NextCure, Inc. — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; filed March 12, 2020. This is an annual report, not a standalone fourth-quarter report. NextCure is a clinical-stage biopharmaceutical company developing immunotherapies and had no approved products or product-sale revenue.
Financial performance and position
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $6.3 million | $0 |
| Research and development expense | $34.2 million | $19.8 million |
| General and administrative expense | $9.6 million | $3.4 million |
| Operating loss | $37.5 million | $23.2 million |
| Net loss | $33.7 million | $22.8 million |
| Operating cash flow | $(35.6) million | $8.0 million provided |
- 2019 revenue came from the Lilly research and development arrangement, not product sales. The company reported a $2.15 basic and diluted net loss per share, compared with $16.64 in 2018; the share count changed substantially following the IPO and preferred-stock conversion.
- Cash, cash equivalents and marketable securities, excluding restricted cash, totaled $334.6 million at year-end ($34.1 million cash and equivalents and $300.5 million marketable securities). Current assets were $340.0 million and current liabilities were $15.0 million.
- Outstanding term-loan borrowings were $5.0 million, secured by cash and investment accounts; the loan matures in January 2023. Contractual obligations reported included $5.0 million of debt and $3.5 million of operating lease payments, though the notes separately estimate $11.2 million of future minimum lease payments.
- Accumulated deficit was $81.0 million. The company incurred no income-tax expense and recorded a full valuation allowance against deferred tax assets. Product margins are not meaningful because there were no product sales.
Material changes and business developments
- Loss widened by $10.9 million year over year. R&D expense increased $14.4 million, principally from lab supplies and services, higher personnel costs, and NC318 clinical research. G&A increased $6.2 million, largely from public-company and IPO-related professional fees, insurance and staffing.
- Other income, net increased to $3.7 million from $0.4 million, principally reflecting interest on higher cash and investment balances, partly offset by higher term-loan interest expense.
- Operating cash flow shifted from $8.0 million provided in 2018 to $35.6 million used in 2019. The 2018 inflow benefited from Lilly-related deferred revenue; 2019 investing cash use of $303.9 million primarily reflected purchases of marketable securities.
- The 2019 IPO and follow-on offering generated approximately $76.9 million and $160.9 million of net proceeds, respectively. Total net proceeds from public offerings were $238.4 million.
Pipeline, outlook and risks
- NC318: The Phase 1 portion of its Phase 1/2 trial completed enrollment in August 2019; Phase 2 enrollment began in October. Preliminary data available as of November 9, 2019 showed one complete response and one partial response, both in NSCLC, plus 14 cases of stable disease across tumor types. These are early, limited-sample findings, not proof of efficacy. The company expected initial Phase 2 data by the end of 2020 and planned a Phase 2 chemotherapy-combination trial for mid-2020.
- NC318 was described as generally tolerated in Phase 1; reported events included two grade 3 pneumonitis cases and one grade 3 episcleritis/uveitis case. The filing also reports one dose-limiting toxicity, grade 3 pneumonitis, at the highest dose. Continued safety and efficacy evaluation is essential.
- NC410: The FDA accepted its IND in Q1 2020, after year-end, and the company planned to start a Phase 1/2 trial in Q2 2020. It remained preclinical at the reporting date.
- Management expected year-end cash, cash equivalents and marketable securities to fund planned operations into the first half of 2023, subject to assumptions and development costs. The filing also says funding beyond at least two years from the financial-statement issuance date may depend on raising additional capital. NextCure expects continuing losses and negative operating cash flow.
- Lilly collaboration: Lilly terminated the agreement effective March 3, 2020. NextCure therefore lost eligibility for future research support, option fees, milestones and royalties under the agreement. The company said it would recognize the remaining $22.4 million of deferred revenue in Q1 2020 upon termination; this is not recurring product revenue.
- Key risks include clinical-trial failure or delay, uncertain safety and efficacy, the unproven discovery platform, manufacturing scale-up and supply dependence, patent uncertainty, competition, need for future financing, and potential disruption from the then-emerging coronavirus outbreak. The auditor gave an unqualified opinion on the financial statements; it did not audit internal-control effectiveness.
Important facts for investors to verify
- Subsequent NC318 trial results, durability and safety, especially the pneumonitis cases, and whether Phase 2 findings confirm the preliminary responses.
- Whether NC410 entered clinical testing on the stated schedule and what its first human safety and activity data show.
- Cash consumption, investment liquidity and the assumptions underlying the stated first-half-2023 runway, particularly after Lilly’s termination and as trial and manufacturing costs rise.
- The timing and accounting treatment of the $22.4 million deferred-revenue recognition, and the loss of future Lilly collaboration payments and potential royalties.
- Reconcile lease commitments: the contractual-obligations table lists $3.5 million, while the lease note reports $11.2 million in future minimum payments.