nxtc_Current_Folio_10Q

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


(Mark One)

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended June 30, 2019

 

or

 

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from                    to                   .

 

Commission File Number 001-38905


NextCure, Inc.

(Exact name of registrant as specified in its charter)


Delaware

04-5231247

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

 

9000 Virginia Manor Road, Suite 200
Beltsville, Maryland

20705

(Address of principal executive offices)

(Zip Code)

 

(240) 399-4900

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered:

Common Stock, $0.001 par value per share

NXTC

Nasdaq Global Select Market

 

Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☒

Smaller reporting company ☒

 

Emerging growth company ☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

As of August 9, 2019, the registrant had 22,714,765 shares of common stock, par value $0.001 per share, issued and outstanding.

 

 

 

 

 

Table of Contents

NextCure, Inc.

Form 10-Q

For the Quarter Ended June 30, 2019

TABLE OF CONTENTS

 

 

Page

PART I. FINANCIAL INFORMATION 

1

Item 1. 

Financial Statements

1

 

Condensed Balance Sheets as of June 30, 2019 (unaudited) and December 31, 2018

1

 

Unaudited Condensed Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018

2

 

Unaudited Condensed Statements of Preferred Stock and Stockholders’ Equity (Deficit)  for the Six Months Ended June 30, 2019 and 2018

3

 

Unaudited Condensed Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018

4

 

Notes to Unaudited Condensed Financial Statements

5

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

Item 3. 

Quantitative and Qualitative Disclosures about Market Risk

23

Item 4. 

Controls and Procedures

23

Part II. OTHER INFORMATION 

24

Item 1. 

Legal Proceedings

24

Item 1A. 

Risk Factors

24

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds 

70

Item 3. 

Defaults Upon Senior Securities

70

Item 4. 

Mine Safety Disclosures

70

Item 5. 

Other Information

70

Item 6. 

Exhibits

70

SIGNATURES 

73

 

 

 

 

 

i

Table of Contents

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

NEXTCURE, INC.

CONDENSED BALANCE SHEETS

(in thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

    

2019

    

2018

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

  

Current assets:

 

 

  

 

 

  

Cash and cash equivalents

 

$

192,689

 

$

135,173

Restricted cash

 

 

873

 

 

460

Prepaid expenses and other current assets

 

 

2,959

 

 

152

Total current assets

 

 

196,521

 

 

135,785

Property and equipment, net

 

 

12,329

 

 

11,407

Other assets

 

 

4,200

 

 

436

Total assets

 

$

213,050

 

$

147,628

Liabilities, Preferred Stock and Stockholders’ Equity (Deficit)

 

 

  

 

 

  

Current liabilities:

 

 

  

 

 

  

Accounts payable

 

$

1,990

 

$

2,483

Accrued liabilities

 

 

2,171

 

 

2,411

Deferred rent, current portion

 

 

 6

 

 

28

Term loan, current portion

 

 

833

 

 

387

Deferred revenue, current portion

 

 

6,524

 

 

4,989

Total current liabilities

 

 

11,524

 

 

10,298

Deferred rent, net of current portion

 

 

322

 

 

242

Term loan, net of current portion

 

 

4,167

 

 

73

Deferred revenue, net of current portion

 

 

18,442

 

 

21,736

Total liabilities

 

 

34,455

 

 

32,349

Commitments and contingencies (Note 6)

 

 

  

 

 

  

Redeemable preferred stock:

 

 

  

 

 

  

Series A Preferred Stock, par value of $0.001 per share; 0 and 68,181,819 shares authorized, issued and outstanding at June 30, 2019 and December 31, 2018, respectively

 

 

 —

 

 

71,000

Series B Preferred Stock, par value $0.001 per share; 0 and 56,828,852 shares authorized at June 30, 2019 and December 31, 2018, respectively, 0 and 56,828,851 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively

 

 

 —

 

 

91,223

Total redeemable preferred stock

 

 

 —

 

 

162,223

Stockholders’ equity (deficit):

 

 

  

 

 

  

Preferred stock, par value of $0.001 per share; 10,000,000 and 0 shares authorized at June 30, 2019 and December 31, 2018. No shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively

 

 

 —

 

 

 —

Common stock, par value of $0.001 per share; 100,000,000 and 158,745,671 shares authorized at June 30, 2019 and December 31, 2018, respectively, 22,714,765, and 1,374,812 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively

 

 

23

 

 

11

Additional paid-in capital

 

 

240,245

 

 

342

Accumulated deficit

 

 

(61,673)

 

 

(47,297)

Total stockholders’ equity (deficit)

 

 

178,595

 

 

(46,944)

Total liabilities, preferred stock and stockholders’ equity (deficit)

 

$

213,050

 

$

147,628

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

1

Table of Contents

NEXTCURE, INC.

CONDENSED STATEMENTS OF OPERATIONS 

(in thousands, except share and per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30, 

 

June 30, 

 

 

    

2019

    

2018

    

2019

    

2018

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue from research and development arrangement

 

$

1,402

 

$

 —

 

$

2,759

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

7,643

 

 

4,434

 

 

14,156

 

 

8,644

 

General and administrative

 

 

2,714

 

 

866

 

 

4,373

 

 

1,665

 

Total operating expenses

 

 

10,357

 

 

5,300

 

 

18,529

 

 

10,309

 

Loss from operations

 

 

(8,955)

 

 

(5,300)

 

 

(15,770)

 

 

(10,309)

 

Other income, net

 

 

734

 

 

69

 

 

1,394

 

 

82

 

Net loss

 

 

(8,221)

 

 

(5,231)

 

 

(14,376)

 

 

(10,227)

 

Net loss per share attributable to common stockholders—basic and diluted

 

$

(0.61)

 

$

(3.82)

 

$

(1.92)

 

$

(7.47)

 

Weighted average common shares outstanding—basic and diluted

 

 

13,498,393

 

 

1,369,212

 

 

7,472,298

 

 

1,369,212

 

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

2

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NEXTCURE, INC.

