Nkarta, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. The unaudited financial statements are prepared under U.S. GAAP. Nkarta is a clinical-stage biopharmaceutical company developing off-the-shelf engineered natural killer cell therapies, including lead candidates NKX101 and NKX019. It had no approved products and generated no product revenue.
Financial results and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Collaboration revenue | $0 | $2,000 | $0 | $115,385 |
| Research and development | $7.86 million | $3.62 million | $15.12 million | $5.91 million |
| General and administrative | $2.49 million | $1.05 million | $4.64 million | $1.99 million |
| Operating loss | $10.36 million | $4.67 million | $19.76 million | $7.79 million |
| Net loss | $51.07 million | $4.84 million | $59.77 million | $7.92 million |
| Basic and diluted net loss per share | $30.06 | $3.39 | $36.13 | $5.79 |
The unusually large net loss includes a noncash fair-value charge on the preferred stock purchase right liability: $40.7 million in Q2 and $40.2 million for the six-month period. The liability was $41.6 million at June 30 and was reclassified to equity when the related preferred shares were issued on July 1. The filing’s MD&A contains inconsistent wording about whether this fair-value change was an expense or income; the financial statements report it as an expense.
At June 30, cash and cash equivalents were $17.75 million, restricted cash $0.41 million, and short-term investments $3.90 million, totaling $22.06 million. Six-month operating cash use was $18.53 million; investing activities provided $7.71 million, primarily from investment maturities, while financing activities provided $8.10 million. Capital expenditures were $4.81 million. Accumulated deficit was $86.4 million. No conventional borrowings are reported at quarter-end; the balance sheet includes $9.35 million of operating lease liabilities. The company reported $67.69 million of total liabilities, including the preferred stock purchase right liability and a $10.25 million related-party liability for Series B proceeds received in June.
Current assets were $22.30 million against current liabilities of $59.74 million, largely reflecting those financing-related liabilities. No meaningful revenue-based margins are presented because revenue was nil in 2020.
Changes and significant events
- Six-month R&D expense rose to $15.12 million from $5.91 million, mainly due to higher personnel costs, external program spending, and other internal research and facilities costs. Q2 R&D rose to $7.86 million from $3.62 million, including increased NKX101 spending.
- Six-month G&A expense increased to $4.64 million from $1.99 million, reflecting higher personnel, professional services, and facilities costs. The company expected additional public-company costs.
- The former GSK collaboration had ended in December 2018; the $115,385 of 2019 revenue related to wind-down work. There was no collaboration revenue in 2020.
- After quarter-end, on July 1, the company issued 27,066,206 Series B preferred shares for $64.4 million gross proceeds. It received $10.2 million in June and the remaining $54.2 million in July.
- On July 14, the company completed its IPO, selling 16.1 million common shares at $18 per share and receiving approximately $265.5 million in net proceeds. All outstanding preferred shares converted into 14,689,215 common shares. A 1-for-3.7 reverse stock split took effect July 1; share and per-share figures in the filing are retrospectively adjusted.
Outlook, risks, and other considerations
Management expected the June 30 resources together with the July Series B financing and IPO proceeds to fund operations for at least 12 months from the filing date. This is a forward-looking estimate, not a guarantee. Nkarta expected substantial losses and rising R&D spending as it advanced development and clinical plans for NKX101 and NKX019. The filing does not provide specific revenue, earnings, or cash-flow guidance.
- COVID-19 could disrupt preclinical work, clinical-trial planning and enrollment, suppliers, manufacturing, and regulatory review. The extent of impact was uncertain; the company reported work-from-home policies and temporarily scaled-back operations.
- Product candidates were still in development, with substantial clinical, safety, regulatory, manufacturing, and commercialization risks. Nkarta highlighted uncertainty around clinical outcomes, patient enrollment, cell manufacturing scale-up, and reliance on third-party suppliers, including a sole supplier for certain manufacturing equipment and reagents.
- The company had no product revenue and expected to need substantial funding over time. Future financing may be unavailable or dilute shareholders, restrict operations, or require licensing or collaboration arrangements.
- The company reported $18.35 million of operating lease commitments, including commitments under a lease amendment for additional space expected to commence in 2021. The balance-sheet lease liability at June 30 was $9.35 million.
- Management concluded disclosure controls and procedures were effective at a reasonable-assurance level as of June 30, 2020. No material change in internal control over financial reporting was reported for the quarter.
Important facts for investors to verify
- Confirm the post-IPO cash balance, cash runway, and planned pace of spending in subsequent filings; the 12-month runway estimate depends on assumptions and includes post-quarter financing.
- Track NKX101 and NKX019 clinical and regulatory progress, including any COVID-related delays and manufacturing readiness.
- Review the preferred stock purchase right accounting and its July settlement, including the filing’s inconsistent MD&A description of the fair-value change.
- Assess potential dilution and share overhang: 32,674,391 common shares were outstanding as of August 17, 2020, and the filing described additional shares becoming eligible for sale after lock-up restrictions.