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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 March 31, 2022 
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)
Delaware26-1679911
(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 including zip code)
(650) 243-5555
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading
 Symbol
Name of Each Exchange on which Registered
Common Stock, par value $0.001 per shareNGMThe 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 FilerAccelerated filer
Non-accelerated filerSmaller 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 May 2, 2022, the registrant had 79,257,148 shares of common stock, $0.001 par value per share, outstanding.



Table of Contents
Page
PART I.
Item 1.
Item 2.
Item 3.
Item 4.
PART II.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

i


PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
NGM BIOPHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
(Unaudited)

March 31,
2022
December 31,
2021*
Assets
Current assets:
Cash and cash equivalents$109,872 $151,795 
Short-term marketable securities219,960 214,458 
Related party receivable from collaboration103 4,945 
Prepaid expenses and other current assets7,687 8,082 
Total current assets337,622 379,280 
Property and equipment, net9,436 10,071 
Operating lease right-of-use asset3,570 4,045 
Restricted cash1,499 1,499 
Other non-current assets7,646 7,492 
Total assets$359,773 $402,387 
Liabilities and stockholders' equity
Current liabilities:
Accounts payable$4,815 $5,246 
Accrued liabilities29,478 33,258 
Operating lease liability, current5,153 5,077 
Contract liabilities5,117 17,774 
Total current liabilities44,563 61,355 
Operating lease liability, non-current4,073 5,385 
Total liabilities48,636 66,740 
Commitments and contingencies (Note 6)
Stockholders' equity:
Preferred stock, $0.001 par value; 10,000 shares authorized; no shares issued or outstanding as of March 31, 2022 and December 31, 2021, respectively
  
Common stock, $0.001 par value; 400,000 shares authorized; 78,087 and 77,962 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively
78 78 
Additional paid-in capital763,152 754,664 
Accumulated other comprehensive loss(677)(129)
Accumulated deficit(451,416)(418,966)
Total stockholders' equity311,137 335,647 
Total liabilities and stockholders' equity$359,773 $402,387 
See accompanying notes to these unaudited condensed consolidated financial statements.
*The condensed consolidated balance sheet as of December 31, 2021 has been derived from the audited financial statements as of that date.
1


NGM BIOPHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)



Three Months Ended
March 31,
20222021
Related party revenue$20,948 $21,575 
Operating expenses:
Research and development42,806 40,699 
General and administrative10,723 8,721 
Total operating expenses53,529 49,420 
Loss from operations(32,581)(27,845)
Interest income, net176 114 
Other (expense) income, net(45)187 
Net loss$(32,450)$(27,544)
Net loss per share, basic and diluted$(0.42)$(0.36)
Weighted average shares used to compute net loss per share, basic and diluted78,023 76,034 
See accompanying notes to these unaudited condensed consolidated financial statements.
2


NGM BIOPHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)




Three Months Ended
March 31,
20222021
Net loss$(32,450)$(27,544)
Other comprehensive loss, net of tax:
Net unrealized loss on available-for-sale marketable securities(548)(22)
Total comprehensive loss$(32,998)$(27,566)
See accompanying notes to these unaudited condensed consolidated financial statements.
3


NGM BIOPHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)



Common StockAdditional
Paid-In Capital
Other
Comprehensive Loss
Accumulated DeficitTotal
Stockholders' Equity
SharesAmount
Balance at December 31, 202177,962 $78 $754,664 $(129)$(418,966)$335,647 
Issuance of common stock upon exercise of stock options125  668 — — 668 
Stock-based compensation expense— — 7,820 — — 7,820 
Comprehensive loss— — — (548)— (548)
Net loss— — — — (32,450)(32,450)
Balance at March 31, 202278,087 $78 $763,152 $(677)$(451,416)$311,137 



Common StockAdditional
Paid-In Capital
Other
Comprehensive Income (Loss)
Accumulated DeficitTotal
Stockholders' Equity
SharesAmount
Balance at December 31, 202070,583 $71 $578,599 $4 $(298,631)$280,043 
Issuance of common stock under offering, net of issuance costs5,324 5 134,565 134,570 
Issuance of common stock upon exercise of stock options1,001 1 5,906 — — 5,907 
Vesting of common stock from early exercises5 — 41 — — 41 
Stock-based compensation expense— — 6,582 — — 6,582 
Comprehensive loss— — — (22)— (22)
Net loss— — — — (27,544)(27,544)
Balance at March 31, 202176,913 $77 $725,693 $(18)$(326,175)$399,577 


See accompanying notes to these unaudited condensed consolidated financial statements.

4


NGM BIOPHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
20222021
Operating activities
Net loss$(32,450)$(27,544)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense7,820 6,582 
Depreciation1,427 1,554 
Amortization of premium on marketable securities518 570 
Non-cash lease expense475 441 
Other non-cash expenses460 (315)
Changes in operating assets and liabilities:
Related party receivable from collaboration4,842 8 
Related party contract asset 1,500 
Prepaid expenses and other assets241 (1,299)
Accounts payable(431)(2,128)
Accrued and other liabilities(4,747)(427)
Operating lease liability(1,236)(1,167)
Contract liabilities(12,657) 
Net cash used in operating activities(35,738)(22,225)
Investing activities
Purchase of marketable securities(86,904)(144,996)
Proceeds from maturities of marketable securities80,336 28,000 
Purchases of property and equipment(285)(160)
Net cash used in investing activities(6,853)(117,156)
Financing activities
Proceeds from follow on offering, net 134,570 
Proceeds from exercise of stock options668 5,907 
Net cash provided by financing activities668 140,477 
Net (decrease) increase in cash and cash equivalents(41,923)1,096 
Cash, cash equivalents and restricted cash, at beginning of period153,294 148,516 
Cash, cash equivalents and restricted cash, at end of period$111,371 $149,612 
Supplemental disclosures of non-cash investing and financing activities:
Property and equipment purchases accrued and not yet paid$436 $637 
Right of use asset acquired under operating lease on the adoption of ASC 842$ $5,855 
Vesting of common stock from early exercises$ $41 
See accompanying notes to these unaudited condensed consolidated financial statements.
5


NGM BIOPHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Description of Business
NGM Biopharmaceuticals, Inc. and its wholly-owned subsidiary, NGM Biopharmaceuticals Australia Pty Ltd., collectively referred to as the Company, is focused on discovering and developing novel, potentially life-changing medicines based on scientific understanding of key biological pathways underlying cancer, retinal diseases and liver and metabolic diseases. The Company’s robust portfolio of product candidates range from early discovery to Phase 2b development and include NGM707, NGM831, NGM438, NGM120, NGM621, aldafermin and MK-3655 in active development. The Company has additional programs that are in various stages of development ranging from functional validation to preclinical development.
The Company was incorporated in Delaware in December 2007 and commenced operations in 2008. The Company's headquarters are located at 333 Oyster Point Blvd., South San Francisco, California 94080.
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 U.S. generally accepted accounting principles, or 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, 2021 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the United States Securities and Exchange Commission, or SEC, on March 1, 2022. 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 ending December 31, 2022 or for any subsequent interim period.
These unaudited condensed consolidated financial statements include the consolidated accounts of NGM Biopharmaceuticals, Inc. and its wholly-owned foreign subsidiary in Australia, NGM Biopharmaceuticals Australia Pty Ltd. All intercompany balances and transactions have been eliminated upon consolidation.
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, the valuation of common stock and the associated stock-based compensation expense, contract manufacturing accruals, clinical trial accruals and revenue recognition in accordance with Accounting Standards Update, or ASU, 2014-09, Revenue from Contracts with Customers (Topic 606), or 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, and to the extent that there are differences between management's estimates and actual results, the Company's future financial statement presentation, financial condition, results of operations and cash flows may be affected.
Sources and Uses of Liquidity
Since inception, the Company has incurred net losses and negative cash flow from operations. Net losses were $32.5 million and $27.5 million during the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022, the Company had an accumulated deficit of $451.4 million. The Company expects its accumulated deficit will increase significantly over time and does not expect to experience positive cash flows from operations in the near future.
As of March 31, 2022, the Company had $329.8 million of cash, cash equivalents and short-term marketable securities. In June 2020, the Company entered into an Open Market Sale AgreementSM, or the Sales
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Agreement, with Jefferies LLC. As of March 31, 2022, $127.2 million of the Company's common stock remained available to be sold under the Sales Agreement, subject to conditions specified in the Sales Agreement.
The Company believes its existing cash, cash equivalents and short-term marketable securities will be sufficient to fund its operations for a period of at least one year from the date of filing of this Quarterly Report on Form 10-Q.
To fully implement the Company’s business plan and fund its operations, the Company will need to raise significant additional capital through public or private equity or debt offerings (which may include potential net proceeds from future sales, if any, under the Sales Agreement), product collaborations, strategic alliances and licensing arrangements or a combination of the foregoing.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, the related party receivable from collaboration and other current assets and liabilities approximate their respective fair values due to their short-term nature.
Cash and Cash Equivalents
Cash and cash equivalents are stated at fair value. Cash equivalents are securities with 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 investing in highly rated money market funds and placing its cash with a bank it believes is highly creditworthy in amounts that may at times exceed federally insured limits. As of March 31, 2022 and December 31, 2021, 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 and short-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. Interest income, 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.
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. As of March 31, 2022, the Company did not record any impairment related to other-than-temporary declines in the fair value of securities.
Restricted Cash
The Company’s restricted cash balance represents collateral required under the Company’s facility lease agreement and is classified as a non-current asset on the condensed consolidated balance sheets, as the collateral will not be returned to the Company within twelve months from the date of these condensed consolidated financial statements.
Concentration of Credit and Other Risks
Cash, cash equivalents and marketable securities from the Company’s available-for-sale and marketable securities 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 United States, or U.S.,
7


