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OFFON

NGM BIOPHARMACEUTICALS, INC.

(NGM)
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NGM BIOPHARMACEUTICALS INC Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

11/04/2021 | 03:27pm EST
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with (1) the condensed consolidated
financial statements and notes to the condensed consolidated financial
statements included elsewhere in this Quarterly Report on Form 10-Q and (2) the
audited consolidated financial statements and related notes and management's
discussion and analysis of financial condition and results of operations for the
fiscal year ended December 31, 2020 included in our Annual Report on Form 10-K
filed with the Securities and Exchange Commission, or SEC, on March 15, 2021.
This discussion and analysis contains forward-looking statements based upon
current beliefs, plans and expectations that involve risks, uncertainties and
assumptions, such as statements regarding our plans, objectives, expectations,
intentions and projections. Our actual results and the timing of events could
differ materially from those anticipated in these forward-looking statements as
a result of several factors that could impact our business, including those set
forth in the section titled "Risk Factors" under Part II, Item 1A in this
Quarterly Report on Form 10-Q. In some cases, you can identify forward-looking
statements by terminology such as "anticipate," "believe," "continue," "could,"
"estimate," "expect," "intend," "may," "plan," "potentially," "predict,"
"should," "will" or the negative of these terms or other similar expressions.
In addition, statements that "we believe" and similar statements reflect our
beliefs and opinions on the relevant subject. These statements are based upon
information available to us as of the date of this Quarterly Report on Form
10-Q, and while we believe such information forms a reasonable basis for such
statements, such information may be limited or incomplete, and our statements
should not be read to indicate we have conducted exhaustive inquiry into, or
review of, all potentially available relevant information. These statements are
inherently uncertain and investors are cautioned not to unduly rely upon these
statements.
                            Overview of Our Business
We are a biopharmaceutical company focused on discovering and developing novel
therapeutics based on scientific understanding of key biological pathways
underlying retinal diseases, cancer and liver and metabolic diseases. These
diseases represent a significant burden for patients and healthcare systems and,
in some cases, are leading causes of morbidity and mortality. Our strategy is to
leverage a combination of interrogating human biology and engineering powerful
biologics to discover and develop promising product candidates and seek to move
them rapidly into proof-of-concept studies and late-stage development, with the
goal of delivering impactful first-in-class or best-in-class treatments to
underserved patients suffering from grievous diseases. Since the commencement of
our operations in 2008, we have generated a robust portfolio of product
candidates ranging from early discovery to late-stage development. We aspire to
operate one of the most productive research and development engines in the
biopharmaceutical industry.
Pipeline Programs, Operational Updates and Financial Highlights
Pipeline Programs
We currently have five product candidates in the clinic, including four Phase 2
and Phase 2b programs, two wholly-owned by us (NGM120 and aldafermin), one being
progressed by our collaborator, Merck Sharp & Dohme Corp., or Merck (MK-3655),
and one optionable by Merck (NGM621), and one in the Phase 1 component of a
Phase 1/2 trial (NGM707). In addition, we have two wholly-owned product
candidates expected to enter the clinic in the first half of 2022.
•Retinal diseases.
•NGM621. NGM621 is a humanized Immunoglobulin 1, or IgG1, monoclonal antibody
administered via intravitreal, or IVT, injection. NGM621 was engineered to
potently inhibit the activity of complement C3 with the treatment goal of
reducing disease progression in patients with geographic atrophy, or GA,
secondary to age-related macular degeneration. The Phase 2 CATALINA clinical
trial to assess NGM621's effect on patients with GA is ongoing.
?NGM621 is within the scope of the amended and restated research collaboration,
product development and license agreement, or the Amended Collaboration
Agreement, with Merck, and Merck has a one-time option to license NGM621 and its
related molecules upon completion of the Phase 2 CATALINA clinical trial, as
well as the additional one-time option at that time to license NGM621 together
with all of the ophthalmology continuing
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collaboration compounds and their respective related molecules included within
the scope of the Amended Collaboration Agreement.
?To date in 2021, we have completed enrollment of the Phase 2 CATALINA clinical
trial, enrolling 320 patients, which is more than the originally planned 240
patients. The CATALINA trial was designed to be a Phase 3-supportive or
-enabling clinical trial and is evaluating NGM621's safety and effects on
disease progression when given every four weeks or every eight weeks compared to
matched sham injection control groups.
?Looking forward: We anticipate a readout of the CATALINA trial topline data in
the second half of 2022.
•Oncology. Our oncology product candidates NGM120, NGM707, NGM831 and NGM438 and
their related molecules are wholly-owned by us.
•NGM120. NGM120 is an antagonist antibody that binds to glial cell-derived
neurotrophic factor receptor alpha-like, or GFRAL, and inhibits growth
differentiation factor 15, or GDF15, signaling, for the potential treatment of
cancer and cancer-related cachexia. We are currently conducting the Phase 1/2
PINNACLES clinical trial to assess NGM120's effect on cancer-related cachexia
and on cancer in patients with select advanced solid tumors and metastatic
pancreatic cancer.
?We are continuing enrollment in a Phase 2 placebo-controlled component of the
ongoing PINNACLES clinical trial. This Phase 2 component of the PINNACLES trial
is testing NGM120 in combination with gemcitabine and Nab-paclitaxel as
first-line treatment in patients with metastatic pancreatic cancer to assess
NGM120's effect on both cancer and cancer-related cachexia.
?In September 2021, at the European Society for Medical Oncology, or ESMO,
Virtual Congress, we reported preliminary findings from two Phase 1
dose-escalation cohorts of the PINNACLES trial, including a Phase 1a cohort
evaluating NGM120 as a monotherapy in patients with select advanced solid tumors
and a Phase 1b cohort evaluating NGM120 in combination with gemcitabine and
Nab-paclitaxel in patients with metastatic pancreatic cancer. The preliminary
results reported at ESMO showed that NGM120 was well tolerated with no
dose-limiting toxicities and provided encouraging initial signals of anti-cancer
activity in patients with advanced solid tumors.
?Looking forward: We plan to report final results from the Phase 1a and Phase 1b
cohorts of the PINNACLES trial after all patients have completed treatment and
follow-up pursuant to the trial protocol.
•NGM707. NGM707 is a dual antagonist antibody that is designed to inhibit
Immunoglobulin-like transcript 2, or ILT2 (also known as LILRB1), and
Immunoglobulin-like transcript 4, or ILT4 (also known as LILRB2). ILT2 and ILT4
are key myeloid and lymphoid checkpoints that may restrict anti-tumor immunity,
enable tumors to evade immune detection and contribute to resistance to T-cell
checkpoint inhibitors. Designed to inhibit these key checkpoints, NGM707 has the
potential to both reverse myeloid suppression as well as to promote direct tumor
cell killing by T and NK cells.
