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 September 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 November 8, 2019,  the registrant had 22,753,960 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 September 30, 2019

TABLE OF CONTENTS

 

 

Page

PART I. FINANCIAL INFORMATION 

1

Item 1. 

Financial Statements

1

 

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

1

 

Unaudited Condensed Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2019 and 2018

2

 

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

3

 

Unaudited Condensed Statements of Cash Flows for the Nine Months Ended September 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

17

Item 3. 

Quantitative and Qualitative Disclosures about Market Risk

25

Item 4. 

Controls and Procedures

25

Part II. OTHER INFORMATION 

25

Item 1. 

Legal Proceedings

25

Item 1A. 

Risk Factors

25

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds 

73

Item 3. 

Defaults Upon Senior Securities

73

Item 4. 

Mine Safety Disclosures

73

Item 5. 

Other Information

73

Item 6. 

Exhibits

73

SIGNATURES 

75

 

 

 

 

 

i

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NEXTCURE, INC.

CONDENSED BALANCE SHEETS

(unaudited, in thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

    

2019

    

2018

Assets

 

 

 

 

  

Current assets:

 

 

  

 

 

  

Cash and cash equivalents

 

$

9,935

 

$

135,173

Marketable securities

 

 

174,147

 

 

 —

Restricted cash

 

 

1,289

 

 

460

Prepaid expenses and other current assets

 

 

3,777

 

 

152

Total current assets

 

 

189,148

 

 

135,785

Property and equipment, net

 

 

12,031

 

 

11,407

Other assets

 

 

3,945

 

 

436

Total assets

 

$

205,124

 

$

147,628

Liabilities, Preferred Stock and Stockholders’ Equity (Deficit)

 

 

  

 

 

  

Current liabilities:

 

 

  

 

 

  

Accounts payable

 

$

2,576

 

$

2,483

Accrued liabilities

 

 

2,582

 

 

2,411

Deferred rent, current portion

 

 

 —

 

 

28

Term loan, current portion

 

 

1,250

 

 

387

Deferred revenue, current portion

 

 

6,199

 

 

4,989

Total current liabilities

 

 

12,607

 

 

10,298

Deferred rent, net of current portion

 

 

434

 

 

242

Term loan, net of current portion

 

 

3,750

 

 

73

Deferred revenue, net of current portion

 

 

17,684

 

 

21,736

Total liabilities

 

 

34,475

 

 

32,349

Commitments and contingencies (Note 7)

 

 

  

 

 

  

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 September 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 September 30, 2019 and December 31, 2018, respectively, 0 and 56,828,851 shares issued and outstanding at September 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 September 30, 2019 and December 31, 2018. No shares issued and outstanding at September 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 September 30, 2019 and December 31, 2018, respectively, 22,739,345, and 1,374,812 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively

 

 

23

 

 

 1

Additional paid-in capital

 

 

240,791

 

 

352

Accumulated other comprehensive loss

 

 

(58)

 

 

 —

Accumulated deficit

 

 

(70,107)

 

 

(47,297)

Total stockholders’ equity (deficit)

 

 

170,649

 

 

(46,944)

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

 

$

205,124

 

$

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 AND COMPREHENSIVE LOSS 

(unaudited, in thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30, 

 

September 30, 

 

 

    

2019

    

2018

    

2019

    

2018

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue from research and development arrangement

 

$

1,583

 

$

 —

 

$

4,342

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

8,663

 

 

4,895

 

 

22,819

 

 

13,539

 

General and administrative

 

 

2,622

 

 

925

 

 

6,995

 

 

2,590

 

Total operating expenses

 

 

11,285

 

 

5,820

 

 

29,814

 

 

16,129

 

Loss from operations

 

 

(9,702)

 

 

(5,820)

 

 

(25,472)

 

 

(16,129)

 

Other income, net

 

 

1,268

 

 

110

 

 

2,662

 

 

192

 

Net loss

 

 

(8,434)

 

 

(5,710)

 

 

(22,810)

 

 

(15,937)

 

Net loss per common share—basic and diluted

 

$

(0.37)

 

$

(4.17)

 

$

(1.81)

 

$

(11.64)

 

Weighted average number of common shares —basic and diluted

 

 

22,715,567

 

 

1,369,212

 

 

12,609,219

 

 

1,369,212

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on marketable securities

 

 

(58)

 

 

 —

 

 

(58)

 

 

 —

 

Total comprehensive loss

 

$

(8,492)

 

$

(5,710)

 

$

(22,868)

 

$

(15,937)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

2

Table of Contents

NEXTCURE, INC.