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 are typically unsecured. Accordingly, the Company may be exposed to credit risk generally associated with its current amended and restated research collaboration, product development and license agreement, or the Amended Collaboration Agreement, with Merck Sharp & Dohme LLC (formerly Merck Sharp & Dohme Corp.), or Merck, and any future collaboration agreements with other collaboration partners. To date, the Company has not experienced any losses related to these receivables.
Amounts recognized as revenue prior to the Company having an unconditional right (other than a right that is conditioned only on the passage of time) to receipt are recorded as contract assets in the Company's condensed consolidated balance sheets. Although the Company expects to have an unconditional right to receive such amounts, the Company may be exposed to the risk of not receiving the recorded amounts under its current collaboration agreement with Merck and any future collaboration agreements with other collaboration partners. To date, the Company has not experienced any losses related to contract assets.
Merck accounted for 100% of the Company’s revenue for the three months ended March 31, 2022 and 2021.
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 expensed 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 equipment3 years
Laboratory equipment and office furniture3 years
Leasehold improvementShorter of life of asset or lease term
Leases
Effective December 31, 2021, the Company was no longer an emerging growth company under the Jumpstart Our Business Startups Act of 2012, as amended, and as a result, the Company was required to adopt Accounting Standards Update, or ASU, 2016-02, Leases (Topic 842), referred to as ASC 842, for the fiscal year beginning January 1, 2021 using a modified-retrospective approach under which the Company recognized and measured leases existing at, or entered into after, January 1, 2021. Accordingly, the Company's condensed consolidated financial statements and information for the periods ended March 31, 2021 have been restated to conform to the new standard.
Under ASC 842, the Company determines if an arrangement is a lease at inception. Lease assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Lease liabilities are measured at the lease commencement date as the present value of future minimum lease payments over the term of the lease. Lease assets are measured as the lease liability plus initial direct costs and prepaid lease payments less lease incentives. In measuring the present value of the future minimum lease payments, the Company generally uses its incremental borrowing rate. The lease term is the noncancellable period of the lease and includes options to extend or terminate the lease when it is reasonably certain that an option will be exercised. Leases with terms of 12 months or less are not recorded on the Company's balance sheet. Lease expense is recognized on a straight-line basis over the lease terms, or in some cases, the useful life of the underlying asset. The Company accounts for the lease and non-lease components as a single lease component. The Company’s lease agreement for its laboratory and office facilities is classified as an operating lease.
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The following table summarizes the effects of adopting ASC 842 on the Company's condensed consolidated statement of cash flows for the three months ended March 31, 2021 (in thousands):
Three Months Ended March 31, 2021
Previously ReportedASC 842 AdjustmentAs Adjusted
Operating activities
Noncash lease expense$ $441 $441 
Changes in operating assets and liabilities:
Deferred rent(726)726  
Operating lease liability (1,167)(1,167)
Net cash used in operating activities$(22,225)$ $(22,225)
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 March 31, 2022 and December 31, 2021, no revision to the remaining useful lives or write-down of long-lived assets was required.
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. The net deferred tax assets have been fully offset by a valuation allowance.
Revenue Recognition
Under ASC 606, the Company estimates each arrangement’s total transaction price, which includes unconstrained variable consideration, and the recognition of that transaction price based on a cost-based input method that requires 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. The unconstrained variable consideration amount included in the transaction price represents an amount for which it is probable that a significant reversal of cumulative revenue recognized will not occur.
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, primarily its collaboration agreement with Merck. 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.
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The Company assesses whether the promises in its arrangements, including any options provided to the partner, 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 research or steering committees, as well as whether options create material rights in the contract. In situations when a contract includes distinct services that are substantially the same and have the same pattern of transfer to the customer over time, they are recognized as a series of distinct services.
The transaction price in each arrangement is generally comprised of a non-refundable upfront fee and unconstrained variable consideration related to the performance of research and development services. The unconstrained variable consideration amount included in the transaction price represents an amount for which it is probable that a significant reversal of cumulative revenue recognized will not occur. The Company typically submits a budget for the research and development services to the partner in advance of performing the services. The transaction price is allocated to the identified performance obligations based on the standalone selling price, or SSP, of each distinct performance obligation. Judgment is required to determine the SSP. In instances where the 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 health 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 partner’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.
Contract modifications, defined as changes in the scope or price (or both) of a contract that are approved by the parties to the contract, such as a contract amendment, exist when the parties to a contract approve a modification that either creates new, or changes existing, enforceable rights and obligations of the parties to the contract. Depending on facts and circumstances, the Company accounts for a contract modification as one of the following: (i) a separate contract; (ii) a termination of the existing contract and a creation of a new contract; or (iii) a combination of the preceding treatments. A contract modification is accounted for as a separate contract if the scope of the contract increases because of the addition of promised services that are distinct and if the price of the contract increases by an amount of consideration that reflects the Company’s standalone selling prices of the additional promised services. When a contract modification is not considered a separate contract and the remaining services are distinct from the services transferred on or before the date of the contract modification, the Company accounts for the contract modification as a termination of the existing contract and a creation of a new contract. When a contract modification is not considered a separate contract and the remaining services are not distinct, the Company accounts for the contract modification as an add-on to the existing contract and as an adjustment to revenue on a cumulative catch-up basis.
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.
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Clinical trial costs are a component of research and development expenses. The Company accrues estimated costs for its clinical trial activities performed by third parties, including clinical research organizations, or CROs, and other service providers based upon estimates of the proportion of work completed over the life of the individual clinical trial and patient enrollment rates in accordance with associated agreements. The Company's estimates are determined through detailed discussions with internal personnel and its service providers as to the progress of each clinical trial and by reviewing contracts, vendor agreements and purchase orders for previously agreed-upon rates and fees to be paid for such services.
Stock-Based Compensation
The Company’s stock-based compensation programs include stock option grants, as well as shares issued under its 2019 Employee Stock Purchase Plan, or ESPP. Grants are awarded to employees, directors and nonemployees. The Company measures employee and director stock-based compensation expense for all stock-based awards at the grant date based on the fair value measurement of the award. Subsequent to the adoption of ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting on January 1, 2019, stock-based compensation expense for nonemployee awards is measured based on the fair value on the date of adoption. The expense is recorded on a straight-line basis over the requisite service period, which is generally the vesting period, for the entire award. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures materially differ from estimates. The Company calculates the fair value measurement of stock options using the Black-Scholes option-pricing model.
Foreign Currency Transactions
The functional currency of NGM Biopharmaceuticals Australia Pty Ltd., the Company’s 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, Australian dollars 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 composed of net loss and certain changes in stockholders’ equity that are excluded from net loss, primarily unrealized gains or losses, net of taxes, on the Company’s marketable securities.
Net Loss per Share
Basic net loss per share is calculated by dividing net loss by the weighted average number of shares outstanding during the period, less shares subject to repurchase and excludes any dilutive effects of stock-based options and awards. Diluted net income per share is computed by giving effect to all potentially dilutive shares, including common stock issuable upon exercise of stock options. However, where there is a diluted net loss per share, no adjustment is made for potentially issuable shares since their effect would be anti-dilutive. In this case, diluted net loss per share is equal to basic net loss per share.
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Net loss per share was computed as follows (in thousands, except per share amounts):
Three Months Ended
March 31,
20222021
Numerator:
Net loss$(32,450)$(27,544)
Denominator:
Weighted average number of shares used in calculating net loss per share—basic and diluted78,023 76,034 
Net loss per share—basic and diluted$(0.42)$(0.36)
Potentially dilutive securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows (in thousands):
Three Months Ended
March 31,
20222021
Options to purchase common stock13,240 11,301 
Shares committed under ESPP390 292 
Total13,630 11,593 
Segment and Geographical Information
The Company operates in one business segment. Substantially all of the Company’s long-lived assets, primarily comprised of property and equipment, are based in the United States. For the three months ended March 31, 2022 and 2021, the Company’s revenues were entirely within the United States based upon the location of the Company and Merck.
Recent Accounting Pronouncements
New accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s results of operations and financial position upon adoption.
3. Fair Value Measurements
Cash equivalents and marketable securities are classified as available-for-sale securities and consisted of the following (in thousands):
Amortized
Cost
Gross
Unrealized
Gain
Gross
Unrealized
Loss
Fair
Value
As of March 31, 2022
U.S. treasury securities$168,668 $3 $(662)$168,009 
Money market funds105,292   105,292 
Commercial paper44,373   44,373 
Corporate and agency bonds7,596  (18)7,578 
Totals$325,929 $3 $(680)$325,252 
Classified as:
Cash and cash equivalents$105,292 
Short-term marketable securities (amortized cost of $220,637)
219,960 
Total$325,252 
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Amortized
Cost
Gross
Unrealized
Gain
Gross
Unrealized
Loss
Fair
Value
As of December 31, 2021
U.S. treasury securities$141,093 $ $(116)$140,977 
Money market funds129,763   129,763 
Corporate and agency bonds64,997 7 (20)64,984 
Commercial paper8,497   $8,497 
Totals$344,350 $7 $(136)$344,221 
Classified as:
Cash and cash equivalents$129,763 
Short-term marketable securities (amortized cost of $214,587)
214,458 
Total$344,221 
Cash and cash equivalents in the table above excludes cash on deposit with banks of $4.6 million and $22.0 million as of March 31, 2022 and December 31, 2021, respectively.
To date, the Company has not recorded any impairment charges against the market value of its marketable securities. In determining whether a decline is other than temporary, the Company considers various factors including the length of time and extent to which the market value has been less than cost, the financial condition and near-term prospects of the issuer and the Company’s intent and ability to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value.
As of March 31, 2022 and December 31, 2021, all of the Company’s marketable securities had remaining contractual maturities of less than one year. As of March 31, 2022, the Company had 14 marketable securities in an unrealized loss position compared to 21 marketable securities in an unrealized loss position as of December 31, 2021. Marketable securities that had been in unrealized loss positions as of March 31, 2022 and December 31, 2021 had been in an unrealized loss position for less than twelve months. The Company does not intend to sell marketable securities that are in an unrealized loss position and it is highly unlikely that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table summarizes, by major security type, our available-for-sale securities that were measured at fair value on a recurring basis and were categorized using the fair value hierarchy (in thousands):
Fair Value Measurements
As of March 31, 2022Level 1Level 2Level 3Total
Assets:
U.S. treasury securities$168,009 $ $ $168,009 
Money market funds105,292   105,292 
Commercial paper 44,373  44,373 
Corporate and agency bonds 7,578  7,578 
Totals$273,301 $51,951 $ $325,252 
Fair Value Measurements
As of December 31, 2021Level 1Level 2Level 3Total
Assets:
U.S. treasury securities$140,977 $ $ $140,977 
Money market funds129,763   129,763 
Corporate and agency bonds 64,984  64,984 
Commercial paper 8,497  8,497 
Totals$270,740 $73,481 $ $344,221 
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The carrying amounts of cash and cash equivalents, the related party receivable and other current assets and liabilities approximate their respective fair values due to their short-term nature.
The Company estimates the fair values of investments in commercial paper and corporate and agency bond securities using Level 2 inputs by taking into consideration valuations obtained from third-party pricing services.
There were no transfers of assets or liabilities between the fair value measurement levels during the three months ended March 31, 2022 and year ended December 31, 2021.
4. Balance Sheet Components
Cash, Cash Equivalents and Restricted Cash
A reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the amount reported within the condensed consolidated statements of cash flows is as follows (in thousands):
March 31,
2022
March 31,
2021
Cash and cash equivalents$109,872 $148,113 
Restricted cash1,499 1,499 
Total cash, cash equivalents and restricted cash$111,371 $149,612 
Property and Equipment
Property and equipment consisted of the following (in thousands):
March 31,
2022
December 31,
2021
Leasehold improvements$25,880 $25,880 
Laboratory equipment and office furniture22,227 21,916 
Computer equipment1,253 1,225 
Construction-in-progress399 18 
Total property and equipment, gross49,759 49,039 
Less: accumulated depreciation and amortization(40,323)(38,968)
Total property and equipment, net$9,436 $10,071 
Depreciation expense was $1.4 million and $1.6 million for the three months ended March 31, 2022 and 2021, respectively.
Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
March 31,
2022
December 31,
2021
Clinical trials and research and development costs$13,671 $12,070 
Personnel-related costs5,768 10,298 
Manufacturing costs4,667 7,773 
Accrued expenses5,372 3,117 
Total accrued liabilities$29,478 $33,258 