CONDENSED STATEMENTS OF PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)  

(in thousands, except share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

 

Stockholders’ Equity (Deficit)

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

Series A

 

Series B

 

 

Common Stock

 

Paid-in

 

Accumulated

 

Stockholders’

 

    

Shares

    

Amount

    

Shares

    

Amount

  

  

Shares

    

Amount

    

Capital

    

Deficit

    

Equity (Deficit)

Balance as of December 31, 2018

 

68,181,819

 

$

71,000

 

56,828,851

 

$

91,223

 

 

1,374,812

 

$

 1

 

$

352

 

$

(47,297)

 

$

(46,944)

Stock-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

383

 

 

 —

 

 

383

Issuance of common stock

 

 —

 

 

 —

 

 —

 

 

 —

 

 

4,697

 

 

 —

 

 

 4

 

 

 —

 

 

 4

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(6,155)

 

 

(6,155)

Balance as of March 31, 2019

 

68,181,819

 

 

71,000

 

56,828,851

 

 

91,223

 

 

1,379,509

 

 

 1

 

 

739

 

 

(53,452)

 

 

(52,712)

Initial public offering, net of issuance costs of $9.4M

 

 —

 

 

 —

 

 —

 

 

 —

 

 

5,750,000

 

 

 6

 

 

76,844

 

 

 —

 

 

76,850

Conversion of preferred stock to common stock

 

(68,181,819)

 

 

(71,000)

 

(56,828,851)

 

 

(91,223)

 

 

15,560,569

 

 

15

 

 

162,208

 

 

 —

 

 

162,223

Stock-based compensation expense

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

412

 

 

 —

 

 

412

Issuance of common stock upon exercise of vested options, $.001 par value

 

 

 

 —

 

 

 

 —

 

 

24,687

 

 

 1

 

 

42

 

 

 —

 

 

43

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(8,221)

 

 

(8,221)

Balance as of June 30, 2019

 

 —

 

$

 —

 

 —

 

$

 —

 

 

22,714,765

 

$

23

 

$

240,245

 

$

(61,673)

 

$

178,595

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

 

Stockholders’ Deficit

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

Series A

 

Series B

 

 

Common Stock

 

Paid-in

 

Accumulated

 

Stockholders’

 

    

Shares

    

Amount

    

Shares

    

Amount

  

  

Shares

    

Amount

    

Capital

    

Deficit

    

Deficit

Balance as of December 31, 2017

 

40,000,000

 

$

40,000

 

 

$

 —

 

 

1,369,212

 

$

 1

 

$

84

 

$

(24,498)

 

 

(24,413)

Stock-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

24

 

 

 —

 

 

24

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(4,996)

 

 

(4,996)

Balance as of March 31, 2018

 

40,000,000

 

 

40,000

 

 —

 

 

 —

 

 

1,369,212

 

 

 1

 

 

108

 

 

(29,494)

 

 

(29,385)

Issuance of Series A-3 preferred stock, net of issuance costs of $0

 

28,181,819

 

 

31,000

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Stock-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

24

 

 

 —

 

 

24

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(5,231)

 

 

(5,231)

Balance as of June 30, 2018

 

68,181,819

 

$

71,000

 

 —

 

$

 —

 

 

1,369,212

 

$

 1

 

$

132

 

$

(34,725)

 

$

(34,592)

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

3

Table of Contents

NEXTCURE, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

June 30, 

 

    

2019

    

2018

Cash flows from operating activities:

 

 

  

 

 

  

Net loss

 

$

(14,376)

 

$

(10,227)

Adjustments to reconcile net loss to net cash provided by (used) in operating activities:

 

 

  

 

 

  

Depreciation and amortization

 

 

1,145

 

 

763

Stock-based compensation

 

 

795

 

 

48

Changes in operating assets and liabilities:

 

 

  

 

 

  

Prepaid expenses and other assets

 

 

(2,815)

 

 

(114)

Accounts payable

 

 

(493)

 

 

512

Accrued liabilities and other current liabilities

 

 

(182)

 

 

(707)

Deferred revenue

 

 

(1,759)

 

 

(35)

Net cash used in operating activities

 

 

(17,685)

 

 

(9,760)

Cash flows from investing activities:

 

 

  

 

 

  

Purchase of property and equipment

 

 

(2,067)

 

 

(853)

Net cash used in investing activities

 

 

(2,067)

 

 

(853)

Cash flows from financing activities:

 

 

  

 

 

  

Proceeds from initial public offering, net of issuance costs

 

 

77,264

 

 

 —

Proceeds from issuance of preferred stock, net of issuance costs

 

 

 —

 

 

31,000

Proceeds from issuance of common stock

 

 

43

 

 

 —

Proceeds from the term loan

 

 

4,540

 

 

 —

Payments of the term loan

 

 

 —

 

 

(200)

Net cash provided by financing activities

 

 

81,847

 

 

30,800

Net increase in cash, cash equivalents and restricted cash

 

 

62,095

 

 

20,187

Cash, cash equivalents and restricted cash—beginning of year

 

 

135,633

 

 

9,287

Cash, cash equivalents and restricted cash—end of period

 

$

197,728

 

$

29,474

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

  

 

 

  

Cash paid for interest

 

$

80

 

$

12

 

 

 

 

 

 

 

Supplemental disclosures of noncash investing and financing activities:

 

 

  

 

 

  

Purchase of property and equipment included in accrued liabilities

 

$

75

 

$

 —

Deferred financing costs in accrued liabilities

 

$

154

 

$

 —

Conversion of convertible preferred stock into common stock

 

$

162,223

 

$

 —

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

 

 

4

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NEXTCURE, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

1. Nature of the Business

Organization

NextCure, Inc. (“NextCure” or the “Company”) was incorporated in Delaware in September 2015 and is headquartered in Beltsville, Maryland. The Company is a clinical-stage biopharmaceutical company committed to discovering and developing novel, first‑in‑class immunomedicines to treat cancer and other immune‑related diseases by restoring normal immune function. Through its proprietary Functional, Integrated, NextCure Discovery in Immuno‑Oncology (“FIND‑IO”) platform, the Company studies various immune cells in order to discover and understand targets and structural components of immune cells and their functional impact in order to develop immunomedicines. Since inception, the Company has devoted substantially all of its efforts and financial resources to organizing and staffing the Company, identifying business development opportunities, raising capital, securing intellectual property rights related to the Company’s product candidates, building and optimizing the Company’s manufacturing capabilities and conducting discovery, research and development activities for the Company’s product candidates, discovery programs and its FIND‑IO platform.

