Nkarta, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; filed August 12, 2021. Nkarta is a clinical-stage biotechnology company developing engineered, off-the-shelf natural killer cell therapies. It has no approved products and has generated no product revenue.
Financial results and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | None reported | None reported | None reported | None reported |
| Research and development expense | $16.0 million | $7.9 million | $29.5 million | $15.1 million |
| General and administrative expense | $5.7 million | $2.5 million | $11.6 million | $4.6 million |
| Total operating expenses | $21.6 million | $10.4 million | $41.1 million | $19.8 million |
| Net loss | $21.5 million | $51.1 million | $40.9 million | $59.8 million |
| Operating cash used | Not stated separately | Not stated separately | $32.1 million | $18.5 million |
- At June 30, cash, cash equivalents, restricted cash and short-term investments totaled $280.3 million, including $24.4 million of cash and cash equivalents and $255.4 million of short-term investments. Accumulated deficit was $158.9 million.
- Total assets were $309.1 million; total liabilities were $20.7 million, including $12.7 million of operating lease liabilities. The filing reports no borrowings or other debt balance.
- Current assets were $283.9 million and current liabilities were $10.3 million. There is no meaningful product gross margin because the company has no product sales.
- Six-month investing cash outflow was $41.1 million, mainly reflecting purchases of short-term investments net of maturities and $2.4 million of property and equipment purchases. Financing provided $1.0 million, primarily from stock-option exercises.
- Management believes available cash and investments will fund operations for at least 12 months from the filing date, but expects substantial ongoing losses and says additional capital will be needed to pursue its plans.
Changes versus the prior comparable period
- Q2 operating expenses more than doubled year over year, driven by increased personnel, clinical-program spending, research supplies and facilities costs. Six-month R&D expense rose $14.4 million and G&A expense rose $7.0 million.
- Net loss improved year over year, but comparison is distorted by the 2020 noncash fair-value remeasurement of a preferred-stock purchase-right liability: it added $40.7 million of expense in Q2 2020 and $40.2 million for the first half of 2020. The liability was settled in July 2020 and no further remeasurement is expected.
- Operating cash use increased to $32.1 million from $18.5 million in the first half, as development spending grew. Cash and cash equivalents fell from $96.7 million at December 31, 2020 to $24.4 million at June 30, while short-term investments increased from $218.2 million to $255.4 million.
Outlook, developments and risks
- NKX101 is in a Phase 1 study for relapsed/refractory acute myeloid leukemia and higher-risk myelodysplastic syndromes. A 2021 protocol amendment added a two-dose regimen and brought forward use of off-the-shelf product in the dose-finding study.
- NKX019 received FDA IND clearance in April 2021; the company planned to dose its first patient in the second half of 2021. The filing reports no clinical efficacy results.
- In May 2021, Nkarta entered a research collaboration with CRISPR Therapeutics to advance a CD70 CAR-NK candidate and an NK-plus-T-cell candidate, with equal sharing of research and development costs and potential profits for collaboration products. CRISPR also agreed to license up to five gene-editing targets for Nkarta’s independent programs. No milestones had been achieved and collaboration costs in Q2 were insignificant.
- Management expects R&D expense to increase as clinical and preclinical development advances; G&A is also expected to rise with growth and public-company costs. No revenue or profitability guidance was provided.
- COVID-19 has contributed to vendor and contract-manufacturer disruptions, workforce turnover, material shortages, construction delays and delays in internal research. These factors could affect trial enrollment, manufacturing and planned timelines.
- A July 9, 2021 lease for new South San Francisco office, manufacturing and laboratory space is a significant subsequent event: approximately 12-year term, expected base rent of $98.8 million over the term, and monthly base rent starting near $0.6 million. The lease provides tenant-improvement allowances up to approximately $25.2 million; approximately $4.4 million may be repayable if used. A $1.6 million letter-of-credit security deposit is required.
- Two of three requested reexaminations of U.S. Patent No. 9,511,092 remained pending. The patent does not relate to current candidates but may affect future programs or alternative technologies. Management said no pending legal matter was likely to have a material adverse effect.
- Key risks include clinical and regulatory uncertainty, manufacturing complexity and reliance on third parties and a sole supplier for certain process steps, competition, the need for additional capital, and potential dilution or licensing of product rights. Management reported disclosure controls were effective as of June 30, 2021 and no material change in internal control over financial reporting during the quarter.
Investor verification checklist
- Check subsequent filings for NKX101 enrollment, safety and dose-finding updates, and whether NKX019 dosing began as planned.
- Track operating cash use, investment balances and any financing plans against management’s stated 12-month runway estimate.
- Review construction, qualification and spending commitments for the new manufacturing and laboratory lease, including tenant-improvement allowances and repayment terms.
- Monitor the CRISPR collaboration’s progress, cost-sharing terms and any milestone or license-related payments.
- Follow developments in the pending patent reexaminations and any changes to manufacturing supply, COVID-related disruptions or clinical timelines.