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5. Research Collaboration and License Agreements
Merck
In 2015, the Company entered into a research collaboration, product development and license agreement with Merck, which, together with amendments made prior to June 30, 2021, is referred to as the Original Collaboration Agreement, covering the discovery, development and commercialization of novel therapies across a range of therapeutic areas, including a broad, multi-year drug discovery and early development program that was financially supported by Merck, and scientifically directed by the Company with input from Merck. The original research phase of the collaboration was for five years and was extended for an additional two years by Merck through March 2022. As part of that extension, Merck agreed to continue to fund up to $75.0 million of our R&D efforts each year consistent with the initial five-year research term and, in lieu of a $20.0 million extension fee payable to the Company, Merck agreed to make additional payments totaling up to $20.0 million in support of our R&D activities during 2021 through the first quarter of 2022.
On June 30, 2021, the Company entered into an amended and restated research collaboration, product development and license agreement with Merck, or the Amended Collaboration Agreement, replacing the Original Collaboration Agreement and extending the research phase of the collaboration generally through March 31, 2024, with possible extensions for each of the various programs to allow the Company or Merck to complete ongoing development, but with a narrower scope than in the Original Collaboration Agreement, as described in more detail below.
Merck owned approximately 16.6% of the Company's outstanding shares as of March 31, 2022.
The Amended Collaboration Agreement
Pursuant to the Amended Collaboration Agreement, the prior two-year extension of the research phase under the Original Agreement was deemed to end on March 31, 2021, while a new three-year research phase commenced on April 1, 2021. Under the Original Collaboration Agreement, all of the Company’s research and development programs, both those existing at the time the Company entered into the Original Collaboration Agreement and those the Company worked on during the research phase of the collaboration, other than aldafermin, were included within the scope of the collaboration. Under the terms of the Original Collaboration Agreement, upon completion of a human proof-of-concept trial for a particular collaboration compound, regardless of the results of such trial, Merck had the one-time option to obtain an exclusive, worldwide license, on specified terms, to that collaboration compound, as well as to all other compounds that were directed against the same target and that result in the same effect on such target, or the related compounds, referred to as the Merck license option. Under the Amended Collaboration Agreement, the scope of the collaboration and the resulting programs for which Merck has the Merck license option was narrowed. The collaboration as conducted under the Amended Collaboration Agreement, or the continuing collaboration, is focused primarily on the identification and 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 compounds 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, which is being tested in a Phase 2 clinical trial, and its related compounds, and compounds directed against two other undisclosed ophthalmology targets and their related compounds. Collaboration compounds that remain within the scope of the continuing collaboration under the Amended Collaboration Agreement are referred to as continuing collaboration compounds. Given the narrowed research scope under the Amended Collaboration Agreement, the Company has the right, in its sole discretion, to independently research, develop and commercialize the collaboration compounds known as NGM120, NGM707, NGM831 and NGM438, their related compounds and all other preclinical and research assets that the Company researched or developed under the Original Collaboration Agreement but that are not included within the research and development scope of the continuing collaboration, which are referred to as the released NGM compounds. Merck retained the right to receive royalties at low single-digit rates on the sales of any released NGM compounds that receive regulatory approval and, if the Company decides during a certain time period to engage in a formal partnering process for a released NGM compound or negotiations regarding a license or asset sale of a released NGM compound, the Company is obligated 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.
Under the Amended Collaboration Agreement, Merck continues to have a Merck license option, as it did under the Original Agreement, to each continuing collaboration compound that is identified, researched and developed under the Amended Collaboration Agreement and reaches the specified option exercise point for such continuing collaboration compound as described below, and to its related compounds (each such continuing
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collaboration compound and its related compounds are referred to generally as a continuing program). In addition, under the terms of the Amended Collaboration Agreement, new CVM-related programs may be added to the continuing collaboration if recommended by the Company and selected by Merck, and Merck would have a Merck license option to such CVM-related continuing program. Merck has a one-time right to exercise its Merck license option, during the research phase or a tail period following such research phase, as applicable, for any continuing collaboration compound on a continuing program-by-continuing program basis when the Company or Merck achieves the specified Merck license option exercise point. The Merck license option exercise point for collaboration compounds under the Original Collaboration Agreement was the completion of a human proof-of-concept trial, exercisable within 60 days of Merck's receipt of an agreed-upon data package for the relevant program. This generally continues to be the Merck license option exercise point under the Amended Collaboration Agreement for continuing collaboration compounds that are directed to ophthalmology targets, including NGM621 and its related compounds and all of the continuing collaboration compounds from two other ophthalmology programs directed against undisclosed ophthalmology targets and their related compounds (including NGM621 and its related compounds, collectively referred to as the continuing ophthalmology collaboration compounds). Upon the completion of the ongoing Phase 2 NGM621 CATALINA clinical trial, Merck will have an additional one-time option to obtain an exclusive, worldwide license to all of the continuing ophthalmology collaboration compounds together, referred to as the ophthalmology bundle option. If Merck does not exercise this one-time ophthalmology bundle option for all continuing ophthalmology collaboration compounds, it may nevertheless exercise its regular Merck license option with respect to NGM621 and its related compounds at such time, and it may also exercise its regular Merck license option for the continuing ophthalmology collaboration compounds from each of the other two programs if a continuing ophthalmology collaboration compound from such continuing program completes a human proof-of-concept trial. Unlike the Original Collaboration Agreement, the Merck license option exercise point for a continuing collaboration compound from the CVM-related continuing programs or the Lab Programs will be the designation by Merck of such continuing collaboration compound as a research program development candidate that Merck intends to progress into preclinical development.
As was the case under the Original Collaboration Agreement, under the Amended Collaboration Agreement, if Merck exercises a Merck license option and obtains the relevant exclusive, worldwide license for a continuing collaboration compound and its related compounds, Merck will pay an option exercise fee to the Company and will be responsible, at its own cost, for any further development and commercialization activities for continuing collaboration compounds within that licensed continuing program. In such case, the Company will have the option to receive milestones and royalty payments or, in certain cases, to co-fund development and participate in a global cost and profit share arrangement of up to 50%, with an additional option to co-detail any such licensed continuing collaboration compound in the United States under the same terms as set forth in the Original Collaboration Agreement. If the Company elects to exercise its cost and profit share option for a particular continuing collaboration compound and its related compounds Merck has agreed to advance to the Company and/or assume up to 25% of the Company’s share of the global development costs for such licensed compound, subject to an aggregate cap over the course of the collaboration. All such amounts advanced or assumed by Merck would accrue interest and be recouped by Merck in full out of the Company’s share of any profits resulting from sales of the licensed compound for which the Company elected to exercise its cost and profit share option before the Company was entitled to receive any of those profits.
Except for the ophthalmology bundle option, the amount of the option exercise fees for continuing ophthalmology collaboration compounds upon completion of a human proof-of-concept trial remains the same under the Amended Collaboration Agreement as under the Original Collaboration Agreement. If Merck exercises the ophthalmology bundle option, it will pay the Company either $40.0 million or $45.0 million as the Merck license option exercise fee, depending upon the stage of development of one of the two earlier stage ophthalmology programs that is included in the ophthalmology bundle option. Under the Amended Collaboration Agreement, if Merck exercises the Merck license option for a continuing collaboration compound from a CVM-related continuing program or the Lab Programs, Merck will pay the Company a $6.0 million option exercise fee at the time of selection to progress such licensed continuing collaboration compound or any of its related compounds into preclinical development and an additional $10.0 million milestone payment if such continuing collaboration compounds or one of its related compounds subsequently completes a human proof-of-concept trial.
Under the Amended Collaboration Agreement, the parties’ rights and obligations with respect to MK-3655 and related FGFR1c/KLB agonists for which Merck exercised its Merck license option in November 2018 did not change.
On March 30, 2022, the Company and Merck entered into a letter agreement, or the Letter Agreement, regarding NGM621 manufacturing activities that the Company is undertaking during the Phase 2 NGM621 CATALINA clinical trial to avoid a significant delay between the completion of that trial and the start of a Phase 3
