Nautilus Biotechnology(NAUT) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Nautilus Biotechnology, Inc. reported net losses of $15.9 million for Q3 2023 and $46.7 million for the nine months, driven by increased operating expenses Condensed Consolidated Balance Sheets Total assets decreased to $318.3 million, liabilities increased to $41.1 million, and stockholders' equity decreased to $277.3 million as of September 30, 2023 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $74,104 | $114,523 | | Short-term investments | $109,185 | $69,948 | | Long-term investments | $92,439 | $129,169 | | Total Assets | $318,336 | $350,052 | | Liabilities & Equity | | | | Total Liabilities | $41,063 | $35,128 | | Accumulated deficit | $(185,215) | $(138,564) | | Total Stockholders' Equity | $277,273 | $314,924 | Condensed Consolidated Statements of Operations Net loss increased to $15.9 million for Q3 2023 and $46.7 million for the nine months, primarily due to higher research and development expenses Operating Results (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Research and development | $11,996 | $9,571 | $34,785 | $28,085 | | General and administrative | $7,079 | $6,249 | $21,366 | $19,229 | | Total operating expenses | $19,075 | $15,820 | $56,151 | $47,314 | | Interest income | $3,197 | $1,889 | $9,517 | $2,929 | | Net loss | $(15,878) | $(14,063) | $(46,651) | $(44,515) | | Net loss per share | $(0.13) | $(0.11) | $(0.37) | $(0.36) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities increased to $37.8 million, while investing activities shifted to a $2.7 million use, resulting in a $40.4 million decrease in cash for the nine months Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(37,811) | $(35,429) | | Net cash (used in) provided by investing activities | $(2,675) | $38,315 | | Net cash provided by financing activities | $115 | $427 | | Net (decrease) increase in cash | $(40,371) | $3,313 | | Cash at beginning of period | $115,477 | $186,461 | | Cash at end of period | $75,106 | $189,774 | Notes to Condensed Consolidated Financial Statements The notes detail the company's development-stage proteomics platform, confirm sufficient cash for 12 months, and outline accounting policies, investments, and lease commitments totaling $48.2 million - The company is a development-stage biotechnology firm focused on its proteomics platform, with all resources devoted to R&D, business planning, IP, and raising capital[31] - Management believes that its cash, cash equivalents, and short-term investments of $183.3 million as of September 30, 2023, are sufficient to fund operations for the next twelve months[37] - As of September 30, 2023, the company had total future minimum lease payments of $48.2 million, with a weighted-average remaining lease term of 6.9 years[86][88] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's development-stage proteomics platform, plans for a 2024 commercial launch, increased operating expenses, and strong liquidity with $183.3 million in cash and investments - Nautilus is a development stage company creating a platform technology for quantifying the proteome and has not yet generated any revenue[96][97] - The company plans a three-phase commercial launch, with the second phase of early access engagements and associated revenue anticipated in 2024, leading to a broader commercial launch[100] - As of September 30, 2023, the company had $183.3 million in cash, cash equivalents, and short-term investments, which is believed to be sufficient to fund operations for at least the next 12 months[105] Results of Operations Operating expenses increased significantly in Q3 2023 and for the nine months, driven by higher R&D and G&A costs due to increased headcount and facilities expenses Comparison of Operating Expenses (in thousands) | Expense Category | Q3 2023 | Q3 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Research and development | $11,996 | $9,571 | $2,425 | 25% | | General and administrative | $7,079 | $6,249 | $830 | 13% | | Total operating expenses | $19,075 | $15,820 | $3,255 | 21% | Comparison of Operating Expenses (Nine Months, in thousands) | Expense Category | 2023 | 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Research and development | $34,785 | $28,085 | $6,700 | 24% | | General and administrative | $21,366 | $19,229 | $2,137 | 11% | | Total operating expenses | $56,151 | $47,314 | $8,837 | 19% | - The increase in R&D expenses for Q3 2023 was primarily due to a $1.4 million increase in salaries and benefits, a $1.1 million increase in lab supplies, and a $0.9 million increase in facilities costs, partially offset by a $1.0 million decrease in external development services[120][121] Liquidity and Capital Resources The company's liquidity is strong with $275.7 million in cash and investments, sufficient for 12 months, but substantial additional funding will be required for future R&D and commercialization - As of September 30, 2023, the company had cash, cash equivalents and investments of $275.7 million[129] - Net cash used in operating activities was $37.8 million for the nine months ended September 30, 2023, primarily resulting from the net loss of $46.7 million, offset by non-cash charges like stock-based compensation[135][136] - The company expects to require substantial additional funding for future operations and may seek it through equity or debt financing, though access to capital could be impacted by worsening global economic conditions[133] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rate fluctuations, potentially impacting marketable debt securities by $1.7 million, and inflation affecting operational costs - The company's primary market risks are interest rate fluctuations and inflation[150] - A hypothetical 1.00% (100 basis point) change in interest rates would change the fair value of the company's marketable debt securities by $1.7 million as of September 30, 2023[151] - Inflation affects the company by increasing the cost of labor, goods, and services, and the company may not be able to fully offset these increased costs[152] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of September 30, 2023, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level[154] - There were no changes in internal control over financial reporting during the quarter ended September 30, 2023, that materially affected, or are reasonably likely to materially affect, the company's internal controls[155] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any legal proceedings expected to have