Initial Public Offering

On May 13, 2019, the Company closed its initial public offering (“IPO”), in which the Company issued and sold 5,750,000 shares of common stock at a public offering price of $15.00 per share, for net proceeds to the Company of approximately  $77.0 million after deducting underwriting discounts and commissions of $6.0 million and offering expenses of approximately $3.4 million.

In preparation for the IPO, on May 3, 2019, the Company effected a  one-for-8.0338 reverse stock split of its issued and outstanding common stock. The par value and authorized shares of common stock were not adjusted as a result of the reverse stock split. All of the share and per share information presented in the accompanying financial statements has been adjusted to reflect the reverse common stock split on a retroactive basis for all periods and as of all dates presented.

Upon the closing of the IPO, on May 13, 2019, all of the outstanding shares of the Company’s convertible preferred stock automatically converted into 15,560,569 shares of common stock at the applicable conversion ratio then in effect. Subsequent to the closing of the IPO, there were no shares of preferred stock outstanding.

Upon the closing of the IPO, on May 13, 2019, the Company’s certificate of incorporation was amended and restated to provide for 100,000,000 authorized shares of common stock with a par value of $0.001 per share and 10,000,000 authorized shares of preferred stock with a par value of $0.001 per share.

Liquidity

The Company has not generated any revenue to date from product sales and does not expect to generate any revenues from product sales in the foreseeable future. Through June 2019, the Company has funded its operations primarily with proceeds from the sale of preferred stock and proceeds from the Company’s agreement with Eli Lilly and Company  (Note 5) and proceeds from the IPO. The Company expects to incur additional operating losses and negative operating cash flows for the foreseeable future.

 

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed financial statements as of June 30, 2019 and for the three and six months ended June 30, 2019 and 2018 have been prepared by the Company in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and

5

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NEXTCURE, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Exchange Commission (“SEC”) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these condensed financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto as of and for the year ended December 31, 2018, which are included in the Company’s final prospectus that forms a part of the Company’s Registration Statement on Form S-1 (Reg. No. 333-230837) (the “Registration Statement”), as filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, on May 9, 2019.

The unaudited interim condensed financial statements have been prepared on the same basis as the audited financial statements. In the opinion of management, the accompanying unaudited interim condensed financial statements contain all adjustments necessary for a fair statement of the Company’s financial position as of June 30, 2019 and condensed results of operations and cash flows for the three and six months ended June 30, 2019 and 2018. Such adjustments are of a normal and recurring nature. The results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2019.

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates, including those related to accrued expenses, revenue recognition, the valuation of equity‑based compensation, including incentive stock options, common stock and restricted common stock, as well as income taxes. The Company bases its estimates on various assumptions that the Company believes to be reasonable under the circumstances. Actual results could differ from those estimates.

Restricted Cash

The Company is required, as a condition of its Term Loan (Note 7), to maintain cash collateral on deposit in a segregated money market bank account equal to the principal portion of the Term Loan, as determined on a quarterly basis. The bank may restrict withdrawals or transfers by or on behalf of the Company that would violate this requirement. The required reserve totaled $5.0 million as of June 30, 2019. This amount is presented as restricted cash on the accompanying balance sheet.

The following table reconciles cash and cash equivalents and restricted cash per the balance sheet to the statement of cash flows (in thousands):

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

    

2019

    

2018

 

 

 

(unaudited)

 

 

 

Cash and cash equivalents

 

$

192,689

 

$

135,173

Restricted cash (including $4,200 in other assets)

 

 

5,039

 

 

460

Total

 

$

197,728

 

$

135,633

 

Revenue Recognition

The Company has adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”). Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine the appropriate amount of revenue to be recognized for arrangements determined to be within the scope of ASC 606, the Company performs the following five steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint

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NEXTCURE, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect consideration to which it is entitled in exchange for the goods or services it transfers to the customer.

The Company evaluates customer options for material rights or options to acquire additional goods or services for free or at a discount. If the customer options are determined to represent a material right, the material right is recognized as a separate performance obligation at the outset of the arrangement.

Performance obligations are promised goods or services in a contract to transfer a distinct good or service to the customer and are considered distinct when (i) the customer can benefit from the good or service on its own or together with other readily available resources and (ii) the promised good or service is separately identifiable from other promises in the contract. In assessing whether promised goods or services are distinct, the Company considers factors such as the stage of development of the underlying intellectual property, the capabilities of the customer to develop the intellectual property on its own or whether the required expertise is readily available and whether the goods or services are integral to or dependent on other goods or services in the contract.

The Company estimates the transaction price based on the amount expected to be received for transferring the promised goods or services in the contract. Consideration generally may include fixed consideration or variable consideration. Should an arrangement include variable consideration, the Company will evaluate the amount of potential payments and the likelihood that the payments will be received. The Company will utilize either the most likely amount method or expected amount method to estimate the amount expected to be received based on which method best predicts the amount expected to be received. The amount of variable consideration that is included in the transaction price may be constrained and will be included in the transaction price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period.

The Company’s contracts may include development and regulatory milestone payments which would be assessed under the most likely amount method and constrained if it is probable that a significant revenue reversal would occur. Milestone payments that are not within the Company’s control or the licensee’s control, such as regulatory approvals, will not be considered probable of being achieved until those approvals are received. At the end of each reporting period, the Company re-evaluates the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments would be recorded on a cumulative catch-up basis, which would affect collaboration revenues in the period of adjustment.

For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company will recognize revenue at the later of (i) when the related sales occur and (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

The Company allocates the transaction price based on the estimated stand-alone selling price of each of the performance obligations. The Company must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract. The Company utilizes key assumptions to determine the stand-alone selling price for service obligations, which may include other comparable transactions, pricing considered in negotiating the transaction and the estimated costs. Additionally, in determining the standalone selling price for material rights, the Company may reference comparable transactions, clinical trial success probabilities and estimates of option exercise likelihood. Variable consideration will be allocated specifically to one or more performance obligations in a contract when the terms of the variable consideration relate to the satisfaction of the performance obligation and the resulting amounts allocated are consistent with the amounts the Company would expect to receive for the satisfaction of each performance obligation.

