Nkarta(NKTX) - 2022 Q4 - Annual Report

Part I Business Nkarta, Inc. develops allogeneic, off-the-shelf engineered NK cell therapies for cancer, with lead candidates NKX101 and NKX019 in Phase 1 trials, leveraging a proprietary platform and in-house manufacturing - Nkarta is a biopharmaceutical company focused on allogeneic, off-the-shelf engineered natural killer (NK) cell therapies to treat cancer[19] - The company has two lead product candidates in Phase 1 clinical trials: NKX101 for relapsed or refractory acute myeloid leukemia (r/r AML) or myelodysplastic syndromes (MDS), and NKX019 for B-cell malignancies[19][22][23] - Nkarta's strategy involves developing its lead candidates, building a broader pipeline using its modular NK cell engineering platform, establishing proprietary cGMP manufacturing capabilities, and opportunistically evaluating new technologies through licenses and collaborations[27] - The company is collaborating with CRISPR Therapeutics to develop gene-edited NK cell therapies, including NKX070 (targeting CD70) and a novel NK+T cell therapy[25][81] - Nkarta is constructing an 88,000 square foot facility in South San Francisco to support pivotal clinical trials and potential commercial supply, which will also serve as its future headquarters[33] Our Pipeline and Technology Nkarta's pipeline leverages a modular NK cell engineering platform, advancing lead candidates NKX101 and NKX019, and includes a collaboration with CRISPR Therapeutics for gene-edited NK cell therapies Nkarta's Product Pipeline (as of Dec 31, 2022) | Product Candidate | Target | Indication | Development Stage | | :--- | :--- | :--- | :--- | | NKX101 | NKG2D-CAR | r/r AML / MDS | Phase 1 | | NKX019 | CD19-CAR | B-Cell Malignancies | Phase 1 | | NKX070 | CD70-CAR | Solid & Liquid Tumors | Preclinical (with CRISPR) | | NK+T | Undisclosed | Cancer | Discovery (with CRISPR) | - The NK cell engineering platform is designed to enhance expansion, persistence (using membrane-bound IL-15), targeting, and cytotoxicity of NK cells, and enables cryopreservation for off-the-shelf use[50][52][53] - In a Phase 1 trial for NKX101, 3 of 5 r/r AML patients (60%) at higher dose levels achieved a complete response (CR) with hematologic recovery as of April 2022[70] - In a Phase 1 trial for NKX019, 7 of 10 patients (70%) with B-cell malignancies at higher dose levels achieved a complete response (CR) as of December 2022[78] Manufacturing Nkarta emphasizes internal cGMP manufacturing, operating a clinical facility and constructing a larger commercial-scale facility for high-yield, off-the-shelf NK cell therapy production - The company operates a 2,700-square foot clinical cGMP facility in South San Francisco, currently manufacturing NKX019 and planned for NKX101 in 2023[26][32][88] - A new 88,000 square foot facility is under construction to support pivotal trials and potential commercial supply[33][89] - The manufacturing process involves isolating NK cells from healthy donors, expansion using proprietary NKSTIM cells, genetic engineering via gamma-retrovirus, and cryopreservation for an off-the-shelf product[83][87] - The company believes its optimized process could allow the production of several thousand doses from a single manufacturing run[52][90] Intellectual Property Nkarta's IP strategy combines owned and in-licensed patents, trademarks, and trade secrets, with a portfolio of at least 20 issued patents and 130 pending applications as of 2022, including a key exclusive license from NUS and St. Jude - As of December 31, 2022, Nkarta's patent portfolio includes at least 20 issued utility patents and at least 130 pending utility patent applications, which are solely owned, jointly owned, or licensed[93] - The company has an exclusive, worldwide license agreement with National University of Singapore (NUS) and St. Jude Children's Research Hospital for key NK cell technology, with the last patent rights expected to expire around 2039[98][317] - Patents related to NKX101, NKX019, and NKX070 cover composition of matter, manufacturing processes, and methods of use, with estimated expirations for the portfolio extending to 2043[94][95][96] Government Regulation and Competition Nkarta operates in a highly regulated environment under FDA oversight, navigating complex approval processes and intense competition from large biopharmaceutical companies and specialized cell therapy firms - The company's products are regulated as biologics by the FDA, requiring an extensive process of preclinical studies and clinical trials under an IND before a Biologics License Application (BLA) can be submitted for marketing approval[103][105] - The FDA granted orphan drug designation to NKX101 for the treatment of AML in December 2021, which may provide seven years of market exclusivity upon approval[134][248] - Key competitors in allogeneic cell therapy include 2seventy Bio, Allogene, Bristol-Myers Squibb, CRISPR Therapeutics, Fate Therapeutics, and Gilead; approved autologous CAR-T therapies are direct competitors to NKX019[177] - The company is subject to healthcare laws such as the Anti-Kickback Statute and the False Claims Act, and must comply with pricing, reimbursement, and healthcare reform measures like the Inflation Reduction Act of 2022[157][158][169] Risk Factors The company faces significant financial, clinical, manufacturing, IP, and commercialization risks due to its limited operating