Nkarta(NKTX) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The company's unaudited statements show increased assets from a stock offering but a growing net loss due to higher R&D expenses Condensed Balance Sheets Total assets grew to $503.6 million, driven by a stock offering, while liabilities and stockholders' equity also increased Condensed Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $131,646 | $60,816 | | Short-term investments | $281,305 | $177,272 | | Total current assets | $417,379 | $245,780 | | Total assets | $503,641 | $273,903 | | Liabilities & Stockholders' Equity | | | | Total liabilities | $82,600 | $22,936 | | Total stockholders' equity | $421,041 | $250,967 | | Accumulated deficit | $(257,006) | $(204,096) | Condensed Statements of Operations and Comprehensive Loss The company reported a higher net loss of $52.9 million for the first half of 2022, driven by increased R&D and G&A expenses Statement of Operations Summary (in thousands) | Metric | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Research and development | $40,617 | $29,496 | | General and administrative | $13,093 | $11,618 | | Total operating expenses | $53,710 | $41,114 | | Loss from operations | $(53,710) | $(41,114) | | Net loss | $(52,910) | $(40,908) | | Net loss per share, basic and diluted | $(1.38) | $(1.25) | Condensed Statements of Stockholders' Equity Stockholders' equity rose to $421.0 million, primarily due to $215.3 million in net proceeds from a secondary stock offering - In Q2 2022, the company completed a secondary offering, issuing 15,333,334 shares of common stock, which resulted in net proceeds of approximately $215.3 million[22] - Share-based compensation expense for the six months ended June 30, 2022, was $8.0 million[22][71] Condensed Statement of Cash Flows Financing activities provided $216.0 million in cash, offsetting cash used in operations and investments for a net cash increase Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(34,872) | $(32,099) | | Net cash used in investing activities | $(110,322) | $(41,145) | | Net cash provided by financing activities | $216,024 | $1,012 | | Net increase (decrease) in cash | $70,830 | $(72,232) | - The company received $215.6 million in net proceeds from its secondary offering during the six months ended June 30, 2022[27] Notes to Unaudited Condensed Financial Statements The notes detail the company's biopharmaceutical business, liquidity position, accounting policies, and key collaborations - The company is a biopharmaceutical company focused on developing engineered natural killer (NK) cells to treat cancer[30] - As of June 30, 2022, the company had an accumulated deficit of $257.0 million and cash, cash equivalents, restricted cash and short-term investments of $415.0 million[31] - On April 28, 2022, the company raised approximately $215.3 million in net proceeds from a secondary offering of common stock[33] - In May 2021, the company entered into a research collaboration with CRISPR Therapeutics to co-develop and co-commercialize engineered CAR-NK product candidates, sharing R&D costs and potential profits[61][62] - In August 2022, the company amended lease agreements, securing an additional $15.0 million in tenant improvement allowances and extending lease terms[73] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses its clinical-stage NK cell therapy development, rising expenses, recent financing, and operational risks - The company's co-lead product candidates, NKX101 and NKX019, are in ongoing Phase 1 clinical trials for treating various cancers[75] - The company has incurred a net loss of $52.9 million for the six months ended June 30, 2022, and expects to continue incurring significant losses[80] - In April 2022, a secondary offering provided net proceeds of approximately $215.3 million[83] - Management believes that current cash, cash equivalents, and investments of $415.0 million (as of June 30, 2022) are sufficient to fund operations for at least the next 12 months[113] - The company is monitoring impacts from COVID-19 and macroeconomic conditions, noting disruptions in clinical trial enrollment, supply chain shortages, and inflation affecting construction costs for its new facility[85][86][87] Results of Operations Operating expenses increased to $53.7 million due to higher personnel and program costs for clinical candidates NKX101 and NKX019 Comparison of Operating Results (in thousands) | Metric | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | Change | | :--- | :--- | :--- | :--- | | Research and development | $40,617 | $29,496 | $11,121 | | General and administrative | $13,093 | $11,618 | $1,475 | | Total operating expenses | $53,710 | $41,114 | $12,596 | | Net loss | $(52,910) | $(40,908) | $(12,002) | - The increase in R&D expenses was primarily due to a $2.7 million increase in personnel