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

(unaudited, in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

 

Stockholders’ Equity (Deficit)

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

Series A

 

Series B

 

 

Common Stock

 

Paid-in

 

Accumulated Other

 

Accumulated

 

Stockholders’

 

    

Shares

    

Amount

    

Shares

    

Amount

  

  

Shares

    

Amount

    

Capital

    

Comprehensive Loss

    

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

 

 

76,848

 

 

 —

 

 

 —

 

 

76,854

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, $0.001 par value

 

 

 

 —

 

 

 

 —

 

 

24,687

 

 

 1

 

 

38

 

 

 —

 

 

 —

 

 

39

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(8,221)

 

 

(8,221)

Balance as of June 30, 2019

 

 —

 

 

 —

 

 —

 

 

 —

 

 

22,714,765

 

 

23

 

 

240,245

 

 

 —

 

 

(61,673)

 

 

178,595

Stock-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

524

 

 

 —

 

 

 —

 

 

524

Issuance of common stock

 

 

 

 —

 

 

 

 —

 

 

24,580

 

 

 —

 

 

22

 

 

 —

 

 

 —

 

 

22

Unrealized loss on marketable securities

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(58)

 

 

 —

 

 

(58)

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(8,434)

 

 

(8,434)

Balance as of September 30, 2019

 

 —

 

$

 —

 

 —

 

$

 —

 

 

22,739,345

 

$

23

 

$

240,791

 

$

(58)

 

$

(70,107)

 

$

170,649

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

 

Stockholders’ Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

Series A

 

Series B

 

 

Common Stock

 

Paid-in

 

Accumulated Other

 

Accumulated

 

Stockholders’

 

    

Shares

    

Amount

    

Shares

    

Amount

  

  

Shares

    

Amount

    

Capital

 

Comprehensive Loss

    

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)

Stock-based compensation

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

90

 

 

 —

 

 

 —

 

 

90

Issuance of common stock

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Net loss

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(5,710)

 

 

(5,710)

Balance as of September 30, 2018

 

68,181,819

 

$

71,000

 

 —

 

$

 —

 

 

1,369,212

 

$

 1

 

$

222

 

$

 —

 

$

(40,435)

 

$

(40,212)

 

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

 

3

Table of Contents

NEXTCURE, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 30, 

 

    

2019

    

2018

Cash flows from operating activities:

 

 

  

 

 

  

Net loss

 

$

(22,810)

 

$

(15,937)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

  

 

 

  

Depreciation and amortization

 

 

1,933

 

 

1,159

Stock-based compensation

 

 

1,319

 

 

138

Changes in operating assets and liabilities:

 

 

  

 

 

  

Prepaid expenses and other assets

 

 

(3,660)

 

 

(89)

Accounts payable

 

 

93

 

 

776

Accrued liabilities and other current liabilities

 

 

335

 

 

(526)

Deferred revenue

 

 

(2,842)

 

 

 —

Net cash used in operating activities

 

 

(25,632)

 

 

(14,479)

Cash flows from investing activities:

 

 

  

 

 

  

Purchase of property and equipment

 

 

(2,557)

 

 

(1,159)

Purchase of marketable securities

 

 

(174,205)

 

 

 —

Net cash used in investing activities

 

 

(176,762)

 

 

(1,159)

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

 

 

65

 

 

 —

Proceeds from the term loan

 

 

4,540

 

 

 —

Deferred financing costs

 

 

(134)

 

 

(14)

Payments of the term loan

 

 

 —

 

 

(300)

Net cash provided by financing activities

 

 

81,735

 

 

30,686

Net (decrease) increase in cash, cash equivalents and restricted cash

 

 

(120,659)

 

 

15,048

Cash, cash equivalents and restricted cash—beginning of year

 

 

135,633

 

 

9,287

Cash, cash equivalents and restricted cash—end of period

 

$

14,974

 

$

24,335

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

  

 

 

  

Cash paid for interest

 

$

137

 

$

18

 

 

 

 

 

 

 

Supplemental disclosures of noncash investing and financing activities:

 

 

  

 

 

  

Purchase of property and equipment included in accrued liabilities

 

$

73

 

$

76

Deferred financing costs included in accrued liabilities

 

$

134

 

$

 —

Conversion of convertible preferred stock into common stock

 

$

162,223

 

$

 —

 

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

 

 

4

Table of Contents

NEXTCURE, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(unaudited)

 

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 September 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 6) 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 September 30, 2019 and for the three and nine months ended September 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

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NEXTCURE, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(unaudited)

 

and 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 September 30, 2019 and condensed results of operations and cash flows for the three and nine months ended September 30, 2019 and 2018. Such adjustments are of a normal and recurring nature. The results of operations for the three and nine months ended September 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. Although actual results could differ from those estimates, management does not believe that such differences would be material.