•In June 2021, we initiated the Phase 1 component of a first-in-human Phase 1/2
clinical trial that will evaluate NGM707 as a monotherapy and in combination
with KEYTRUDA® (pembrolizumab) for the treatment of patients with advanced solid
tumors. We expect to enroll approximately 180 patients in this trial.
•NGM831. In August 2021, we disclosed our fourth oncology development candidate,
NGM831, an antagonist antibody designed to block the interaction of
Immunoglobulin-like transcript 3, or ILT3 (also known as LILRB4), with
fibronectin, as well as with other ligands. ILT3-fibronectin interactions within
the tumor microenvironment may form a stromal checkpoint that actively
suppresses myeloid cell function and inhibits antitumor immunity. By inhibiting
ILT3's interaction with fibronectin and its other ligands, NGM831 has the
potential to mobilize a patient's own immune system to fight tumors by shifting
myeloid cells from a suppressive state to a stimulatory state and promoting
antitumor activity.
?The disclosure of NGM831 coincided with a publication in Cancer Immunology
Research, a journal of the American Association for Cancer Research, describing
our discovery of one of ILT3's functional ligands, fibronectin, a key component
of the tumor stroma.
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?Looking forward: We expect to commence first-in-human testing of NGM831 in
patients with advanced solid tumors in the first half of 2022.
?NGM438. NGM438 is an antagonist antibody that is designed to inhibit
leukocyte-associated immunoglobulin-like receptor 1, or LAIR1. LAIR1, through
interactions with tumor-associated collagens, may form a stromal checkpoint that
imposes signaling-based immune suppression and impedes antitumor immunity.
Designed to inhibit this stromal checkpoint, NGM438 has the potential to treat
cancer by promoting the remodeling of the tumor architecture that restricts T
cell infiltration of the tumor cell mass and reversing immune suppression in the
tumor microenvironment.
?To date in 2021, we have advanced the preparation of an investigational new
drug application, or IND, for a planned submission in the first half of 2022.
?Looking forward: We expect to commence first-in-human testing of NGM438 in
patients with advanced solid tumors in the first half of 2022.
•Liver and metabolic diseases.
•Aldafermin. Aldafermin is an engineered analog of human hormone fibroblast
growth factor 19, or FGF19, that is administered through a once-daily
subcutaneous injection. Aldafermin is wholly-owned by us. In May 2021, we
announced that the ALPINE 2/3 Phase 2b trial of aldafermin in patients with
non-alcoholic steatohepatitis, or NASH, and liver fibrosis stage 2 or 3, or F2
or F3, did not meet its primary endpoint evaluating a dose response at week 24
on liver fibrosis improvement by >1 stage with no worsening of NASH. We decided
to shift resources that had previously been reserved for a Phase 3 F2/F3 NASH
development program toward advancing our other programs. Aldafermin remains in
Phase 2b development for the treatment of patients with compensated NASH
cirrhosis (liver fibrosis stage 4, or F4).
?To date in 2021, in addition to completing treatment of patients in, and
announcing topline results from, our ALPINE 2/3 trial, we have continued
enrollment in our Phase 2b ALPINE 4 clinical trial of aldafermin.
?Looking forward: Enrollment in our ALPINE 4 trial has been slower than
expected, and we are considering enrolling fewer patients than originally
anticipated and potentially changing the study's primary endpoint in order to be
able to complete enrollment in the trial in the first quarter of 2022.
•MK-3655 (formerly NGM313). MK-3655 is an agonistic antibody discovered by us
that selectively activates fibroblast growth factor receptor 1c-beta-klotho, or
FGFR1c/KLB, which regulates insulin sensitivity, blood glucose and liver fat and
is administered every four weeks through a subcutaneous injection. MK-3655, in
Phase 2b development for the treatment of NASH, was optioned by Merck under the
Original Agreement. In 2021, Merck is continuing enrollment in the worldwide
52-week randomized, double-blind Phase 2b trial of MK-3655 in patients with NASH
and F2 or F3 liver fibrosis that it initiated in the fourth quarter of 2020.
We have additional undisclosed programs that are in various stages of
development ranging from functional validation to preclinical development.
The success of each of our product candidates may be affected by numerous
factors, including preclinical data, clinical data, competition, manufacturing
capability, sales capability, collaboration partners, the sufficiency of our
cash resources, regulatory matters, third-party payor matters and commercial
viability. We do not have any products approved for sale and do not anticipate
generating revenue from product sales for the foreseeable future, if ever.
Operational Updates
Partnering has been and is expected to continue to be a component of our
strategy as we plan to develop a broad portfolio of product candidates and, if
approved, to commercialize the resulting products. Our collaboration with Merck
has provided us with substantial financial support; however, under the narrower
scope of the Amended Collaboration Agreement, as described in more detail below,
after March 2022 the level of research funding from Merck will be substantially
lower on an annual and overall basis than the research funding provided by Merck
prior to that date.
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All of our manufacturing activities are outsourced to third-party contract
development and manufacturing organizations or third-party contract
manufacturing organizations, which we refer to collectively as CMOs, which are
generally single source suppliers of the drug product or drug substance they are
manufacturing for us. We also utilize third-party contract research
organizations, or CROs, to carry out many of our clinical development
activities. We expect to be reliant on CMOs and CROs for these activities for
the foreseeable future. Significant portions of our research and development
resources are focused, and will continue to be focused, on the manufacture and
testing of clinical trial materials. If our CROs and CMOs fail to satisfy their
contractual duties to us or meet expected deadlines or if our CMOs experience
difficulties in scaling production or procuring raw materials or components,
higher than anticipated costs or lower than anticipated yields, product loss due
to contamination, equipment failure, improper installation or operation of
equipment, vendor or operator error, turnover of qualified staff or improper
storage conditions, or difficulties with quality control, product stability or
quality assurance testing, our ongoing and planned trials and possible
acceleration or expansion of those trials may be delayed, perhaps substantially,
or abandoned, which could materially and adversely affect our business. For
example, while we continue to expect to commence first-in-human testing of
NGM438 and NGM831 in the first half of 2022, our planned IND submissions for
NGM438 and NGM831 have been delayed due to challenges at our CMO, primarily
related to analytical method qualification and release testing for those product
candidates. It is possible that we could experience further supply-related
delays that would adversely affect our ability to commence first-in-human
testing of NGM438 and NGM831 on the anticipated timing. In addition, there is
increased competition in the biotechnology industry for CMO manufacturing slots
and other capabilities generally, which has had, and may continue to have, a
negative impact on the availability of manufacturing capacity and therefore our
ability to supply clinical trial materials for planned, ongoing, accelerated or
expanded clinical trials.
