10-Q 1 ngm-10q_20190630.htm 10-Q ngm-10q_20190630.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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: 001-38853

 

NGM BIOPHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware

26-1679911

(State or other jurisdiction of

incorporation or organization)

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

333 Oyster Point Boulevard

South San Francisco, CA

94080

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (650) 243-5555

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

Title of Each Class of Securities Registered

Trading Symbol

Name of Each Exchange on which Securities are Registered

Common Stock, par value $0.001 per share

NGM

The Nasdaq Stock Market LLC

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, 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 66,042,966 shares of common stock, $0.001 par value per share, outstanding.

 

 

 


Table of Contents

 

 

 

 

 

Page

PART I.

 

FINANCIAL INFORMATION

 

1

Item 1.

 

Financial Statements (Unaudited)

 

1

 

 

Condensed Consolidated Balance Sheets

 

1

 

 

Condensed Consolidated Statements of Operations

 

2

 

 

Condensed Consolidated Statements of Comprehensive Loss

 

3

 

 

Condensed Consolidated Convertible Preferred Stock and Stockholders’ Equity (Deficit)

 

4

 

 

Condensed Consolidated Statements of Cash Flows

 

6

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

7

Item 2.

 

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

 

29

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

40

Item 4.

 

Controls and Procedures

 

41

PART II.

 

OTHER INFORMATION

 

42

Item 1.

 

Legal Proceedings

 

42

Item 1A.

 

Risk Factors

 

42

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

81

Item 3.

 

Defaults Upon Senior Securities

 

82

Item 4.

 

Mine Safety Disclosures

 

82

Item 5.

 

Other Information

 

82

Item 6.

 

Exhibits

 

83

Signatures

 

84

 

 

 

i


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

NGM BIOPHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In Thousands, Except Share Amounts)

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018*

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

265,072

 

 

$

56,923

 

Short-term marketable securities

 

 

97,116

 

 

 

149,710

 

Related party receivable from collaboration

 

 

881

 

 

 

3,669

 

Prepaid expenses and other current assets

 

 

5,275

 

 

 

4,255

 

Total current assets

 

 

368,344

 

 

 

214,557

 

Property and equipment, net

 

 

22,172

 

 

 

23,893

 

Restricted cash

 

 

2,249

 

 

 

2,249

 

Deferred IPO costs

 

 

 

 

 

2,292

 

Other non-current assets

 

 

3,938

 

 

 

3,094

 

Total assets

 

$

396,703

 

 

$

246,085

 

Liabilities, convertible preferred stock and stockholders' equity (deficit)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,164

 

 

$

5,775

 

Accrued liabilities

 

 

15,292

 

 

 

14,003

 

Deferred rent, current

 

 

2,756

 

 

 

2,683

 

Deferred revenue, current

 

 

17,441

 

 

 

19,025

 

Total current liabilities

 

 

38,653

 

 

 

41,486

 

Deferred rent, non-current

 

 

10,843

 

 

 

12,221

 

Deferred revenue, non-current

 

 

 

 

 

3,942

 

Early exercise stock option liability

 

 

1,077

 

 

 

1,559

 

Convertible preferred stock warrant liability

 

 

 

 

 

198

 

Total liabilities

 

 

50,573

 

 

 

59,406

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

 

Convertible preferred stock, $0.001 par value;

   96,268,206 shares authorized as of June 30, 2019 and

   December 31, 2018; zero and 47,267,466 shares issued and

   outstanding as of June 30, 2019 and December 31, 2018, respectively;

   aggregate liquidation preference of $0 and $277,774 at

   June 30, 2019 and December 31, 2018, respectively

 

 

 

 

 

294,874

 

Stockholders' equity (deficit):

 

 

 

 

 

 

 

 

Common stock, $0.001 par value; 129,000,000 shares authorized as of

   June 30, 2019 and December 31, 2018; 66,039,310 and 6,937,890

   shares issued and outstanding as of June 30, 2019 and

   December 31, 2018, respectively

 

 

66

 

 

 

7

 

Additional paid-in capital

 

 

515,248

 

 

 

39,258

 

Accumulated other comprehensive gain (loss)

 

 

102

 

 

 

(267

)

Accumulated deficit

 

 

(169,286

)

 

 

(147,193

)

Total equity (deficit)

 

 

346,130

 

 

 

(108,195

)

Total liabilities, convertible preferred stock and stockholders' equity (deficit)

 

$

396,703

 

 

$

246,085

 

 

*The condensed consolidated balance sheet as of December 31, 2018 has been derived from the audited financial statements as of that date.