Restricted Cash

The Company is required, as a condition of its Term Loan (Note 8), 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 September 30, 2019. This amount is presented in part as restricted cash and in part as other assets 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):

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

    

2019

    

2018

Cash and cash equivalents

 

$

9,935

 

$

135,173

Restricted cash (including $3,750 in other assets)

 

 

5,039

 

 

460

Total

 

$

14,974

 

$

135,633

 

Marketable Securities

Our investments primarily consist of government debt securities, corporate bonds and agency bonds. These marketable securities are classified as available-for-sale, and as such, are reported at fair value on our condensed balance sheets. Unrealized holding gains and losses are reported within accumulated other comprehensive income (loss) as a separate component of stockholders’ equity. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization, together with interest on securities, are included in other income, net, on our condensed statements of operations.

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NEXTCURE, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(unaudited)

 

If a decline in the fair value of a marketable security below our cost basis is determined to be other than temporary, such marketable security is written down to its estimated fair value as a new cost basis and the amount of the write-down is included in earnings as an impairment charge. The cost of securities sold is based on the specific identification method.

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 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).

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NEXTCURE, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(unaudited)

 

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 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 will require 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.The Company continues to determine if it will elect to use the practical expedients permitted by the guidance and continues to gather data required to comply with the guidance. Based on the work completed to date, the Company is considering the implications of adopting the new standard, including the discount rate to be used in valuing new and existing leases and all applicable financial statement disclosures required by the new guidance. The Company is continuing to evaluate the effect of adoption and anticipates that it will result in the recognition of additional assets and corresponding liabilities related to the existing leases on its balance sheet. The Company is assessing any potential impacts on its internal controls, business processes, and accounting policies related to both the implementation of, and ongoing compliance with, the new guidance.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 will require credit losses to be reported using an expected losses model rather than the incurred losses model that is currently used, and will require additional disclosures related to credit risks. For available-for-sale debt securities with unrealized losses, this standard will require allowances to be recorded instead of reducing the amortized cost of the investment. ASU 2016-13 will be effective for non-emerging growth companies for fiscal years beginning December 15, 2019 and interim periods within those fiscal years, and will be effective for the Company for fiscal years beginning after December 15, 2020, and interim periods

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NEXTCURE, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(unaudited)

 

within fiscal years beginning after December 15, 2021, assuming the Company remains an emerging growth company. Early adoption is permitted. The Company is currently evaluating the effects the adoption of ASU 2016-13 will have on its financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement—Disclosure Framework-Changes to the Disclosure Requirement for Fair Value Measurement (“ASU 2018-13”). The amendments in ASU 2018-13 modify the disclosure requirements on fair value measurements in ASC 820, Fair Value Measurement, based on the concepts in the FASB Concepts Statement, including the consideration of costs and benefits. ASU 2018-13 will be effective for all companies for fiscal periods beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the effects the adoption of ASU 2018-13 will have 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 (“ASU 2018-18”). ASU 2018-18 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, ASU 2018-18 provides 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 will be precluded if the collaborative arrangement participant is not a customer. ASU 2018-18 will be effective for non-emerging growth companies for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years, and will be effective for the Company for fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021, assuming the Company remains an emerging growth company. Early adoption is permitted. The Company is currently evaluating these clarifications for the accounting and presentation for its collaborative arrangements within the scope of Topic 808, but does not expect that the adoption of ASU 2018-18 will have any impact.

3. Investments

Investments consist of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2019

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Estimated

 

    

Cost

    

Gain

    

Loss

    

Fair Value

U.S. treasury securities

 

$

19,982

 

$

 1

 

$

 —

 

$

19,983

Agency bonds

 

 

47,178

 

 

 —

 

 

(17)

 

 

47,161

Corporate bonds

 

 

107,045

 

 

20

 

 

(62)

 

 

107,003

Total

 

$

174,205

 

$

21

 

$

(79)

 

$

174,147

 

As of September 30, 2019, no investments are considered to be other-than-temporarily impaired. The Company uses the specific identification method when calculating realized gains and losses. For the three and nine months ended September 30, 2019, the Company recorded no realized gains and losses on available-for-sale securities.

4. 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.

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NEXTCURE, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(unaudited)

 

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.

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):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2019

 

 

Carrying

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Amount

    

Fair Value

    

Level 1

    

Level 2

    

Level 3

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market

 

$

5,465

 

$

5,465

 

$

5,465

 

$

 —

 

$

 —

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities

 

 

19,982

 

 

19,983

 

 

 —

 

 

19,983

 

 

 —

Agency bonds

 

 

47,178

 

 

47,161

 

 

 —

 

 

47,161

 

 

 —

Corporate bonds

 

 

107,045

 

 

107,003

 

 

 —

 

 

107,003

 

 

 —

Total

 

$

179,670

 

$

179,612

 

$

5,465

 

$

174,147

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

Carrying

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Amount

    

Fair Value

    

Level 1

    

Level 2

    

Level 3

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market

 

$

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 nine months ended September 30, 2019.

5.  Property and Equipment, Net

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