The consideration allocated to each performance obligation is recognized as revenue when control is transferred for the related goods or services. For performance obligations which consist of licenses and other promises, the Company

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NEXTCURE, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

Upfront payments and fees are recorded as deferred revenue upon receipt or when due until the Company performs its obligations under these arrangements. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as current portion of deferred revenue in the accompanying condensed balance sheets. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, net of current portion. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional.

Recently Issued Accounting Pronouncements

The Company qualifies as an emerging growth company (“EGC”) as defined under the Jumpstart Our Business Startups Act (the “JOBS Act”). Using exemptions provided under the JOBS Act provided to EGCs, the Company has elected to defer compliance with new or revised financial accounting standards until it is required to comply with such standards.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). The new guidance requires lessees to record most leases on their balance sheets and recognize the related expenses on their income statements in a manner similar to current practice. ASU 2016-02 states that a lessee would recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use the underlying asset for the lease term. The standard is effective for the Company January 1, 2020. Early adoption is permitted. The Company is currently evaluating the effect of this standard on its financial statements.

In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. The amendment clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account. In those situations, all the guidance in Topic 606 should be applied, including recognition, measurement, presentation and disclosure requirements. The amendment also adds unit of account guidance in Topic 808 to align with the guidance in Topic 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of Topic 606. Lastly, the amendment requires that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting the transaction together with revenue recognized under Topic 606 is precluded if the collaborative arrangement participant is not a customer. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently evaluating these clarifications in the accounting and presentation for its collaborative arrangements within the scope of Topic 808 but does not expect it will have any impact.

 

3. Fair Value of Financial Instruments

The Company has certain financial assets recorded at fair value, which have been classified as Level 1, 2 or 3 within the fair value hierarchy as described in the accounting standards for fair value measurements.

Level 1—Quoted market prices in active markets for identical assets or liabilities.

Level 2—Inputs other than Level 1 inputs that are either directly or indirectly observable, such as quoted market prices, interest rates and yield curves.

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NEXTCURE, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Level 3—Unobservable inputs developed using estimates of assumptions developed by the Company, which reflect those that a market participant would use.

To the extent the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair values requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized as Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The following tables set forth the fair value of the Company’s financial assets by level within the fair value hierarchy (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2019

 

 

(unaudited)

 

 

 

 

 

 

 

 

Fair Value Measurement Based on

 

 

 

 

 

 

 

 

 

 

 

Significant

 

 

 

 

 

 

 

 

 

 

 

Quoted Prices in

 

Other

 

Significant

 

 

Carrying

 

Fair

 

Active Markets

 

Observable

 

Unobservable

Assets

    

Amount

    

Value

    

(Level 1)

    

Inputs (Level 2)

    

Inputs (Level 3)

Money market funds (cash equivalents)

 

$

5,000

 

$

5,000

 

$

5,000

 

$

 —

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2018

 

 

 

 

 

 

 

 

Fair Value Measurement Based on

 

 

 

 

 

 

 

 

 

 

 

Significant

 

 

 

 

 

 

 

 

 

 

 

Quoted Prices in

 

Other

 

Significant

 

 

Carrying

 

Fair

 

Active Markets

 

Observable

 

Unobservable

Assets

    

Amount

    

Value

    

(Level 1)

    

Inputs (Level 2)

    

Inputs (Level 3)

Money market funds (cash equivalents)

 

$

5,000

 

$

5,000

 

$

5,000

 

$

 —

 

$

 —

 

The Company did not transfer any assets measured at fair value on a recurring basis between levels during the three and six months ended June 30, 2019.

 

4. Property and Equipment, Net

Property and equipment consist of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

    

2019

    

2018

 

 

 

(unaudited)

 

 

 

Research equipment

 

$

9,348

 

$

7,787

Leasehold improvements

 

 

5,065

 

 

4,825

Computer equipment

 

 

360

 

 

167

Furniture and fixtures

 

 

93

 

 

70

Construction in progress

 

 

1,077

 

 

1,027

Property and equipment, gross

 

 

15,943

 

 

13,876

Less: accumulated depreciation and amortization

 

 

(3,614)

 

 

(2,469)

Property and equipment, net

 

$

12,329

 

$

11,407

 

Construction in progress at June 30, 2019 consists of the costs incurred for research equipment and for the build-out of additional lab and office space and at December 31, 2018 consists of the costs incurred for the build-out of a manufacturing suite at the Company’s headquarters in Beltsville, Maryland.

Depreciation and amortization expense was $582,000 and $1,145,000 for the three and six months ended June 30, 2019, respectively, and $387,000 and $763,000 for the three and six months ended June 30, 2018, respectively.

 

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NEXTCURE, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

5. Agreement with Eli Lilly and Company 

On November 2, 2018, the Company entered into a multi-year research and development collaboration agreement (the “Lilly Agreement”) with Eli Lilly and Company (“Lilly”), pursuant to which the Company will use its proprietary FIND-IO platform to identify novel oncology targets for additional collaborative research and drug discovery by the Company and Lilly. Under the Lilly Agreement, Lilly and the Company have granted one another an equal number of exclusive options to research, develop, manufacture and commercialize compounds and products directed to oncology targets identified through the Lilly Agreement. Both Lilly and the Company have all options remaining eligible for exercise. The research collaboration with Lilly will be managed by a joint steering committee formed by an equal number of members from the Company and Lilly and will expire upon the earlier of the exercise of all options granted to Lilly or four years from the date of the agreement, subject to certain extensions. The Company considers Lilly to be a related party based on Lilly’s equity investment in the Company as discussed below.