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clinical trial for NGM621. The Company will be responsible for all payments owed to the third party manufacturer for such activities before Merck decides whether to exercise the ophthalmology bundle option or the NGM621 option following completion of the Phase 2 NGM621 CATALINA clinical trial. If Merck exercises either option, then in addition to paying the one-time option exercise fee to the Company, Merck will also reimburse the Company for certain amounts it paid to the third party manufacturer, according to the terms of the Letter Agreement and subject to certain limitations. Under the Amended Collaboration Agreement, Merck agreed to provide up to $86.0 million in research funding for the four calendar quarters ending March 31, 2022, which included the remaining $16.0 million of the up to $20.0 million in additional payments Merck agreed to pay as part of exercising its first option to extend the research phase of the collaboration under the Original Collaboration Agreement for two years through March 16, 2022. The Company was obligated to use commercially reasonable efforts to expend, and did spend, at least $35.0 million of such $86.0 million in funding during the same time frame on the ophthalmology and CVM-related programs and Lab Programs as required under the Amended Collaboration Agreement. The Company was permitted to use the remainder of the $86.0 million in research funding provided by Merck during such time frame to advance the released NGM compounds. During the remaining two years of the research phase after March 2022, Merck will provide up to a total of $20.0 million in research funding for the ophthalmology and CVM-related programs and the Lab Programs. Pursuant to the Letter Agreement, the Company may use part of this research funding to cover the costs of its personnel who provide support for the manufacturing activities conducted in preparation for a Phase 3 clinical trial for NGM621. Merck will also fund certain research and development costs related to NGM621, subject to certain limitations, until the earlier of the remaining two years of the research phase after March 2022 or until Merck exercises, or decides not to exercise, its license option with respect to NGM621 alone or bundled with the other continuing ophthalmology compounds. After March 2022, the Company, using its own funding, is required to use commercially reasonable efforts to research and develop a specific product candidate directed to a specific ophthalmology target to be ready for starting investigational new drug application-, or IND-, enabling studies by March 31, 2023. If Merck exercises its regular Merck license option with respect to NGM621 or the ophthalmology bundle option for all of the continuing ophthalmology collaboration compounds upon completion of the ongoing Phase 2 CATALINA clinical trial of NGM621 within 60 days of Merck's receipt of an agreed-upon data package and pays the applicable option exercise fee to the Company, then the Company will be obligated to reinvest $5.0 million or up to $15.0 million, respectively, of such option fee to fund research on the ophthalmology and CVM-related continuing programs.
Under the Amended Collaboration Agreement, the research phase for the ophthalmology continuing programs will end no later than March 31, 2024. The research phase for the CVM-related continuing programs will also continue until March 31, 2024, unless the parties mutually agree to extend the research phase to March 31, 2026, in which case Merck will provide up to a total of $20.0 million in research funding during those additional two years. The research phase for the Lab Programs will end no later than December 31, 2022.
As under the Original Collaboration Agreement, Merck has the right under the Amended Collaboration Agreement to review the then-ongoing continuing programs in the three-month period before the end of applicable research phase and to elect to designate one or more continuing programs for which research and development would continue to be conducted, until the applicable Merck license option exercise point is reached, for up to three years after the end of such research phase, with the possibility of extension if the Company is conducting ongoing ophthalmology clinical trials, if Merck is using commercially reasonable efforts to progress one or more ophthalmology continuing programs or if Merck determines to continue progressing a CVM-related continuing program or Lab Program toward the nomination of a research program development candidate, and any such extension is referred to as an Amended Collaboration Agreement tail period. Under the Amended Collaboration Agreement, the Amended Collaboration Agreement tail period, if any, for the ophthalmology continuing programs would be separate from the Amended Collaboration Agreement tail period, if any, for the CVM-related continuing programs or the Lab Program, and Merck would be primarily responsible for performing all research and development activities, itself or through third-party contractors, during the Amended Collaboration Agreement tail period, if any, for the CVM-related continuing programs or the Lab Program.
The Company concluded that the Amended Collaboration Agreement is a separate arrangement containing a three-year performance obligation to provide distinct research and development services in accordance with ASC 606. The total transaction price under the Amended Collaboration Agreement is $125.5 million and represents the sum of potential funding amounts, including $86.0 million in research funding for the four calendar quarters ending March 31, 2022, $20.0 million in research funding for the ophthalmology and CVM-related continuing programs during the remaining two years of the research phase after March 2022 and $19.5 million in estimated NGM621 reimbursable expenses during the remaining two years of the research phase after March 2022. The Company will continue to re-evaluate the transaction price as uncertain events are resolved or other changes in circumstances occur. The Company continues performing a series of research and development services in the area of both the
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continuing collaboration compounds and the released NGM compounds and has one performance obligation across all continuing programs. The Company will continue to use the cost-based input method to calculate the amount of revenue to recognize as services are being rendered from April 1, 2021 through March 31, 2024.
The Company considered whether the Merck license option and the ophthalmology bundle option created material rights in the contract and concluded that the fee attached to the exercise of such options approximated the SSP of the promised goods or services included in the options. Therefore, the Company concluded that such options did not give rise to material rights, were not performance obligations in the Amended Collaboration Agreement and, if and when exercised, would be accounted for as separate arrangements under ASC 606.
If Merck exercises its regular Merck license option for NGM621 or the ophthalmology bundle option for all of the continuing ophthalmology collaboration compounds upon completion of the Phase 2 CATALINA clinical trial within 60 days of Merck's receipt of an agreed-upon data package, pays the applicable Merck license option exercise fee to the Company and reimburses the Company for third party manufacturing payments in accordance with the Letter Agreement this would not result in a modification of the contract as total contract consideration and the Company's performance obligation under the Amended Collaboration Agreement will not change.
A breakout of the milestone payments in connection with the potential achievement of certain clinical development events for each of the first three indications is as follows (in thousands):
First
Indication
Second
Indication
Third
Indication
Upon administration of an applicable product to the first patient in the first Phase 3 clinical trial for such product for the given indication$35,000 $25,250 $17,500 
Upon first completion of a proof-of-concept trial for a CVM-related research program development candidate $10,000 $ $ 
Upon first completion of a proof-of-concept trial for a certain research development candidate for a lab program$10,000 $ $ 
A breakout of the aggregate milestone payments in connection with the potential achievement of both acceptance of an application for and receipt of regulatory approval for each of the first three indications, for each of the three geographic areas, is as follows (in thousands):
First
Indication
Second
Indication
Third
Indication
Total
United States$75,000 $56,250 $37,500 $168,750 
European Union60,000 45,000 30,000 135,000 
Japan30,000 22,500 15,000 67,500 
$165,000 $123,750 $82,500 $371,250 
Summary of Related Party Revenue
The Company recognized revenue from its collaboration and license agreements as follows (in thousands):
Three Months Ended
March 31,
20222021
Related party revenue$20,948 $21,575 
For the three months ended March 31, 2022, the Company recognized collaboration and license revenue of $20.9 million primarily related to reimbursable research and development activities associated with the performance obligation under the Amended Collaboration Agreement. For the three months ended March 31, 2021, the Company recognized collaboration and license revenue for the two-year extension period through March 31, 2021 under the Original Agreement. Revenue recognized related to the reimbursable research and development activities was recognized using the cost-based input model related to research and development activities.
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Related Party Contract Assets and Liabilities
Amounts recognized as revenue prior to the Company having an unconditional right (or a right that is conditioned only on the passage of time) to receipt are recorded as contract assets in the Company's condensed consolidated balance sheets. If the Company expects to have an unconditional right to receive the consideration in the next twelve months, the contract asset will be classified in current assets. As of March 31, 2022 and December 31, 2021, the Company did not have a related party contract asset.
Amounts received prior to satisfying the revenue recognition criteria are recorded as contract liabilities in the Company’s condensed consolidated balance sheets. If the related performance obligation is expected to be satisfied within the next twelve months, the contract liability will be classified in current liabilities. As of March 31, 2022 and December 31, 2021, the Company recorded contract liabilities of $5.1 million and $17.8 million, respectively.
6. Commitments and Contingencies
Operating Lease and Lease Guarantee
In December 2015, the Company entered into an operating lease agreement, or the 333 Oyster Point lease agreement, for its corporate office space and laboratory facility at 333 Oyster Point Blvd., South San Francisco, California, or the 333 Oyster Point facility, for approximately 122,000 square feet that expires in December 2023. The 333 Oyster Point lease agreement provided a tenant improvement allowance of $15.2 million that the Company used in 2016 towards $22.3 million in total leasehold improvements that are amortized over the lease term of seven years. The 333 Oyster Point lease agreement required a letter of credit in the amount of $2.3 million as a security deposit to the lease, which the Company has recorded as non-current restricted cash on the condensed consolidated balance sheets. In accordance with the agreement, the Company reduced the letter of credit amount by $0.4 million on each of the third and fourth anniversaries of the rent commencement date and reclassified each $0.4 million amount from restricted cash to cash and cash equivalents on the condensed consolidated balance sheets.
As of March 31, 2022, the weighted-average remaining lease term for the 333 Oyster Point lease agreement was 1.75 years and the weighted-average discount rate used to determine the Company's operating lease liability was 2.85%. Cash paid for amounts included in the measurement of the lease liabilities were $1.3 million in both the three-month periods ended March 31, 2022 and 2021.