 

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

1


NGM BIOPHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In Thousands, Except Share and Per Share Amounts)

 

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Related party revenue

 

 

$

25,341

 

 

$

22,118

 

 

$

50,893

 

 

$

40,731

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

 

28,819

 

 

 

22,846

 

 

 

58,346

 

 

 

42,300

 

General and administrative

 

 

 

6,229

 

 

 

3,458

 

 

 

11,596

 

 

 

7,332

 

Total operating expenses

 

 

 

35,048

 

 

 

26,304

 

 

 

69,942

 

 

 

49,632

 

Loss from operations

 

 

 

(9,707

)

 

 

(4,186

)

 

 

(19,049

)

 

 

(8,901

)

Interest income

 

 

 

2,044

 

 

 

891

 

 

 

3,154

 

 

 

1,643

 

Other income (expense), net

 

 

 

(6

)

 

 

95

 

 

 

(42

)

 

 

117

 

Net loss

 

 

$

(7,669

)

 

$

(3,200

)

 

$

(15,937

)

 

$

(7,141

)

Net loss per common share, basic and diluted

 

 

$

(0.13

)

 

$

(0.52

)

 

$

(0.47

)

 

$

(1.16

)

Weighted average shares used to compute net loss per

   common share, basic and diluted

 

 

 

61,044,450

 

 

 

6,200,143

 

 

 

34,078,099

 

 

 

6,163,425

 

 

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

 

2


NGM BIOPHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(In Thousands)

 

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net Loss

 

 

$

(7,669

)

 

$

(3,200

)

 

$

(15,937

)

 

$

(7,141

)

Other comprehensive gain (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gain (loss) on available-for-sale marketable

   securities

 

 

 

147

 

 

 

156

 

 

 

369

 

 

 

(67

)

Total comprehensive loss

 

 

$

(7,522

)

 

$

(3,044

)

 

$

(15,568

)

 

$

(7,208

)

 

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

3


NGM BIOPHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

(In Thousands)

 

 

 

Convertible

Preferred Stock

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Gain (Loss)

 

 

Deficit

 

 

Equity(Deficit)

 

Balance at December 31, 2018

 

 

47,267

 

 

$

294,874

 

 

 

 

6,733

 

 

$

7

 

 

$

39,258

 

 

$

(267

)

 

$

(147,193

)

 

$

(108,195

)

Issuance of common stock to

   participants in 401(k) Plan

 

 

 

 

 

 

 

 

 

8

 

 

 

 

 

 

98

 

 

 

 

 

 

 

 

 

98

 

Vesting of common stock from early

   exercises

 

 

 

 

 

 

 

 

 

34

 

 

 

 

 

 

237

 

 

 

 

 

 

 

 

 

237

 

Issuance of common stock upon

   exercise of stock options

 

 

 

 

 

 

 

 

 

80

 

 

 

 

 

 

279

 

 

 

 

 

 

 

 

 

279

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,605

 

 

 

 

 

 

 

 

 

2,605

 

Changes in unrealized gain on

   available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

222

 

 

 

 

 

 

222

 

Net exercise of preferred stock

   warrant to Series A preferred

   stock

 

 

16

 

 

 

198

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative effect adjustment upon

   adoption of ASU 2014-09

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,156

)

 

 

(6,156

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,268

)

 

 

(8,268

)

Balance at March 31, 2019

 

 

47,283

 

 

$

295,072

 

 

 

 

6,855

 

 

$

7

 

 

$

42,477

 

 

$

(45

)

 

$

(161,617

)

 

$

(119,178

)

Issuance of common stock upon

   initial public offering, net of

   issuance cost

 

 

 

 

 

 

 

 

 

7,521

 

 

 

8

 

 

 

107,748

 

 