During the research term under the Lilly Agreement, as a part of target discovery, the Company will be responsible for providing Lilly with oncology targets identified using the Company’s FIND-IO platform. From the targets provided by the Company, Lilly may select targets to advance to target validation using criteria developed by both parties. Following completion of the agreed upon target validation plan with respect to a given target, either party may propose to advance that target to compound discovery. For each target that has been advanced to compound discovery, Lilly will have the option to obtain an exclusive license with respect to the compounds and products directed to the target. If Lilly does not exercise its option with respect to a given target or has previously exercised all of its options, the Company will have the option to obtain licenses with respect to compounds and products directed to that target. Following option exercise by a party, the development and commercialization of any products directed to the target will be conducted by the exercising party. The exercising party must use commercially reasonable efforts to develop, seek regulatory approval for and commercialize any such products under mutually agreed upon work plans.

In November 2018, the Company received an upfront, non-refundable payment of $25.0 million under the Lilly Agreement and a concurrent $15.0 million equity investment. In addition, the Company will receive quarterly research and development support payments during a portion of the research term as well as option exercise fees upon option exercises by Lilly.

Pursuant to the Lilly Agreement, Lilly may owe an aggregate of up to $1.4 billion in development and regulatory milestones and sales milestones. Additionally, Lilly will pay mid to high single-digit royalties on net sales for all products directed to each target optioned by Lilly. Upon the Company’s exercise of an option with respect to a given target, the Company will pay Lilly an option exercise payment and may become obligated to milestone and royalty payments. The company may owe an aggregate of up to $710.0 million in development and regulatory milestones and sales milestones.

Upon the adoption of ASC 606, the Company evaluated the Lilly Agreement under the provisions of ASC 606 and concluded that Lilly is a customer prior to the exercise of its option to obtain an exclusive license with respect to the compounds and products directed to a target that has been advanced to compound discovery. The Company identified the following material promises under the Lilly Agreement: (i) a limited research license to conduct activities under the research collaboration; (ii) research and development services together with the provision of a data package in connection with Lilly’s option; (iii) various governance obligations, most notably participation on the joint steering committee; and (iv) rights related to an optional term extension by Lilly. The Company evaluated Lilly’s option to obtain an exclusive license with respect to the compounds and products directed to a target that has been advanced to compound discovery and concluded that the option was not issued at a significant and incremental discount, and therefore does not provide material rights. As such, they are excluded as performance obligations at the outset of the arrangement. The Company determined that the research license was not capable of being distinct and the related research and development services and governance activities are not distinct in the context of the contract and, as such, the Company determined that these promises should be combined into a single performance obligation, resulting in a total of two performance obligations under the Lilly Agreement; one for research and development services and one for the right related to an optional term extension by Lilly.

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NEXTCURE, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

The transaction price at the outset of the arrangement was determined to be $32.7 million, comprised of the upfront fee received from Lilly, quarterly research and development support payments to be received from Lilly during a portion of the research term and an equity investment premium as determined by the Company with reference to a valuation of the Company’s preferred stock prepared by an unrelated third-party valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation.

The transaction price was allocated to the two performance obligations based on their relative standalone selling price determined with reference to the Company’s estimated costs attendant to the obligations. Revenue allocated to the research and development performance obligation is being recognized as the research and development services are provided using an input method according to research and development costs incurred to date compared to estimated total research and development costs. The transfer of control occurs over this time period and, in management’s judgment, is the best measure of progress towards satisfying the performance obligation. Revenue allocated to Lilly’s right related to an optional term extension is deferred until the right is exercised or lapses, and will subsequently be recognized accordingly.

While the Lilly Agreement was executed in November 2018, the Company’s performance initiated in January 2019. Under the Lilly Agreement, the Company recognized revenue  of  $1.4 million and $2.8  million for the three and six months ended June 30, 2019, respectively. As of June 30, 2019, deferred revenue included in the Company’s balance sheets comprised the following (in thousands):

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

    

2019

    

2018

 

 

 

(unaudited)

 

 

 

Deferred revenue, beginning of period

 

$

26,725

 

$

 —

Up-front payment

 

 

 —

 

 

25,000

Attributed premium on the proceeds from Lilly’s investment in the Company

 

 

 —

 

 

1,725

Research and development support billing

 

 

1,000

 

 

 —

Revenue from research and development arrangement recognized

 

 

(2,759)

 

 

 —

Total deferred revenue, end of period

 

 

24,966

 

 

26,725

Less: Deferred revenue, current portion

 

 

(6,524)

 

 

(4,989)

Deferred revenue, non-current portion

 

$

18,442

 

$

21,736

 

 

6. Commitments and Contingencies

Operating Leases

The Company subleases its facilities under a non‑cancelable operating sublease agreement. The sublease commenced on February 9, 2016 and, as amended, expires on August 31, 2025. The Company is also responsible for its prorated share of the sublandlord’s operating expense.

On January 30, 2019, the Company entered into a new lease to be used for office and laboratory space, which the Company took possession of in June 2019. The new lease expires in March 2030 and will also cover the Company’s existing space after expiration of the Company’s current lease. Base rent for the first 10 months is abated, after which the base rent of the lease is $19,650 per month, with an increase in annual rent of 3.0% in each subsequent year of the lease term. In connection with this lease, the Company executed a letter of credit of $39,000, which has not been drawn down on.

On March 15, 2019, the Company entered into an amended and restated sublease that covers the Company’s existing space plus additional square footage to be used as office space, which the Company took possession of upon

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NEXTCURE, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

entering into the amended and restated sublease. The total remaining commitment under the amended and restated sublease is approximately $2.7 million.

 

The future minimum payments for the operating leases are as follows (in thousands):

 

 

 

 

 

Remainder of the year

 

$

193

2020

 

 

675

2021

 

 

819

2022

 

 

868

2023

 

 

860

Thereafter

 

 

6,897

Total future minimum payments

 

$

10,312

 

Rent expense incurred under operating leases was approximately $87,000 and $190,000 for the three and six months ended June 30, 2019, respectively, and $101,000 and $201,000 for the three and six months ended June 30, 2018, respectively.

Legal Proceedings

The Company, from time to time, may be party to litigation arising in the ordinary course of business. The Company is not a party to any litigation or legal proceedings, nor is management aware of any pending or threatened litigation that, in the opinion of the Company’s management, are likely to have a material adverse effect on the Company’s business. At each reporting date, the Company evaluates whether a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company expenses the costs related to its legal proceedings as incurred.

