NextCure, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Financial amounts below are in U.S. dollars; amounts from statements reported in thousands are converted to millions unless otherwise noted. Share and per-share figures reflect the May 3, 2019 one-for-8.0338 reverse stock split.
Business context and reporting period
NextCure is a clinical-stage biopharmaceutical company developing immunomedicines using its FIND-IO discovery platform. Its lead candidate, NC318, was in a Phase 1/2 trial for advanced or metastatic solid tumors; the company expected to complete the Phase 1 portion in Q4 2019 and Phase 2 in Q4 2020. NC410 was in preclinical development, with an IND submission targeted for Q1 2020. The company had no approved products and had not generated product-sales revenue.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Revenue | $1.357 million, all from related party | $0 |
| Research and development | $6.513 million | $4.210 million; up $2.303 million |
| General and administrative | $1.659 million | $0.799 million; up $0.860 million |
| Total operating expenses | $8.172 million | $5.009 million |
| Loss from operations | $(6.815) million | $(5.009) million |
| Other income, net | $0.660 million | $0.013 million |
| Net loss | $(6.155) million | $(4.996) million |
| Net loss per share, basic and diluted | $(4.46) | $(3.65) |
| Net cash used in operations | $(7.080) million | $(4.803) million |
| Net cash used in investing | $(0.935) million | $(0.465) million |
| Net cash from (used in) financing | $2.970 million | $(0.100) million |
At March 31, 2019, cash and cash equivalents were $125.549 million and restricted cash was $5.039 million, for combined cash, cash equivalents and restricted cash of $130.588 million. Current assets were $131.637 million versus current liabilities of $10.305 million. Total assets were $145.426 million, total liabilities $35.915 million, and stockholders’ deficit $(52.712) million; preferred stock of $162.223 million was separately presented.
Outstanding term-loan borrowings were $5.0 million. The loan was amended in January 2019 to increase borrowing capacity to $5.0 million, bears interest at the greater of prime less 1% or 4.25%, and requires interest-only payments through January 2020 followed by principal and interest payments through January 2023. A $5.039 million cash reserve was restricted as loan collateral. Operating-lease minimum payments totaled $10.408 million.
Operating loss margin is not a useful indicator of product economics because revenue was limited to collaboration revenue and the company had no product sales.
Material changes versus the prior comparable period
- Revenue increased from zero to $1.357 million, reflecting performance under the Lilly collaboration.
- Research and development expense increased 55% and general and administrative expense increased 108% year over year. Management attributed R&D growth mainly to laboratory supplies and services, NC318 clinical research, increased headcount, and sponsored research; G&A growth included higher professional fees.
- Net loss widened by $1.159 million. Higher operating expenses were partly offset by increased other income, primarily interest earned on higher cash balances.
- Operating cash use increased by $2.277 million. Cash and cash equivalents declined from $135.173 million at year-end to $125.549 million at March 31; restricted cash increased from $0.460 million to $5.039 million.
- The company drew additional term-loan financing during the quarter, raising outstanding borrowings to $5.0 million.
Outlook, management commentary, risks and unusual items
- Management expected ongoing operating losses and negative operating cash flows, with substantially higher R&D spending as NC318, NC410 and discovery programs advance. It also expected higher public-company costs.
- Management estimated that existing cash and cash equivalents together with IPO proceeds would fund planned operations into the second half of 2022. This estimate depends on assumptions that may prove incorrect; the company said additional funding would be needed to pursue its strategy and might not be available on acceptable terms.
- On May 13, 2019, after quarter-end, the company completed its IPO of 5.75 million shares at $15.00 per share, receiving approximately $77.0 million net. Preferred stock converted into 15,560,569 common shares. The IPO proceeds are not included in March 31, 2019 balances.
- The IPO triggered a $0.5 million liquidation milestone payment to Yale University. The company also adopted new equity plans after quarter-end.
- Under the Lilly agreement, Lilly paid a $25.0 million upfront fee and made a concurrent $15.0 million equity investment in 2018. NextCure recognized $1.357 million of collaboration revenue in Q1 2019 and had $25.868 million of deferred related-party revenue at quarter-end. Potential Lilly development, regulatory and sales milestones total up to $1.4 billion, plus mid- to high-single-digit royalties on applicable net sales; these are contingent and not assured. NextCure may owe Lilly up to $710 million in milestones and royalties on programs it elects to license.
- Key risks include clinical and regulatory uncertainty, trial enrollment and safety, manufacturing scale-up and compliance, dependence on third parties and collaborators, intellectual-property protection, competition, and the need for further financing. The company reported no material litigation and stated disclosure controls were effective at the reasonable-assurance level.
Important facts for investors to verify
- Confirm NC318 trial progress and whether the stated Phase 1 and Phase 2 timelines were achieved; assess subsequent clinical data and safety findings.
- Check NC410 IND timing and development progress, along with spending required to advance both programs.
- Reconcile post-IPO cash, restricted cash, debt, and actual cash runway against management’s second-half-2022 estimate.
- Review Lilly collaboration performance, option exercises, future support payments, and the conditions attached to milestone and royalty opportunities.
- Monitor term-loan collateral and repayment requirements, facility expansion and lease commitments, and the Yale payment triggered by the IPO.