costs, a $5.9 million increase in program costs for NKX101 and NKX019, and a $4.4 million increase in other internal research costs[100] - The increase in G&A expenses was mainly due to a $1.5 million increase in personnel costs and a $0.7 million increase in other administrative expenses like insurance and rent[104] Liquidity and Capital Resources The company's liquidity was significantly boosted by a $215.3 million secondary offering, ensuring sufficient capital for over 12 months - The company had $415.0 million in cash, cash equivalents, restricted cash, and short-term investments as of June 30, 2022[108] - A secondary offering in April 2022 provided net proceeds of approximately $215.3 million[110] - The company believes its existing cash and investments are sufficient to fund operations for at least the next 12 months from the filing date of the report[118] Summary of Cash Flows (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2022 | | :--- | :--- | | Net cash used in operating activities | $(34,872) | | Net cash used in investing activities | $(110,322) | | Net cash provided by financing activities | $216,024 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to interest rate risk on its investment portfolio and foreign currency risk from vendor contracts - The company's primary market risk is interest rate risk on its portfolio of cash, cash equivalents, and short-term investments[136] - The company is exposed to foreign currency exchange risk through contracts with non-U.S. vendors but does not currently use hedging instruments[137] - Inflation affects labor and R&D costs, but management does not believe it has had a material effect on results of operations during the periods presented[138] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period - Management concluded that as of June 30, 2022, the company's disclosure controls and procedures were effective at a reasonable assurance level[139] - No material changes to the company's internal control over financial reporting occurred during the quarter ended June 30, 2022[140] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not involved in material legal proceedings but faces reexaminations of licensed patents related to its NKX101 candidate - The company states there are no pending claims or actions likely to have a material adverse effect on its business[143] - Third parties have filed for ex parte reexaminations against certain licensed patents related to the NKX101 product candidate (U.S. Patent Nos. 10,774,309 and 10,829,737), which are currently pending[144] Item 1A. Risk Factors The company faces significant risks from its history of losses, dependence on novel cell therapies, and need for future capital - The company has a limited operating history, has incurred significant losses since inception (accumulated deficit of $257.0 million as of June 30, 2022), and expects to continue incurring losses[147][148] - The business is highly dependent on the success of its CAR-NK cell technology platform and its lead product candidates, NKX101 and NKX019, which are in early-stage clinical trials[169][183] - The manufacturing process for the company's cell therapies is novel, complex, and susceptible to production difficulties, which could delay clinical trials and commercialization[236] - The company faces risks related to its intellectual property, including potential termination of a key license agreement and ongoing patent challenges[261][280] - Macroeconomic conditions, including rising inflation and supply chain constraints, are affecting business operations, particularly the cost and timeline for constructing its manufacturing facility[361] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity and details the use of $72.8 million from its 2020 IPO proceeds - No unregistered sales of equity securities occurred during the quarter[376] - As of June 30, 2022, the company has used $72.8 million of its IPO proceeds for R&D, manufacturing facility construction, and working capital[378] Item 3. Defaults Upon Senior Securities The company reports no defaults upon senior securities - None[380] Item 4. Mine Safety Disclosures This section is not applicable to the company - Not applicable[381] Item 5. Other Information The company amended lease agreements to increase tenant improvement allowances and announced the resignation of a director - On August 11, 2022, the company amended its lease agreements, increasing the tenant improvement allowance by $15 million in exchange for higher rent and an extended lease term for some facilities[383] - Director Tiba Aynechi resigned from the Board of Directors, effective August 15, 2022, for reasons not related to any disagreement with the company[385] Item 6. Exhibits This section lists all exhibits filed with the quarterly report, including lease amendments and officer certifications