During the three months ended March 31, 2022, the components of lease costs, which were included in general and administrative expenses on the Company's consolidated statements of operations, were as follows (in thousands):
Three Months Ended
March 31,
20222021
Operating lease costs$541 $541 
Variable lease costs (1)324 309 
Total lease cost$865 $850 
_____________
(1)Variable lease costs include certain additional charges for operating costs, including insurance, maintenance, taxes and other costs incurred, which are billed based on both usage and as a percentage of the Company’s share of total square footage.
As of March 31, 2022, the maturities of the Company’s operating lease liabilities and future minimum lease payments were as follows (in thousands):
Year Ending December 31,
2022 (remaining)$3,991 
20235,455 
Total undiscounted lease payments9,446 
Less: present value adjustment(220)
Present value of lease liabilities$9,226 
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Indemnification
In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and may provide for indemnification of the counterparty. The Company’s exposure under these agreements is unknown because it involves claims that may be made against it in the future but have not yet been made.
In accordance with the Company’s amended and restated certificate of incorporation and its amended and restated bylaws, the Company has indemnification obligations to its officers and directors, subject to some limits, with respect to their service in such capacities. The Company has also entered into indemnification agreements with its directors and certain of its officers. To date, the Company has not been subject to any claims, and it maintains director and officer insurance that may enable it to recover a portion of any amounts paid for future potential claims.
The Company’s exposure under these agreements is unknown because it involves claims that may be made against it in the future but have not yet been made. The Company believes that the fair value of these indemnification obligations is minimal and, accordingly, it has not recognized any liabilities relating to these obligations for any period presented.
7. Stockholders’ Equity
Preferred Stock
The Company has 10,000,000 shares of preferred stock authorized, which may be issued at the discretion of the Company’s board of directors. The board of directors may issue shares of preferred stock in one or more series and may fix the number, rights, preferences, privileges and restrictions on such shares. These rights, preferences and privileges could include dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences and sinking fund terms. As of March 31, 2022, the Company does not have any shares of preferred stock issued or outstanding.
Common Stock
As of March 31, 2022 and December 31, 2021, the Company had reserved shares of common stock for issuance as follows (in thousands):
March 31,
2022
December 31,
2021
Reserve balance for Sales Agreement14,183 14,183 
Common stock options outstanding13,240 10,485 
Common stock options available for grant6,937 6,698 
ESPP shares available for purchase507 507 
401(k) Matching Plan (1)200 18 
Total35,067 31,891 
_____________
(1)The Company sponsors a 401(k) defined contribution plan for its employees. Employee contributions are voluntary. In December 2011, the Company adopted the 401(k) Matching Plan, under which the Company made matching contributions in the form of common stock at a rate of $1.00 for each $2.00 of employee contributions up to a maximum $750 of common stock per employee per year. Effective January 1, 2022, the Company increased its matching contributions to a rate of $1.00 for each $2.00 of employee contributions up to a maximum $3,500 of common stock per employee per year. Effective January 1, 2022, the Company increased shares of common stock reserved pursuant to the 401(k) Matching Plan to 200,000 shares from 17,813 shares of common stock as of December 31, 2021.
Open Market Sale Agreement
In June 2020, the Company entered into the Sales Agreement with Jefferies relating to the sale of shares of its common stock. In accordance with the terms of the Sales Agreement, the Company may offer and sell shares of its common stock having an aggregate offering price of up to $150.0 million from time to time through Jefferies, acting as its sales agent. As of March 31, 2022, $127.2 million of the Company’s common stock remained available to be sold under the Sales Agreement, subject to conditions specified in the Sales Agreement.
Equity Incentive Plan
In 2018, the Company adopted the 2018 Equity Incentive Plan, or the 2018 Plan, for eligible employees, officers, directors, advisors and consultants, which provides for the grant of incentive and non-statutory stock
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options, restricted stock awards and stock appreciation rights. The terms of the stock option agreements, including vesting requirements, are determined by the board of directors, subject to the provisions of the 2018 Plan. Options granted by the Company generally vest within four years and are exercisable from the grant date until ten years after the date of grant. Vesting of certain employee options may be accelerated in the event of a change in control of the Company.
Early Exercise of Stock Options
The 2018 Plan allows for the granting of options that may be exercised before the options have vested. Shares issued as a result of early exercise that have not vested are subject to repurchase by the Company upon termination of the purchaser’s employment or services, at the price paid by the purchaser, and are not deemed to be issued for accounting purposes until those related shares vest. The amounts received in exchange for these shares have been recorded as a liability on the condensed consolidated balance sheets and are reclassified into Company common stock and additional paid-in-capital as the shares vest. The Company’s right to repurchase these shares generally lapses in equal installments over four years beginning from the original vesting commencement date. Since the beginning of March 2021, the Company has not granted any options under the 2018 Plan that can be early exercised prior to vesting.
Stock Option Activity
A summary of the activity under the 2008 Plan and the 2018 Plan is as follows:
Outstanding OptionsWeighted
Average
Remaining
Contractual Life
(In Years)
Aggregate
Intrinsic
Value
(In Thousands)
Number of
Options
(In Thousands)
Weighted
Average
Exercise
Price
Balances at December 31, 202110,485 $15.79 6.68$52,349 
Options granted3,007 15.26 
Options exercised(125)5.36 
Options cancelled(127)21.57 
Balances at March 31, 202213,240 $15.71 7.22$35,840 
Vested and expected to vest at March 31, 202212,727 $15.56 7.14$35,799 
Exercisable at March 31, 20228,603 $13.13 6.00$35,691 
The aggregate intrinsic values of options outstanding, vested and expected to vest, and exercisable were calculated as the difference between the exercise price of the options and the estimated fair value of the Company’s common stock.
The weighted-average grant date fair value of stock options granted during the three months ended March 31, 2022 and 2021 was $10.19 per share and $19.83 per share, respectively. The intrinsic value of stock options exercised during the three months ended March 31, 2022 and 2021 was $1.3 million and $22.3 million, respectively. Due to the Company’s net operating losses, the Company did not realize any tax benefits from stock-based payment arrangements for the three months ended March 31, 2022 and 2021.
Employee Stock-Based Compensation Expense
Employee and director stock-based compensation expense for the three months ended March 31, 2022 and 2021 was calculated based on awards previously granted to employees and directors that are ultimately expected to vest and has been reduced for estimated forfeitures.
Employee and director stock-based compensation expense was allocated as follows (in thousands):
Three Months Ended
March 31,
20222021
Research and development$4,138 $3,504 
General and administrative3,609 3,011 
Total stock-based compensation expense$7,747 $6,515 
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Employee Stock Purchase Plan
Under the ESPP, eligible employees are granted the right to purchase shares of the Company's common stock through payroll deductions that cannot exceed 15% of each employee’s salary. The ESPP provides for a 24-month offering period, which includes four six-month purchase periods. At the end of each purchase period, eligible employees are permitted to purchase shares of common stock at the lower of 85% of fair market value at the beginning of the offering period or fair market value at the end of the purchase period. As of March 31, 2022, 493,022 shares of common stock had been purchased under the ESPP.
8. Income Taxes
Since inception, the Company has incurred net losses and expects to record a net loss for the year ending December 31, 2022. Additionally, the Company’s net deferred tax assets have been fully offset by a valuation allowance. Therefore, the Company did not record a tax provision for income taxes for the three months ended March 31, 2022 and 2021.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with (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, 2021 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on March 1, 2022, or the 2021 Annual Report on Form 10-K. 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,” "aspire," “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “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, potentially life-changing medicines 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. Since the commencement of our operations in 2008, we have generated a robust portfolio of product candidates ranging from early discovery to Phase 2b development. Currently, we have seven programs in active development, including four in Phase 2 or 2b studies, across three therapeutic areas: cancer, retinal diseases and liver and metabolic diseases. Our biology-centric drug discovery approach aims to seamlessly integrate interrogation of complex disease-associated biology and protein engineering expertise to unlock proprietary insights that are leveraged to generate promising product candidates and enable their rapid advancement into proof-of-concept studies. As explorers on the frontier of life-changing science, we aspire to operate one of the most productive research and development engines in the biopharmaceutical industry. All therapeutic candidates in our pipeline have been generated by our in-house therapeutic area-agnostic discovery engine, led by biology and motivated by unmet patient need.
Pipeline Programs and Operational Updates
Pipeline Programs
We currently have six product candidates in the clinic, four wholly-owned by us (NGM707, NGM831, NGM120 and aldafermin), one being progressed by our collaborator, Merck Sharp & Dohme LLC, or Merck (MK-3655), and one optionable by Merck (NGM621). In addition, we have one wholly-owned product candidate, NGM438, expected to enter the clinic in the second quarter of 2022.
Oncology. Our oncology product candidates NGM707, NGM831, NGM438 and NGM120 and their related compounds are wholly-owned by us.