 

 

 

 

 

 

 

107,756

 

Issuance of common stock upon

   private placement

 

 

 

 

 

 

 

 

 

4,122

 

 

 

4

 

 

 

65,943

 

 

 

 

 

 

 

 

 

65,947

 

Issuance of common stock upon

   exercise of stock options

 

 

 

 

 

 

 

 

 

86

 

 

 

 

 

 

258

 

 

 

 

 

 

 

 

 

258

 

Vesting of common stock from early

   exercises

 

 

 

 

 

 

 

 

 

32

 

 

 

 

 

 

245

 

 

 

 

 

 

 

 

 

245

 

Conversion of Series A, B, C, D, E

   convertible preferred stock to

   common stock

 

 

(47,283

)

 

 

(295,072

)

 

 

 

47,283

 

 

 

47

 

 

 

295,025

 

 

 

 

 

 

 

 

 

295,072

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,552

 

 

 

 

 

 

 

 

 

3,552

 

Changes in unrealized gain on

   available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

147

 

 

 

 

 

 

147

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,669

)

 

 

(7,669

)

Balance at June 30, 2019

 

 

 

 

 

 

 

 

 

65,899

 

 

$

66

 

 

$

515,248

 

 

$

102

 

 

$

(169,286

)

 

$

346,130

 

 

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


4


NGM BIOPHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

(In Thousands)

 

 

 

Convertible

Preferred Stock

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Deficit

 

Balance at December 31, 2017

 

 

47,267

 

 

$

294,874

 

 

 

 

6,105

 

 

$

6

 

 

$

26,147

 

 

$

(431

)

 

$

(146,700

)

 

$

(120,978

)

Vesting of common stock from early

   exercises

 

 

 

 

 

 

 

 

 

35

 

 

 

 

 

 

108

 

 

 

 

 

 

 

 

 

108

 

Issuance of common stock upon

   exercise of stock options

 

 

 

 

 

 

 

 

 

35

 

 

 

 

 

 

71

 

 

 

 

 

 

 

 

 

71

 

Repurchase of common stock

 

 

 

 

 

 

 

 

 

(23

)

 

 

 

 

 

(185

)

 

 

 

 

 

 

 

 

(185

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,179

 

 

 

 

 

 

 

 

 

2,179

 

Changes in unrealized loss on

   available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(223

)

 

 

 

 

 

(223

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,941

)

 

 

(3,941

)

Balance at March 31, 2018

 

 

47,267

 

 

$

294,874

 

 

 

 

6,152

 

 

$

6

 

 

$

28,320

 

 

$

(654

)

 

 

(150,641

)

 

$

(122,969

)

Issuance of common stock to

   participants in 401(k) Plan

 

 

 

 

 

 

 

 

 

11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vesting of common stock from early

   exercises

 

 

 

 

 

 

 

 

 

31

 

 

 

 

 

 

108

 

 

 

 

 

 

 

 

 

108

 

Issuance of common stock upon

   exercise of stock options

 

 

 

 

 

 

 

 

 

81

 

 

 

1

 

 

 

163

 

 

 

 

 

 

 

 

 

164

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,292

 

 

 

 

 

 

 

 

 

2,292

 

Changes in unrealized gain on

   available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

156

 

 

 

 

 

 

156

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,200

)

 

 

(3,200

)

Balance at June 30, 2018

 

 

47,267

 

 

$

294,874

 

 

 

 

6,275

 

 

$

7

 

 

$

30,883

 

 

$

(498

)

 

 

(153,841

)

 

$

(123,449

)

 

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

 

5


NGM BIOPHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In Thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(15,937

)

 

$

(7,141

)

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

 

 

 

 

 

 

 

 

Depreciation

 

 

3,896

 

 

 

3,453

 

Amortization of discount on marketable securities

 

 

(803

)

 

 

(171

)

Stock-based compensation expenses

 

 

6,276

 

 

 

4,476

 

Early exercised stock options

 

 

 

 

 

7

 

Other non-cash expenses

 

 

98

 

 

 

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Receivable from related party collaboration

 

 

2,788

 

 

 

 

Prepaid expenses and other assets

 

 

(1,864

)