We seek to allocate our capital efficiently and strategically and fund our
portfolio based on each program's scientific and other merits. Our discipline
has been demonstrated by our decision not to proceed with development activities
on multiple potentially viable product candidates for portfolio management
reasons, in order to concentrate our resources on what we consider our most
promising product candidates. However, given the narrower scope of the Amended
Collaboration Agreement and our associated increased funding requirements with
respect to our development programs, particularly after March 2022, as described
in more detail below, we may need to delay or suspend development activities on
product candidates that we consider promising unless and until we are able to
raise sufficient additional capital in order to proceed with such development
through to regulatory approval.
Amended Collaboration Agreement with Merck
On June 30, 2021, we and Merck entered into the Amended Collaboration Agreement
that amends and restates the research collaboration, product development and
license agreement that we originally entered into with Merck in February 2015,
which, together with amendments made prior to entering into the Amended
Collaboration Agreement, we refer to as the Original Agreement. The Original
Agreement contemplated an initial five-year research term and, in March 2019,
Merck exercised its option to extend the research phase of the collaboration
through March 16, 2022. As part of that extension, Merck agreed to continue to
fund up to $75.0 million of our research and development efforts each year
consistent with the initial five-year research term and, in lieu of a $20.0
million extension fee payable to us, Merck agreed to make additional payments
totaling up to $20.0 million in support of our research and development
activities during 2021 through the first quarter of 2022. Under the terms of the
Amended Collaboration Agreement, we and Merck agreed to extend the research
phase of the collaboration with a narrower scope than contemplated in the
Original Agreement. The research phase will now continue generally through March
31, 2024, with possible extensions for each of the various programs to allow us
or Merck to complete ongoing development.
Under the Original Agreement, all of our research and development programs, both
those existing at the time we entered into the Original Agreement and those we
worked on during the research phase of the collaboration, other than aldafermin,
were included within the scope of the collaboration. Under the Amended
Collaboration Agreement, the scope of the collaboration and the resulting
programs for which Merck has a license option was narrowed. The collaboration as
now being conducted under the Amended Collaboration Agreement, or the continuing
collaboration, focuses primarily on the identification, research and development
of collaboration compounds directed to targets of interest to Merck in the
fields of ophthalmology and cardiovascular or metabolic, or CVM, disease,
including heart failure, as well as certain laboratory testing and other
activities on molecules that are directed to one of up to two undisclosed
targets outside of the fields of ophthalmology and CVM disease, referred to as
the lab programs. The ophthalmology compounds in the continuing collaboration
include NGM621 and its related molecules and compounds directed against two
other undisclosed ophthalmology targets and their related molecules.
Collaboration compounds that remain within the scope of the continuing
collaboration under the Amended Collaboration Agreement are referred to as
continuing collaboration compounds. Our and Merck's rights
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and obligations with respect to MK-3655 and related FGFR1c/KLB agonists for
which Merck exercised its license option in November 2018 under the Original
Agreement did not change under the Amended Collaboration Agreement as compared
to the Original Agreement. Merck retains the one-time option to obtain an
exclusive, worldwide license, on specified terms, to continuing collaboration
compounds, as well as to other molecules that are directed against the same
target and that result in the same effect on such target, or the related
molecules, upon completion of a human proof-of-concept trial for a particular
collaboration compound, regardless of the results of such trial, or at earlier
points as specified in the Amended Collaboration Agreement, including the option
to license NGM621 upon completion of a human proof-of-concept trial in humans,
as well as the additional one-time option at that time to license NGM621
together with all of the ophthalmology continuing collaboration compounds
included within the scope of the Amended Collaboration Agreement. All such
options to license are referred to as Merck license options.
Under the Amended Collaboration Agreement, we have the right, in our sole
discretion, to independently research, develop and commercialize our oncology
product candidates NGM120, NGM707, NGM831 and NGM438 and their related molecules
and all other preclinical and research assets that we researched or developed
under the Original Agreement but that are not included within the research and
development scope of the continuing collaboration, which we refer to as the
released NGM compounds, subject to Merck's right to receive royalties at low
single digit rates on any released NGM compounds that receive regulatory
approval and, if we decide during a certain time period to engage in a formal
partnering process or negotiations regarding a license or asset sale for a
released NGM compound, to a requirement to notify Merck, provide Merck with
certain information and engage in good faith, non-exclusive negotiations with
respect to such released NGM compound with Merck at Merck's request. We are
generally responsible for funding released NGM compounds going forward, although
we may use Merck funding for research and development activities that we perform
on these compounds prior to April 1, 2022. We also have full rights to all
future programs we pursue that fall outside of the scope of the Amended
Collaboration Agreement. Aldafermin remains wholly-owned and funded by us.
Under the terms of the Amended Collaboration Agreement, Merck will provide an
aggregate of approximately $125.0 million in research and development funding
through March 31, 2024, including $86.0 million for the period from April 1,
2021 through March 31, 2022 (although we are obligated to use commercially
reasonable efforts to expend $35.0 million of such funding during such time
frame on programs within the scope of the continuing collaboration other than
the released NGM compounds), plus additional potential option payments if Merck
exercises any Merck license option. We are committed to advancing an undisclosed
ophthalmology program to a potential IND submission, utilizing our own funding
after March 2022. After Merck has exercised the Merck license option for a
continuing collaboration program and paid the applicable option fee, the
economics for such program are unchanged from the Original Agreement. Following
exercise of a Merck license option, Merck is responsible, at its own cost, for
any further development and any commercialization activities for compounds
within the applicable program that it licensed, or the licensed compounds,
subject to our option on a licensed compound-by-licensed compound basis, prior
to Merck initiating any Phase 3 clinical trial of such licensed compound, to
enter into a worldwide cost and profit share with Merck. If we do not elect to
exercise our cost and profit share option for a particular licensed compound, we
are eligible to receive milestone and royalty payments.
Similar to the Original Agreement, during the research phase and any applicable
tail period of the continuing collaboration, we may not directly or indirectly
research, develop, manufacture or commercialize, outside of the continuing
collaboration, any product with specified activity against any target that is
being researched or developed under the continuing collaboration and, if Merck
exercises its Merck license option for a program, we may not directly or
indirectly research, develop, manufacture or commercialize any product with
specified activity against the target that is the subject of that program for so
long as Merck's license to it remains in effect. In addition, under the Amended
Collaboration Agreement, we are prohibited from directly or indirectly
researching, developing or commercializing any product for the treatment of
heart failure with preserved ejection fraction (HFpEF) during the research phase
for the CVM-related programs.