history, novel CAR NK cell technology, and intense competition - Financial Risks: The company has a history of significant losses ($113.8 million in 2022) and expects them to continue, requiring additional capital which may not be available or could cause dilution[190][197] - Clinical & Development Risks: The business is highly dependent on the success of its CAR NK platform and lead candidates NKX101 and NKX019; clinical development is lengthy, expensive, and uncertain, with early-stage results not necessarily predictive of future success[207][216][222] - Manufacturing Risks: The manufacturing process for cell therapies is novel and complex, potentially leading to difficulties in production, scaling up, and consistency, with reliance on a sole supplier for certain critical components[289][304] - Intellectual Property Risks: The company relies on a key license agreement with NUS and St. Jude, whose termination could cause loss of rights to core technology, and patent protection may not be sufficiently robust to prevent competition[317][332] - Commercialization & Competition Risks: The company faces intense competition, and the commercial success of its products, if approved, will depend on uncertain market acceptance, pricing, and reimbursement[272][377][380] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - Not applicable[443] Properties Nkarta leases 42,145 square feet of office, lab, and clinical manufacturing space in South San Francisco, and is constructing an 88,000 square foot facility for future headquarters and commercial manufacturing - The company leases approximately 42,145 sq. ft. of office, lab, and manufacturing space in South San Francisco, CA[444] - An 88,000 sq. ft. facility is being built out in South San Francisco to serve as the future headquarters and for commercial-scale manufacturing, with a lease expiring in 2034[444] Legal Proceedings The company is not currently involved in material legal proceedings, though past ex parte reexaminations against licensed patents concluded with claims maintained in an amended form unrelated to current product candidates - There are no pending claims or actions likely to have a material adverse effect on the business[446] - Ex parte reexaminations against three licensed patents were concluded, with claims maintained in an amended form not related to current product candidates[447] Mine Safety Disclosures This item is not applicable to the company - Not applicable[448] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Nkarta's common stock trades on The Nasdaq Global Select Market under the symbol "NKTX", with no history or future plans for cash dividends, and no material change in IPO proceeds use - The company's common stock trades on The Nasdaq Global Select Market under the symbol "NKTX"[450] - The company has never declared or paid cash dividends and does not intend to in the foreseeable future[452] - There has been no material change in the planned use of proceeds from the July 2020 IPO[454] [Reserved]](index=96&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations For 2022, Nkarta reported a net loss of $113.8 million, an increase from 2021, driven by higher R&D and G&A expenses, ending the year with $354.9 million in cash and investments, deemed sufficient for the next 12 months Results of Operations (in thousands) | | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | Change | | :--- | :--- | :--- | :--- | | Research and development | $90,897 | $63,412 | $27,485 | | General and administrative | $28,058 | $23,017 | $5,041 | | Total operating expenses | $118,955 | $86,429 | $32,526 | | Loss from operations | ($118,955) | ($86,429) | ($32,526) | | Interest income | $5,588 | $370 | $5,218 | | Net loss | ($113,837) | ($86,075) | ($27,762) | - R&D expenses increased by $27.5 million in 2022, driven by a $13.4 million increase in external program costs for NKX101 and NKX019, a $4.7 million increase in personnel costs, and an $11.2 million increase in other internal research costs[495] - G&A expenses increased by $5.1 million in 2022, primarily due to a $3.4 million increase in personnel costs and a $1.0 million increase in professional services fees[496] - As of December 31, 2022, the company had $354.9 million in cash, cash equivalents, restricted cash, and short-term investments; management believes this is sufficient to fund operations for at least the next 12 months[467][504] Cash Flow Summary (in thousands) | | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | ($57,000) | ($67,927) | | Net cash provided by (used in) investing activities | ($184,689) | $32,534 | | Net cash provided by financing activities | $219,012 | $1,202 | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuation on investments, with a 10% change not expected to be material, alongside foreign currency exposure and inflation impacts on costs - The primary market risk is interest rate fluctuation on cash, cash equivalents, and short-term investments; a 10% change in interest rates is not expected to have a material impact[534] - The company is exposed to foreign currency exchange risk through contracts with vendors outside the U.S. but does not currently hedge this risk[535] - Inflation affects labor and R&D costs but is not believed to have had a material effect on results of operations during the reported periods[535] Financial Statements and Supplementary Data Audited financial