 

 

(428

)

Accounts payable

 

 

(2,511

)

 

 

2,056

 

Accrued expenses and other liabilities

 

 

1,167

 

 

 

(415

)

Deferred rent

 

 

(1,305

)

 

 

(652

)

Deferred revenue

 

 

(11,682

)

 

 

(9,939

)

Net cash used in operating activities

 

 

(19,877

)

 

 

(8,754

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchase of marketable securities

 

 

(75,224

)

 

 

(70,245

)

Proceeds from sales and maturities of marketable securities

 

 

128,990

 

 

 

97,332

 

Purchase of property and equipment

 

 

(2,275

)

 

 

(5,063

)

Net cash provided by investing activities

 

 

51,491

 

 

 

22,024

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock upon initial public

   offering, net of issuance costs

 

 

110,078

 

 

 

 

Proceeds from issuance of common stock upon completion

   of private placement

 

 

65,947

 

 

 

 

Proceeds from issuance of common stock upon exercise of

   stock options

 

 

510

 

 

 

234

 

Repurchase of common stock

 

 

 

 

 

(185

)

Net cash provided by financing activities

 

 

176,535

 

 

 

49

 

Net increase in cash and cash equivalents

 

 

208,149

 

 

 

13,319

 

Cash, cash equivalents, and restricted cash at beginning of period

 

 

59,172

 

 

 

27,842

 

Cash, cash equivalents, and restricted cash at end of period

 

$

267,321

 

 

$

41,161

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Net exercise of convertible preferred stock warrant to Series

   A preferred stock

 

$

198

 

 

$

 

Vesting of common stock from early exercises

 

 

482

 

 

 

216

 

Cost of property and equipment in accounts payable and

   accrued liabilities

 

 

128

 

 

 

456

 

Deferred IPO costs in accounts payable and accrued

   liabilities

 

 

30

 

 

 

 

 

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

 

6


 

NGM BIOPHARMACEUTICALS, INC.

NOTES TO UNAUDITED CONDSENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Description of Business

NGM Biopharmaceuticals, Inc. and its wholly-owned subsidiary (collectively referred to as the “Company”) is a research-driven, clinical-stage biopharmaceutical company committed to discovering and developing first-in-class therapeutics for major diseases with an initial focus on cardio-metabolic and liver diseases. The Company’s current portfolio is composed of seven product candidates (NGM282 (aldafermin), NGM313, NGM386, NGM395, NGM217, NGM120 and NGM621) focused on non-alcoholic steatohepatitis, or NASH, diabetes, obesity, oncology and age-related macular degeneration, or AMD.

The Company was incorporated in Delaware on December 20, 2007 and its headquarters are located at 333 Oyster Point Blvd., South San Francisco, California 94080. The Company operates in one business segment.  

Stock Split

On March 22, 2019, the Company filed an amendment to the Company’s amended and restated certificate of incorporation to effect a reverse split of shares of the Company’s common stock on a two-for-one basis (the “Reverse Stock Split”). In connection with the Reverse Stock Split, the conversion ratio for the Company’s outstanding convertible preferred stock was proportionately adjusted such that the common stock issuable upon conversion of such preferred stock was decreased in proportion to the Reverse Stock Split. The par value of the common stock was not adjusted as a result of the Reverse Stock Split. All references to common stock, options to purchase common stock, early exercised options, share data, per share data, convertible preferred stock (to the extent presented on an as-converted to common stock basis) and related information contained in these condensed consolidated financial statements have been retrospectively adjusted to reflect the effect of the Reverse Stock Split for all periods presented.

Initial Public Offering

On April 3, 2019, the Company’s registration statement on Form S-1 was declared effective by the United States Securities and Exchange Commission (“SEC”) for its initial public offering (“IPO”) of its common stock.  The Company’s shares of common stock started trading on the Nasdaq Select Global Market on April 4, 2019 and the transaction closed on April 8, 2019. In connection with the IPO, the Company sold an aggregate of 7,521,394 shares of common stock, which included 6,666,667 shares of common stock and 854,727 shares of common stock sold pursuant to the underwriters’ exercise of their option to purchase additional shares, at a public offering price of $16.00 per share. The aggregate net proceeds received by the Company from the offering were $107.8 million, net of underwriting discounts, commissions and offering expenses of $4.1 million, of which $2.3 million were paid in 2018. Upon the closing of the IPO, 47,283,839 shares of the Company’s outstanding convertible preferred stock were automatically converted to common stock on a 1:1 basis and the related carrying amount of $295.1 million was reclassified to common stock and additional paid-in capital within stockholders’ equity (deficit).