 

 

7. Term Loan

In April 2016, the Company entered into a $1.0 million term loan with a commercial bank (the “Term Loan”). On January 25, 2019, the Company amended the Term Loan to increase the Company’s borrowing capacity to $5.0 million, which amount remains secured by the Company’s certificates of deposit, money market account, investment property and deposit or investment accounts. As amended, the Term Loan bears interest at the greater of the prime rate less 1% and 4.25%. The effective interest rate was 4.5% for the three and six months ended June 30, 2019. The effective interest rate was 3.79% and 3.66% for the three and six months ended June 30, 2018, respectively. Under the Term Loan, the Company is required to make monthly interest‑only payments through January 2020 and is required to make 36 equal monthly payments of principal plus accrued interest thereafter through January 2023.

Future maturities of the Term Loan as of June 30, 2019 are as follows (in thousands):

 

 

 

 

 

Remainder of the year

 

$

 —

2020

 

 

1,528

2021

 

 

1,667

2022

 

 

1,667

2023

 

 

138

Total

 

 

5,000

Less: current portion of term loan

 

 

(833)

Term loan, net of current portion

 

$

4,167

 

Interest expense under the Term Loan was approximately $57,000 and $99,000 for the three and six months ended June 30, 2019, respectively, and $6,000 and $13,000 for the three and six months ended June 30, 2018, respectively.

 

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NEXTCURE, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

8. Stock‑Based Compensation

Employee Equity Plans

The NextCure, Inc. 2015 Omnibus Incentive Plan (the "2015 Plan") provides for the Company to grant incentive stock options or nonqualified stock options, restricted stock awards, unrestricted stock awards or restricted stock units to employees, consultants and directors of the Company. The 2015 Plan is administered by the board of directors, or at the discretion of the board of directors, by a committee of the board of directors. The exercise prices, vesting and other restrictions are determined at the discretion of the board of directors or its committee if so delegated, except that the exercise price per share of the stock options may not be less than 100% of the fair market value of a share of the Company's common stock on the date of grant and the term of the stock options may not be greater than 10 years.

On May 3, 2019, the Company’s stockholders approved the NextCure, Inc. 2019 Omnibus Incentive Plan (the ‘‘2019 Plan’’), which became effective on May 8, 2019, the date on which the Registration Statement was declared effective (the “Effective Date”). The 2019 Plan replaces the 2015 Plan as the Company’s board of directors (the “Board”) determined not to make additional awards under the 2015 Plan following the effectiveness of the 2019 Plan. The 2019 Plan provides for the grant of awards of options, stock appreciation rights, restricted stock, restricted stock units, deferred stock units, unrestricted stock, dividend equivalent rights, other equity-based awards and cash bonus awards to the Company’s officers, employees, non-employee directors and other key persons (including consultants). The number of shares of common stock reserved for issuance under the 2019 Plan is 2,900,000 plus the number of shares of stock related to awards outstanding under the 2015 Plan that subsequently terminate by expiration or forfeiture, cancellation or otherwise without the issuance of such shares. The number of shares reserved for issuance under the 2019 Plan will automatically increase on January 1, 2020 and each January 1st thereafter during the term of the 2019 Plan by 4% of the number of shares of the Company’s common stock outstanding on December 31st of the preceding calendar year or such lesser number of shares determined by the Board.

As of June 30, 2019, 2,689,725 shares were available for future issuance under the 2019 Plan.

Stock options granted under the 2015 Plan and 2019 Plan (together, the “Plans”) to employees generally vest over four years and expire after ten years.

A summary of stock option activity for awards under the Plans is presented below:

 

 

 

 

 

 

 

 

 

 

 

 

 

Options Outstanding and Exercisable

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Weighted

 

Average

 

Aggregate

 

 

 

 

Average

 

Remaining

 

Intrinsic

 

 

Number of

 

Exercise

 

Contractual

 

Value(1)

 

    

Shares

    

Price

    

Life (Years)

    

(in thousands)

Outstanding as of December 31, 2018

 

2,056,891

 

$

4.74

 

9.4

 

$

5,946

Granted

 

210,269

 

$

15.57

 

10.0

 

 

 

Exercised

 

(29,383)

 

$

1.49

 

8.7

 

 

 

Outstanding as of June 30, 2019

 

2,237,777

 

$

5.80

 

9.0

 

$

20,663

Vested and expected to vest as of June 30, 2019

 

2,237,777

 

$

5.80

 

 

 

$

20,663

Exercisable as of June 30, 2019

 

415,357

 

$

1.15

 

 

 

$

5,744

 

(1)

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the estimated fair value of the common stock for the options that were in the money at June 30, 2019 and December 31, 2018.

The weighted-average grant date fair value of stock options granted to employees for the six months ended June 30, 2019 was $9.86.  The aggregate intrinsic value of stock options exercised during the six months ended June 30, 2019 was $396,400.

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NEXTCURE, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

The Company’s potential dilutive securities, which as of June 30, 2019 include common stock options, have been excluded from the computation of diluted net loss per share as the effect would be anti‑dilutive. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company excluded 2,237,777 potential shares of common stock , presented based on amounts outstanding at period end, from the computation of diluted net loss per share attributable to common stockholders for the period indicated because including them would have had an anti‑dilutive effect.  

On May 3, 2019, the Company’s stockholders approved the NextCure, Inc. 2019 Employee Stock Purchase Plan (the “ESPP”), which became effective on the Effective Date. The ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423(b) of the Internal Revenue Code. A total of 240,000 shares of common stock were reserved for issuance under this plan. In addition, the number of shares of common stock that may be issued under the ESPP will automatically increase on January 1, 2020 and each January 1st thereafter until expiration of the ESPP, in an amount equal to the lesser of (i) 1% of the number of shares of the Company’s common stock outstanding on December 31st of the preceding calendar year, (ii) 480,000 shares of common stock and (iii) a number of shares of common stock determined by the administrator of the ESPP. 