For more information on the terms of the Amended Collaboration Agreement, see
Note 5, "Research Collaboration and License Agreements," of the notes to
unaudited condensed consolidated financial statements included in Part 1, Item 1
of this Quarterly Report on Form 10-Q.
Because, under the Amended Collaboration Agreement, we expect that the level of
research funding from Merck will be substantially lower on an annual and overall
basis after March 2022 than the research funding provided by Merck prior to that
date, our funding requirements for the development of our current and potential
future product candidates will increase substantially after that date,
particularly with respect to our wholly-owned programs, and, to a lesser extent,
with respect to our programs that are within the scope of the continuing
collaboration under the Amended Collaboration Agreement that we are required to
fund. In addition, our funding
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requirements would increase for any programs that are within the scope of the
continuing collaboration in the event Merck does not elect to license these
programs, in the event Merck elects to terminate its license to any program it
licenses or in the event we opt to co-develop any Merck-licensed programs.
Accordingly, we will require significant additional capital in order to proceed
with the development through to regulatory approval and commercialization of our
current and potential future product candidates, or we will need to enter into
additional collaboration or license agreements in order to fund such development
and commercialization. Neither may be possible and, as a result, we may be
required to delay, scale back or discontinue development of such product
candidates, which could have a material adverse effect on our business,
operating results and prospects. For any programs wholly-owned by us and not
within the scope of the continuing collaboration, we may decide to pursue a
strategic partner to progress, in whole or in part, the program or commercialize
any resulting approved product.
Financial Highlights
Since inception, we have funded our operations primarily through:
•fees received from collaboration partners, which since inception through
September 30, 2021 includes reimbursement of research and development expenses
of $471.8 million and upfront cash licensing fees of $123.0 million, primarily
from Merck, and a payment of $20.0 million from Merck to license MK-3655 and
related compounds;
•proceeds from private placements of convertible preferred stock prior to our
initial public offering, or IPO, including approximately $106.0 million of our
Series E convertible preferred stock purchased by Merck;
•net proceeds from our IPO in 2019 of approximately $107.8 million, together
with proceeds from the concurrent private placement of shares of common stock to
Merck of $65.9 million;
•net proceeds of $22.1 million from sales of 817,100 shares of our common stock
under an Open Market Sale AgreementSM, or the Sales Agreement, we entered into
with Jefferies LLC, or Jefferies, in June 2020 (809,700 shares sold at an
average price of $27.94 per share in December 2020 and 7,400 shares sold at an
average price of $27.22 per share in September 2021); and
•net proceeds of $134.6 million from the sale of 5,324,074 shares of our common
stock in January 2021 upon completion of an underwritten public offering of our
common stock, or the follow-on offering, which included the full exercise by the
underwriters of their option to purchase additional shares.
At September 30, 2021, we had $383.4 million in cash, cash equivalents and
short-term marketable securities.
We have incurred net losses each year since our inception. As of September 30,
2021, we had an accumulated deficit of $391.7 million. Substantially all of our
net losses have resulted from costs incurred in connection with our research and
development, or R&D, programs and general and administrative costs associated
with our operations. Our net losses may fluctuate significantly from
quarter-to-quarter and year-to-year, depending on the timing of our clinical
trials and our expenses on other R&D activities, and the amount of R&D funding
we receive from Merck or other collaboration partners, particularly after March
2022. For further discussion of our financial position and future sources of
funding, see "Liquidity and Capital Resources" below.
COVID-19 Business Update
We continue to closely monitor the impact of the global COVID-19 pandemic on our
business and have taken and continue to take proactive efforts designed to
protect the health and safety of our patients, study investigators, clinical
research staff and employees, while maintaining business continuity. Following
guidance from federal, state and local authorities, we operated with a primarily
remote work model from March 2020 through October 2021, under which employees
working on site were mostly individuals conducting essential in-person
laboratory work and other business functions considered essential under COVID-19
regulations and guidance, while others worked remotely. In October 2021, we
allowed additional employees to return to on-site work. While there were
relatively minor impacts on overall productivity while we operated with a
primarily remote work model, in 2020 and to date in 2021 we have experienced
employee attrition at rates higher than we have experienced historically and an
increased rate of hiring new employees. We cannot predict whether these trends
will continue or be exacerbated, the impact on future productivity or whether or
when we may be required to return to a more restrictive work model as the
pandemic evolves.
For patients enrolled in our clinical trials, we continue to work closely with
clinical trial investigators and site staff with the goal of continuing
treatment in a manner designed to uphold trial integrity, while allowing some
flexibility in the manner and timing of patient visits, and to observe
government and institutional guidelines designed to safeguard the health and
safety of patients, clinical trial investigators and site staff. During the
COVID-19
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pandemic, we have experienced, from time to time, a slower pace of clinical
trial site initiation and clinical trial enrollment than originally anticipated
in certain of our clinical trials, including the ALPINE 4, CATALINA and NGM120
trials, and we experienced a higher dropout rate in our ALPINE 2/3 trial than we
had anticipated based on our previous trials in patients with NASH. We believe
this may be due to factors such as the vulnerability of our studied patient
populations, clinical trial site suspensions, reallocation of medical resources
and the challenges of working remotely due to shelter-in-place and similar
government orders.
We have been proactively working to mitigate these and other effects of the
COVID-19 pandemic by monitoring site initiations, patient enrollment and patient
study adherence to provide support to patients and trial staff, often on a
case­by­case and/or patient-by-patient basis. For example, we have implemented
additional study policies and procedures designed to help protect trial
participants from exposure to COVID-19 as a result of their trial participation,
which include the use of telemedicine visits, remote monitoring of patients and
clinical trial sites and other measures, as appropriate, designed to ensure that
data from clinical trials that may be disrupted as result of the COVID-19
pandemic are collected pursuant to the study protocol and consistent with
current Good Clinical Practices, or cGCPs, with any material protocol deviation
reviewed and approved by the clinical trial site institutional review board, or
IRB. Most of our clinical trial sites, both within and outside of the United
States, continue to screen patients in our clinical trials, and new patients are
being enrolled when appropriate. While the COVID-19 pandemic has not yet
resulted in a significant impact to our disclosed clinical development
timelines, as the COVID-19 pandemic continues, there may be additional negative
impacts on our ability to initiate new clinical trial sites, maintain enrollment
of existing patients and enroll new patients, which may result in increased
clinical trial costs and negatively impact our timelines and our ability to
obtain regulatory approvals of our product candidates in a timely fashion, if at
all. In particular, enrollment in our ALPINE 4 trial has been slower than
expected, and we are considering enrolling fewer patients than originally
anticipated and potentially changing the study's primary endpoint in order to be
able to complete enrollment in the trial in the first quarter of 2022.