Concurrent with the completion of the IPO, the Company also issued 4,121,683 shares of its common stock to Merck Sharp & Dohme Corp. (“Merck”) in a private placement at a price of $16.00 per share for proceeds of $65.9 million, which resulted in Merck owning approximately 19.9% of the Company’s outstanding shares of common stock (Note 6).

2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and Regulation S-X for interim consolidated financial information. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes for the year ended December 31, 2018, included in the Company’s final prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on April 4, 2019 (“the Prospectus”). These unaudited condensed consolidated financial statements reflect all adjustments that management believes are necessary for a fair presentation of the periods presented. All such adjustments are of a normal recurring nature and are not necessarily indicative of results expected for the full fiscal year or for any subsequent interim period.

These unaudited condensed consolidated financial statements include the consolidated accounts of the Company and its wholly-owned foreign subsidiary in Australia. All intercompany balances and transactions have been eliminated upon consolidation.

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Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make judgments, assumptions and estimates that affect the reported amounts of assets, liabilities, revenues and expenses. Specific accounts that require management estimates include, but are not limited to, stock-based compensation, research and development periods under multiple element agreements, the valuation of convertible preferred stock warrants, the fair value of convertible preferred and common stock, contract manufacturing accruals, clinical trial accruals and revenue in accordance with Accounting Standards Codification 606 (ASC 606). Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ materially from those estimates.

Need for Additional Capital

Since inception, the Company has incurred net losses and negative cash flow from operations. During the three and six months ended June 30, 2019, the Company incurred net losses of $7.7 million and $15.9 million, respectively, compared to net losses of $3.2 million and $7.1 million for the three and six months ended June 30, 2018, respectively. As of June 30, 2019, the Company had an accumulated deficit of $169.3 million and does not expect to experience positive cash flows from operations in the near future. The Company had $362.2 million of cash, cash equivalents and marketable securities as of June 30, 2019, and therefore the Company expects that its cash and cash equivalents and marketable securities will be sufficient to fund its operations for a period of at least one year from the date these unaudited condensed consolidated financial statements are filed with the SEC. To fully implement the Company’s business plan and fund its operations, the Company may raise capital through the issuance of equity securities or debt financings, collaborations, strategic alliances and licensing arrangements, government or other third-party funding or a combination of these.  

Deferred Initial Public Offering Costs

Costs incurred in connection with the IPO primarily consisted of direct incremental legal, printing and accounting fees. IPO costs were capitalized as incurred and offset against proceeds upon completion of the IPO. As of June 30, 2019 and December 31, 2018, deferred IPO costs included on the accompanying condensed consolidated balance sheets were zero and $2.3 million, respectively.

Fair Value of Financial Instruments

The carrying amounts of cash and cash equivalents, the related party receivables from collaboration and other current assets and liabilities approximate their respective fair values because of the short-term nature of those instruments. Fair value accounting is applied to the convertible preferred stock warrant liabilities that are recorded at their estimated fair value in the condensed consolidated financial statements.

Cash and Cash Equivalents

Cash and cash equivalents are stated at fair value. Cash equivalents are related to securities having an original maturity of three months or less at the time of purchase. The Company limits its credit risk associated with cash and cash equivalents by placing its investments with a bank it believes is highly creditworthy and with highly rated money market funds. As of June 30, 2019 and December 31, 2018, cash and cash equivalents consisted of bank deposits and investments in money market funds.