Stock‑Based Compensation

The Company recorded stock-based compensation expense of $412,000 and $795,000 for the three and six months ended June 30, 2019, respectively, and $24,000 and $48,000 for the three and six months ended June 30, 2018, respectively.

Stock‑based compensation expense recorded as research and development and general and administrative expenses is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30, 

 

June 30, 

 

 

 

 

(unaudited)

 

(unaudited)

 

 

    

2019

    

2018

    

2019

    

2018

 

Research and development

 

$

151

 

$

11

 

$

300

 

$

21

 

General and administrative

 

 

261

 

 

13

 

 

495

 

 

27

 

Total stock-based compensation expense

 

$

412

 

$

24

 

$

795

 

$

48

 

 

 

 

 

9. Income Taxes

The Company did not record a provision or benefit for income taxes during the six months ended June 30, 2019. The Company continues to maintain a full valuation allowance against its deferred tax assets.

The Company has evaluated the positive and negative evidence involving its ability to realize its deferred tax assets. Management has considered the Company’s history of cumulative net losses incurred since inception and its lack of any commercially ready products. It has concluded that it is more likely than not that the Company will not realize the benefits of the deferred tax assets including net operating loss carryforwards and research and development credits. Management reevaluates the positive and negative evidence at each reporting period.

Under the provisions of Sections 382 and 383 of the Internal Revenue Code, certain substantial changes in the Company’s ownership may have limited, or may limit in the future, the amount of net operating loss and research and development credit carryforwards that can be used to reduce future income taxes.

 

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NEXTCURE, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

10. Subsequent Events

On August 2, 2019, the Company entered into a lease amendment for additional square feet to be used for office, laboratory and warehouse space, which the Company expects the landlord to deliver in April 2020. The amended lease is expected to expire on March 31, 2030.  Base rent for the first seven months is abated with respect to the additional space, after which the base rent of the lease is $18,178 per month for that space, with an increase in annual rent of 3.0% in each subsequent year of the lease term.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and the notes thereto included in this Quarterly Report. Some of the statements contained in this discussion and analysis or set forth elsewhere in this Quarterly Report are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including with respect to our plans, objectives and expectations for our business, operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “continue,” “could,” “due,” “estimate,” “expect,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or similar language. Forward-looking statements include, but are not limited to, statements about:

·

our expectations regarding the timing, progress and results of preclinical studies and clinical trials for NC318, NC410 and any other product candidates we develop, including statements regarding the timing of initiation and completion of studies or trials and related preparatory work, the period during which the results of the trials will become available and our research and development programs;

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the timing or likelihood of regulatory filings for NC318, NC410 and any other product candidates we develop and our ability to obtain and maintain regulatory approvals for such product candidates for any indication;

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our manufacturing capabilities and strategy, including the scalability of our manufacturing methods and processes;

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our expectations regarding the potential benefits, activity, effectiveness and safety of NC318, NC410 and any other product candidates we develop;

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our intentions and ability to successfully commercialize our product candidates;

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our expectations regarding the nature of the biological pathways we are targeting;

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our expectations for our FIND-IO platform, including our ability to discover and advance product candidates using our FIND-IO platform;

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the potential benefits of and our ability to maintain our relationships and collaborations with Yale University, Dr. Lieping Chen and Eli Lilly and Company;

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our estimates regarding our expenses, future revenues, capital requirements and our needs for or ability to obtain additional financing and the period over which we expect the proceeds of our initial public offering, together with our current cash and cash equivalents, to be sufficient to fund our operations;

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our intended reliance on and the performance of third parties, including collaborators, contract research organizations and third-party manufacturers;

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our ability to protect and enforce our intellectual property protection and the scope and duration of such protection;

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developments and projections relating to our competitors and our industry, including competing therapies; and

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the impact of current and future laws and regulations.

These statements are based on management’s current expectations, estimates, forecasts and projections about our business and industry, are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control and that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from those anticipated by the forward-looking statements. We discuss many of these risks in greater detail in the section entitled “Risk Factors” included in Part II, Item 1A and elsewhere in this report. While we believe that our internal expectations, estimates, forecasts and projections are reasonable, no independent source has verified such expectations, estimates, forecasts and projections, as a result we cannot assure you that the forward-looking statements in this Quarterly Report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. Accordingly, you should not rely upon forward-looking statements as predictions of future events. These forward-looking statements speak only as of the date of this Quarterly Report, and except as required by law, we are under no duty to update or revise any of the forward-looking statements, whether as a result of new information, future events or otherwise.

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Overview

We are a clinical-stage biopharmaceutical company committed to discovering and developing novel, first-in-class immunomedicines to treat cancer and other immune-related diseases by restoring normal immune function. We view the immune system holistically and, rather than target one specific immune cell type, we focus on understanding biological pathways, the interactions of cells and the role each interaction plays in an immune response. Through our proprietary Functional, Integrated, NextCure Discovery in Immuno-Oncology, or FIND-IO, platform, we study various immune cells to discover and understand targets and structural components of immune cells and their functional impact in order to develop immunomedicines. We are focused on patients who do not respond to current therapies, patients whose cancer progresses despite treatment and patients with cancer types not adequately addressed by available therapies. We are committed to discovering and developing first-in-class immunomedicines, which are immunomedicines that use new or unique mechanisms of action to treat a medical condition, for these patients.

Our lead product candidate, NC318, is a first‑in‑class immunomedicine against a novel immunomodulatory receptor called Siglec‑15, or S15. In October 2018, we initiated a Phase 1/2 clinical trial of NC318 in patients with advanced or metastatic solid tumors. We expect completion of the Phase 1 portion of this trial in the fourth quarter of 2019 and completion of the Phase 2 portion in the fourth quarter of 2020. Our second product candidate, NC410, is a novel immunomedicine designed to block immune suppression mediated by an immune modulator called Leukocyte‑Associated Immunoglobulin‑like Receptor 1, or LAIR‑1. We expect to submit an investigational new drug application, or IND, to the U.S. Food and Drug Administration, or FDA, for NC410 in the first quarter of 2020.

