NextCure, Inc. — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. Unaudited financial statements; amounts below are in millions unless stated otherwise.
Business context
NextCure is a clinical-stage biopharmaceutical company developing immunomedicines for cancer and immune-related diseases using its FIND-IO discovery platform. Its lead candidate, NC318, was in a Phase 1/2 trial; the company expected the Phase 1 portion to finish in Q4 2019 and the Phase 2 portion in Q4 2020. NC410 was in preclinical development, with an IND submission expected in Q1 2020. The company had no approved products and no product-sales revenue.
Financial results and liquidity
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $1.402 | $0 | $2.759 | $0 |
| Research and development expense | $7.643 | $4.434 | $14.156 | $8.644 |
| General and administrative expense | $2.714 | $0.866 | $4.373 | $1.665 |
| Operating loss | $(8.955) | $(5.300) | $(15.770) | $(10.309) |
| Net loss | $(8.221) | $(5.231) | $(14.376) | $(10.227) |
Revenue was recognized under the Lilly research and development collaboration; it was not product revenue. Gross profit and operating margins are not presented as meaningful measures for this business.
- Cash and cash equivalents: $192.689 at June 30, 2019, compared with $135.173 at December 31, 2018. Restricted cash was $5.039, including $4.2 held in other assets as loan collateral.
- Cash flows, six months: $17.685 used in operations, $2.067 used in investing, and $81.847 provided by financing; cash, cash equivalents and restricted cash increased $62.095 to $197.728.
- Debt: $5.0 term loan outstanding, including $0.833 current and $4.167 long-term. Interest-only payments run through January 2020, followed by principal and interest payments through January 2023.
- Liquidity: Total assets were $213.050, total liabilities $34.455, and accumulated deficit $61.673 at quarter-end. Management expected existing cash and IPO proceeds to fund planned operations into the second half of 2022, subject to assumptions and the possibility of faster cash use.
Material changes versus the prior comparable period
- Q2 net loss increased to $8.221 from $5.231; six-month net loss increased to $14.376 from $10.227. R&D spending rose with higher headcount, NC318 clinical costs, laboratory spending and other research activity.
- G&A increased, primarily reflecting public-company legal, finance, audit, insurance and personnel costs, as well as a $0.5 payment described as an unrestricted gift to an academic lab. A separate $0.5 payment to Yale was recorded in R&D in connection with the IPO.
- The May 2019 IPO raised approximately $77.0 net. The company issued 5.75 million shares at $15 per share; preferred stock converted into common stock. Common shares outstanding were 22,714,765 as of August 9, 2019.
- Operating cash use increased from $9.760 to $17.685 for the six-month period, while capital spending increased from $0.853 to $2.067.
Outlook, risks and contingencies
- Management expected substantial operating losses and negative operating cash flows to continue, with R&D and public-company costs expected to rise. Additional financing may be needed; funding may not be available on acceptable terms.
- The Lilly collaboration provides quarterly research support payments and potential option, milestone and royalty payments. Lilly’s options remained eligible for exercise, but future payments are contingent; potential milestones are not assured revenue.
- The company reported no material litigation. Lease commitments totaled approximately $10.312, and a subsequent August 2 lease amendment added office, laboratory and warehouse space, with delivery expected in April 2020.
- Principal disclosed risks include clinical and regulatory uncertainty, trial enrollment and safety, manufacturing and supply constraints, dependence on collaborators and third parties, intellectual-property protection, competition, and future capital needs. Management reported disclosure controls effective at the reasonable-assurance level and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Progress and reported results for the NC318 Phase 1/2 trial, including whether the stated completion timelines were met; status of NC410’s IND and clinical plans.
- Cash burn, updated cash runway assumptions and the effects of development spending, lease expansion and other commitments.
- Lilly collaboration performance, research-support payments, option decisions and any resulting milestone or royalty rights.
- Term-loan collateral and repayment terms, and the company’s ability to maintain financing and manufacturing capacity.
- Potential dilution and share supply, including expiry or release of IPO lock-up restrictions and outstanding equity awards.