Marketable Securities

The appropriate classification of the Company’s marketable securities is determined at the time of purchase and such designations are re-evaluated at each balance sheet date. All of the Company’s securities are considered as available-for-sale and carried at estimated fair values and reported in cash equivalents, short-term marketable securities or long-term marketable securities. Unrealized gains and losses on available-for-sale securities are excluded from net loss and reported in accumulated other comprehensive loss as a separate component of stockholders’ equity (deficit). Other income (expense), net, includes interest, amortization of purchase premiums and accretion of purchase discounts, realized gains and losses on sales of securities and other-than-temporary declines in the fair value of securities, if any. The cost of securities sold is based on the specific identification method.


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The Company’s investments are regularly reviewed for other-than-temporary declines in fair value. This review includes the consideration of the cause of the impairment, including the creditworthiness of the security issuers, the number of securities in an unrealized loss position, the severity and duration of the unrealized losses, whether the Company has the intent to sell the securities and whether it is more likely than not that the Company will be required to sell the securities before the recovery of their amortized cost basis. When the Company determines that the decline in fair value of an investment is below its carrying value and this decline is other-than-temporary, the Company reduces the carrying value of the security it holds and records a loss for the amount of such decline.  

Restricted Cash

The Company’s restricted cash represents collateral in connection with the lease on the Company’s headquarters entered into in 2015 and is classified as a non-current asset on the condensed consolidated balance sheets as the collateral will not be returned to the Company in less than 12 months (Note 7).

Concentration of Credit and Other Risks

Cash and cash equivalents and marketable securities from the Company’s available-for-sale and marketable security portfolio potentially subject the Company to concentrations of credit risk. The Company is invested in money market funds and marketable securities through custodial relationships with major U.S. and Australian banks. Under its investment policy, the Company limits amounts invested in such securities by credit rating, maturity, industry group, investment type and issuer, except for securities issued by the U.S. government.

Related party receivables from collaborations (Notes 5 and 6) are typically unsecured. Accordingly, the Company may be exposed to credit risk generally associated with its current collaboration agreement (“Collaboration Agreement”) with Merck and any future collaboration agreements with other collaboration partners. To date, the Company has not experienced any losses related to these receivables.

Merck accounted for 100% of the Company’s revenue for the three and six months ended June 30, 2019 and 2018.

Property and Equipment, Net

Property and equipment is recorded at cost and consists of computer equipment, laboratory equipment and office furniture and leasehold improvements. Maintenance and repairs, and training on the use of equipment, are charged to expense as incurred. Costs that improve assets or extend their economic lives are capitalized. Depreciation is recognized using the straight-line method based on an estimated useful life of the asset, which is as follows:

 

Computer equipment

3 years

Laboratory equipment and office furniture

3 years

Leasehold improvement

Shorter of life of asset or lease term

 

Leases

The Company’s lease agreement for its laboratory and office facilities are classified as operating leases. Rent expense is recognized on a straight-line basis over the term of the lease. Incentives granted under the Company’s facilities leases, including allowances to fund leasehold improvements and rent holidays, are capitalized and are recognized as reductions to rental expense on a straight-line basis over the term of the lease.

Impairment of Long-Lived Assets

Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized as the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. As of June 30, 2019 and December 31, 2018, no revision to the remaining useful lives or write-down of long-lived assets was required.

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Income Taxes

Income taxes are accounted for under the liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and the operating loss and tax credit carryforwards. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Deferred tax assets and liabilities are measured at the balance sheet date using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period such tax rate changes are enacted.

Convertible Preferred Stock Warrant

Freestanding warrants to purchase the Company’s convertible preferred stock were classified as a liability on the condensed consolidated balance sheet at December 31, 2018 as the underlying shares of convertible preferred stock were contingently redeemable, which could have obligated the Company to transfer assets at some point in the future to settle the warrants. The convertible preferred stock warrants are recorded as a liability and subject to remeasurement at each balance sheet date, with changes in estimated fair value recorded in the Company’s consolidated statements of operations as a component of total other income (expense), net. On February 3, 2019, all convertible preferred stock warrants were automatically exercised on a net basis into 16,380 shares of Series A convertible preferred stock at a fair value of $0.2 million. As of June 30, 2019, there were no convertible preferred stock warrants outstanding.