statements for 2022 and 2021 show a net loss of $113.8 million in 2022, with total assets increasing to $472.9 million and total liabilities to $100.7 million, primarily due to a stock offering and new facility lease liabilities Balance Sheets As of December 31, 2022, Nkarta's total assets increased to $472.9 million, driven by cash and investments, while total liabilities rose to $100.7 million due to operating lease liabilities, and stockholders' equity grew to $372.2 million Balance Sheet Highlights (in thousands) | | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash, cash equivalents & short-term investments | $352,143 | $238,088 | | Total current assets | $360,688 | $245,780 | | Property and equipment, net | $61,908 | $12,856 | | Total assets | $472,938 | $273,903 | | Liabilities & Stockholders' Equity | | | | Total current liabilities | $22,046 | $12,943 | | Operating lease liabilities, non-current | $78,685 | $9,975 | | Total liabilities | $100,731 | $22,936 | | Total stockholders' equity | $372,207 | $250,967 | Statements of Operations and Comprehensive Loss For 2022, Nkarta reported a net loss of $113.8 million or ($2.61) per share, an increase from 2021, primarily due to higher operating expenses driven by increased R&D activities, partially offset by higher interest income Statement of Operations Highlights (in thousands) | | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | | :--- | :--- | :--- | | Research and development | $90,897 | $63,412 | | General and administrative | $28,058 | $23,017 | | Total operating expenses | $118,955 | $86,429 | | Loss from operations | ($118,955) | ($86,429) | | Interest income | $5,588 | $370 | | Net loss | ($113,837) | ($86,075) | | Net loss per share, basic and diluted | ($2.61) | ($2.62) | Statements of Cash Flows For 2022, net cash used in operating activities was $57.0 million, net cash used in investing activities was $184.7 million, and net cash provided by financing activities was $219.0 million from a stock offering, resulting in a net decrease in cash of $22.7 million Cash Flow Highlights (in thousands) | | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | ($57,000) | ($67,927) | | Net cash provided by (used in) investing activities | ($184,689) | $32,534 | | Net cash provided by financing activities | $219,012 | $1,202 | | Net decrease in cash and cash equivalents | ($22,677) | ($34,191) | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants regarding accounting principles, practices, or financial statement disclosure - None[654] Controls and Procedures Management concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2022, with no material changes during the fourth quarter - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[656] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2022[658] - There were no changes in internal control over financial reporting during the quarter ended December 31, 2022, that have materially affected, or are reasonably likely to materially affect, internal controls[659] Other Information The company reports no other information for this item - None[663] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - None[664] Part III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's definitive proxy statement for the 2023 Annual Meeting of Stockholders - The required information is incorporated by reference from the registrant's Definitive Proxy Statement for the 2023 Annual Meeting of Stockholders[7][668] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's definitive proxy statement for the 2023 Annual Meeting of Stockholders - The required information is incorporated by reference from the registrant's Definitive Proxy Statement for the 2023 Annual Meeting of Stockholders[7][669] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of beneficial owners, management, and related stockholder matters is incorporated by reference from the company's definitive proxy statement for the 2023 Annual Meeting of Stockholders - The required information is incorporated by reference from the registrant's Definitive Proxy Statement for the 2023 Annual Meeting of Stockholders[7][670] Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's definitive proxy statement for the 2023 Annual Meeting of Stockholders - The required information is incorporated by reference from the registrant's Definitive Proxy Statement for the 2023 Annual Meeting of Stockholders[7][671] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's definitive proxy statement for the 2023 Annual Meeting of Stockholders - The required information is incorporated by reference from the registrant's Definitive Proxy Statement for the 2023 Annual Meeting of Stockholders[7][672] Part IV Exhibits and Financial Statement Schedules This section lists documents filed as part of the Form 10-K, including financial statements and a detailed list of exhibits, with all financial statement schedules omitted as not applicable or included elsewhere - The financial statements are filed as part of the report; all financial statement schedules are omitted because they are not applicable or the information is included in the financial statements[676] - A list of exhibits, including governance documents, material contracts, and certifications, is provided, indicating which are filed herewith and which are incorporated by reference[678] Form 10-K Summary The company reports no summary for this item - None[682]