Nautilus Biotechnology(NAUT) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's financial statements, management's analysis, market risk disclosures, and internal controls Item 1. Financial Statements Presents Nautilus Biotechnology, Inc.'s unaudited condensed consolidated financial statements, detailing balance sheets, operations, and cash flows Condensed Consolidated Balance Sheet Highlights (Unaudited) | (in thousands) | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $72,139 | $114,523 | | Short-term investments | $91,156 | $69,948 | | Total current assets | $166,703 | $187,209 | | Total assets | $330,767 | $350,052 | | Liabilities & Stockholders' Equity | | | | Total current liabilities | $7,890 | $6,791 | | Total liabilities | $41,094 | $35,128 | | Accumulated deficit | $(169,337) | $(138,564) | | Total stockholders' equity | $289,673 | $314,924 | Condensed Consolidated Statements of Operations (Unaudited) | (in thousands, except per share data) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Research and development | $11,912 | $8,856 | $22,789 | $18,514 | | General and administrative | $7,104 | $6,616 | $14,287 | $12,980 | | Total operating expenses | $19,016 | $15,472 | $37,076 | $31,494 | | Interest income | $3,222 | $776 | $6,320 | $1,040 | | Net loss | $(15,808) | $(14,689) | $(30,773) | $(30,452) | | Net loss per share, basic and diluted | $(0.13) | $(0.12) | $(0.25) | $(0.24) | Condensed Consolidated Statements of Cash Flows (Unaudited) | (in thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(26,073) | $(25,864) | | Net cash (used in) provided by investing activities | $(15,750) | $50,258 | | Net cash provided by financing activities | $99 | $341 | | Net (decrease) increase in cash | $(41,724) | $24,735 | - The company has incurred net operating losses and negative cash flows since inception and expects this to continue. As of June 30, 2023, the accumulated deficit was $169.3 million. However, management believes that its cash, cash equivalents, and short-term investments of $163.3 million will be sufficient to fund operations for the next twelve months[35][36][37] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and results, highlighting its development-stage status, lack of revenue, and significant R&D investments Overview Provides an overview of Nautilus as a development-stage life sciences company, its commercial launch plans, and current liquidity - Nautilus is a development-stage life sciences company creating a platform technology to quantify the proteome. The company has devoted substantially all resources to R&D, has no products available for commercial sale, and has not generated any revenue since its inception in 2016[96][97] - The company plans a three-phase commercial launch for its proteomics platform: 1. Collaboration Phase: Currently ongoing with biopharmaceutical companies and key opinion leaders to validate performance 2. Early Access Phase: Anticipated to begin with associated revenue in 2024 3. Broad Commercial Launch: Expected to follow the early access phase in 2024[100] - As of June 30, 2023, the company had cash, cash equivalents, and short-term investments of $163.3 million, which is believed to be sufficient to fund planned operating expenses and capital expenditures for at least the next 12 months[105] Results of Operations Analyzes the company's operating results, detailing changes in R&D, G&A expenses, and net loss for the periods Comparison of Operating Results for the Three Months Ended June 30, 2023 and 2022 | (in thousands) | Q2 2023 | Q2 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Research and development | $11,912 | $8,856 | $3,056 | 35% | | General and administrative | $7,104 | $6,616 | $488 | 7% | | Total operating expenses | $19,016 | $15,472 | $3,544 | 23% | | Net loss | $(15,808) | $(14,689) | $(1,119) | 8% | - Research and development expenses increased by $3.1 million (35%) in Q2 2023 compared to Q2 2022, primarily due to a $1.4 million increase in salaries and related compensation, a $1.3 million increase in laboratory supplies, and a $1.1 million increase in facilities costs[120] Comparison of Operating Results for the Six Months Ended June 30, 2023 and 2022 | (in thousands) | H1 2023 | H1 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Research and development | $22,789 | $18,514 | $4,275 | 23% | | General and administrative | $14,287 | $12,980 | $1,307 | 10% | | Total operating expenses | $37,076 | $31,494 | $5,582 | 18% | | Net loss | $(30,773) | $(30,452) | $(321) | 1% | Liquidity and Capital Resources Details the company's funding sources, cash position, and cash flow activities - The company has funded operations primarily through private placements and proceeds from the 2021 Business Combination. As of June 30, 2023, cash, cash equivalents, and investments totaled $286.7 million, with an accumulated deficit of $169.3 million[127] - Net cash used in operating activities was $26.1 million for the six months ended June 30, 2023, primarily resulting from a net loss of $30.8 million, offset by non-cash charges like stock-based compensation ($6.0 million)[133] - Net cash used in investing activities was $15.8 million for the first six months of 2023, driven by $46.8 million in security purchases, partially offset by $32.2 million in proceeds from maturities[135] Item 3. Quantitative and Qualitative Disclosures About Market Risk Outlines the company's primary market risk exposures, including interest rate and inflation risks - The company is exposed to interest rate risk on its investments. As of June 30, 2023, a hypothetical 1.00% (100 basis point) change in interest rates would alter the fair value of its marketable debt securities by approximately $2.2 million[146] - Inflation affects the company by increasing the cost of labor, goods, and services, and it is acknowledged to have had some effect on financial results during the periods presented[147] Item 4. Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of June 30, 2023 - Based on an evaluation as of June 30, 2023, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level[149] - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, these controls[150] PART II - OTHER INFORMATION This section covers other essential information, including legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings The company is not currently a party to any legal proceedings that would materially affect its business or financial condition - As of the reporting date, the company is not a party to any legal proceedings expected to have a material adverse effect on its business or financial condition[154] Item 1A. Risk Factors Outlines comprehensive risks related to business, intellectual property, litigation, regulatory compliance, operations, and common stock Risks Related to Our Business Details business-specific risks, including the company's development stage, platform reliance, and dependence on single-source suppliers - The company is a development-stage entity with a history of net losses in every period, an accumulated deficit of $169.3 million as of June 30, 2023, and has not yet commercialized any products or generated revenue[170] - The business is entirely dependent on the success of the Nautilus platform, which remains in development and is subject to scientific, technical, and market acceptance challenges. The company anticipates early access revenue in 2024 and a broader commercial launch in 2024[171][173] - The company relies on single-source suppliers for critical components like click-reagent modified oligos and nano-fabricated biochips, and the loss of any such supplier could significantly harm the business[191] Risks Related to Our Intellectual Property Outlines risks associated with intellectual property, including protection, changes in patent laws, and reliance on trade secrets - The company's success depends on its ability to obtain and maintain sufficient intellectual property protection. Failure to do so could allow competitors to develop similar products and impair commercialization efforts[220] - Changes in U.S. patent laws and interpretations, particularly regarding the patentability of inventions in the life sciences, create uncertainty and could diminish the value of the company's intellectual property[225] - The company relies on trade secrets and confidentiality agreements to protect unpatented know-how, but these can be difficult to protect and may not prevent independent development or unauthorized disclosure by third parties[241] Risks Related to Litigation Addresses potential litigation risks, including intellectual property enforcement, infringement defense, and product liability claims - The company may become involved in costly and time-consuming litigation to enforce its intellectual property rights or defend against infringement claims from others, with potentially adverse outcomes[263][264] - The Nautilus platform's novel and complex technology may contain undetected defects or errors, which could lead to product liability claims, warranty costs, and damage to the company's reputation[265] Risks Related to Regulatory and Legal Compliance Matters Covers regulatory and legal compliance risks, including FDA regulation for clinical use, product reclassification, and data privacy laws - Currently, products are for Research Use Only (RUO). If the company markets them for clinical diagnostic use, it would become subject to FDA regulation, requiring a lengthy and expensive premarket clearance or approval process[269][270] - The FDA could disagree with the RUO classification and assert that the products are medical devices, which would subject the company to regulatory enforcement and potentially halt sales[277] - The company is subject to various federal and state data privacy laws (e.g., CCPA, HIPAA). Failure to comply could result in significant fines, legal proceedings, and reputational harm[283][284][286] Risks Related to our Operations Addresses operational risks, including dependence on key personnel, IT system disruptions, and impacts from global economic conditions - The company is highly dependent on its key personnel, particularly CEO Sujal Patel and Chief Scientist Parag Mallick, and the loss of their services could significantly delay or prevent the achievement of business objectives[307] - A significant disruption in information technology systems or a data security breach could damage the company's reputation, lead to litigation, and result in significant liability[300][301] - Unfavorable global economic conditions, supply chain interruptions, and geopolitical conflicts could adversely affect the company's ability to raise capital, develop its products, and execute its business plan[313][316] Risks Related to Our Common Stock Examines risks related to the company's common stock, including market price volatility, shareholder influence, and dividend policy - The market price of the company's common stock has been and may continue to be highly volatile due to factors such as operating results, development timelines, and broader market conditions[323] - As of June 30, 2023, directors, executive officers, and major shareholders collectively owned approximately 68.9% of the outstanding common stock, enabling them to exercise significant influence over corporate matters[328] - The company does not expect to pay any dividends in the foreseeable future, meaning investors must rely on stock price appreciation for any return on investment[331] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities during the reporting period - None[355] Item 3. Defaults Upon Senior Securities The company reports no defaults upon senior securities - None[356] Item 4. Mine Safety Disclosures This item is not applicable to the company - None[357] Item 5. Other Information The company entered into amended employment and severance agreements with executive officers, reflecting corporate structure changes - The Company entered into amended employment and severance agreements with its executive officers, with no material changes to compensation or terms of employment[358] Item 6. Exhibits Lists exhibits filed with the Quarterly Report on Form 10-Q, including corporate governance documents and officer certifications - A list of exhibits filed with the report is provided, including corporate governance documents, amended employment agreements for executive officers, and required SEC certifications[360]