Revenue Recognition

On January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, and subsequent amendments (ASC 606), using the modified retrospective transition method applied to those contracts that were not completed as of January 1, 2019. ASC 606 supersedes all prior revenue recognition guidance. Results for operating periods beginning after January 1, 2019 are presented under ASC 606, while prior period amounts have not been adjusted and continue to be reported in accordance with previous accounting rules under Accounting Standards Codification Topic 605, Revenue Recognition (“ASC 605”).

The core principle in ASC 606 requires an entity to recognize revenue upon the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company applies the following five-step revenue recognition model outlined in ASC 606 to adhere to this core principle: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the Company satisfies a performance obligation.

All of the Company’s revenue to date has been generated from its collaboration agreements. The terms of these agreements generally require the Company to provide (i) license options for its compounds, (ii) research and development services and (iii) non-mandatory services in connection with participation in research or steering committees. Payments received under these arrangements may include non-refundable upfront license fees, partial or complete reimbursement of research and development costs, contingent consideration payments based on the achievement of defined collaboration objectives and royalties on sales of commercialized products. In some agreements, the collaboration partner is solely responsible for meeting defined objectives that trigger contingent or royalty payments. Often the partner only pursues such objectives subsequent to exercising an optional license on compounds identified as a result of the research and development services performed under the collaboration agreement.

The Company assesses whether the promises in its arrangements, including any options provided to the customer, are considered distinct performance obligations that should be accounted for separately. Judgment is required to determine whether the license to a compound is distinct from research and development services or participation in steering committees, as well as whether options create material rights in the contract.


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The transaction price in each arrangement is generally comprised of a non-refundable upfront fee and variable consideration related to the performance of research and development services. The Company typically submits a budget for the research and development services to the customer in advance of performing the services. The transaction price is allocated to the identified performance obligations based on the standalone selling price (“SSP”) of each distinct performance obligation. Judgment is required to determine SSP. In instances where SSP is not directly observable, such as when a license or service is not sold separately, SSP is determined using information that may include market conditions and other observable inputs. The Company utilizes judgment to assess the nature of its performance obligations to determine whether they are satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress toward completion. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

The Company’s collaboration agreements may include contingent payments related to specified development and regulatory milestones or contingent payments for royalties based on sales of a commercialized product. Milestones can be achieved for such activities in connection with progress in clinical trials, regulatory filings in various geographical markets and marketing approvals from regulatory authorities. Sales-based royalties are generally related to the volume of annual sales of a commercialized product. At the inception of each agreement that includes such payments, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price by using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the Company’s or its customer’s control, such as those related to regulatory approvals, are not considered probable of being achieved until those approvals are received. The transaction price is then allocated to each performance obligation based on a relative SSP basis. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of each such milestone and any related constraint and, if necessary, adjusts its estimate of the overall transaction price. Pursuant to the guidance in ASC 606, sales-based royalties are not included in the transaction price. Instead, royalties are recognized at the later of when the performance obligation is satisfied or partially satisfied, or when the sale that gives rise to the royalty occurs.

Prior to the adoption of ASC 606, the Company’s revenue from collaboration agreements was recognized when the Company determined that persuasive evidence of an arrangement exists, services had been rendered, the price was fixed or determinable and collectability was reasonably assured. The Company would record amounts received prior to satisfying the above revenue recognition criteria as deferred revenue until all applicable revenue recognition criteria were met. Revenue allocated to research activities was generally recognized in the period the services were performed, and revenue allocated to licenses was generally recognized on a straight-line basis over the contractual term. Allocations to non-contingent elements were based on the relative selling price of each element using vendor-specific objective evidence or third-party evidence, where available. In the absence of either of these measures, the Company used the best estimate of selling price for that deliverable.

The most significant change to the Company’s policies upon the adoption of ASC 606 is the estimation of an arrangement’s total transaction price, which would include any variable consideration and the recognition of that transaction price based on a cost-based input method that requires significant estimates to determine, at each reporting period, the percentage of completion based on the estimated total effort required to complete the project and the total transaction price.  Given the differences in revenue recognition policies, the revenue recognized in prior years is not strictly comparable to revenue recorded in the quarter ending June 30, 2019 or in future periods (see Recently Adopted Accounting Pronouncements).