Financial Overview

Since commencing operations in 2015, we have devoted substantially all of our efforts and financial resources to organizing and staffing our company, identifying business development opportunities, raising capital, securing intellectual property rights related to our product candidates, building and optimizing our manufacturing capabilities and conducting discovery, research and development activities for our product candidates, discovery programs and FIND‑IO platform.

We have not generated any revenue from product sales and only limited revenue from other sources and, as a result, we have never been profitable and have incurred net losses since the commencement of our operations. Our net losses for the three months ended June 30, 2019 and 2018 were $8.2 million and $5.2 million, respectively, and our net losses for the six months ended June 30, 2019 and 2018 were $14.4 million and $10.2 million, respectively. As of June 30, 2019, we had an accumulated deficit of $61.7 million, primarily as a result of research and development and general and administrative expenses. We do not expect to generate product revenue unless and until we obtain marketing approval for and commercialize a product candidate, and we cannot assure you that we will ever generate significant revenue or profits.

We have funded our operations to date primarily with proceeds from the sale of preferred stock,  proceeds from our multi-year research collaboration and development agreement with Eli Lilly and Company, or Lilly, and proceeds from our initial public offering, or our IPO. Since our inception through June 30, 2019, we received gross proceeds of $164.4 million through private placements of preferred stock and an upfront payment of $25.0 million in connection with our agreement with Lilly, or the Lilly Agreement. In April 2018, we received gross proceeds of $31.0 million from the sale and issuance of shares of our Series A-3 Preferred Stock, and in November 2018, we received gross proceeds of $93.4 million from the sale and issuance of shares of our Series B Preferred Stock, including $15.0 million from Lilly as described below.

In November 2018, we entered into a multi‑year research and development collaboration agreement with Lilly, or the Lilly Agreement, pursuant to which we will use our FIND‑IO platform to identify novel oncology targets for additional collaborative research and drug discovery by us and Lilly. We received an upfront payment of $25.0 million in cash and an equity investment of $15.0 million from Lilly upon entering into the Lilly Agreement, and we are eligible for quarterly research and development support payments during a portion of the term of the Lilly Agreement, option exercise payments and milestone payments in an aggregate of up to $1.4 billion, as well as mid to high single‑digit royalty payments on net sales for all products directed to each target optioned by Lilly. We expect to recognize revenue from the Lilly Agreement on a proportional performance basis over the term of the Lilly Agreement.

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On May 13, 2019, we closed our IPO, in which we sold 5,750,000 shares of common stock, at a public offering price of $15.00 per share, for aggregate gross proceeds of $86.3 million. The net offering proceeds to us were approximately $77.0 million after deducting underwriting discounts and commissions of $6.0 million and offering expenses of $3.4 million.  See Note 1 to our unaudited condensed financial statements included elsewhere in this Quarterly Report for more information.

As of June 30, 2019, we had cash and cash equivalents, excluding restricted cash, of $192.7 million. We believe that our existing cash and cash equivalents, together with the net proceeds from our IPO, will be sufficient to fund our planned operations into the second half of 2022. We have based this estimate on assumptions that may prove to be incorrect, and we could use our available capital resources sooner than we currently expect.

We expect to incur substantial expenditures in the foreseeable future as we advance our product candidates through clinical development, the regulatory approval process and, if approved, commercialization, and as we expand our pipeline through research and development activities related to our FIND‑IO platform and discovery programs. Specifically, in the near term, we expect to incur substantial expenses relating to our ongoing Phase 1/2 clinical trial of NC318, preclinical studies and our planned Phase 1/2 clinical trial of NC410 and other research and development activities. We expect to incur significantly increased costs as a result of operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company.

We will need substantial additional funding to support our continuing operations and to pursue our development strategy. Until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our operations through a combination of public or private equity offerings, debt financings, marketing and distribution arrangements, other collaborations, strategic alliances and licensing arrangements. Adequate funding may not be available to us on acceptable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials, or other research and development activities or one or more of our development programs.

Components of Our Results of Operations

Revenue

For the three and six months ended June 30, 2019, we recognized $1.4 million and $2.8 million, respectively, in revenue under the Lilly Agreement. Through June 30, 2019, we have not generated any revenue from product sales.

For additional information about our revenue recognition policy, see Note 2 to our unaudited condensed financial statements included elsewhere in this Quarterly Report. For the foreseeable future, we expect all of our revenue will be generated from the Lilly Agreement.  

Operating Expenses

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for our discovery efforts, research activities, development and testing of our product candidates as well as for clinical trials, including:

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salaries, benefits and other related costs, including stock‑based compensation, for personnel engaged in research and development functions;

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expenses incurred under agreements with third parties, including agreements with third parties that conduct research, preclinical activities or clinical trials on our behalf, such as our corporate sponsored research agreement, or the SRA. and our license agreement with Yale University;

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costs of outside consultants, including their fees, stock‑based compensation and related travel expenses;

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the costs of laboratory supplies and acquiring, developing and manufacturing preclinical study and clinical trial materials; and

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facility‑related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.

We expense research and development costs as incurred. Our expenses related to clinical trials are based on actual costs incurred and estimates of other incurred costs. These estimated costs are based on several factors, including patient enrollment and related expenses at clinical investigator sites, contract services received, consulting agreement costs and efforts expended under contracts with research institutions and third‑party contract research organizations that conduct and manage clinical trials on our behalf. We generally accrue estimated costs related to clinical trials based on contracted amounts applied to the level of patient enrollment and other activity according to the protocol. If future timelines or contracts are modified based on changes in the clinical trial protocol or scope of work to be performed, we would modify our estimates of accrued expenses accordingly on a prospective basis. Historically, any such modifications have not been material.

Due to the early‑stage nature of our programs and the discovery-related nature of our efforts, we do not track costs on a program‑by‑program basis other than costs incurred for the Lilly Agreement. However, as our current and future product candidates proceed along a development path further in clinical trials, we intend to track the costs of each program. We will measure costs incurred under the Lilly Agreement as an input to recording revenue from the Lilly Agreement.

Research and development activities are central to our business model. We expect that our research and development expenses will continue to increase substantially for the foreseeable future as we advance our product candidates through development, including conducting our Phase 1/2 clinical trial of NC318 and conducting preclinical studies and a Phase 1/2 clinical trial of N