Nkarta, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Nkarta is a clinical-stage biopharmaceutical company developing engineered, off-the-shelf natural killer (NK) cell cancer therapies. Its co-lead candidates, NKX101 and NKX019, were in Phase 1 trials. The company had no approved products and had generated no product-sales revenue.
Financial performance and position
Amounts below are in millions of dollars except per-share data. Margins are not meaningful because Nkarta reported no product revenue.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Research and development expense | $21.0 | $16.0 | $40.6 | $29.5 |
| General and administrative expense | $6.6 | $5.7 | $13.1 | $11.6 |
| Total operating expenses | $27.6 | $21.6 | $53.7 | $41.1 |
| Net loss | $26.9 | $21.5 | $52.9 | $40.9 |
| Basic and diluted net loss per share | $(0.61) | $(0.66) | $(1.38) | $(1.25) |
| Operating cash used | Not stated quarterly | Not stated quarterly | $34.9 | $32.1 |
- Liquidity at June 30, 2022: Cash and cash equivalents of $131.6 million, restricted cash of $2.1 million, and short-term investments of $281.3 million; together $415.0 million. Current assets were $417.4 million and current liabilities $13.2 million.
- Balance sheet: Total assets were $503.6 million, total liabilities $82.6 million, and stockholders’ equity $421.0 million. Accumulated deficit was $257.0 million. Operating lease liabilities totaled $72.5 million; the filing reports no debt borrowings in the presented balance sheet.
- Cash flows, six months: Investing activities used $110.3 million, mainly reflecting purchases of short-term investments and $4.4 million of property and equipment. Financing provided $216.0 million, primarily from the April offering.
Material changes and financing
- Q2 operating expenses rose $6.0 million year over year; six-month expenses rose $12.6 million. Management attributed the R&D increase mainly to greater NKX101 and NKX019 clinical-development activity, higher personnel and internal research costs, partly offset by CRISPR collaboration reimbursements.
- Net loss increased by $5.4 million in Q2 and $12.0 million for the first six months versus the prior-year periods. Higher interest income partly offset operating losses.
- On April 28, 2022, Nkarta sold 15.33 million shares at $15.00 per share, receiving approximately $215.3 million net. Shares issued in the offering materially increased the share count; 48.66 million shares were outstanding on August 8, 2022.
- Property and equipment, net, increased to $16.9 million from $12.9 million at year-end 2021, while operating lease right-of-use assets increased to $66.0 million from $11.7 million.
Outlook, risks and unusual items
- Management expected existing cash, cash equivalents, restricted cash and short-term investments to fund operations for at least 12 months from the filing date. Nkarta expects continued substantial losses and higher R&D costs as it advances its pipeline; it may need additional capital, which could dilute shareholders or require other concessions.
- Key risks include uncertain clinical-trial outcomes and enrollment, potential adverse events, manufacturing and supply-chain constraints, dependence on third parties and a sole supplier for certain manufacturing steps, and delays or cost increases in building manufacturing capacity. COVID-19 disruption, inflation, labor shortages and supply-chain conditions were cited as potential challenges.
- In August 2022, lease amendments added approximately $15.0 million of tenant-improvement allowances, in exchange for increased base rents; amendments also increased certain letters of credit and extended part of an existing lease. The resulting increase in lease liabilities and right-of-use assets had not yet been determined.
- There were no material pending legal claims identified by management. Patent reexaminations concerning two licensed patents related to NKX101 were pending; a reexamination of another patent had resulted in cancellation of certain claims, with a separate proceeding still pending.
- The CRISPR collaboration shares certain development costs and potential profits equally. Nkarta recorded a $0.7 million receivable for cost sharing at June 30, 2022.
- Disclosure controls and procedures were assessed as effective at a reasonable assurance level; management reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Updated clinical-trial data for NKX101 and NKX019, including whether preliminary results disclosed in April 2022 are confirmed by final data, and implications for safety, efficacy, enrollment and trial timing.
- Actual cash burn and the duration of the stated cash runway as clinical and manufacturing spending evolves.
- Construction progress, costs, funding and qualification timeline for the manufacturing facility, including the financial effect of the August lease amendments.
- Whether patent reexaminations affect Nkarta’s rights or development plans, particularly for NKX101.
- Potential future financing needs, dilution and the effect of the enlarged share count.