Research and Development

Research and development costs are expensed as incurred. Research and development expenses primarily include salaries and benefits for medical, clinical, quality, preclinical, manufacturing and research personnel, costs related to research activities, preclinical studies, clinical trials, drug manufacturing expenses and allocated overhead and facility occupancy costs. The Company accounts for non-refundable advance payments for goods or services that will be used in future research and development activities as expenses when the goods have been received or when the service has been performed rather than when the payment is made.

Clinical trial costs are a component of research and development expenses. The Company expenses costs for its clinical trial activities performed by third parties, including clinical research organizations and other service providers, as they are incurred, based upon estimates of the work completed over the life of the individual study in accordance with associated agreements. The Company uses information it receives from internal personnel and outside service providers to estimate the clinical trial costs incurred.

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Stock-Based Compensation

The Company’s stock-based compensation programs include stock options and shares that will be issued under the Company’s 2019 Employee Stock Purchase Plan ("ESPP"). Stock-based compensation to employees is valued on the grant date of each award using the Black-Scholes option-pricing model, and its estimated fair value is recognized over the period during which the employee is required to provide service in exchange for the award, which is generally the vesting period of each award. Subsequent to the adoption of ASU 2018-07, Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, stock-based compensation expense for non-employee stock-based awards is also measured based on the fair value on grant date with its estimated fair value recorded over the period for which the non-employee is required to provide service in exchange for the award. As non-cash stock-based compensation expense is based on awards ultimately expected to vest, it is reduced by an estimate for future forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from estimates.

Foreign Currency Transactions

The functional currency of NGM Biopharmaceuticals Australia Pty Ltd., a wholly-owned subsidiary, is the U.S. dollar. Accordingly, all monetary assets and liabilities of the subsidiary are remeasured into U.S. dollars at the current period-end exchange rates and non-monetary assets are remeasured using historical exchange rates. Income and expense elements are remeasured to U.S. dollars using the average exchange rates in effect during the period. Remeasurement gains and losses are recorded as other income (expense), net on the condensed consolidated statements of operations.

The Company is subject to foreign currency risk with respect to its clinical and manufacturing contracts denominated in currencies other than the U.S. dollar, primarily British Pounds, Swiss Francs and the Euro. Payments on contracts denominated in foreign currencies are made at the spot rate on the day of payment. Changes in the exchange rate between billing dates and payment dates are recorded within other income (expense), net on the condensed consolidated statements of operations.

Comprehensive Loss

Comprehensive loss is comprised of net loss and certain changes in equity that are excluded from net loss. For the three and six months ended June 30, 2019, the difference between comprehensive loss and net loss consisted of changes in net unrealized gain on marketable securities of $0.1 million and $0.4 million, respectively. The difference between comprehensive loss and net loss included changes in net unrealized gain on marketable securities of $0.2 million and net unrealized loss on marketable securities of $0.1 million for the three and six months ended June 30, 2018, respectively.

Net Loss per Common Share

Basic net loss per common share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period, less shares subject to repurchase, and excludes any dilutive effects of stock-based awards and warrants. Diluted net loss per common share is computed giving effect to all potentially dilutive common shares, including common stock issuable upon exercise of stock options, and unvested restricted common stock and stock units. As the Company had net losses for the three and six months ended June 30, 2019 and 2018, all potential common shares were determined to be anti-dilutive.

The following table sets forth the computation of net loss per common share (in thousands, except share and per share):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(7,669

)

 

$

(3,200

)

 

$

(15,937

)

 

$

(7,141

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average number of common shares used in

calculating net income per share—basic and diluted

 

 

61,044,450

 

 

 

6,200,143

 

 

 

34,078,099

 

 

 

6,163,425

 

Net loss per share—basic and diluted

 

$

(0.13

)

 

$

(0.52

)

 

$

(0.47

)

 

$

(1.16

)

 

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Potential gross dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows:

 

 

 

June 30,

 

 

 

2019

 

 

2018

 

Convertible preferred stock

 

 

 

 

 

47,267,466

 

Options to purchase common stock

 

 

11,417,124

 

 

 

9,699,102

 

Warrants to purchase convertible preferred stock

 

 

 

 

 

19,637

 

Shares committed under ESPP

 

 

406,200