We also could see an adverse impact on our ability to report clinical trial
results, or interact with regulators, IRBs and ethics committees or other
important agencies due to limitations in health authority employee resources or
otherwise. Moreover, we rely on CROs and other third parties to assist us with
clinical development activities, and we cannot guarantee that they will continue
to perform their contractual duties in a timely and satisfactory manner as a
result of the COVID-19 pandemic.
In addition, while we have not experienced significant disruption to drug or
related component supply for our ongoing clinical trials due to the COVID-19
pandemic, we could experience disruptions to our supply chain and operations due
to the evolving effects of the continuing COVID-19 pandemic, including if our
CMOs' manufacturing facilities and operations are adversely affected by labor
and raw material shortages, turnover of qualified staff or financial
difficulties of their owners or operators. Any associated delays in the
manufacturing and supply of drug substance and drug product for our clinical
trials could adversely affect our ability to conduct ongoing and future clinical
trials of our product candidates. Our aldafermin drug product CMO has advised us
that it could be required under orders of the U.S. government to allocate
manufacturing capacity to the manufacture or distribution of COVID-19 vaccines.
If any of our CMOs become subject to acts or orders of U.S. or foreign
government entities to allocate manufacturing capacity to the manufacture or
distribution of COVID-19 vaccines or medical supplies needed to treat COVID-19
patients, this could also delay our clinical trials, perhaps substantially,
which could materially and adversely affect our business.
Finally, we cannot predict how the evolving effects of the COVID-19 pandemic may
influence the future decisions of Merck to license any programs available to it
under the Amended Collaboration Agreement. For additional information about
risks and uncertainties related to the COVID-19 pandemic that may impact our
business, financial condition and results of operations, see the section titled
"Risk Factors" in Part II, Item 1A of this Quarterly Report on Form 10-Q.
                         Financial Operations Overview
Related Party Revenue
Our revenue to date has been generated primarily from recognition of license
fees and R&D service funding pursuant to our collaboration with Merck. Merck is
also a significant stockholder and, as such, collaboration revenue from Merck is
referred to as related party revenue.
Since the Company's inception through September 30, 2021, Merck paid us $566.7
million pursuant to the terms of our collaboration. Due to the nature of our
collaboration with Merck and the timing of related revenue recognition, our
revenue has fluctuated from period to period in the past and we expect that it
will continue to fluctuate in future periods, particularly after March 2022
given the substantial decrease in the level of funding from
                                       33
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Merck in accordance with the Amended Collaboration Agreement entered into on
June 30, 2021. As a result, we believe that period-to-period comparisons of our
revenue may not be meaningful and should not be relied upon as being indicative
of future performance.
We use the cost-based input method in accordance with Accounting Standards
Codification 606, or ASC 606, to calculate the corresponding amount of revenue
to recognize at each reporting period. In applying the cost-based input measure
of revenue recognition, we measure actual costs incurred relative to budgeted
costs to fulfill our performance obligation. We apply considerable judgment when
we re-evaluate the estimate of expected costs to satisfy the performance
obligation each reporting period and make adjustments for any significant
changes. A significant change in the estimate of expected costs under the
Amended Collaboration Agreement could have a material impact on revenue
recognized (including the possible reversal of previously recognized revenue) at
each reporting period.
Our related party revenue was as follows (in thousands):
                            Three Months Ended            Nine Months Ended
                              September 30,                 September 30,
                            2021           2020          2021           2020
Related party revenue   $   18,575$ 23,482$  56,923$ 67,601


Research and Development Expenses
R&D efforts include drug discovery research activities and development
activities relating to our product candidates, such as manufacturing drug
substance, drug product and other clinical trial materials, conducting
preclinical studies and clinical trials and providing support for these
operations. Our R&D expenses consist of both internal and external costs. Our
internal costs include employee, consultant, facility and other R&D operating
expenses. Our external costs include fees paid to CROs and other service
providers in connection with our clinical trials and preclinical studies,
third-party license fees and CMO costs related to manufacturing drug substance,
drug product and other clinical trial materials.
Our R&D expenses related to the development of aldafermin, MK-3655, NGM621,
NGM120, NGM707, NGM831 and NGM438 (and prior to suspending these programs,
NGM386, NGM395 and NGM217) consist primarily of:
•fees paid to our CROs in connection with our clinical trials and other related
clinical trial fees, when applicable;
•costs related to acquiring and manufacturing drug substance, drug product and
clinical trial materials, including continued testing, such as process
validation and stability, of drug substance and drug product;
•costs related to toxicology testing and other research and preclinical related
studies;
•salaries and related overhead expenses, which include stock-based compensation
and benefits, for personnel in R&D functions;
•fees paid to consultants for R&D activities;
•R&D operating expenses, including facility costs and depreciation expenses; and
•costs related to compliance with regulatory requirements.
Our clinical development efforts are spread across multiple programs, only some
of which remain within the scope of our collaboration with Merck. For the
foreseeable future, we anticipate the majority of our financial resources, other
than those received from Merck and dedicated to continuing collaboration
activities under the Amended Collaboration Agreement, will be directed to
activities required to advance our Phase 2b ALPINE 4 clinical trial of
aldafermin and our trials of NGM120 and NGM707, to initiate clinical trials of
NGM831 and NGM438 and to prepare for the manufacture of NGM621 in anticipation
of a potential Phase 3 trial.
Our R&D efforts are extensive and costly. While Merck has committed under the
Amended Collaboration Agreement to provide up to $86.0 million in research
funding for the four calendar quarters ending March 31, 2022 (with up to $51.0
million of such amount that may be used by us to advance certain of our
wholly-owned programs), after March 2022 and through the remaining two years of
the research phase of the collaboration, Merck is committed to provide only up
to $20.0 million in research funding for the ophthalmology- and CVM-related
programs (other than NGM621) and to fund certain R&D costs related to NGM621,
expected to be approximately $20.0 million, during the earlier of the remaining
two years of the research phase after March 2022 or until Merck exercises, or
decides not to exercise, its Merck license option with respect to NGM621. As a
result, after March
                                       34
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2022, we will need to devote a substantial amount of our own financial resources
to our development programs, particularly with respect to our wholly-owned
programs and, to a lesser extent, with respect to our programs that are within
the scope of the Amended Collaboration Agreement that we are required to fund.
