
intellectual property rights and other operating restrictions that could
adversely impact our ability to conduct our business. If we are unable to raise
adequate additional capital, we may be prevented from pursuing development and
commercialization efforts, which will have a material adverse effect on our
business, operating results and prospects.
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Cash Flow Activity
The following table summarizes our cash flow activity for the periods indicated
(in thousands):
Six Months Ended
June 30,
2021 2020
Net cash provided by (used in):
Operating activities (45,535) (38,291)
Investing activities (145,880) 34,992
Financing activities 143,801 7,018
Net (decrease) increase in cash and cash equivalents
Operating Activities In the six months endedJune 30, 2021 net cash used in operating activities was$45.5 million , which consisted of a net loss of$64.2 million , adjusted for non-cash charges of$22.6 million and a change in operating assets and liabilities of$3.9 million . The non-cash charges consisted primarily of stock-based compensation expense of$13.3 million , a decrease in related party contract assets due to the Amended Collaboration Agreement with Merck of$4.6 million and depreciation expense of$3.1 million . The change in operating assets and liabilities was mainly driven by increases in contract liabilities of$5.0 million , increases in prepaid expenses and other current assets of$3.2 million and the related party receivable of$3.3 million , partially offset by decreases in related party contract assets of$1.5 million and accounts payable of$4.5 million . In the six months endedJune 30, 2020 cash used in operating activities was$38.3 million , which consisted of a net loss of$44.7 million , adjusted for non-cash charges of$10.8 million and cash used through changes in operating assets and liabilities of$4.4 million . The non-cash charges consisted primarily of stock-based compensation expense of$7.4 million and depreciation expense of$3.4 million . The change in operating assets and liabilities was mainly driven by an increase in prepaid expenses and other assets of$3.1 million and an increase in accrued expenses of$7.6 million . These increases were partially offset by a decrease in related party receivable from our Merck collaboration of$2.1 million , a decrease in accounts payable of$6.9 million , a decrease in deferred rent of$1.4 million and a decrease in deferred revenue of$2.7 million primarily attributable to the timing of advance payments from Merck related to the reimbursement of costs associated with R&D activities. Investing Activities In the six months endedJune 30, 2021 cash used in investing activities was$145.9 million , which consisted of purchases of marketable securities of$194.5 million primarily from the net proceeds of the follow-on offering, partially offset by$50.0 million in net proceeds on maturity of marketable securities. In the six months endedJune 30, 2020 cash provided by investing activities was$35.0 million , which consisted of$65.8 million in net proceeds on maturity of marketable securities, partially offset by purchases of marketable securities of$29.4 million and purchases of property and equipment of$1.4 million . Financing Activities In the six months endedJune 30, 2021 cash provided by financing activities was$143.8 million , which consisted of net proceeds from the follow-on offering of$134.6 million and proceeds from employee equity incentive plans of$7.8 million . In the six months endedJune 30, 2020 cash provided by financing activities was$7.0 million , which primarily consisted of proceeds from employee equity incentive plans. Off-Balance Sheet Arrangements We currently have not entered into and do not have any relationships with unconsolidated entities or financial collaborations, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purpose. 37 -------------------------------------------------------------------------------- Contractual Obligations During the six months endedJune 30, 2021 , there were no material changes to our contractual obligations as set forth in Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . Critical Accounting Policies and Estimates Our management's discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which we have prepared in accordance withU.S. generally accepted accounting principles. The preparation of our condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our condensed consolidated financial statements, as well as revenue and expenses during the reported periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions. We believe that there have been no significant changes in our critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . Newly Issued Accounting Pronouncements Except as described in Note 2 to the condensed consolidated financial statements under the headings "Recently Adopted Accounting Pronouncements" and "Recent Accounting Pronouncements Not Yet Adopted," there have been no new accounting pronouncements or changes to accounting pronouncements during the six months endedJune 30, 2021 , as compared to the recent accounting pronouncements described in our audited consolidated financial statements and notes for the year endedDecember 31, 2020 , included in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2020 , that are of significance or potential significance to us. Item 3. Quantitative and Qualitative Disclosures About Market Risk. During the six months endedJune 30, 2021 , there were no material changes to our market risk disclosures as set forth in Part II, Item 7A "Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . Item 4. Controls and Procedures. Evaluation of Disclosure Controls and Procedures As ofJune 30, 2021 , management, with the participation of our Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in theSEC's rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as ofJune 30, 2021 , the design and operation of our disclosure controls and procedures were effective at a reasonable assurance level. Changes in Internal Control over Financial Reporting During the quarter endedJune 30, 2021 , there have been no changes to our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 38
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