NGM707. NGM707, the lead asset in our myeloid reprogramming and checkpoint inhibition portfolio, is a dual antagonist monoclonal antibody that is designed to improve patient immune responses to tumors by inhibiting both Immunoglobulin-like transcript 2, or ILT2 (also known as LILRB1), and Immunoglobulin-like transcript 4, or ILT4 (also known as LILRB2) receptors. We believe NGM707 has the potential to reprogram ILT4- and ILT2-expressing myeloid cells to shift them from a suppressive state that restricts anti-tumor immunity to a stimulatory state that may promote anti-tumor immunity. Blocking ILT2 may also reverse inhibition of ILT2-expressing lymphoid cells to further stimulate anti-tumor immune responses.
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We are conducting an open-label, Phase 1 portion of a Phase 1/2 clinical trial evaluating 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. The Phase 1a cohort of the trial evaluating NGM707 as a monotherapy is ongoing.
In December 2021, we entered into a clinical trial collaboration and supply agreement with Merck to evaluate the potential of NGM707 co-administered with pembrolizumab in the ongoing Phase 1/2 trial of NGM707.
Looking forward: We anticipate a readout of initial data from the Phase 1a cohort in the second half of 2022. In addition, we will be enrolling a Phase 1b cohort that will evaluate NGM707 in combination with pembrolizumab in patients with advanced solid tumors. The Phase 1a/1b portions of the trial are expected to be followed by a Phase 2 dose-expansion in cohorts of specific tumor types.
NGM831. NGM831 is an antagonist antibody that is designed to block the interaction of the Immunoglobulin-like transcript 3, or ILT3 (also known as LILRB4) receptor, with fibronectin, as well as other cognate ligands. For tumors in which both ILT3 and fibronectin are upregulated, the ILT3-fibronectin signaling pathway may act as a stromal checkpoint to repress myeloid cell function and inhibit anti-tumor immunity. By inhibiting ILT3's interaction with fibronectin and its other ligands, we believe 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.
In March 2022, we initiated an open-label, Phase 1 portion of a Phase 1/1b clinical trial to evaluate NGM831 as a monotherapy and in combination with pembrolizumab for the treatment of patients with advanced solid tumors. We expect to enroll up to approximately 80 patients in this trial. The ongoing Phase 1a cohort of the trial is a dose-ranging study of NGM831 as a monotherapy. The Phase 1b cohort is a dose-ranging study of NGM831 in combination with pembrolizumab in patients with advanced solid tumors.
NGM438. NGM438 is an antagonist antibody that is designed to inhibit leukocyte-associated immunoglobulin-like receptor 1, or LAIR1, and thereby promote anti-tumor immune responses. NGM438 has the potential to potently block the binding of all collagens to LAIR1, including tumor-derived collagens. Collagens produced by the tumor stroma are believed to bind LAIR1 to create an immuno-suppressive tumor microenvironment. The interaction of collagens from the tumor stroma with LAIR1 on immune cells represents a “stromal checkpoint” that restrains anti-tumor immune responses. Reinvigoration of these collagen-suppressed immune cells by blocking the binding of collagens to LAIR1 may address a key resistance mechanism that limits tumor responses to current immunotherapies.
Looking forward: We expect to initiate first-in-human testing of NGM438 in patients with advanced solid tumors in the second quarter of 2022.
NGM120. NGM120 is an antagonist antibody that binds to glial cell-derived neurotrophic factor receptor alpha-like, or GFRAL, and is designed to block the effects of elevated serum levels of growth differentiation factor 15, or GDF15. We designed NGM120 as a potent, humanized monoclonal antibody inhibitor of GFRAL with the potential for once-monthly or less frequent dosing. Preclinical studies suggest that NGM120 may reduce tumor growth and improve survival in syngeneic orthotopic pancreatic tumor models.
We are conducting a Phase 1/2 clinical trial to assess NGM120’s effect on cancer and cancer-related cachexia in patients with select advanced solid tumors and metastatic pancreatic cancer. The Phase 1 component of the trial included 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. We are currently enrolling patients into a Phase 2 component of the trial (referred to as the PINNACLES trial) testing NGM120 in combination with gemcitabine and Nab-paclitaxel as first-line treatment in patients with metastatic pancreatic cancer.
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Looking forward: We plan to report additional data from the Phase 1a and Phase 1b cohorts of the Phase 1/2 NGM120 trial in the second 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 bind to, and be a long-acting inhibitor of, complement C3 with the treatment goal of reducing disease progression in patients with geographic atrophy, or GA, secondary to age-related macular degeneration. We have completed a Phase 1 trial demonstrating that NGM621 was well tolerated with no patients experiencing serious adverse events or drug-related adverse events. Ocular adverse events observed were mild in severity and representative of those commonly associated with IVT injections. We also completed enrollment of the ongoing Phase 2 CATALINA clinical trial, which was designed to be a Phase 3-supportive or -enabling clinical trial. The CATALINA trial is evaluating the efficacy and safety of NGM621 when given to patients with GA every four weeks or every eight weeks via IVT injections compared to sham control.
In February 2022, NGM621 received Fast Track designation from the United States Food and Drug Administration, or FDA, for GA secondary to age-related macular degeneration.
Looking forward: We expect to report topline data from the Phase 2 CATALINA trial in the fourth quarter of 2022. If supported by the results of the CATALINA trial, we plan to use such trial results and guidance from the FDA to inform Phase 3 planning and design for NGM621. Merck has a one-time option to license NGM621 and its related compounds upon completion of the ongoing Phase 2 CATALINA clinical trial (either alone or bundled with all of the other ophthalmology compounds and their respective related compounds included within the scope of the current collaboration with Merck) within 60 days of Merck's receipt of an agreed-upon data package for each of the programs.
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. Aldafermin is in Phase 2b development in the ALPINE 4 trial for the treatment of patients with compensated cirrhosis due to non-alcoholic steatohepatitis, or NASH (liver fibrosis stage 4, or F4, by the NASH Clinical Research Network classification). The ALPINE 4 clinical trial is designed to evaluate the treatment effect of aldafermin over 48 weeks.
In January 2022, we completed enrollment of 160 patients in the United States, Europe, Hong Kong and Australia in our Phase 2b ALPINE 4 clinical trial of aldafermin.
Looking forward: We expect to report topline data from the Phase 2b ALPINE 4 trial in the first half of 2023.
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 licensed by Merck in November 2018.
Merck is continuing enrollment in the worldwide 52-week randomized, double-blind Phase 2b trial of MK-3655 in patients with NASH and liver fibrosis stage 2 or 3, or F2 or F3, by the NASH Clinical Research Network classification.
We have additional 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.
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Operational Updates
Partnering has been and is expected to continue to be a key component of our strategy. For example, our collaboration with Merck, described in " — Our Merck Collaboration" below, historically provided us with robust financial support that enabled us to broaden and accelerate our research efforts and to develop more product candidates for major indications than we likely could have advanced on our own. Given the breadth of opportunities produced by our prolific discovery engine, and the current narrower scope of our Merck collaboration, we may decide to pursue additional strategic partners to progress, in whole or in part, some of our wholly-owned product candidates and/or commercialize any resulting approved product.
We do not own, and have no plans to establish, any manufacturing facilities. 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, or R&D, 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, 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, difficulties with quality control, product stability or quality assurance testing, or difficulties procuring raw materials or components as a result of the ongoing COVID-19 pandemic or otherwise, 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 initiated the Phase 1/1b clinical trial of NGM831 in March 2022 and expect to commence first-in-human testing of NGM438 in the second quarter of 2022, our planned individual new drug application, or IND, submissions for NGM438 and NGM831 were delayed due to challenges at one of our CMOs with respect to the manufacture of those product candidates, primarily related to analytical method qualification and release testing. It is possible that we could experience further supply-related delays that would create supply challenges and possible timing delays for ongoing and planned clinical trials or delay the commencement of first-in-human testing of future product candidates. 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. Our CMOs’ facilities and operations have also been adversely affected by labor, raw material and component shortages, high turnover of staff and difficulties in hiring trained and qualified replacement staff. Changes in economic conditions, supply chain constraints, labor, raw material and component shortages and steps taken by governments and central banks, particularly in response to the COVID-19 pandemic as well as other stimulus and spending programs, could lead to higher inflation than previously experienced or expected, which could, in turn, lead to an increase in costs. These supply chain effects, increased competition and higher costs of acquired goods and services may negatively impact our business operations and our financial results.
In addition, all of our product candidates other than aldafermin and MK-3655 are currently manufactured at a facility in Lithuania. Following Russia's invasion of Ukraine in February 2022, NATO deployed additional military forces to Eastern Europe, including to Lithuania. The invasion of Ukraine and the retaliatory measures taken or that may be taken by the United States, NATO and others, including significant sanctions against Russia, create global security concerns and regional instability, including due to the possibility of expanded regional or global conflict, and are likely to have short-term and likely longer-term negative impacts on regional and global economies, any or all of which could disrupt our supply chain and adversely affect our ability to conduct ongoing and future clinical trials of our product candidates and our ability to raise capital on favorable terms.
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 to concentrate our resources on what we consider our most promising product candidates. However, given the substantial decrease in research funding we will now receive from Merck as compared to historical periods commensurate with the decreased collaboration scope described below, going forward we will need to devote a substantial amount of our own financial resources to our R&D programs, and 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 and/
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or we will need to enter into additional collaborations in order to proceed with such development through to regulatory approval.