In addition, our funding requirements would increase for any programs that are
within the scope of the continuing collaboration in the event Merck does not
elect to license these programs, in the event Merck elects to terminate its
license to any program it licenses or in the event we opt to co-develop any
Merck-licensed programs. Accordingly, we will require significant additional
capital in order to proceed with the development through to regulatory approval
and commercialization of our current and potential future product candidates or
we will need to enter into additional collaboration or license agreements in
order to fund such development and commercialization. Neither may be possible
and, as a result, we may be required to delay, scale back or discontinue
development of such product candidates, which could have a material adverse
effect on our business, operating results and prospects. In addition, our R&D
expenses may exceed the funding caps set forth under the Amended Collaboration
Agreement, as happened in the fiscal year ended December 31, 2020 under the
Original Agreement and is expected to occur in the fiscal year ending December
31, 2021, in which case our funding requirements will increase.
The successful development of our product candidates is highly uncertain. At
this time, we cannot reasonably estimate the nature, timing or costs of the
efforts that will be necessary to complete the remainder of the development of
our product candidates. This is due to the numerous risks and uncertainties
associated with developing medicines, including the uncertainty of:
•our ability to hire and retain key R&D personnel;
•manufacturing scale-up challenges, production shortages or other supply
disruptions for clinical trial materials;
•the evolving effects of the COVID-19 pandemic on our employees, patients,
clinical trial sites and our CROs, CMOs and other service providers;
•the timely and quality performance of our CROs, CMOs and other service
providers;
•whether Merck will elect to license, or to terminate its license, to any of our
programs within the scope of the continuing collaboration and the timing of such
election or termination;
•prior to March 2022, the extent to which we exceed the funding caps provided in
the Amended Collaboration Agreement;
•after March 2022, the amount of our financial resources that we will need to
devote to our development programs and our obligations under the Amended
Collaboration Agreement, and our ability to raise adequate additional capital to
meet our requirements;
•the effect of products that may compete with our product candidates or other
market developments;
•our ability to expand and enforce our intellectual property portfolio;
•the scope, rate of progress, results and expense of our ongoing, as well as any
future, clinical trials and other R&D-related activities; and
•the impact and timing of any interactions with regulatory authorities.
A change in the outcome of any of the risks and uncertainties associated with
the development of a product candidate could mean a significant change in the
costs and timing associated with the development of that product candidate. For
example, if the FDA or another health authority were to require us to conduct
clinical trials beyond those that we currently anticipate will be required for
the completion of clinical development of a product candidate, or if we
experience significant delays in enrollment in any of our clinical trials, we
could be required to expend significant additional financial resources and time
on the completion of clinical development. For additional discussion of the
risks and uncertainties associated with our R&D efforts, see "Risk Factors-Risks
Related to Our Business and Industry," "-Risks Related to Our Dependence on
Merck and Other Third Parties" and "-Risks Related to Regulatory Approvals" in
Part II, Item 1A of this Quarterly Report on Form 10-Q.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other
related costs, including stock-based compensation and benefits. Other
significant costs include legal fees relating to patent and corporate matters,
facility costs not otherwise included in R&D expenses and fees for accounting
and other consulting services.
We anticipate that our general and administrative expenses will increase in the
future to support our continued R&D activities. These increases will likely
include increased costs related to the hiring of additional personnel, as well
as fees paid to outside consultants, lawyers and accountants, among other
expenses.
                                       35
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Additionally, we anticipate continued increased costs associated with being a
public company, including expenses related to services associated with
maintaining compliance with Nasdaq listing rules and related Securities and
Exchange Commission, or SEC, requirements and costs related to insurance,
investor relations and compliance with Section 404 of the Sarbanes-Oxley Act of
2002, or the Sarbanes-Oxley Act. In addition, we may incur expenses associated
with building a commercial organization in connection with, and prior to,
potential future regulatory approval of our product candidates.
                             Results of Operations

Our results of operations were as follows (in thousands):

                                            Three Months Ended                                       Nine Months Ended
                                               September 30,                                           September 30,
                                          2021               2020             Change              2021               2020              Change
Related party revenue                 $  18,575$  23,482$ (4,907)$  56,923$  67,601$ (10,678)
Operating expenses:
Research and development                 38,714             46,979            (8,265)           122,983            123,912               (929)
General and administrative                8,867              6,460             2,407             27,411             19,849              7,562
Total operating expenses                 47,581             53,439            (5,858)           150,394            143,761              6,633
Loss from operations                    (29,006)           (29,957)              951            (93,471)           (76,160)           (17,311)
Interest income, net                        106                260              (154)               335              1,823             (1,488)
Other income (expense), net                  35                (68)              103                 35               (159)               194
Net loss                              $ (28,865)$ (29,765)$    900$ (93,101)$ (74,496)$ (18,605)


Related Party Revenue from Merck
Revenue decreased $4.9 million and $10.7 million in the three and nine months
ended September 30, 2021 compared to the same periods in 2020, respectively.
Revenue decreased in the three months ended September 30, 2021 compared to the
same period in 2020 primarily due to a decrease in research and development
revenue. Revenue decreased in the nine months ended September 30, 2021 compared
to the same period in 2020 in part due to a reduction in revenue of $4.6 million
for an amount we had recorded under the prior two-year extension of the research
phase that was no longer billable to Merck under the Amended Collaboration
Agreement as of June 30, 2021. For the nine months ended September 30, 2020,
collaboration and license revenue under the Original Agreement included $4.9
million related to the upfront license fee under the initial five-year term that
ended in March 2020.
Research and Development Expenses
Our R&D expenses by program were as follows (in thousands):
                                                Three Months Ended            Nine Months Ended
                                                  September 30,                 September 30,
                                                2021           2020          2021           2020
External R&D expenses:
Aldafermin (FGF19 analog)                   $    6,519$ 15,212$  25,591$  40,649
NGM621 (C3 inhibitor)                            6,167         5,204         15,344          9,099
NGM120 (GFRAL antagonist)                        1,529         1,146          5,125          4,040
NGM707 (Anti-ILT2/ILT4 dual antagonist)          1,269         1,240          3,490          3,843
NGM438 (LAIR1 antagonist)                          602         1,507          3,073          1,894
NGM831 (ILT3 antagonist)                           561         1,445          1,879          3,093
Other external R&D expenses                         73           145          1,297          4,546
Total external R&D expenses                     16,720        25,899         55,799         67,164
Personnel-related expenses                      13,499        10,755         41,960         32,348
Internal and unallocated R&D expenses(1)         8,495        10,325         25,224         24,400
Total R&D expenses                          $   38,714$ 46,979$ 122,983$ 123,912


                                       36
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_____________

(1)Internal and unallocated research and development expenses consist primarily
of research supplies and consulting fees, which we deploy across multiple
research and development programs.