a material adverse effect on its business or financial condition - The company is not currently a party to any legal proceedings that would individually or in the aggregate have a material adverse effect on its business[158] Item 1A. Risk Factors The company faces numerous risks as a development-stage firm, including commercialization challenges, intense competition, supply chain issues, intellectual property protection, regulatory hurdles, and stock price volatility Risks Related to Our Business Key business risks include a history of losses, dependence on the Nautilus platform's commercialization, intense competition, manufacturing challenges, and the need for additional capital - The company is a development stage entity with a history of net losses, no commercialized products, and its success is entirely dependent on the Nautilus platform, which is still in development[175][176] - The company may not be able to successfully manufacture its products at scale, as it has no experience and relies on single-source suppliers for critical components like reagents and antibodies[190][196] - The life sciences technology market is highly competitive, with rivals having greater financial resources, brand recognition, and established sales channels[199][200] Risks Related to Our Intellectual Property Intellectual property risks include challenges in obtaining and maintaining patent protection, uncertainties in patent law, global IP enforcement difficulties, and protecting trade secret confidentiality - The company's ability to successfully commercialize its products may be impaired if it cannot obtain and maintain sufficient intellectual property protection, as competitors could develop similar products[225] - Changes in U.S. patent law and court decisions regarding the patentability of life sciences inventions create uncertainty and could adversely impact the company's existing or future patents[230][231] - The company relies on trade secrets and confidentiality agreements, which can be difficult to protect and may not prevent unauthorized disclosure or independent development of similar technologies by competitors[246] Risks Related to Litigation Litigation risks include costly IP enforcement or defense, potential loss of rights, and product liability claims from undetected defects in the Nautilus platform - The company may become involved in expensive and time-consuming litigation to enforce its IP rights or defend against infringement claims, which could result in loss of rights or significant damages[268][269] - The Nautilus platform's complex technology may contain undetected defects or errors, which could lead to product liability claims, warranty costs, and damage to the company's brand reputation[270] Risks Related to Regulatory and Legal Compliance Matters Regulatory risks include potential FDA oversight for RUO products, compliance with complex data privacy and anti-corruption laws, and environmental health and safety liabilities - While currently sold as Research Use Only (RUO), the company's products could become subject to FDA regulation as medical devices, which would require a lengthy and expensive premarket clearance or approval process[274][275][281] - The company is subject to various U.S. federal and state laws regarding data privacy and security, such as the CCPA and HIPAA, and failure to comply could result in significant fines and harm to the business[288][289][290] - Expansion of commercial activities outside the U.S. would subject the company to anti-corruption laws like the FCPA, where violations could lead to civil or criminal penalties[295] Risks Related to our Operations Operational risks include IT system disruptions, data breaches, dependence on key personnel, talent competition, managing growth, and global supply chain interruptions - The company relies on IT systems that are vulnerable to cybersecurity attacks and data breaches, which could lead to the loss of trade secrets, litigation, and significant liability[304][305] - The company is highly dependent on its senior management and key scientific personnel, particularly founders Sujal Patel (CEO) and Parag Mallick (Chief Scientist), and the loss of their services could harm the business[312][313] - Global supply chain interruptions, exacerbated by political tensions, could negatively impact the development and commercialization of the company's products[322] Risks Related to Our Common Stock Common stock risks include high price volatility, significant influence by principal stockholders, potential dilution from future share sales, and no anticipated dividends - 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, product development timelines, and broader market conditions[329] - As of September 30, 2023, directors, executive officers, and holders of more than 5% of common stock collectively owned approximately 69.0% of outstanding shares, giving them significant influence over stockholder matters[335] - The company does not anticipate paying any dividends in the foreseeable future and plans to retain earnings to fund operations and growth[338] General Risk Factors General risks include public company compliance costs, limitations on NOL utilization, internal control failures, and reduced disclosure requirements as an emerging growth company - Operating as a public company results in significant legal, accounting, and compliance expenses, which will increase further once the company is no longer an "emerging growth company"[346] - The company's ability to use its federal and state net operating loss carryforwards (NOLs) may be limited by Section 382 of the Internal Revenue Code due to ownership changes[350] - The company is an "emerging growth company" and a "smaller reporting company," which allows for reduced disclosure requirements that may make its common stock less attractive to investors[358] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred during the reporting period - None[363] Item 3. Defaults Upon Senior Securities No defaults upon senior securities occurred during the reporting period - None[364] Item 4. Mine Safety Disclosures This item is not applicable to the company - None[365] Item 5. Other Information No other information was reported during the period - None[366] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including corporate governance documents, employment agreements, and officer certifications - Lists exhibits filed with the report, including corporate governance documents, employment agreements, and SEC-required certifications[368][369]