Our Merck Collaboration
In 2015, we entered into a research collaboration, product development and license agreement with Merck, which, together with amendments made prior to June 30, 2021, is referred to as the Original Collaboration Agreement, covering the discovery, development and commercialization of novel therapies across a range of therapeutic areas, including a broad, multi-year drug discovery and early development program financially supported by Merck, but scientifically directed by us with input from Merck. The original research phase of the collaboration was for five years and was extended for an additional two years by Merck through March 2022. As part of that extension, Merck agreed to continue to fund up to $75.0 million of our R&D 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 R&D activities during 2021 through the first quarter of 2022.
On June 30, 2021, we entered into an amended and restated research collaboration, product development and license agreement with Merck, or the Amended Collaboration Agreement, replacing the Original Collaboration Agreement and extending the research phase of the collaboration, but with a narrower scope than in the Original Collaboration Agreement. Under the Amended Collaboration Agreement, the collaboration is focused primarily on the identification, R&D 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. The ophthalmology compounds in the collaboration include NGM621 (and its related compounds) and compounds directed against two other undisclosed ophthalmology targets (and their related compounds). The collaboration scope also includes certain laboratory testing and other activities on compounds that are directed to one of up to two undisclosed targets outside of the fields of ophthalmology and CVM disease, or the Lab Programs. 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 Amended Collaboration Agreement, Merck committed to provide up to $86.0 million in R&D funding for the four calendar quarters ending March 31, 2022. Going forward, Merck is providing significantly more limited annual R&D funding. In this regard, for the period that started on April 1, 2022 and ending on March 31, 2024, Merck will provide up to $20.0 million of R&D funding for the ophthalmology programs (other than NGM621), the CVM-related programs and the Lab Programs. Pursuant to the letter agreement that we entered into with Merck on March 30, 2022, or the Letter Agreement, we may use part of this R&D funding to cover our personnel costs for supporting manufacture of NGM621 for use in a possible Phase 3 clinical trial. If the parties mutually agree to extend the research phase for the CVM-related programs from March 31, 2024 to March 31, 2026, then Merck will provide up to a total of $20.0 million in R&D funding during the additional two years of the CVM program research phase. Merck will also fund certain R&D costs related to NGM621 in an amount expected to be up to approximately $20.0 million, until the earlier of Merck's decision to exercise, or not to exercise, its License Option with respect to NGM621 alone or bundled with the other continuing ophthalmology compounds (as described below) or, March 31, 2024. During the period before Merck’s decision, we are responsible under the Letter Agreement for paying all amounts owed to third parties for NGM621 manufacturing activities performed in anticipation of a Phase 3 clinical trial. If Merck decides to exercise its License Option, Merck will reimburse us for certain amounts we paid to such third parties, according to the terms of the Letter Agreement and subject to certain limitations, in addition to paying us the one-time option exercise fee described below.
In addition, we have certain obligations to conduct R&D related to collaboration compounds that will not be reimbursed by Merck. We are required to use commercially reasonable efforts to research and develop a specific product candidate directed to an ophthalmology target to be ready by March 31, 2023 for starting IND-enabling studies and we are responsible for the cost of such work after March 2022. We will have additional R&D funding obligations under the collaboration of up to $5.0 million or $15.0 million in the event that Merck, as described in greater detail below, exercises its License Option to NGM621 alone or bundled with the other continuing ophthalmology compounds, respectively, and pays us the applicable option exercise fee. We also may spend more than the amounts we will be reimbursed by Merck for activities related to collaboration compounds.
Under the Original Collaboration Agreement, upon the completion of each proof-of-concept clinical trial under the program, Merck had a one-time option to obtain a worldwide, exclusive license to the product candidate tested in the trial and compounds related to it, referred to as a License Option, within 60 days of Merck's receipt of an agreed-upon data package for such program. Under the Amended Collaboration Agreement, Merck retains a License Option to each collaboration compound and its related compounds upon completion of a human proof-of-
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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 and its related compounds (either alone or bundled with all of the other ophthalmology collaboration compounds and their respective related compounds included within the scope of the Amended Collaboration Agreement) upon completion of the CATALINA clinical trial within 60 days of Merck's receipt of an agreed-upon data package. For each program for which Merck exercises its License Option and pays the applicable option exercise fee, Merck is responsible for any further development and commercialization activities for the licensed compounds and we have the option, when a licensed compound has advanced to Phase 3 clinical trials, to receive milestones and royalty payments or, in certain cases, to co-fund development and participate in a global cost and profit share arrangement of up to 50%, with an additional option to co-detail any such licensed compounds in the United States. If we elect to exercise our cost and profit share option for a particular licensed compound and its related compounds, Merck has agreed to advance to us and/or assume up to 25% of our share of the global development costs for such licensed compound, subject to an aggregate cap over the course of the collaboration. All such amounts advanced or assumed by Merck would accrue interest and be recouped by Merck in full out of our share of any profits resulting from sales of the licensed compound for which we elected to exercise our cost and profit share option before we would be entitled to receive any of those profits.
If Merck does not exercise a License Option within the specified time period, then we would be free to develop and commercialize the product candidate tested in the proof-of-concept trial and its related compounds independently or with third-party partners, subject to an obligation to make low single-digit royalty payments to Merck. Merck exercised its License Option for MK-3655 and its related FGFR1c/KLB agonists in November 2018 under the Original Collaboration Agreement.
As a result of entering into the Amended Collaboration Agreement, we have the right to independently research, develop and commercialize all of the clinical, preclinical and research assets that we researched or developed under the Original Collaboration Agreement that are now outside the narrower scope of the collaboration, including NGM707, NGM831, NGM438 and NGM120, subject to an obligation to make low single-digit royalty payments to Merck. The parties’ rights and obligations remain the same with respect to MK-3655 and its related FGFR1c/KLB agonists. We also have full rights to all future programs we pursue that fall outside of the scope of the specific therapeutic areas and programs included in Amended Collaboration Agreement.
Similar to the Original Collaboration Agreement, during the applicable research phase (including any applicable tail period for each program) for the ophthalmology programs, CVM-related programs and Lab Programs, we may not directly or indirectly research, develop, manufacture or commercialize, outside of the collaboration, any product with specified activity against any target that is being researched or developed under the applicable programs and, if Merck exercises its 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, or HFpEF, during the research phase for the CVM-related programs.
Because, under the Amended Collaboration Agreement, the level of R&D funding from Merck going forward will be substantially lower on an annual and overall basis than the R&D funding previously provided by Merck, we need to devote a substantial amount of our own financial resources to our R&D programs, particularly with respect to our wholly-owned programs, and, to a lesser extent, with respect to programs that are within the scope of the collaboration under 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 current collaboration in the event Merck does not elect to license these programs and we decide to continue them, in the event Merck elects to terminate its license to any program it licenses and we decide to continue it or in the event we opt to co-develop any Merck-licensed programs, which could include NGM621. Accordingly, we will need to raise significant additional capital and/or we will need to enter into additional collaborations in order to proceed with development through regulatory approval and commercialization of our current and potential future product candidates. Neither may be possible and, as a result, if adequate funds are not available when we need them, we may need to significantly delay, scale back or discontinue development of some or all of such product candidates or scale back or discontinue discovery efforts, which could have a material adverse effect on our business, operating results and prospects, or we may be required to cease operations altogether. In particular, if Merck elects to license NGM621 and its related compounds after completion of the CATALINA trial, we would need to raise substantial additional capital if we opt to co-develop the program and are therefore required to contribute to the costs of Phase 3 development as described above. Similarly, if Merck does not elect to license NGM621 and its related compounds after completion of the
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CATALINA trial, we would need to raise substantial additional capital and/or partner the program in order to proceed to Phase 3 development of NGM621 if supported by the results from the CATALINA trial.
For more information on the terms of the Amended Collaboration Agreement, see Note 5, “Research Collaboration and License Agreements,” of the notes to audited consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Financial Highlights
Since inception, we have funded our operations primarily through:
fees received from collaboration partners, which since inception through March 31, 2022 includes reimbursement of R&D expenses of $510.9 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 through December 31, 2021 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; 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 March 31, 2022, we had $329.8 million in cash, cash equivalents and short-term marketable securities.