R&D expenses decreased $8.3 million and $0.9 million in the three and nine
months ended September 30, 2021 compared to the same periods in 2020,
respectively, primarily due to a decrease in expenses for our manufacturing
activities and our clinical trials of aldafermin, partially offset by increases
in personnel-related expenses and external expenses driven by our ongoing
clinical trials of NGM621 and NGM120. The decrease in R&D expenses in the nine
months ended September 30, 2021 compared to the same period in 2020 was also
partially offset by an increase in external expenses for our preclinical studies
of NGM438.
For the full year 2021, we expect R&D expenses will be consistent with our 2020
expenses as we continue to advance our clinical development of NGM621 and our
oncology programs. Resources previously intended for an aldafermin Phase 3 F2/F3
NASH development program have been shifted toward advancing our other programs.
Aldafermin remains in Phase 2b development for the treatment of patients with
compensated NASH cirrhosis (F4 liver fibrosis).
General and Administrative Expenses
General and administrative expenses increased $2.4 million and $7.6 million in
the three and nine months ended September 30, 2021 compared to the same periods
in 2020, respectively, primarily due to an increase in personnel-related
expenses due to increased headcount and an increase in stock-based compensation
expense primarily due to an increase in the average grant date fair value of
stock options granted.
We anticipate general and administrative expenses for the remainder of 2021 to
increase compared to 2020 due to an increase in compensation-related expenses
driven by higher headcount and other expenses related to the expansion and
support of our business including expenses related to compliance with Section
404 of the Sarbanes-Oxley Act.
Interest Income
Interest income decreased in the three and nine months ended September 30, 2021
compared to the same periods in 2020 primarily due to the decrease in market
interest rates.
                        Liquidity and Capital Resources
Funding Requirements
We have incurred net losses every year since inception. We have spent, and
expect to continue to spend, significant resources to fund R&D of, and seek
regulatory approvals for, our product candidates. These activities require us to
incur substantial costs related to research, development, manufacturing,
preclinical studies, clinical trial and related activities, as well as to cover
other expenses related to our ongoing operations. Our collaboration with Merck
under the Original Agreement has provided us with substantial financial support;
however, under the narrower scope of the Amended Collaboration Agreement, after
March 2022 the level of research funding from Merck will be substantially lower
on an annual and overall basis than the research funding provided by Merck prior
to that date, as described below. In this regard, after March 2022, we will need
to devote a substantial amount of our own financial resources to our development
programs, particularly with respect to our wholly-owned programs and, to a
lesser extent, with respect to our programs that are within the scope of the
continuing collaboration under the Amended Collaboration Agreement that we are
required to fund, and our failure to allocate funding to meet such requirements
may be deemed a breach of the Amended Collaboration Agreement. In addition, our
funding requirements would increase for any programs that are within the scope
of the continuing collaboration in the event Merck does not elect to license
these programs, in the event Merck elects to terminate its license to any
program it licenses or in the event we opt to co-develop any Merck-licensed
programs. Accordingly, we will require significant additional capital in order
to proceed with the development through to regulatory approval and
commercialization of our current and potential future product candidates or we
will need to enter into additional collaboration or license agreements in order
to fund such development and commercialization. Neither may be possible and, as
a result, we may be required to delay, scale back or discontinue development of
such product candidates, which could have a material adverse effect on our
business, operating results and prospects. In addition, our R&D expenses may
exceed the funding caps set forth under the Amended Collaboration Agreement, as
happened in the fiscal year ended December 31, 2020 under the Original Agreement
and is expected to occur in the fiscal year ending December 31, 2021, in which
case our funding requirements will increase. See "Overview of Our Business -
Merck Collaboration Update" above. As a result, we expect to incur significant
and increasing operating losses. We have
                                       37
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no products approved for commercial sale, have not generated any revenue from
product sales to date and we are not and may never be profitable. We have
incurred losses in each year since commencing operations. As of September 30,
2021, we had an accumulated deficit of $391.7 million and we expect our
accumulated deficit will increase significantly over time. The size of our
future net losses will depend, in part, on the rate of future growth of our
expenses, the amount of revenue generated from Merck under the Amended
Collaboration Agreement and our ability to generate revenue outside of the Merck
collaboration, particularly after March 2022.
Sources of Liquidity
Merck Collaboration
The revenue we receive under the Amended Collaboration Agreement with Merck is
our only source of revenue. As described in greater detail above, including
under "Overview of Our Business - Merck Collaboration," under the Amended
Collaboration Agreement, Merck has committed to provide us with up to $86.0
million in research funding for the four calendar quarters ending March 31, 2022
(with up to $51.0 million of such amount that may be used by us to advance
certain of our wholly-owned programs). However, after March 2022 and through the
remaining two years of the research phase of the collaboration, Merck is
committed to provide only up to $20.0 million in research funding for the
ophthalmology- and CVM-related programs and to fund the R&D costs related to
NGM621, including our CATALINA clinical trial, subject to certain limitations.
Other Sources of Liquidity
In June 2020, we entered into the Sales Agreement with Jefferies relating to the
sale of shares of our common stock. In accordance with the terms of the Sales
Agreement, we may offer and sell shares of our common stock having an aggregate
offering price of up to $150.0 million from time to time through Jefferies,
acting as our sales agent. During the nine months ended September 30, 2021,
7,400 shares of the Company's common stock were sold pursuant to the Sales
Agreement. As of September 30, 2021, $127.2 million of our common stock remained
available to be sold under the Sales Agreement, subject to conditions specified
in the Sales Agreement.
In January 2021, we sold 5,324,074 shares of common stock (inclusive of shares
sold pursuant to the full exercise of the option to purchase additional shares
granted to the underwriters in connection with the offering) through an
underwritten public offering at a price to the public of $27.00 per share for
aggregate net proceeds to the Company of $134.6 million, or the follow-on
offering.
As of September 30, 2021, we had cash and cash equivalents of $145.8 million,
short-term marketable securities of $237.6 million, working capital of $338.2
million and an accumulated deficit of $391.7 million.
We believe that our existing cash, cash equivalents and short-term marketable
securities will be sufficient to fund our operations for at least the next
twelve months from the date our interim condensed financial statements are
filed. We have based this estimate on assumptions that may prove to be wrong and
we could utilize our available capital resources sooner than we currently
expect. In addition, our forecast of the period of time through which our
financial resources will be adequate to support our operations is a
forward-looking statement that involves risks and uncertainties, and actual
results could vary materially as a result of a number of factors, including the
factors discussed under "Risk Factors" in Part II, Item 1A of this Quarterly
Report on Form 10-Q.
We plan to finance our future cash needs through public or private equity or
debt offerings, including under the Sales Agreement, government or other
third-party funding, product collaborations, strategic alliances, licensing
arrangements or a combination of these. Additional capital may not be available
in sufficient amounts, on reasonable terms or when we need it, if at all, and
our ability to raise additional capital may be adversely impacted by worsening
global economic conditions and the disruptions to, and volatility in, the credit
and financial markets in the United States and worldwide resulting from, among
other things, the evolving effects of the COVID-19 pandemic. If we raise
additional funds by issuing equity securities, our stockholders may experience
dilution. Debt financing, if available, may involve restrictive covenants. Any
debt financing or additional equity that we raise may contain terms that are not
favorable to us or our stockholders. Furthermore, any securities that we may
issue may have rights senior to those of our common stock and could contain
covenants or protective rights that would lead to restrictions on our operations
and potentially impair our competitiveness, such as limitations on our ability
to incur additional debt, limitations on our ability to acquire, sell or license
intellectual property rights and other operating restrictions that could
adversely impact our ability to conduct our business. If we are unable to raise
adequate additional capital, we may be prevented from pursuing development and
commercialization efforts, which will have a material adverse effect on our
business, operating results and prospects.
                                       38
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Cash Flow Activity
The following table summarizes our cash flow activity for the periods indicated
(in thousands):
                                                             Nine Months Ended
                                                               September 30,
                                                             2021           2020
Net cash provided by (used in):
Operating activities                                        (54,894)      (63,456)
Investing activities                                        (93,576)       63,533
Financing activities                                        147,279         7,926

Net (decrease) increase in cash and cash equivalents $ (1,191)$ 8,003



Operating Activities
In the nine months ended September 30, 2021 net cash used in operating
activities was $54.9 million, which consisted of a net loss of $93.1 million,
adjusted for non-cash charges of $31.4 million and a change in operating assets
and liabilities of $6.8 million. The non-cash charges consisted primarily of
stock-based compensation expense of $19.7 million, a decrease in related party
contract assets due to the Amended Collaboration Agreement with Merck of $4.6
million, depreciation expense of $4.6 million and amortization of a premium on
marketable securities of $2.5 million. The change in operating assets and
liabilities was mainly driven by increases in contract liabilities of $12.3
million, accrued liabilities of $4.9 million, prepaid expenses and other current
assets of $3.6 million and the related party receivable of $4.1 million,
partially offset by decreases in deferred rent of $2.2 million, accounts payable
of $2.0 million and related party contract assets of $1.5 million.
In the nine months ended September 30, 2020 net cash used in operating
activities was $63.5 million, which consisted of a net loss of $74.5 million,
adjusted for non-cash charges of $16.5 million and cash used through changes in
operating assets and liabilities of $5.5 million. The non-cash charges consisted
primarily of stock-based compensation expense of $11.5 million and depreciation
expense of $5.0 million. The change in operating assets and liabilities was
mainly driven by increases in accrued liabilities of $9.8 million, prepaid
expenses and other assets of $3.7 million and the related party receivable from
our Merck collaboration of $2.0 million, partially offset by decreases in
accounts payable of $7.1 million and deferred rent of $2.1 million.
Investing Activities
In the nine months ended September 30, 2021 net cash used in investing
activities was $93.6 million, which consisted of purchases of marketable
securities of $194.5 million primarily from the net proceeds of the follow-on
offering, partially offset by $102.5 million in net proceeds on maturity of
marketable securities. In the nine months ended September 30, 2020 net cash
provided by investing activities was $63.5 million, which consisted of $94.5
million in net proceeds on maturity of marketable securities, partially offset
by purchases of marketable securities of $29.4 million and purchases of property
and equipment of $1.6 million.
Financing Activities
In the nine months ended September 30, 2021 net cash provided by financing
activities was $147.3 million, which consisted of net proceeds from the
follow-on offering of $134.6 million and proceeds from employee equity incentive
and purchase plans of $12.5 million. In the nine months ended September 30, 2020
net cash provided by financing activities was $7.9 million, which primarily
consisted of proceeds from employee equity incentive and purchase plans.
                         Off-Balance Sheet Arrangements
We currently have not entered into and do not have any relationships with
unconsolidated entities or financial collaborations, such as entities often
referred to as structured finance or special purpose entities, which would have
been established for the purpose of facilitating off-balance sheet arrangements
or other contractually narrow or limited purpose.
                                       39
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                            Contractual Obligations
During the nine months ended September 30, 2021, there were no material changes
to our contractual obligations as set forth in Part II, Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in our
Annual Report on Form 10-K for the year ended December 31, 2020 filed with the
SEC on March 15, 2021.
                   Critical Accounting Policies and Estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our condensed consolidated financial statements, which
we have prepared in accordance with U.S. generally accepted accounting
principles, or U.S. GAAP. The preparation of our condensed consolidated
financial statements requires us to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of our condensed consolidated financial
statements, as well as revenue and expenses during the reported periods. We
evaluate these estimates and judgments on an ongoing basis. In accordance with
U.S. GAAP, we base our estimates on historical experience and on various other
factors that we believe are 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 may
differ materially from these estimates under different assumptions or
conditions. We believe that there have been no significant changes in our
critical accounting policies and estimates disclosed in our Annual Report on
Form 10-K for the year ended December 31, 2020 filed with the SEC on March 15,
2021.
                     Newly Issued Accounting Pronouncements
Except as described in Note 2 to the condensed consolidated financial statements
under the headings "Recently Adopted Accounting Pronouncements" and "Recent
Accounting Pronouncements Not Yet Adopted," there have been no new accounting
pronouncements or changes to accounting pronouncements during the nine months
ended September 30, 2021, as compared to the recent accounting pronouncements
described in our audited consolidated financial statements and notes for the
year ended December 31, 2020, included in the Company's Annual Report on Form
10-K for the year ended December 31, 2020 filed with the SEC on March 15, 2021,
that are of significance or potential significance to us.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
During the nine months ended September 30, 2021, there were no material changes
to our market risk disclosures as set forth in Part II, Item 7A "Quantitative
and Qualitative Disclosures About Market Risk" in our Annual Report on Form 10-K
for the year ended December 31, 2020 filed with the SEC on March 15, 2021.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As of September 30, 2021, management, with the participation of our Chief
Executive Officer and Chief Financial Officer, performed an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934, as amended, or the Exchange Act. Our disclosure controls
and procedures are designed to ensure that information required to be disclosed
in the reports we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms, and that such information is accumulated and communicated to our
management, including the Chief Executive Officer and Chief Financial Officer,
to allow timely decisions regarding required disclosures.
Any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objective and
management necessarily applies its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Based on this evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that, as of
September 30, 2021, the design and operation of our disclosure controls and
procedures were effective at a reasonable assurance level.
                                       40
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Changes in Internal Control over Financial Reporting
During the quarter ended September 30, 2021, there have been no changes to our
internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
                                       41

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