We have incurred net losses each year since our inception. As of March 31, 2022, we had an accumulated deficit of $451.4 million. Substantially all of our net losses have resulted from costs incurred in connection with our R&D programs and general and administrative, or G&A, 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 future collaboration partners, if any. For further discussion of our financial position and future sources of funding, see “Liquidity and Capital Resources” below.
COVID-19 Business Update
We are continuing 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, employees, clinical trial investigators and site staff, while maintaining business continuity. We are currently operating under a hybrid work model where some employees work on site, others work remotely and others work a combination of on site and remote. There have been relatively minor impacts on overall productivity in our prior primarily remote and our current hybrid work model. However, the labor market has tightened significantly since the beginning of the COVID-19 pandemic, and we have experienced employee attrition at rates higher than we experienced historically, together with an increased rate of hiring new employees. We cannot predict whether these trends will continue or be exacerbated, the impact of COVID-19 on future productivity or whether or when we may be required to return to a more restrictive work model as the pandemic continues to evolve.
During the COVID-19 pandemic, we have experienced, from time to time, a slower pace of clinical trial site initiation and clinical trial enrollment and/or a higher subject drop-out rate than originally anticipated in certain of our clinical trials. We believe this may have been due to factors such as the vulnerability of our studied patient populations, clinical trial site suspensions, reallocation of medical resources, site staff shortages and the challenges of working remotely due to shelter-in-place and similar government orders and guidelines, among other factors. 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 case-by-case and/or patient-by-patient basis. 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 to evolve, there may continue to be negative impacts on our ability to initiate new clinical trial sites, to enroll new patients and to retain existing patients participating in our clinical trials. These negative impacts may include increased clinical trial costs,
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longer timelines and delay in our ability to obtain regulatory approvals of our product candidates, if at all. 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 yet experienced significant disruption to drug or related component supply for our ongoing clinical trials due to the COVID-19 pandemic, our contract manufacturers' facilities and operations have been adversely affected by labor, raw material and component shortages, high turnover of staff and difficulties in hiring trained and qualified replacement staff. These difficulties have resulted in some delays in early development timelines and we could experience more significant disruptions to our supply chain and operations as a result of the evolving effects of the continuing COVID-19 pandemic. If our contract manufacturers are required to obtain an alternative source of certain raw materials and components, for example, additional testing, validation activities and regulatory approvals may be required, which can also have a negative impact on timelines. 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 on our anticipated development timelines. If any of our contract manufacturers or raw materials or components suppliers become subject to acts or orders of U.S. or foreign government entities requiring them to allocate or prioritize manufacturing capacity, raw materials and components to the manufacture or distribution of COVID-19 vaccines or medical supplies needed to treat COVID-19 patients, this could delay our clinical trials, perhaps substantially, which could materially and adversely affect our business.
While the potential future economic impact caused by, and the duration of, the COVID-19 pandemic is difficult to assess or predict, the COVID-19 pandemic (as well as the invasion of Ukraine by Russia and the related sanctions imposed against Russia) could result in significant and prolonged disruption of global financial markets, and our ability to raise additional capital through public or private equity or debt offerings may be adversely impacted by disruptions to, and volatility in, the credit and financial markets in the United States and worldwide, and in the biotechnology industry specifically, which could negatively affect the financial resources available to us. In addition, economic recession or additional market corrections resulting from, among other things, the spread of COVID-19 could materially affect our business and the value of our common stock. Finally, we also 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, such as NGM621 and its related compounds. 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 March 31, 2022, Merck paid us $586.0 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 given the substantial decrease in the level of funding we will receive from Merck under with the Amended Collaboration Agreement commensurate with the decreased collaboration scope. 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.
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Our related party revenue was as follows (in thousands):
Three Months Ended
March 31,
20222021
Related party revenue$20,948 $21,575 
Research and Development Expenses
R&D efforts include drug discovery and other 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 efforts are extensive and costly. Our R&D expenses related to the development of our product candidates 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, and the costs of continued testing, such as process validation testing and stability testing, 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.
As a result of the substantial decrease in the level of funding we are now receiving from Merck under the Amended Collaboration Agreement commensurate with the decreased collaboration scope as described above, we 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 programs that are within the scope of the Amended Collaboration Agreement that we are required to fund, as described above. In addition, our funding requirements would increase for any programs that are within the scope of the collaboration in the event Merck does not elect to license these programs and we decide to continue them, in the event Merck elects to terminate its license to any program it licenses and we decide to continue it or in the event we opt to co-develop any Merck-licensed programs. In particular, if Merck elects to license NGM621 and its related compounds after completion of the CATALINA trial, we would need to raise substantial additional capital if we opt to co-develop the program and are therefore required to contribute to the costs of Phase 3 development as described above. Similarly, if Merck does not elect to license NGM621 and its related compounds after completion of the CATALINA trial, we would need to raise substantial additional capital and/or partner the program in order to proceed to Phase 3 development of NGM621 if supported by the results from the CATALINA trial. For the foreseeable future, we anticipate a significant portion of our financial resources, other than those received from Merck which are dedicated to activities under the Amended Collaboration Agreement, will be directed to activities required to advance initiate and advance clinical trials of our oncology programs, to prepare for the manufacture of NGM621 in anticipation of a potential Phase 3 trial and to complete the Phase 2b ALPINE 4 clinical trial of aldafermin.
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, including raw materials and components;
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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 collaboration and the timing of such election or termination, particularly with respect to NGM621;
the amount of our financial resources that we need to devote to our development programs and our obligations under the Amended Collaboration Agreement, and our ability to raise adequate additional capital or enter into collaborations to meet our funding 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, including timing and receipt of regulatory approvals.
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, as well as the timing, associated with the development of that product candidate. For example, if the FDA or a comparable foreign 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 Third Parties,” “—Risks Related to Regulatory Approvals” and "—Risks Related to Our Intellectual Property” in Part II, Item 1A of this Quarterly Report on Form 10-Q.
General and Administrative Expenses
G&A 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 G&A expenses will increase in the future to support our continued and increasing 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. 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 negotiating and entering into agreements with collaboration partners and with building a commercial organization in connection with, and prior to, potential future regulatory approval of our product candidates.
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Results of Operations
Our results of operations were as follows (in thousands):
Three Months Ended
March 31,
 20222021Change
Related party revenue$20,948 $21,575 $(627)
Operating expenses:
Research and development42,806 40,699 2,107 
General and administrative10,723 8,721 2,002 
Total operating expenses53,529 49,420 4,109 
Loss from operations(32,581)(27,845)(4,736)
Interest income, net176 114 62 
Other (expense) income, net(45)187 (232)
Net loss$(32,450)$(27,544)$(4,906)
Related Party Revenue from Merck
Revenue decreased $0.6 million in the three months ended March 31, 2022 compared to the same period in 2021 primarily due to a decrease in R&D revenue under the Amended Collaboration Agreement with Merck.
Under the Amended Collaboration Agreement, from April 1, 2022 until March 31, 2024, Merck will provide up to $20.0 million of R&D funding for the ophthalmology programs (other than NGM621), the CVM-related programs and the Lab Programs. If the parties mutually agree to extend the research phase for the CVM-related programs from March 31, 2024 to March 31, 2026, then Merck will provide up to a total of $20.0 million in R&D funding during the additional two years of the CVM program research phase. Merck will also fund certain R&D costs related to NGM621 in an amount expected to be up to approximately $20.0 million, until the earlier of Merck's decision to exercise, or not to exercise, its License Option with respect to NGM621 alone or bundled with the other continuing ophthalmology compounds or, March 31, 2024. In this regard, our related party revenue from Merck will decrease substantially in 2022 compared to 2021 and continue to remain at a significantly lower level during the remainder of the 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 during the remainder of the collaboration.
Research and Development Expenses
Our R&D expenses by program were as follows (in thousands):
Three Months Ended
March 31,
20222021
External R&D expenses:
Aldafermin (FGF19 analog)$4,362 $9,598 
NGM621 (C3 inhibitor)5,486 3,686 
NGM120 (GFRAL antagonist)1,479 1,361 
NGM707 (Anti-ILT2/ILT4 dual antagonist)3,678 1,165 
NGM438 (LAIR1 antagonist)2,022 1,515 
NGM831 (ILT3 antagonist)1,739 668 
Other external R&D expenses120 310 
Total external R&D expenses18,886 18,303 
Personnel-related expenses15,895